e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2009
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12822
BEAZER HOMES USA, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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58-2086934 |
(State or other jurisdiction of
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(I.R.S. employer |
incorporation or organization)
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Identification no.) |
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1000 Abernathy Road, Suite 1200, Atlanta, Georgia
(Address of principal executive offices)
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30328
(Zip Code) |
(770) 829-3700
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act
(Check One):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
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Class |
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Outstanding at July 31, 2009 |
Common Stock, $0.001 par value
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39,248,648 shares |
References to we, us, our, Beazer, Beazer Homes and the Company in this quarterly
report on Form 10-Q refer to Beazer Homes USA, Inc.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking
statements represent our expectations or beliefs concerning future events, and it is possible that
the results described in this quarterly report will not be achieved. These forward-looking
statements can generally be identified by the use of statements that include words such as
estimate, project, believe, expect, anticipate, intend, plan, foresee, likely,
will, goal, target or other similar words or phrases. All forward-looking statements are
based upon information available to us on the date of this quarterly report.
These forward-looking statements are subject to risks, uncertainties and other factors, many of
which are outside of our control, that could cause actual results to differ materially from the
results discussed in the forward-looking statements, including, among other things, the matters
discussed in this quarterly report in the section captioned Managements Discussion and Analysis
of Financial Condition and Results of Operations. Additional information about factors that could
lead to material changes in performance is contained in Part II, Item IA Risk Factors of our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 and in Part I, Item 1A Risk
Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2008. Such
factors may include:
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the final outcome of various putative class action lawsuits, the derivative claims,
multi-party suits and similar proceedings as well as the results of any other litigation or
government proceedings and fulfillment of the obligations in the
Deferred Prosecution Agreement and other settlement agreements and
consent orders with governmental authorities; |
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additional asset impairment charges or writedowns; |
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economic changes nationally or in local markets, including changes in consumer
confidence, volatility of mortgage interest rates and inflation; |
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continued or increased downturn in the homebuilding industry; |
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estimates related to homes to be delivered in the future (backlog) are imprecise as
they are subject to various cancellation risks which cannot be fully controlled; |
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our ability to maintain the listing of our common stock on the New York Stock
Exchange; |
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continued or increased disruption in the availability of mortgage financing; |
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our cost of and ability to access capital and otherwise meet our ongoing liquidity
needs including the impact of any further downgrades of our credit ratings or reductions in
our tangible net worth or liquidity levels; |
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potential inability to comply with covenants in our debt agreements; |
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our ability to successfully complete any restructuring of our indebtedness; |
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increased competition or delays in reacting to changing consumer preference in home
design; |
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shortages of or increased prices for labor, land or raw materials used in housing
production; |
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factors affecting margins such as decreased land values underlying land option
agreements, increased land development costs on projects under development or delays or
difficulties in implementing initiatives to reduce production and overhead cost structure; |
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the performance of our joint ventures and our joint venture partners; |
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the impact of construction defect and home warranty claims including those related
to possible installation of drywall imported from China; |
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the cost and availability of insurance and surety bonds; |
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delays in land development or home construction resulting from adverse weather
conditions; |
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potential delays or increased costs in obtaining necessary permits as a result of
changes to, or complying with, laws, regulations, or governmental policies and possible
penalties for failure to comply with such laws, regulations and governmental policies; |
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effects of changes in accounting policies, standards, guidelines or principles; or |
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terrorist acts, acts of war and other factors over which the Company has little or
no control. |
Any forward-looking statement speaks only as of the date on which such statement is made, and,
except as required by law, we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time and it is not possible for
management to predict all such factors.
2
BEAZER HOMES USA, INC.
FORM 10-Q
INDEX
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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June 30, |
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September 30, |
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2009 |
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2008 |
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ASSETS |
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Cash and cash equivalents |
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$ |
464,949 |
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$ |
584,334 |
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Restricted cash |
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11,902 |
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297 |
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Accounts receivable (net of allowance of $6,129 and $8,915, respectively) |
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26,185 |
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46,555 |
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Income tax receivable |
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13,957 |
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173,500 |
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Inventory |
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Owned inventory |
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1,397,181 |
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1,545,006 |
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Consolidated inventory not owned |
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58,542 |
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106,655 |
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Total inventory |
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1,455,723 |
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1,651,661 |
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Investments in unconsolidated joint ventures |
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29,905 |
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33,065 |
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Deferred tax assets |
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22,109 |
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20,216 |
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Property, plant and equipment, net |
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30,071 |
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39,822 |
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Goodwill |
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16,143 |
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Other assets |
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53,788 |
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76,206 |
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Total assets |
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$ |
2,108,589 |
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$ |
2,641,799 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Trade accounts payable |
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$ |
76,461 |
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$ |
90,371 |
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Other liabilities |
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248,973 |
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358,592 |
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Obligations related to consolidated inventory not owned |
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31,764 |
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70,608 |
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Senior Notes (net of discounts of $2,013 and $2,565, respectively) |
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1,407,486 |
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1,522,435 |
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Junior subordinated notes |
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103,093 |
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103,093 |
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Other secured notes payable |
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34,122 |
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50,618 |
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Model home financing obligations |
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46,908 |
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71,231 |
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Total liabilities |
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1,948,807 |
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2,266,948 |
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Stockholders equity: |
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Preferred stock (par value $.01 per share, 5,000,000 shares
authorized, no shares issued) |
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Common stock (par value $0.001 per share, 80,000,000 shares
authorized, 42,605,804 and 42,612,801 issued and
39,248,648 and 39,270,038 outstanding, respectively) |
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43 |
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43 |
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Paid-in capital |
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565,037 |
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556,910 |
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Retained earnings (accumulated deficit) |
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(221,329 |
) |
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1,845 |
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Treasury stock, at cost (3,357,156 and 3,342,763 shares, respectively) |
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(183,969 |
) |
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(183,947 |
) |
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Total stockholders equity |
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159,782 |
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374,851 |
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Total liabilities and stockholders equity |
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$ |
2,108,589 |
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$ |
2,641,799 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
4
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Total revenue |
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$ |
224,653 |
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$ |
455,578 |
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$ |
645,340 |
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$ |
1,361,649 |
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Home construction and land sales expenses |
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207,176 |
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407,512 |
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580,920 |
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1,223,252 |
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Inventory impairments and option contract abandonments |
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11,856 |
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95,482 |
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76,320 |
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451,854 |
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Gross profit (loss) |
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5,621 |
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(47,416 |
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(11,900 |
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(313,457 |
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Selling, general and administrative expenses |
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51,357 |
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83,517 |
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174,596 |
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245,696 |
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Depreciation and amortization |
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4,957 |
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6,046 |
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13,079 |
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18,250 |
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Goodwill impairment |
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4,365 |
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16,143 |
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52,470 |
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Operating loss |
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(50,693 |
) |
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(141,344 |
) |
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(215,718 |
) |
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(629,873 |
) |
Equity in loss of unconsolidated joint ventures |
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(4,041 |
) |
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(18,568 |
) |
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(13,795 |
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(75,069 |
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Gain on extinguishment of debt |
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55,214 |
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58,788 |
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Other expense, net |
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(22,370 |
) |
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(13,489 |
) |
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(59,958 |
) |
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(20,907 |
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Loss from continuing operations before income taxes |
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(21,890 |
) |
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(173,401 |
) |
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(230,683 |
) |
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(725,849 |
) |
Provision for (benefit from) income taxes |
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5,990 |
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(63,707 |
) |
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(7,981 |
) |
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(249,771 |
) |
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Loss from continuing operations |
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(27,880 |
) |
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(109,694 |
) |
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(222,702 |
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(476,078 |
) |
Loss from discontinued operations, net of tax |
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(96 |
) |
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(148 |
) |
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(472 |
) |
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(1,893 |
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Net loss |
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$ |
(27,976 |
) |
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$ |
(109,842 |
) |
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$ |
(223,174 |
) |
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$ |
(477,971 |
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Weighted average number of shares: |
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Basic |
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38,815 |
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38,551 |
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38,666 |
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38,546 |
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Diluted |
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38,815 |
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38,551 |
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38,666 |
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38,546 |
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Earnings (loss) per share: |
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Basic loss per share from continuing operations |
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$ |
(0.72 |
) |
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$ |
(2.85 |
) |
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$ |
(5.76 |
) |
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$ |
(12.35 |
) |
Basic loss per share from discontinued operations |
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$ |
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$ |
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$ |
(0.01 |
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$ |
(0.05 |
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Basic loss per share |
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$ |
(0.72 |
) |
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$ |
(2.85 |
) |
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$ |
(5.77 |
) |
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$ |
(12.40 |
) |
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Diluted loss per share from continuing operations |
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$ |
(0.72 |
) |
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$ |
(2.85 |
) |
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$ |
(5.76 |
) |
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$ |
(12.35 |
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Diluted loss per share from discontinued operations |
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$ |
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$ |
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$ |
(0.01 |
) |
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$ |
(0.05 |
) |
Diluted loss per share |
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$ |
(0.72 |
) |
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$ |
(2.85 |
) |
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$ |
(5.77 |
) |
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$ |
(12.40 |
) |
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
BEAZER HOMES USA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Nine Months Ended |
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June 30, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(223,174 |
) |
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$ |
(477,971 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
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Depreciation and amortization |
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13,079 |
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18,415 |
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Stock-based compensation expense |
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8,865 |
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|
8,694 |
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Inventory impairments and option contract abandonments |
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76,320 |
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451,854 |
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Goodwill impairment |
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16,143 |
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|
52,470 |
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Deferred income tax benefit |
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(1,893 |
) |
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(118,817 |
) |
Excess tax benefit from equity-based compensation |
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|
2,267 |
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|
454 |
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Equity in loss of unconsolidated joint ventures |
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13,795 |
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|
75,069 |
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Cash distributions of income from unconsolidated joint ventures |
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2,991 |
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|
2,096 |
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Gain on extinguishment of debt |
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(58,788 |
) |
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Provision for doubtful accounts |
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(2,786 |
) |
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3,349 |
|
Changes in operating assets and liabilities: |
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Decrease (increase) in accounts receivable |
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23,156 |
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(8,996 |
) |
Decrease (increase) in income tax receivable |
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159,543 |
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(80,563 |
) |
Decrease in inventory |
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90,833 |
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261,324 |
|
Decrease in other assets |
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21,832 |
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41,324 |
|
Decrease in trade accounts payable |
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(13,910 |
) |
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(28,176 |
) |
Decrease in other liabilities |
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(126,760 |
) |
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(169,673 |
) |
Other changes |
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(13 |
) |
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(6,354 |
) |
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Net cash provided by operating activities |
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1,500 |
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|
24,499 |
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Cash flows from investing activities: |
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Capital expenditures |
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(5,484 |
) |
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(7,949 |
) |
Investments in unconsolidated joint ventures |
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(9,042 |
) |
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(11,137 |
) |
Changes in restricted cash |
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(11,605 |
) |
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4,268 |
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Net cash used in investing activities |
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(26,131 |
) |
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(14,818 |
) |
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Cash flows from financing activities: |
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Repurchase of Senior Notes |
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(54,836 |
) |
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Repayment of other secured notes payable |
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(11,995 |
) |
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(100,472 |
) |
Repayment of model home financing obligations |
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(24,323 |
) |
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(27,728 |
) |
Debt issuance costs |
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(1,311 |
) |
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(21,135 |
) |
Common stock redeemed |
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(22 |
) |
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(27 |
) |
Excess tax benefit from equity-based compensation |
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(2,267 |
) |
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(454 |
) |
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Net cash used in financing activities |
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(94,754 |
) |
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(149,816 |
) |
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Decrease in cash and cash equivalents |
|
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(119,385 |
) |
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(140,135 |
) |
Cash and cash equivalents at beginning of period |
|
|
584,334 |
|
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|
454,337 |
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Cash and cash equivalents at end of period |
|
$ |
464,949 |
|
|
$ |
314,202 |
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|
See Notes to Unaudited Condensed Consolidated Financial Statements.
6
BEAZER HOMES USA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Beazer Homes USA, Inc.
(Beazer Homes or the Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Such financial
statements do not include all of the information and disclosures required by GAAP for complete
financial statements. In our opinion, all adjustments (consisting solely of normal recurring
accruals) necessary for a fair presentation have been included in the accompanying financial
statements. For further information and a discussion of our significant accounting policies other
than as discussed below, refer to our audited consolidated financial statements appearing in the
Beazer Homes Annual Report on Form 10-K for the fiscal year ended September 30, 2008 (the 2008
Annual Report). Effective February 1, 2008, we exited the mortgage origination business. Results
from our mortgage origination business are reported as discontinued operations in the accompanying
unaudited condensed consolidated statements of operations for all periods presented. In addition,
our historical segment information has been recast to reflect the change in reportable segments
which occurred during the fourth quarter of fiscal 2008 (see Note 11). We evaluated events that
occurred after the balance sheet date but before the financial statements were issued or are
available to be issued for accounting treatment and disclosure in accordance with Statement of
Financial Standards No. 165, Subsequent Events. Any applicable subsequent events have been
evaluated through August 6, 2009, the date these financial statements were available to be issued.
Inventory Valuation Held for Development. Our homebuilding inventories that are accounted for as
held for development include land and home construction assets grouped together as communities.
Homebuilding inventories held for development are stated at cost (including direct construction
costs, capitalized indirect costs, capitalized interest and real estate taxes) unless facts and
circumstances indicate that the carrying value of the assets may not be recoverable. We assess
these assets no less than quarterly for recoverability in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. For those communities for which construction and development
activities are expected to occur in the future or have been idled (land held for future
development), all applicable interest and real estate taxes are expensed as incurred and the
inventory is stated at cost. The future enactment of a development plan or the occurrence of
events and circumstances may indicate that the carrying value of the asset may not be recoverable.
SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Generally, upon
the commencement of land development activities, it may take three to five years (depending on,
among other things, the size of the community and its sales pace) to fully develop, sell, construct
and close all the homes in a typical community. However, the impact of the downturn in our business
has significantly lengthened the estimated life of many communities. Recoverability of assets is
measured by comparing the carrying amount of an asset to future undiscounted cash flows expected to
be generated by the asset. If the expected undiscounted cash flows generated are expected to be
less than its carrying amount, an impairment charge should be recorded to write down the carrying
amount of such asset to its estimated fair value based on discounted cash flows.
We conduct a review of the recoverability of our homebuilding inventories held for development at
the community level as factors indicate that an impairment may exist. Events and circumstances
that might indicate impairment include, but are not limited to, (1) adverse trends in new orders,
(2) higher than anticipated cancellations, (3) declining margins which might result from the need
to offer incentives to new homebuyers to drive sales or price reductions or other actions taken by
our competitors, (4) economic factors specific to the markets in which we operate, including
fluctuations in employment levels, population growth, or levels of new and resale homes for sale in
the marketplace and (5) a decline in the availability of credit across all industries.
As a result, we evaluate, among other things, the following information for each community:
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Actual Net Contribution Margin (defined as homebuilding revenues less homebuilding
costs and direct selling expenses) for homes closed in the current fiscal quarter, fiscal
year to date and prior two fiscal quarters. Homebuilding costs include land and land
development costs (based upon an allocation of such costs, including costs to complete the
development, or specific lot costs), home construction costs (including an estimate of
costs, if any, to complete home construction), previously capitalized indirect costs
(principally for construction supervision), capitalized interest and estimated warranty
costs; |
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Projected Net Contribution Margin for homes in backlog; |
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Actual and trending new orders and cancellation rates; |
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Actual and trending base home sales prices and sales incentives for home sales that
occurred in the prior two fiscal quarters that remain in backlog at the end of the fiscal
quarter and expected future homes sales prices and sales incentives and absorption over the
expected remaining life of the community; |
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A comparison of our community to our competition to include, among other things, an
analysis of various product offerings including the size and style of the homes currently
offered for sale, community amenity levels, availability of lots in our community and our
competitions, desirability and uniqueness of our community and other market factors; and |
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Other events that may indicate that the carrying value may not be recoverable. |
In determining the recoverability of the carrying value of the assets of a community that we have
evaluated as requiring a test for impairment, significant quantitative and qualitative assumptions
are made relative to the future home sales prices, sales incentives, direct and indirect costs of
home construction and land development and the pace of new home orders. In addition, these
assumptions are dependent upon the specific market conditions and competitive factors for each
specific community and may differ greatly between communities within the same market and
communities in different markets. Our estimates are made using information available at the date of
the recoverability test, however, as facts and circumstances may change in future reporting
periods, our estimates of recoverability are subject to change.
For assets in communities for which the undiscounted future cash flows are less than the carrying
value, the carrying value of that community is written down to its then estimated fair value based
on discounted cash flows. The carrying value of assets in communities that were previously impaired
and continue to be classified as held for development is not written up for future estimates of
increases in fair value in future reporting periods. Market deterioration that exceeds our
estimates may lead us to incur additional impairment charges on previously impaired homebuilding
assets in addition to homebuilding assets not currently impaired but for which indicators of
impairment may arise if the market continues to deteriorate.
The fair value of the homebuilding inventory held for development is estimated using the present
value of the estimated future cash flows using discount rates commensurate with the risk associated
with the underlying community assets. The discount rate used may be different for each community.
The factors considered when determining an appropriate discount rate for a community include, among
others: (1) community specific factors such as the number of lots in the community, the status of
land development in the community, the competitive factors influencing the sales performance of the
community and (2) overall market factors such as employment levels, consumer confidence and the
existing supply of new and used homes for sale. The assumptions used in our discounted cash flow
models are specific to each community tested for impairment and typically do not include market
improvements except in limited circumstances in the latter years of long-lived communities.
For the three months ended June 30, 2009, we used discount rates of 17% to 20%, in our estimated
discounted cash flow impairment calculations. During the three and nine months ended June 30, 2009,
we recorded impairments of our inventory of $6.3 million and $53.4 million, respectively, for land
under development and homes under construction. For the three and nine months ended June 30, 2008,
we recorded impairments of our inventory of $46.8 million and $273.9 million, respectively, for
land under development and homes under construction.
Due to uncertainties in the estimation process, particularly with respect to projected home sales
prices and absorption rates, the timing and amount of the estimated future cash flows and discount
rates, it is reasonably possible that actual results could differ from the estimates used in our
historical analyses. Our assumptions about future home sales prices and absorption rates require
significant judgment because the residential homebuilding industry is cyclical and is highly
sensitive to changes in economic conditions. We calculated the estimated fair values of inventory
held for development that were evaluated for impairment based on current market conditions and
assumptions made by management relative to future results. Because our projected cash flows are
significantly impacted by changes in market conditions, it is reasonably possible that actual
results could differ materially from our estimates and result in additional impairments.
Asset Valuation Land Held for Sale. We record assets held for sale at the lower of the carrying
value or fair value less costs to sell in accordance with SFAS 144. The following criteria are used
to determine if land is held for sale:
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management has the authority and commits to a plan to sell the land; |
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the land is available for immediate sale in its present condition; |
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there is an active program to locate a buyer and the plan to sell the property has been
initiated; |
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the sale of the land is probable within one year; |
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the property is being actively marketed at a reasonable sale price relative to its
current fair value; and |
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it is unlikely that the plan to sell will be withdrawn or that significant changes to
the plan will be made. |
Additionally, in certain circumstances, management will re-evaluate the best use of an asset that
is currently being accounted for as held for development. In such instances, management will
review, among other things, the current and projected competitive circumstances of the community,
including the level of supply of new and used inventory, the level of sales absorptions by us and
our competition, the level of sales incentives required and the number of owned lots remaining in
the community. If, based on this review and the foregoing criteria have been met at the end of the
applicable reporting period, we believe that the best use of the asset is the sale of all or a
portion of the asset in its current condition, then all or portions of the community are accounted
for as held for sale.
In determining the fair value of the assets less cost to sell, we considered factors including
current sales prices for comparable assets in the area, recent market analysis studies, appraisals,
any recent legitimate offers, and listing prices of similar properties. If the estimated fair value
less cost to sell of an asset is less than its current carrying value, the asset is written down to
its estimated fair value less cost to sell. During the three and nine months ended June 30, 2009,
we recorded inventory impairments on land held for sale of approximately $4.5 million and $18.9
million, respectively, compared to $21.0 million and $110.1 million, respectively, for the three
and nine months ended June 30, 2008.
Due to uncertainties in the estimation process, it is reasonably possible that actual results could
differ from the estimates used in our historical analyses. Our assumptions about land sales prices
require significant judgment because the current market is highly sensitive to changes in economic
conditions. We calculated the estimated fair values of land held for sale based on current market
conditions and assumptions made by management, which may differ materially from actual results and
may result in additional impairments if market conditions continue to deteriorate.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of assets
acquired. We test goodwill for impairment annually as of April 30 or more frequently if an event
occurs or circumstances indicate that the asset might be impaired. For purposes of goodwill
impairment testing, we compare the fair value of each reporting unit with its carrying amount,
including goodwill. Each of our operating divisions is considered a reporting unit. The fair value
of each reporting unit is determined based on expected discounted future cash flows. If the
carrying amount of a reporting unit exceeds its fair value, the goodwill within the reporting unit
may be potentially impaired. An impairment loss is recognized if the carrying amount of the
goodwill exceeds implied fair value of that goodwill.
The Company experienced a significant decline in its market capitalization during the three months
ended December 31, 2008 (the first quarter of fiscal 2009). In addition, we believe the
unprecedented macro-economic events, including the failure and near failure of several significant
financial institutions, resulted in a temporary, but significant curtailment of consumer and
business credit activities. As a result, consumer confidence declined, unemployment increased and
the pace of new home orders slowed. As of December 31, 2008, we considered these current and
expected future market conditions and estimated that our remaining goodwill was impaired and
recorded a $16.1 million goodwill impairment for the quarter ended December 31, 2008. We finalized
our impairment calculations in the second quarter of fiscal 2009, confirming our impairment of
goodwill recorded as of December 31, 2008. Based on fiscal 2008 impairment tests, we determined
that goodwill for certain of our reporting units was impaired and recorded impairment charges of
$4.4 million and $52.5 million for the three and nine months ended June 30, 2008, respectively, in
accordance with SFAS 142, Goodwill and Intangible Assets.
Goodwill impairment charges are reported in Corporate and Unallocated and are not allocated to our
homebuilding segments. Goodwill balances by reportable segment as of September 30, 2007, September
30, 2008 and June 30, 2009 were as follows.
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September 30, |
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Fiscal 2008 |
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September 30, |
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Fiscal 2009 |
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(in thousands) |
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2007 |
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Impairments |
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2008 |
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Impairments |
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June 30, 2009 |
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West |
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$ |
35,919 |
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$ |
(29,034 |
) |
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$ |
6,885 |
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$ |
(6,885 |
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$ |
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East |
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28,330 |
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(19,072 |
) |
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9,258 |
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(9,258 |
) |
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Other |
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4,364 |
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(4,364 |
) |
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Total |
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$ |
68,613 |
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$ |
(52,470 |
) |
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$ |
16,143 |
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$ |
(16,143 |
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$ |
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9
Stock-Based Compensation. Compensation cost arising from nonvested stock awards granted to
employees and from non-employee stock awards is recognized as an expense using the straight-line
method over the vesting period. Unearned compensation is included in paid-in capital in accordance
with SFAS 123R. As of June 30, 2009 and September 30, 2008, there was $9.2 million and $13.5
million, respectively, of total unrecognized compensation cost related to nonvested stock awards.
The cost remaining at June 30, 2009 is expected to be recognized over a weighted average period of
2.9 years. For the three and nine months ended June 30, 2009, our total stock-based compensation
expense, included in selling, general and administrative expenses (SG&A), was approximately $2.6
million and $8.9 million, respectively. For the three and nine months ended June 30, 2008, our
total stock-based compensation expense, included in selling, general and administrative expenses
(SG&A), was approximately $3.5 million ($2.4 million net of tax) and $8.7 million ($6.1 million
net of tax), respectively. Activity relating to nonvested stock awards for the three and nine
months ended June 30, 2009 is as follows:
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Three Months Ended |
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Nine Months Ended |
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June 30, 2009 |
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June 30, 2009 |
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Weighted Average |
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Weighted Average |
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Grant Date Fair |
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Grant Date Fair |
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Shares |
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Value |
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Shares |
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Value |
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Beginning of period |
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635,661 |
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$ |
47.85 |
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782,866 |
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$ |
46.80 |
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Granted |
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Vested |
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(51,342 |
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26.83 |
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(152,522 |
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31.48 |
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Forfeited |
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(762 |
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22.28 |
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(46,787 |
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60.17 |
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End of period |
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583,557 |
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$ |
49.73 |
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583,557 |
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$ |
49.73 |
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In addition, during the three and nine months ended June 30, 2009, employees surrendered 2,055
shares and 14,393 shares, respectively, to us in payment of minimum tax obligations upon the
vesting of stock awards under our stock incentive plans. We valued the stock at the market price on
the date of surrender, for an aggregate value of approximately $3,000 and $21,000 for the three and
nine months ended June 30, 2009, respectively.
The fair value of each option/stock-based stock appreciation right (SSAR) grant is estimated on
the date of grant using the Black-Scholes option-pricing model. Expected life of options and SSARs
granted is computed using the mid-point between the vesting period and contractual life of the
options/SSARs granted. Expected volatilities are based on the historical volatility of Beazer
Homes stock and other factors. Since we are currently not paying dividends, the expected dividend
yield is $0.00. There were no options or SSAR grants in the three or nine months ended June 30,
2009 or 2008. The following table summarizes stock options and SSARs outstanding as of June 30,
2009, as well as activity during the three and nine months then ended:
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Three Months Ended |
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Nine Months Ended |
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June 30, 2009 |
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June 30, 2009 |
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Weighted- |
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Weighted- |
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Average |
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Average |
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Shares |
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Exercise Price |
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Shares |
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Exercise Price |
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Outstanding at beginning of period |
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1,814,651 |
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$ |
45.82 |
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1,848,995 |
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$ |
45.78 |
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Granted |
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Exercised |
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Expired |
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(38,733 |
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43.05 |
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(43,063 |
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44.72 |
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Forfeited |
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(2,826 |
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43.10 |
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(32,840 |
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43.91 |
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Outstanding at end of period |
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1,773,092 |
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$ |
45.84 |
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1,773,092 |
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$ |
45.84 |
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Exercisable at end of period |
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984,110 |
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$ |
40.68 |
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984,110 |
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$ |
40.68 |
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Vested or expected to vest in the future |
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1,501,194 |
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$ |
43.71 |
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1,501,194 |
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$ |
43.71 |
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At June 30, 2009, the weighted-average remaining contractual life for all options/SSARs
outstanding, currently exercisable, and vested or expected to vest in the future was 3.4 years,
2.8 years and 3.3 years, respectively.
At June 30, 2009, there was no aggregate intrinsic value of SSARs/options outstanding, vested and
expected to vest in the future and SSARs/options exercisable based on the Companys stock price of
$1.83 as of June 30, 2009. The intrinsic value of a stock option is the amount by which the market
value of the underlying stock exceeds the exercise price of the stock option. There were no
option/SSAR exercises during the three or nine months ended June 30, 2009.
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On August 5, 2008, at the Companys annual meeting of stockholders, the stockholders voted to
approve amendments to the 1999 Plan to authorize a stock option/SSAR exchange program for eligible
employees other than executive officers and directors. Subsequent to June 30, 2009, the
Compensation Committee of the Board of Directors approved the initiation of the exchange program.
On August 4, 2009, the Company offered to exchange stock options/SSARs to purchase 310,011 shares
of the Companys common stock with exercise prices ranging from $26.51 to $62.02 per share for
newly issued restricted shares of common stock based on the exercise price of the eligible awards
exchanged. This exchange has been structured to be a value for value exchange. Eligible employees
may voluntary elect to accept the offer of exchange through August 31, 2009, unless the offer is
extended. The new restricted stock awards will be granted on the next business day after the
expiration date of the exchange program. The newly issued restricted stock awards will vest 50% on
the first anniversary of the grant date and the remaining 50% will vest on the second anniversary
of the grant date.
Recently Adopted Accounting Pronouncements. In September 2006, the FASB issued SFAS 157, Fair
Value Measurements. SFAS 157 provides guidance for using fair value to measure assets and
liabilities. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to
be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS
157 includes provisions that require expanded disclosure of the effect on earnings for items
measured using unobservable data. SFAS 157 is effective for fiscal years beginning after
November 15, 2007 and for interim periods within those fiscal years. In February 2008, the FASB
issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, delaying the
effective date of certain non-financial assets and liabilities to fiscal periods beginning after
November 15, 2008. The adoption of SFAS 157 did not have a material impact on our consolidated
financial condition and results of operations.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115. SFAS 159 permits
companies to measure certain financial instruments and other items at fair value. We have not
elected the fair value option applicable under SFAS 159.
In April 2009, the FASB issued FSP 107-1 and Accounting Principles Board Opinion (APB) 28-1,
Interim Disclosures about Fair Value of Financial Instruments. FSP 107-1 amends SFAS 107,
Disclosures about Fair Value Instruments and APB 28, Interim Financial Reporting, to require
disclosures about fair value of financial instruments during interim reporting periods. The
Company adopted the provisions of FSP 107-1 and APB 28-1 during the quarter ended June 30, 2009 and
has included the required disclosures in this Quarterly Report on Form 10-Q.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which establishes general standards
of accounting for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 also requires the
disclosure of the date through which subsequent events have been evaluated and the basis for that
date. The Company adopted the provisions of SFAS 165 during the quarter ended June 30, 2009.
Recent Accounting Pronouncements Not Yet Adopted. In December 2007, the FASB issued SFAS 141
(revised 2007), Business Combinations. SFAS 141R amends and clarifies the accounting guidance for
the acquirers recognition and measurement of assets acquired, liabilities assumed and
noncontrolling interests of an acquiree in a business combination. SFAS 141R is effective for any
acquisitions completed by the Company after September 30, 2009.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51. SFAS 160 requires that a noncontrolling interest (formerly a
minority interest) in a subsidiary be classified as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be included in the consolidated
financial statements. SFAS 160 is effective for our fiscal year beginning October 1, 2009 and its
provisions will be applied retrospectively upon adoption. We are currently evaluating the impact of
adopting SFAS 160 on our consolidated financial condition and results of operations.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) Issue No 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. FSP
03-6-1 clarifies that non-vested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to
be included in the computation of earnings per share under the two-class method described in SFAS
128, Earnings per Share and requires that prior period EPS and share data be restated
retrospectively for comparability. The Company grants restricted shares under a share-based
compensation plan that qualify as participating securities. FSP 03-6-1 is effective for the
Company beginning October 1, 2009 with early adoption prohibited. We are currently evaluating the
impact of adopting FSP 03-6-1 on our consolidated financial statements.
11
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 applies to
convertible debt instruments that have a net settlement feature permitting settlement partially
or fully in cash upon conversion. FSP APB 14-1 is effective for the Company beginning October 1,
2009 and the provisions of FSP APB 14-1 are required to be applied retrospectively to all periods
presented. Due to the fact that the Companys convertible securities cannot be settled in cash
upon conversion, the adoption of FSP APB 14-1 is not expected to have a material impact on our
consolidated financial condition and results of operations.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which
revises the approach to determining the primary beneficiary of a variable interest entity (VIE)
to be more qualitative in nature and requires companies to more frequently reassess whether they
must consolidate a VIE. SFAS 167 also requires enhanced disclosures to provide more information
about an enterprises involvement in a variable interest entity. SFAS 167 is effective for the
Companys fiscal year beginning October 1, 2010. The Company is currently reviewing the effect of
SFAS 167 on its condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162,
(SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP. SFAS 168 is effective
for the Companys September 30, 2009 consolidated financial statements. SFAS 168 does not change
GAAP and will not have a material impact on the Companys consolidated financial statements.
(2) Supplemental Cash Flow Information
During the nine months ended June 30, 2009 and 2008, we paid interest of $111.8 million and $122.9
million, respectively. In addition, we paid income taxes of $9.6 and $0.8 million for the nine
months ended June 30, 2009 and 2008, respectively. During the nine months ended June 30, 2009 and
2008, we received tax refunds totaling $169.1 million and $56.6 million, respectively. We also had
the following non-cash activity (in thousands):
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Nine Months Ended |
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|
June 30, |
|
|
2009 |
|
2008 |
Supplemental disclosure of non-cash activity: |
|
|
|
|
|
|
|
|
Decrease in consolidated inventory not owned |
|
$ |
(38,844 |
) |
|
$ |
(94,926 |
) |
Land acquired through issuance of notes payable |
|
|
1,319 |
|
|
|
32,786 |
|
Issuance of stock under deferred bonus stock plans |
|
|
1,529 |
|
|
|
94 |
|
Decrease in retained earnings from FIN 48 adoption |
|
|
|
|
|
|
(10,112 |
) |
(3) Investments in Unconsolidated Joint Ventures
As of June 30, 2009, we participated in 17 active land development joint ventures in which Beazer
Homes had less than a controlling interest. The following table presents, for our unconsolidated
joint ventures, our investment, total equity, outstanding borrowings and our guarantees of the
borrowings, as of June 30, 2009 and September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
(in thousands) |
|
2009 |
|
2008 |
Beazers investment in joint ventures |
|
$ |
29,905 |
|
|
$ |
33,065 |
|
Total equity of joint ventures |
|
|
334,057 |
|
|
|
340,674 |
|
Total outstanding borrowings of joint ventures |
|
|
465,658 |
|
|
|
524,431 |
|
Beazers estimate of its portion of loan-to-value maintenance guarantees (1) |
|
|
8,601 |
|
|
|
5,839 |
|
Beazers estimate of its portion of repayment guarantees (2) |
|
|
20,263 |
|
|
|
39,166 |
|
|
|
|
(1) |
|
Accruals of loan-to value maintenance guarantees as of June 30, 2009 totaled $3.2
million. Subsequent to June 30, 2009, as a result of a modification of its debt
agreement one of our joint ventures obtained a complete release of its obligations
under its loan-to value guarantee, related to which we estimated a
maximum potential exposure to Beazer of $5.4 million. |
|
(2) |
|
Subsequent to June 30, 2009, as a result of a modification of its debt
agreement, a joint venture obtained a complete release of its obligations under a
repayment guarantee, related to which we estimated a maximum
potential exposure to Beazer of $4.5 million. |
12
Beazers investment in these unconsolidated joint ventures was $29.9 million and $33.1 million
at June 30, 2009 and September 30, 2008, respectively. The reduction in investments in
unconsolidated joint ventures at June 30, 2009 as compared to September 30, 2008 resulted primarily
from impairments totaling $14.4 million and distributions of earnings totaling $3.0 million which
were offset by $9.0 million of additional investments and $4.6 million of accrued liabilities for
guarantee payments and deferred income.
For the three and nine months ended June 30, 2009, the impairments of our investments in certain of
our other unconsolidated joint ventures, totaling $4.8 million and $14.4 million, respectively,
were recorded in accordance with APB 18, The Equity Method of Accounting for Investments in Common
Stock. Similar impairments of our investments in certain joint ventures totaled $18.3 million and
$62.8 million for the three and nine months ended June 30, 2008, respectively. These impairments
are included in equity in loss of unconsolidated joint ventures on the accompanying unaudited
condensed consolidated statements of operations. Equity in loss of unconsolidated joint ventures
totaled $4.0 million and $13.8 million for the three and nine months ended June 30, 2009,
respectively and $18.6 million and $75.1 million for the three and nine months ended June 30, 2008,
respectively.
The aggregate debt of the unconsolidated joint ventures was $465.7 million and $524.4 million at
June 30, 2009 and September 30, 2008, respectively. At June 30, 2009, total borrowings outstanding
include $327.9 million related to one joint venture in which we are a 2.58% partner. The $58.8
million reduction in total outstanding joint venture debt during the nine months ended June 30,
2009 resulted primarily from the cancellation of $48.6 million of debt of three joint ventures, and
debt payments of $30.7 million in accordance with loan agreements offset by loan draws of $20.5
million to fund the development activities of the joint ventures.
Several of our joint ventures are in default under their respective debt obligations. During the
second quarter of fiscal 2009, we paid $3.0 million to settle our obligations under guarantees for three
ventures which we had previously estimated at a maximum potential
obligation of $16.6 million. As part of the settlement agreements,
the lenders also cancelled $48.6 million of the outstanding debt of
these three joint ventures. Additionally in the second quarter of fiscal 2009 we reached agreement with a lender to
another joint venture to settle our obligations under a loan-to-value maintenance guarantee for
$3.2 million in release of the loan obligation of $10.9 million. We are currently in discussions
with the lenders in our other joint ventures where defaults exist under their debt agreements.
During fiscal 2008, the lender to the joint venture, in which we have a 2.58% investment, notified
the joint venture partners that it believes the joint venture is in default of certain joint
venture loan agreements as a result of certain of the Companys joint venture partners not
complying with all aspects of the joint ventures loan agreements. The joint venture partners are
currently in discussions with the lender. In December 2008, the lender has filed individual
lawsuits against some of the joint venture partners and certain of those partners parent companies
(including the Company), seeking to recover damages under completion guarantees, among other
claims. We intend to vigorously defend against this legal action. The Companys share of the
outstanding debt is approximately $14.5 million at June 30, 2009. Under the terms of the
agreement, our repayment guarantee is $15.1 million, which is only triggered in the event of
bankruptcy of the joint venture. Our equity interest at June 30, 2009 was $8.6 million in this
joint venture. Given the inherent uncertainties in this litigation, as of June 30, 2009, no accrual
has been recorded, as losses, if any, related to this matter are not both probable and reasonably
estimable.
Two of our other joint ventures were at risk of defaulting under their debt agreements as of June
30, 2009. The Company and its joint venture partners are currently in discussions with the lenders
under these various debt agreements. In addition, certain of our joint venture partners have
curtailed their funding of their allocable joint venture obligations. Given the inherent
uncertainties in these negotiations, as of June 30, 2009, no accrual has been recorded, as
obligations to Beazer, if any, related to these matters were not both probable and reasonably
estimable.
Subsequent to the end of the quarter ended June 30, 2009, a joint venture completed a modification
of its loan agreement with its lender, which resulted in, among other things, an extension of its
maturity, enhanced guarantees from our joint venture partner and the release of Beazer under all
guarantees related to this joint venture. Beazer contributed $9.7 million as an additional
investment in the joint venture as part of the loan modification.
Our joint ventures typically obtain secured acquisition, development and construction financing.
Generally Beazer and our joint venture partners provide varying levels of guarantees of debt and
other obligations for our unconsolidated joint ventures. At June 30, 2009, these guarantees
included, for certain joint ventures, construction completion guarantees, loan-to-value maintenance
agreements, repayment guarantees and environmental indemnities.
In assessing the need to record a liability for the contingent aspect of these guarantees in
accordance with FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, we consider our historical experience in
being required to perform under the guarantees, the fair value of the collateral underlying these
guarantees and
13
the financial condition of the applicable unconsolidated joint ventures. In
addition, we monitor the fair value of the collateral of these unconsolidated joint ventures to
ensure that the related borrowings do not exceed the specified percentage of the value of the
property securing the borrowings. We have not recorded a liability for the contingent aspects of
any guarantees that we determined were reasonably possible but not probable. To the extent the
recording of a liability related to such guarantees would be required, the recognition of such
liability would result in an increase to the carrying value of our investment in the associated
joint venture.
Construction Completion Guarantees
We and our joint venture partners are generally obligated to the project lenders to complete land
development improvements and the construction of planned homes if the joint venture does not
perform the required development. Provided the joint venture and the partners are not in default
under any loan provisions, the project lenders typically are obligated to fund these improvements
through any financing commitments available under the applicable loans. A majority of these
construction completion guarantees are joint and several with our partners. In those cases, we
generally have a reimbursement arrangement with our partner which provides that neither party is
responsible for more than its proportionate share of the guarantee. However, if our joint venture
partner does not have adequate financial resources to meet its obligations under such reimbursement
arrangement, we may be liable for more than our proportionate share, up to our maximum exposure,
which is the full amount covered by the relevant joint and several guarantee. The guarantees cover
a specific scope of work, which may range from an individual development phase to the completion of
the entire project. No accrual has been recorded, as losses, if any, related to construction
completion guarantees are not both probable and reasonably estimable.
Loan-to-Value Maintenance Agreements
We and our joint venture partners generally provide credit enhancements to acquisition, development
and construction borrowings in the form of loan-to-value maintenance agreements, which can limit
the amount of additional funding provided by the lenders or require repayment of the borrowings to
the extent such borrowings plus construction completion costs exceed a specified percentage of the
value of the property securing the borrowings. The agreements generally require periodic
reappraisals of the underlying property value. To the extent that the underlying property gets
reappraised, the amount of the exposure under the loan-to value-maintenance (LTV) guarantee would
be adjusted accordingly and any such change could be significant. In certain cases, we may be
required to make a re-balancing payment following a reappraisal in order to reduce the applicable
loan-to-value ratio to the required level. During the
three months ended June 30, 2009 and 2008, we were not required to make any payments on the LTV
guarantees.
Our estimate of the Companys portion of LTV guarantees of the unconsolidated joint ventures was
$8.6 million at June 30, 2009 and $5.8 million at September 30, 2008. As of June 30, 2009, we had
accrued $3.2 million relating to a tentative settlement with the lender of one of our joint
ventures that will result in full satisfaction and release under the LTV guarantee. We expect
this agreement to be finalized during the fourth quarter of fiscal 2009. In addition, subsequent
to the end of June 30, 2009, another of our joint ventures completed a modification of its loan
agreement that resulted in, among other things, the release of Beazer
under all guarantees, including the LTV
guarantee. Beazer contributed $9.7 million as an additional
investment in the joint venture which was used to reduce the loan balance of the joint venture.
Repayment Guarantees
We and our joint venture partners have repayment guarantees related to certain joint ventures
borrowings. These repayment guarantees require the repayment of all or a portion of the debt of the
unconsolidated joint venture only in the event the joint venture defaults on its obligations under
the borrowing or in some cases only in the event the joint venture files for bankruptcy. During
the three and nine months ended June 30, 2009 and 2008, we were not required to make payments
related to any portion of the remaining repayment guarantees. One of the remaining repayment
guarantee agreements, which is limited to 12.5% of the outstanding debt of the joint venture, is
related to an unconsolidated joint venture that also has a specific performance guarantee and a
loan-to-value maintenance guarantee. Subsequent to quarter end, this joint venture completed a
modification of its loan agreement which resulted in, among other things, an extension of the loan
maturity for two years and the release of all of the Companys guarantees related to this joint
venture. The Company contributed $9.7 million to the joint venture which was used to pay down
outstanding debt and which increased our investment in the joint venture.
Our estimate of Beazers portion of repayment guarantees related to the outstanding debt of its
unconsolidated joint ventures was $20.3 million and $39.2 million at June 30, 2009 and September
30, 2008, respectively. The reduction in the estimate of joint venture repayment guarantees was
driven primarily by the negotiated settlement with the lenders of two joint ventures for the
cancellation of debt and the release of other loan obligations including $16.6 million in repayment
guarantees for nominal consideration. The remaining decrease related to updated estimates which
reduced the repayment guarantee in one of our joint ventures.
14
Environmental Indemnities
Additionally, we and our joint venture partners generally provide unsecured environmental
indemnities to joint venture project lenders. In each case, we have performed due diligence on
potential environmental risks. These indemnities obligate us to reimburse the project lenders for
claims related to environmental matters for which they are held responsible. During the three and
nine months ended June 30, 2009 and 2008, we were not required to make any payments related to
environmental indemnities. No accrual has been recorded, as losses, if any, related to
environmental indemnities are not both probable and reasonably estimable
(4) Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
(in thousands) |
|
June 30, 2009 |
|
|
2008 |
|
Homes under construction |
|
$ |
289,985 |
|
|
$ |
338,971 |
|
Development projects in progress |
|
|
559,373 |
|
|
|
618,252 |
|
Land held for future development |
|
|
415,309 |
|
|
|
407,320 |
|
Land held for sale |
|
|
59,922 |
|
|
|
85,736 |
|
Model homes |
|
|
72,592 |
|
|
|
94,727 |
|
|
|
|
|
|
|
|
Total owned inventory |
|
$ |
1,397,181 |
|
|
$ |
1,545,006 |
|
|
|
|
|
|
|
|
Homes under construction includes homes finished and ready for delivery and homes in various stages
of construction. We had 234 ($39.8 million) and 408 ($76.2 million) completed homes that were not
subject to a sales contract at June 30, 2009 and September 30, 2008, respectively. Development
projects in progress consist principally of land and land improvement costs. Certain of the fully
developed lots in this category are reserved by a deposit or sales contract. Land held for sale as
of June 30, 2009 in our Other Homebuilding segment included land held for sale in the following
markets we have decided to exit: Denver, Colorado and Charlotte, North Carolina.
Total owned inventory, by reportable segment, is set forth in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
September 30, 2008 |
|
|
Projects in |
|
Held for Future |
|
Land Held |
|
Total Owned |
|
Projects in |
|
Held for Future |
|
Land Held |
|
Total Owned |
|
|
Progress |
|
Development |
|
for Sale |
|
Inventory |
|
Progress |
|
Development |
|
for Sale |
|
Inventory |
|
|
|
|
|
West Segment |
|
$ |
338,821 |
|
|
$ |
342,853 |
|
|
$ |
18,179 |
|
|
$ |
699,853 |
|
|
$ |
348,475 |
|
|
$ |
341,784 |
|
|
$ |
26,515 |
|
|
$ |
716,774 |
|
East Segment |
|
|
352,300 |
|
|
|
48,769 |
|
|
|
9,234 |
|
|
|
410,303 |
|
|
|
394,643 |
|
|
|
44,387 |
|
|
|
3,642 |
|
|
|
442,672 |
|
Southeast Segment |
|
|
149,204 |
|
|
|
23,687 |
|
|
|
423 |
|
|
|
173,314 |
|
|
|
165,231 |
|
|
|
21,149 |
|
|
|
14,841 |
|
|
|
201,221 |
|
Other |
|
|
3,468 |
|
|
|
|
|
|
|
32,086 |
|
|
|
35,554 |
|
|
|
15,302 |
|
|
|
|
|
|
|
40,738 |
|
|
|
56,040 |
|
Unallocated |
|
|
78,157 |
|
|
|
|
|
|
|
|
|
|
|
78,157 |
|
|
|
128,299 |
|
|
|
|
|
|
|
|
|
|
|
128,299 |
|
|
|
|
Total |
|
$ |
921,950 |
|
|
$ |
415,309 |
|
|
$ |
59,922 |
|
|
$ |
1,397,181 |
|
|
$ |
1,051,950 |
|
|
$ |
407,320 |
|
|
$ |
85,736 |
|
|
$ |
1,545,006 |
|
|
|
|
Unallocated inventory above primarily includes capitalized interest and indirect construction costs
that are not allocated to the segments.
15
The following tables set forth, by reportable segment, the inventory impairments and lot option
abandonment charges recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
Nine Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Development projects
and homes in process
(Held for Development) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
3,534 |
|
|
$ |
19,269 |
|
|
$ |
31,021 |
|
|
$ |
135,237 |
|
East |
|
|
1,260 |
|
|
|
6,928 |
|
|
|
7,884 |
|
|
|
58,892 |
|
Southeast |
|
|
1,234 |
|
|
|
15,078 |
|
|
|
10,874 |
|
|
|
40,475 |
|
Other |
|
|
|
|
|
|
2,432 |
|
|
|
93 |
|
|
|
19,475 |
|
Unallocated |
|
|
241 |
|
|
|
3,053 |
|
|
|
3,515 |
|
|
|
19,790 |
|
|
|
|
|
|
Subtotal |
|
$ |
6,269 |
|
|
$ |
46,760 |
|
|
$ |
53,387 |
|
|
$ |
273,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
4,279 |
|
|
$ |
6,910 |
|
|
$ |
7,236 |
|
|
$ |
7,714 |
|
East |
|
|
|
|
|
|
8,500 |
|
|
|
307 |
|
|
|
17,671 |
|
Southeast |
|
|
141 |
|
|
|
804 |
|
|
|
2,452 |
|
|
|
34,608 |
|
Other |
|
|
64 |
|
|
|
4,752 |
|
|
|
8,922 |
|
|
|
50,066 |
|
|
|
|
|
|
Subtotal |
|
$ |
4,484 |
|
|
$ |
20,966 |
|
|
$ |
18,917 |
|
|
$ |
110,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
11 |
|
|
$ |
14,090 |
|
|
$ |
87 |
|
|
$ |
14,921 |
|
East |
|
|
1,092 |
|
|
|
135 |
|
|
|
2,808 |
|
|
|
7,543 |
|
Southeast |
|
|
|
|
|
|
1,176 |
|
|
|
927 |
|
|
|
18,415 |
|
Other |
|
|
|
|
|
|
12,355 |
|
|
|
194 |
|
|
|
27,047 |
|
|
|
|
|
|
|
Subtotal |
|
$ |
1,103 |
|
|
$ |
27,756 |
|
|
$ |
4,016 |
|
|
$ |
67,926 |
|
|
|
|
|
|
|
Total |
|
$ |
11,856 |
|
|
$ |
95,482 |
|
|
$ |
76,320 |
|
|
$ |
451,854 |
|
|
|
|
|
|
The inventory impaired during the three months ended June 30, 2009 represented 117 lots in 4
communities with an estimated fair value of $5.9 million compared to 2,430 lots in 44 communities
with an estimated fair value of $164.2 million for the three months ended June 30, 2008. For the
nine months ended June 30, 2009, the inventory impaired represented 2,208 lots in 32 communities
with an estimated fair value of $72.5 million compared to 8,850 lots in 191 communities with an
estimated fair value of $556.2 million for the comparable period of the prior year. During the
current period, for certain communities we determined that it was prudent to reduce sales prices or
further increase sales incentives in response to factors including competitive market conditions.
Because the projected cash flows used to evaluate the fair value of inventory are significantly
impacted by changes in market conditions including decreased sales prices, the change in sales
prices and changes in absorption estimates led to additional impairments in certain communities
during the current quarter. In future periods, we may again determine that it is prudent to reduce
sales prices, further increase sales incentives or reduce absorption rates which may lead to
additional impairments, which could be material. The impairments recorded on our held for
development inventory for the nine months ended June 30, 2009 and 2008, primarily resulted from the
continued decline in the homebuilding environment in those specific submarkets.
During the three and nine months ended June 30, 2009, as a result of challenging market conditions
and review of recent comparable transactions, certain of the Companys land held for sale was
further written down to net realizable value, less estimated costs to sell. During the three and
nine months ended June 30, 2008, as a result of the Companys decision to re-allocate capital
employed through strategic sales of select properties and through the exiting of certain markets no
longer viewed as strategic and based on current estimated fair values, less costs to sell, as
compared to book values, we recorded impairments on land held for sale. These impairments were
primarily located in our exit markets in Ohio and Charlotte, North Carolina.
We also have access to land inventory through lot option contracts, which generally enable us to
defer acquiring portions of properties owned by third parties and unconsolidated entities until we
have determined whether to exercise our lot option. A majority of our lot option contracts require
a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase
price of the land for the right to acquire lots during a specified period of time at a certain
price. Under lot option contracts, both with and without specific performance provisions, purchase
of the properties is contingent upon satisfaction of certain requirements by us and the sellers.
Our obligation with respect to options with specific performance provisions is included in our
consolidated balance sheets in other liabilities. Under option contracts without specific
performance obligations, our liability is generally limited to forfeiture of the non-refundable
deposits, letters of credit and other non-refundable amounts incurred, which aggregated
approximately $41.5 million at June
16
30, 2009. This amount includes non-refundable letters of credit
of approximately $5.7 million. The total remaining purchase price, net of cash deposits, committed
under all options was $334.5 million as of June 30, 2009. Only $10.0 million of the net remaining
purchase price contains specific performance clauses which may require us to purchase the land or
lots upon the land seller meeting certain obligations.
We have determined the proper course of action with respect to a number of communities within each
homebuilding segment was to abandon the remaining lots under option and to write-off the deposits
securing the option takedowns, as well as preacquisition costs. In determining whether to abandon
a lot option contract, we evaluate the lot option primarily based upon the expected cash flows from
the property that is the subject of the option. If we intend to abandon or walk-away from a lot
option contract, we record a charge to earnings in the period such decision is made for the deposit
amount and any related capitalized costs associated with the lot option contract. We recorded lot
option abandonment charges during the three and nine months ended June 30, 2009 of $1.1 million and
$4.0 million, respectively, compared to $27.8 million and $67.9 million related to the three and
nine months ended June 30, 2008, respectively. The abandonment charges relate to our decision to
abandon certain option contracts that no longer fit in our long-term strategic plan and related to
our prior year decision to exit certain markets.
We expect to exercise substantially all of our option contracts with specific performance
obligations and, subject to market conditions, most of our option contracts without specific
performance obligations. Various factors, some of which are beyond our control, such as market
conditions, weather conditions and the timing of the completion of development activities, will
have a significant impact on the timing of option exercises or whether land options will be
exercised.
Certain of our option contracts are with sellers who are deemed to be VIEs under FASB
Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51 (FIN 46R). FIN 46R defines a VIE as an entity with insufficient equity investment to
finance its planned activities without additional financial support or an entity in which the
equity investors lack certain characteristics of a controlling financial interest. Pursuant to FIN
46R, an enterprise that absorbs a majority of the expected losses or receives a majority of the
expected residual returns of a VIE is deemed to be the primary beneficiary of the VIE and must
consolidate the VIE.
We have determined that we are the primary beneficiary of certain of these option contracts. Our
risk is generally limited to the option deposits that we pay, and creditors of the sellers
generally have no recourse to the general credit of the Company. Although we do not have legal
title to the optioned land, for those option contracts for which we are the primary beneficiary, we
are required to consolidate the land under option at fair value. We believe that the exercise
prices of our option contracts approximate their fair value. Our consolidated balance sheets at
June 30, 2009 and September 30, 2008 reflect consolidated inventory not owned of $58.5 million and
$106.7 million, respectively. We consolidated $46.8 million and $46.9 million of lot option
agreements as consolidated inventory not owned pursuant to FIN 46R as of June 30, 2009 and
September 30, 2008, respectively. In addition, as of June 30, 2009 and September 30, 2008, we
recorded $11.7 million and $59.8 million, respectively, of land under the caption consolidated
inventory not owned related to lot option agreements in accordance with SFAS 49, Product Financing
Arrangements. Obligations related to consolidated inventory not owned totaled $31.8 million at June
30, 2009 and $70.6 million at September 30, 2008. The difference between the balances of
consolidated inventory not owned and obligations related to consolidated inventory not owned
represents cash deposits paid under the option agreements.
17
(5) Interest
Our ability to capitalize all interest incurred during fiscal 2009 has been limited by the
reduction in our inventory eligible for capitalization. The following table sets forth certain
information regarding interest (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Capitalized interest in inventory, beginning of period |
|
$ |
45,466 |
|
|
$ |
78,665 |
|
|
$ |
45,977 |
|
|
$ |
87,560 |
|
Interest incurred |
|
|
35,806 |
|
|
|
34,234 |
|
|
|
103,059 |
|
|
|
105,214 |
|
Capitalized interest impaired |
|
|
(160 |
) |
|
|
(1,875 |
) |
|
|
(2,113 |
) |
|
|
(12,468 |
) |
Interest expense not qualified for capitalization and included as other expense |
|
|
(23,727 |
) |
|
|
(15,873 |
) |
|
|
(65,986 |
) |
|
|
(35,866 |
) |
Capitalized interest amortized to house construction and land sales expenses |
|
|
(12,999 |
) |
|
|
(26,693 |
) |
|
|
(36,551 |
) |
|
|
(75,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest in inventory, end of period |
|
$ |
44,386 |
|
|
$ |
68,458 |
|
|
$ |
44,386 |
|
|
$ |
68,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Earnings Per Share
In computing diluted loss per share for the three and nine months ended June 30, 2009 and June 30,
2008, all common stock equivalents were excluded from the computation of diluted loss per share as
a result of their anti-dilutive effect.
(7) Borrowings
At June 30, 2009 and September 30, 2008 we had the following long-term debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Maturity Date |
|
June 30, 2009 |
|
|
2008 |
|
Secured Revolving Credit Facility |
|
July 2011 |
|
$ |
|
|
|
$ |
|
|
8 5/8% Senior Notes* |
|
May 2011 |
|
|
175,000 |
|
|
|
180,000 |
|
8 3/8% Senior Notes* |
|
April 2012 |
|
|
312,599 |
|
|
|
340,000 |
|
6 1/2% Senior Notes* |
|
November 2013 |
|
|
182,990 |
|
|
|
200,000 |
|
6 7/8% Senior Notes* |
|
July 2015 |
|
|
315,240 |
|
|
|
350,000 |
|
8 1/8% Senior Notes* |
|
June 2016 |
|
|
250,670 |
|
|
|
275,000 |
|
4 5/8% Convertible Senior Notes* |
|
June 2024 |
|
|
173,000 |
|
|
|
180,000 |
|
Junior subordinated notes |
|
July 2036 |
|
|
103,093 |
|
|
|
103,093 |
|
Other secured notes payable |
|
Various Dates |
|
|
34,122 |
|
|
|
50,618 |
|
Model home financing obligations |
|
Various Dates |
|
|
46,908 |
|
|
|
71,231 |
|
Unamortized debt discounts |
|
|
|
|
(2,013 |
) |
|
|
(2,565 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,591,609 |
|
|
$ |
1,747,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Collectively, the Senior Notes |
Secured Revolving Credit Facility On August 7, 2008, we entered into an amendment to our Secured
Revolving Credit Facility which changed the size, covenants and pricing for the facility. The size
of the Secured Revolving Credit Facility was reduced from $500 million to $400 million and was
subject to further reductions to $250 million and $100 million if our consolidated tangible net
worth (Tangible Net Worth, defined in the agreement as stockholders equity less intangible
assets as defined) fell below $350 million and $250 million, respectively. As of September 30,
2008, our consolidated tangible net worth of $314.4 million resulted in a reduction of the facility
size to $250 million.
On May 4, 2009, the Company entered into a Third Limited Waiver related to the Companys Secured
Revolving Credit Facility. During the waiver period, which extended to the filing of this Form
10-Q for the period ending June 30, 2009, the waiver agreement 1) preserved the facility size at
$150 million, rather than shrinking to $100 million as required based on the Companys reported
Tangible Net Worth, 2) maintained, the collateral coverage in the secured borrowing base at 4.5x,
3) maintained the current facility pricing at the Eurodollar Margin of 5.0% and 4) waived a
potential breach of an investments covenant in the facility as of March 31, 2009. There were no
amounts outstanding under the Secured Revolving Credit Facility at June 30, 2009 or September 30,
2008; however, as of
18
June 30, 2009, we had provided $11.3 million of cash in addition to pledged
real estate assets to supplementally collateralize our outstanding letters of credit of $46.5
million. The Company has decided to amend and restructure its Secured Revolving Credit Facility
and recognized expense of $3.3 million of previously capitalized unamortized debt issuance costs
related to the Secured Revolving Credit Facility for the three and nine months ended June 30, 2009,
which is included in other expense, net in the unaudited condensed consolidated statements of
operations.
As part of this restructuring, the current Secured Revolving Credit Facility was reduced to $22
million and will be provided by one lender. The restructured facility will continue to provide for
future working capital and letter of credit needs collateralized by either cash or assets of the
Company at the Companys option, conditioned upon certain conditions and covenant compliance. We
also entered into three stand-alone, cash-secured, letter of credit agreements with banks to
maintain the pre-existing letters of credit that had been under the current Secured Revolving
Credit Facility. At closing on August 5, 2009, we elected to secure all of our letters of credit
using cash collateral which required additional cash in restricted accounts of $37.8 million.
Senior Notes - The Senior Notes are unsecured obligations ranking pari passu with all other
existing and future senior indebtedness. Substantially all of our significant subsidiaries are full
and unconditional guarantors of the Senior Notes and are jointly and severally liable for
obligations under the Senior Notes and the Secured Revolving Credit Facility. Each guarantor
subsidiary is a 100% owned subsidiary of Beazer Homes.
The indentures under which the Senior Notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At June 30, 2009, under the most restrictive
covenants of each indenture, no portion of our retained earnings was available for cash dividends
or for share repurchases. The indentures provide that, in the event of defined changes in control
or if our consolidated tangible net worth falls below a specified level or in certain circumstances
upon a sale of assets, we are required to offer to repurchase certain specified amounts of
outstanding Senior Notes. Specifically, each indenture (other than the indenture governing the
convertible Senior Notes) requires us to offer to purchase 10% of each series of Senior Notes at
par if our consolidated tangible net worth (defined as stockholders equity less intangible assets
as defined) is less than $85 million at the end of any two consecutive fiscal quarters. Such offer
need not be made more than twice in any four-quarter period. If triggered and fully subscribed,
this could result in our having to purchase 10% of outstanding notes one or more times, in an
amount equal to $123.6 million for the first time based on the principal outstanding at June 30,
2009.
In June 2004, we issued $180 million aggregate principal amount of 4 5/8% Convertible Senior Notes
due 2024 (the Convertible Senior Notes). The Convertible Senior Notes are not convertible into
cash. We may at our option redeem for cash the Convertible Senior Notes in whole or in part at any
time on or after June 15, 2009 at specified redemption prices. Holders have the right to require
us to purchase all or any portion of the Convertible Senior Notes for cash on June 15, 2011, June
15, 2014 and June 15, 2019. In each case, we will pay a purchase price equal to 100% of the
principal amount of the Convertible Senior Notes to be purchased plus any accrued and unpaid
interest, if any, and any additional amounts owed, if any to such purchase date.
On October 26, 2007, we obtained consents from holders of our Senior Notes to approve amendments of
the indentures under which the Senior Notes were issued. These amendments restrict our ability to
secure additional debt in excess of $700 million until certain conditions are met and enable us to
invest up to $50 million in joint ventures. The consents also provided us with a waiver of any and
all defaults under the Senior Notes that may have occurred on or prior to May 15, 2008 relating to
filing or delivering annual and quarterly financial statements. Fees and expenses related to
obtaining these consents totaled approximately $21 million. Such fees and expenses have been
deferred, and included in Other Assets in the unaudited condensed consolidated balance sheets, and
are being amortized as an adjustment to interest expense in accordance with EITF 96-19 Debtors
Accounting for a Modification or Exchange of Debt Instruments.
During the three and nine months ended June 30, 2009, we repurchased in several individual open
market transactions, $115.5 million principal amount of Senior Notes ($5.0 million of 8 5/8% Senior
Notes due 2011, $27.4 million of 8 3/8% Senior Notes due 2012, $17.0 million of 6 1/2% Senior Notes
due 2013, $34.8 million of 6 7/8% Senior Notes due 2015, $24.3 million of 8 1/8% Senior Notes due
2016, and $7.0 million of Convertible Senior Notes due 2024). The aggregate purchase price for
these repurchases was $58.2 million plus accrued and unpaid interest. These repurchases resulted
in a gain on extinguishment of debt of $55.2 million, net of the write-off of unamortized discounts
and debt issuance costs related to these notes. The gain from the repurchases is included in the
unaudited condensed consolidated statements of operations for the three and nine months ended June
30, 2009 as gain on extinguishment of debt.
Junior Subordinated Notes On June 15, 2006, we completed a private placement of $103.1 million of
unsecured junior subordinated notes which mature on July 30, 2036 and are redeemable at par on or
after July 30, 2011 and pay a fixed rate of 7.987%
19
for the first ten years ending July 30, 2016.
Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 2.45% per
annum, resetting quarterly. These notes were issued to Beazer Capital Trust I, which simultaneously
issued, in a private transaction, trust preferred securities and common securities with an
aggregate value of $103.1 million to fund its purchase of these notes. The transaction is treated
as debt in accordance with GAAP. The obligations relating to these notes and the related securities
are subordinated to the Secured Revolving Credit Facility and the Senior Notes.
Other Secured Notes Payable We periodically acquire land through the issuance of notes payable.
As of June 30, 2009 and September 30, 2008, we had outstanding notes payable of $34.1 million and
$50.6 million, respectively, primarily related to land acquisitions. These notes payable expire at
various times through 2011 and had fixed and variable rates ranging from 3.2% to 9.0% at June 30,
2009. These notes are secured by the real estate to which they relate. As of March 31, 2009, we
had negotiated a reduced payoff of one of our secured notes payable and recorded a $3.6 million
gain on debt extinguishment which is included in gain on extinguishment of debt in the accompanying
unaudited condensed consolidated statement of operations for the nine months ended June 30, 2009.
The agreements governing these secured notes payable contain various affirmative and negative
covenants. Certain of these secured notes payable agreements contain covenants that require us to
maintain minimum levels of stockholders equity (or some variation, such as tangible net worth) or
maximum levels of debt to stockholders equity. Although the specific covenants and related
definitions vary among the agreements, further reductions in our stockholders equity, absent the
receipt of waivers, may cause breaches of some or all of these covenants. Breaches of certain of
these covenants, to the extent they lead to an acceleration, may result in cross defaults under our
senior notes. The dollar value of these secured notes payable agreements containing stockholders
equity-related covenants totaled $22.7 million at June 30, 2009. There can be no assurance that we
will be able to obtain any future waivers or amendments that may become necessary without
significant additional cost or at all. In each instance, however, a covenant default can be cured
by repayment of the indebtedness.
Model Home Financing Obligations - Due to a continuing interest in certain model home
sale-leaseback transactions, we have recorded $46.9 million and $71.2 million of debt as of June
30, 2009 and September 30, 2008, respectively, related to these financing transactions in
accordance with SFAS 98 (as amended), Accounting for Leases. These model home transactions incur
interest at a variable rate of one-month LIBOR plus 450 basis points, 4.8% as of June 30, 2009, and
expire at various times through 2015.
(8) Income Taxes
During fiscal 2008, we determined that it was not more likely than not that substantially all of
our deferred tax assets would be realized and, therefore, we established a valuation allowance of
$400.6 million for substantially all of our deferred tax assets. We have not changed our
assessment regarding the recoverability of our deferred tax assets as of June 30, 2009 and
consequently, during the nine months ended June 30, 2009, we determined that an additional
valuation allowance of $66.5 million was warranted. As of June 30, 2009, our deferred tax
valuation allowance was $467.1 million.
Our tax provision of $6.0 million for the three months ended June 30, 2009 primarily resulted from
the revision of our estimate of the future sources of taxable income that warranted additional
valuation allowance on our deferred tax assets. Our tax benefit of $8.0 million for the nine
months ended June 30, 2009, primarily resulted from the additional valuation allowance referred to
above and a reduction in our liabilities for unrecognized tax benefits related to effectively
settling examinations with tax authorities and the expiration of certain statutes of limitations,
offset by interest expense on our remaining liabilities for unrecognized tax benefits.
During the third quarter of fiscal 2009, there have been no material changes to the components of
the Companys total unrecognized tax benefits, including any amount which, if recognized, would
affect the Companys effective tax rate. The principal difference between our effective rate and
the U.S. federal statutory rate for the three and nine months ended June 30, 2009 is due to our
valuation allowance, state income taxes incurred, the non-deductible goodwill impairment charge and
adjustments related to our liabilities for unrecognized tax benefits. The principal difference
between our effective rate and the U.S. federal statutory rate for the three and nine months ended
June 30, 2008 is due to state income taxes incurred and the non-deductible goodwill impairment
charge.
(9) Contingencies
Beazer Homes and certain of its subsidiaries have been and continue to be named as defendants in
various construction defect claims, complaints and other legal actions that include claims related
to moisture intrusion. The Company is subject to the possibility of loss contingencies arising in
its business and such contingencies are accounted for in accordance with SFAS 5, Accounting for
Contingencies. In determining loss contingencies, we consider the likelihood of loss as well as
the ability to reasonably estimate the
20
amount of such loss or liability. An estimated loss is
recorded when it is considered probable that a liability has been incurred and when the amount of
loss can be reasonably estimated.
Warranty Reserves We currently provide a limited warranty (ranging from one to two years)
covering workmanship and materials per our defined performance quality standards. In addition, we
provide a limited warranty (generally ranging from a minimum of five years up to the period covered
by the applicable statute of repose) covering only certain defined construction defects. We also
provide a defined structural element warranty with single-family homes and townhomes in certain
states.
Since we subcontract our homebuilding work to subcontractors who generally provide us with an
indemnity and a certificate of insurance prior to receiving payments for their work, many claims
relating to workmanship and materials are the primary responsibility of the subcontractors.
Warranty reserves are included in other liabilities and the provision for warranty accruals is
included in home construction and land sales expenses in the unaudited condensed consolidated
financial statements. We record reserves covering anticipated warranty expense for each home
closed. Management reviews the adequacy of warranty reserves each reporting period based on
historical experience and managements estimate of the costs to remediate the claims and adjusts
these provisions accordingly. Our review includes a quarterly analysis of the historical data and
trends in warranty expense by operating segment. An analysis by operating segment allows us to
consider market specific factors such as our warranty experience, the number of home closings, the
prices of homes, product mix and other data in estimating our warranty reserves. In addition, our
analysis also contemplates the existence of any non-recurring or community-specific warranty
related matters that might not be contemplated in our historical data and trends.
Beazer Homes and certain of our subsidiaries have been and continue to be named as defendants in
various construction defect claims, complaints and other legal actions that include claims related
to Chinese drywall.
During the quarter ended June 30, 2009, we accrued $2.4 million in our warranty reserves for the
repair of approximately 30 homes in southwest Florida where certain of our subcontractors installed
defective Chinese drywall in homes that were delivered during our 2006 and 2007 fiscal years. We
are inspecting additional homes in order to determine whether they also contain the defective
Chinese drywall. The outcome of these inspections may require us to increase our warranty reserve
in the future. However, the amount of additional liability, if any, is not reasonably estimable.
We have experienced a significant number of moisture intrusion claims in our East region and
particularly with respect to homes built by Trinity, a subsidiary which was acquired in the
Crossmann acquisition in 2002. As of June 30, 2009, there were four pending lawsuits related to
such complaints received by Trinity, including a class action. Three of these suits are by
individual homeowners, and the cost to resolve these matters is not expected to be material, either
individually or in the aggregate. The class action suit was filed in the State of Indiana in
August 2003 against Trinity Homes LLC. The parties in the class action reached a settlement
agreement which was approved by the court on October 20, 2004. As of June 30, 2009, we have
completed remediation of 1,877 homes related to 1,882 total Trinity claims. Our warranty reserves
at June 30, 2009 and September 30, 2008 include accruals of $0.6 million and $2.8 million,
respectively, for our estimated costs to assess and remediate all homes for which Trinity had
received complaints related to moisture intrusion.
As a result of our analyses, we adjust our estimated warranty liabilities. While we believe that
our warranty reserves are adequate as of June 30, 2009, historical data and trends may not
accurately predict actual warranty costs, or future developments could lead to a significant change
in the reserve. Our warranty reserves are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
Balance at beginning of period |
|
$ |
32,379 |
|
|
$ |
47,103 |
|
|
$ |
40,822 |
|
|
$ |
57,053 |
|
Provisions |
|
|
2,481 |
|
|
|
631 |
|
|
|
3,200 |
|
|
|
6,863 |
|
Payments |
|
|
(2,972 |
) |
|
|
(5,558 |
) |
|
|
(12,134 |
) |
|
|
(21,740 |
) |
|
|
|
|
|
Balance at end of period |
|
$ |
31,888 |
|
|
$ |
42,176 |
|
|
$ |
31,888 |
|
|
$ |
42,176 |
|
|
|
|
|
|
Investigations
United States Attorney, State and Federal Agency Investigations. On July 1, 2009, the Company
announced that it had resolved the criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina (the U.S. Attorney) and other state
and federal agencies concerning the matters that were the subject of the independent investigation
by the Audit Committee of the Beazer Homes Board of Directors (the Investigation) completed in
May 2008. The Company has entered into a
21
deferred prosecution agreement (DPA) with the U.S.
Attorney and a settlement agreement with the U.S. Department of Housing and Urban Development
(HUD) and the civil division of the Department of Justice. In addition, certain of the Companys
subsidiaries have entered into a settlement agreement with the North Carolina Real Estate
Commission (NCREC). Also, as previously disclosed, Beazer Mortgage Corporation (Beazer
Mortgage) has entered into a settlement agreement with the North Carolina Office of the
Commissioner of Banks (OCOB), under which Beazer Mortgage consented, without admitting the
alleged violations, to the entry of a consent order which provides that Beazer Mortgage will
provide approximately $2.5 million in restitution to certain borrowers in respect of the alleged
violations. The settlement agreement concludes the OCOBs investigation into these matters with
respect to Beazer Mortgage.
Under the DPA, the U.S. Attorney has agreed not to prosecute the Company in connection with the
matters that were the subject of the Investigation and are set forth in a Bill of Information filed
with the United States District Court for the Western District of North Carolina, provided that the
Company satisfies its obligations under the DPA over the next 60 months. The term of the DPA may
be less than 60 months in the event certain conditions, as described more fully in the DPA, are
met. The DPA recognizes the cooperation of the Company, its voluntary disclosure and its adoption
of remedial measures.
Under the terms of the DPA, in fiscal year 2009, the Company contributed $7.5 million to a
restitution fund established to compensate those Beazer customers who can demonstrate that they
were injured by certain of the practices identified in the Bill of Information. For fiscal year
2010 the Company will contribute to the restitution fund the greater of $1.0 million or an amount
equal to 4% of the Companys fiscal 2010 adjusted EBITDA as defined in the DPA. The Companys
liability in each of the fiscal years after 2010 will also be equal to 4% of the Companys adjusted
EBITDA through a portion of fiscal year 2014, unless extended as described below. Under the terms
of the DPA, the Companys total contributions to the restitution fund will not exceed $50.0
million.
Under the terms of the settlement agreement with HUD and the civil division of the Department of
Justice, the Company made an immediate payment of $4.0 million to HUD to resolve civil and
administrative investigations. In addition, on the first anniversary of the agreement, the Company
will make a $1.0 million payment to HUD.
Under the agreement with HUD, if the amounts paid into the restitution fund with the U.S. Attorney
described above do not reach $48.0 million at the end of 60 months, the restitution fund term will
be extended using the adjusted EBITDA formula until the earlier of an additional 24 months or the
time the Companys contribution reaches $48.0 million.
The amounts paid to the U.S. Attorney for contribution into the restitution fund and payments to
HUD do not include the $2.5 million contributed to resolve the investigation by the OCOB, although
this amount will be counted as part of the Companys maximum obligation to the restitution fund.
As previously disclosed, the Company recognized expense in the quarter ended March 31, 2009 of
$10.5 million for the amounts yet to be paid in fiscal years 2009 and 2010. The Company recognized
additional expense in the quarter ended June 30, 2009 of $3.0 million. In recognition of the
financial challenges currently facing the Company, Ian McCarthy, president and chief executive
officer, and Michael Furlow, executive vice president and chief operating officer, have voluntarily
agreed to contribute to the Company an amount equal to the after-tax proceeds of their fiscal 2008
bonuses to defray part of its initial payment to the restitution fund.
The Companys payment obligations under the DPA and the settlement agreement with HUD are
interrelated. The total amount of such obligations will be dependent on several factors; however,
the maximum liability under both agreements and the agreement with the OCOB will not be less than
$15.5 million and will not exceed $55.0 million.
With respect to the NCREC, Beazer/Squires Realty, Inc. (Beazer/Squires) and Beazer Homes Corp.
each has agreed to the entry of a consent order regarding violations of certain North Carolina
statutes. Under the respective consent orders, the NCREC agreed that a reprimand of Beazer Homes
would not be issued as long as Beazer Homes completed certain remedial measures and that the broker
license held by Beazer/Squires is revoked. The broker license held by Beazer/Squires has been on
inactive status since October 2007. There is no monetary payment by the Company or its
subsidiaries under either of the consent orders. The consent orders conclude the investigation by
the NCREC into these matters with respect to the Company.
As of June 30, 2009, $13.5 million is accrued related to these obligations. While we believe that
our accrual for this liability is adequate as of June
30, 2009, positive adjusted EBITDA results in future years will require us to increase our accrual
and incur additional expense. The amount of future liability in excess of amounts recorded to
date, if any, are not reasonably estimable.
22
Independent Investigation. In May 2008, the Audit Committee of the Beazer Homes Board of Directors
completed the Investigation of Beazer Homes mortgage origination business, including, among other
things, investigating certain evidence that the Companys subsidiary, Beazer Mortgage, violated HUD
regulations and may have violated certain other laws and regulations in connection with certain of
its mortgage origination activities. The Investigation also found evidence that employees of the
Companys Beazer Mortgage subsidiary violated certain federal and/or state regulations, including
HUD regulations. Areas of concern uncovered by the Investigation included our former practices in
the areas of: down payment assistance program; the charging of discount points; the closure of
certain HUD Licenses; closing accommodations; and the payment of a number of realtor bonuses and
decorator allowances in certain Federal Housing Administration (FHA) insured loans and non-FHA
conventional loans originated by Beazer Mortgage dating back to at least 2000. The Investigation
also uncovered limited improper practices in relation to the issuance of a number of non-FHA Stated
Income Loans. We reviewed the loan documents and supporting documentation, and determined that the
assets were effectively isolated from the seller and its creditors (even in the event of
bankruptcy). Based on that information, management continues to believe that sale accounting at the
time of the transfer of the loans to third parties was appropriate. In addition, the Investigation
identified accounting and financial reporting errors and irregularities which resulted in the
restatement of certain prior period consolidated financial statements which was included in our
2007 Form 10-K filed with the SEC on May 12, 2008.
Litigation
Securities Class Action. Beazer Homes and certain of our current and former officers (the
Individual Defendants), as well as our Independent Registered Accounting Firm, are named as
defendants in putative class action securities litigation pending in the United States District
Court for the Northern District of Georgia. Three separate complaints were initially filed between
March 29 and May 21, 2007. The cases were subsequently consolidated by the court and the court
appointed Glickenhaus & Co. and Carpenters Pension Trust Fund for Northern California as lead
plaintiffs. On June 27, 2008, lead plaintiffs filed an Amended and Consolidated Class Action
Complaint for Violation of the Federal Securities Laws (Consolidated Complaint), which purports
to assert claims on behalf of a class of persons and entities that purchased or acquired the
securities of Beazer Homes during the period January 27, 2005 through May 12, 2008. The
Consolidated Complaint asserts a claim against the defendants under Section 10(b) of the
Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder for
allegedly making materially false and misleading statements regarding our business and prospects,
including, among other things, alleged misrepresentations and omissions related to alleged improper
lending practices in our mortgage origination business, alleged misrepresentations and omissions
related to improper revenue recognition and other accounting improprieties and alleged
misrepresentations and omissions concerning our land investments and inventory. The Consolidated
Complaint also asserts claims against the Individual Defendants under Sections 20(a) and 20A of the
Exchange Act. Lead plaintiffs seek a determination that the action is properly maintained as a
class action, an unspecified amount of compensatory damages and costs and expenses, including
attorneys fees. On November 3, 2008, the Company and the other defendants filed motions to
dismiss the Consolidated Complaint. Briefing of the motion was completed in March 2009. The
Company reached an agreement with lead plaintiffs to settle the lawsuit. Under the terms of the
proposed settlement, the lawsuit will be dismissed with prejudice, and the Company and all other
defendants do not admit any liability and will receive a full and complete release of all claims
asserted against them in the litigation, in exchange for the payment of an aggregate of $30.5
million. The monetary payment to be made on behalf of the Company and the individual defendants
will be funded from insurance proceeds. As a result, there will be no financial contribution by
the Company. The agreement is subject to court approval.
Derivative Shareholder Actions. Certain of Beazer Homes current and former officers and directors
were named as defendants in a derivative shareholder suit filed on April 16, 2007 in the United
States District Court for the Northern District of Georgia. The complaint also names Beazer Homes
as a nominal defendant. The complaint, purportedly on behalf of Beazer Homes, alleges that the
defendants (i) violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder;
(ii) breached their fiduciary duties and misappropriated information; (iii) abused their control;
(iv) wasted corporate assets; and (v) were unjustly enriched. Plaintiffs seek an unspecified amount
of compensatory damages against the individual defendants and in favor of Beazer Homes. An
additional lawsuit was filed subsequently on August 29, 2007 in the United States District Court
for the Northern District of Georgia asserting similar factual allegations. The two Georgia
derivative actions have been consolidated, and the plaintiffs have filed an amended, consolidated
complaint. On November 21, 2008, the Company and the other defendants filed motions to dismiss the
amended consolidated complaint. Briefing of the motion was completed in February 2009. The
defendants intend to vigorously defend against these actions. Given the inherent uncertainties in
this litigation, as of June 30, 2009, no accrual has been recorded, as losses, if any, related to
this matter are not both probable and reasonably estimable.
ERISA Class Actions. On April 30, 2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants and beneficiaries of the Beazer Homes
USA, Inc. 401(k) Plan. The complaint was filed in the United States District Court for the Northern
District of Georgia. The complaint alleges breach of fiduciary duties, including those set forth in
the Employee Retirement Income Security Act (ERISA), as a result of the investment of retirement
monies held by the 401(k) Plan in common stock of Beazer Homes at a time when participants were
allegedly not provided timely, accurate and complete information
23
concerning Beazer Homes. Four
additional lawsuits were filed subsequently on May 11, 2007, May 14, 2007, June 15, 2007 and
July 27, 2007 in the United States District Court for the Northern District of Georgia making
similar allegations. The court consolidated these five lawsuits, and on June 27, 2008, the
plaintiffs filed a consolidated amended complaint. The consolidated amended complaint names as
defendants Beazer Homes, our chief executive officer, certain current and former directors of the
Company, including the members of the Compensation Committee of the Board of Directors, and certain
employees of the Company who acted as members of the Companys 401(k) Committee. On October 10,
2008, the Company and the other defendants filed a motion to dismiss the consolidated amended
complaint. Briefing of the motion was completed in January 2009. The Company intends to
vigorously defend against these actions. Given the inherent uncertainties in this litigation, as
of June 30, 2009, no accrual has been recorded, as losses, if any, related to this matter are not
both probable and reasonably estimable.
Homeowners Class Action Lawsuits and Multi-Plaintiff Lawsuit. A putative class action was filed on
April 8, 2008 in the United States District Court for the Middle District of North Carolina,
Salisbury Division, against Beazer Homes, U.S.A., Inc., Beazer Homes Corp. and Beazer Mortgage
Corporation. The Complaint alleges that Beazer violated the Real Estate Settlement Practices Act
(RESPA) and North Carolina Gen. Stat. § 75-1.1 by (1) improperly requiring homebuyers to use
Beazer-owned mortgage and settlement services as part of a down payment assistance program, and
(2) illegally increasing the cost of homes and settlement services sold by Beazer Homes Corp. The
purported class consists of all residents of North Carolina who purchased a home from Beazer, using
mortgage financing provided by and through Beazer that included seller-funded down payment
assistance, between January 1, 2000 and October 11, 2007. The Complaint demands an unspecified
amount of damages, equitable relief, treble damages, attorneys fees and litigation expenses. The
defendants moved to dismiss the Complaint on June 4, 2008. On July 25, 2008, in lieu of a response
to the motion to dismiss, plaintiff filed an amended complaint. The Company has moved to dismiss
the amended complaint and intends to vigorously defend against this action. Given the inherent
uncertainties in this litigation, as of June 30, 2009, no accrual has been recorded, as losses, if
any, related to this matter are not both probable and reasonably estimable.
Beazer Homes Corp. and Beazer Mortgage Corporation are also named defendants in a lawsuit filed on
July 3, 2007, in the General Court of Justice, Superior Court Division, County of Mecklenburg,
North Carolina. The case was removed to the U.S. District Court for the Western District of North
Carolina, Charlotte Division, but remanded on April 23, 2008 to the General Court of Justice,
Superior Court Division, County of Mecklenburg, North Carolina. The complaint was filed on behalf
of ten individual homeowners who purchased homes from Beazer in Mecklenburg County. The complaint
alleges certain deceptive conduct by the defendants and brings various claims under North Carolina
statutory and common law, including a claim for punitive damages. On June 27, 2008 a second amended
complaint, which added two plaintiffs to the lawsuit, was filed. The case has been designated as
exceptional pursuant to Rule 2.1 of the General Rules of Practice of the North Carolina Superior
and District Courts and has been assigned to the docket of the North Carolina Business Court. The
Company filed a motion to dismiss on July 30, 2008. On November 18, 2008, the plaintiffs filed a
third amended complaint. The Company filed a motion to dismiss the third amended complaint on
December 29, 2008. The Company intends to vigorously defend against this action. Given the
inherent uncertainties in this litigation, as of June 30, 2009, no accrual has been recorded, as
losses, if any, related to this matter are not both probable and reasonably estimable.
Beazer Homes subsidiaries Beazer Homes Holdings Corp. and Beazer Mortgage Corporation were named
as defendants in a putative class action lawsuit originally filed on March 12, 2008, in the
Superior Court of the State of California, County of Placer. The lawsuit was amended on June 2,
2008, and named as defendants Beazer Homes Holdings Corp., Beazer Homes USA, Inc., and Security
Title Insurance Company. The purported class is defined as all persons who purchased a home from
the defendants or their affiliates, with the assistance of a federally related mortgage loan, from
March 25, 1999, to the present where Security Title Insurance Company received any money as a
reinsurer of the transaction. The complaint alleges that the defendants violated RESPA and asserts
claims under a number of state statutes alleging that defendants engaged in a uniform and
systematic practice of giving and/or accepting fees and kickbacks to affiliated businesses
including affiliated and/or recommended title insurance companies. The complaint also alleges a
number of common law claims. Plaintiffs seek an unspecified amount of damages under RESPA,
unspecified statutory, compensatory and punitive damages and injunctive and declaratory relief, as
well as attorneys fees and costs. Defendants removed the action to federal court. On November 26,
2008, plaintiffs filed a Second Amended Complaint which substituted new named-plaintiffs. The
Company filed a motion to dismiss the Second Amended Complaint. The federal court granted in part
Beazers motion to dismiss the Second Amended Complaint. The federal court dismissed the sole
federal claim, declined to rule on the state law claims, and remanded the case to the Superior
Court of California, Placer County, where Beazers motion to dismiss the state law claims is now
pending. On June 18, 2009, the Company filed a supplemental motion to dismiss/demurrer regarding
the remaining state law claims in the Second Amended Complaint. The Company intends to continue to
vigorously defend against the action. Given the inherent uncertainties in this litigation, as of
June 30, 2009, no accrual has been recorded, as losses, if any, related to this matter are not both
probable and reasonably estimable.
24
We cannot predict or determine the timing or final outcome of the lawsuits or the effect that any
adverse findings or adverse determinations in the pending lawsuits may have on us. In addition, an
estimate of possible loss or range of loss if any, cannot presently be made with respect to the
above pending matters. An unfavorable determination resulting from any governmental investigation
could result in the filing of criminal charges, payment of substantial criminal or civil
restitution, the imposition of injunctions on our conduct or the imposition of other penalties or
consequences, including but not limited to the Company having to adjust, curtail or terminate the
conduct of certain of our business operations. Any of these outcomes could have a material adverse
effect on our business, financial condition, results of operations and prospects. An unfavorable
determination in any of the pending lawsuits could result in the payment by us of substantial
monetary damages which may not be fully covered by insurance. Further, the legal costs associated
with the lawsuits and the amount of time required to be spent by management and the Board of
Directors on these matters, even if we are ultimately successful, could have a material adverse
effect on our business, financial condition and results of operations.
Other Matters
In November 2003, Beazer Homes received a request for information from the EPA pursuant to Section
308 of the Clean Water Act seeking information concerning the nature and extent of storm water
discharge practices relating to certain of our projects completed or under construction. The EPA
has since requested information on additional projects and has conducted site inspections at a
number of locations. In certain instances, the EPA or the equivalent state agency has issued
Administrative Orders identifying alleged instances of noncompliance and requiring corrective
action to address the alleged deficiencies in storm water management practices. As of June 30,
2009, no monetary penalties had been imposed in connection with such Administrative Orders.
Consistent with its approach with other homebuilders, the EPA has contacted the Company about a
possible resolution of these issues. Settlement negotiations are in the preliminary stages. The
EPA has reserved the right to impose monetary penalties at a later date, the amount of which, if
any, cannot currently be estimated. Beazer Homes has taken action to comply with the requirements
of each of the Administrative Orders and is working to otherwise maintain compliance with the
requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental
Protection. The Orders allege certain violations of wetlands disturbance permits. The two Orders
assess proposed fines of $630,000 and $678,000, respectively. We have met with the Department to
discuss their concerns on the two affected projects and have requested hearings on both matters. We
believe that we have significant defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently pursuing settlement discussions with the
Department.
On June 3, 2009, a purported class action complaint was filed by the owners of one of our homes in
our Magnolia Lakes community in Ft. Myers, Florida. The complaint names the Company and certain
distributors and suppliers of drywall and was filed in the Circuit Court for Lee County, Florida on
behalf of the named plaintiffs and other similarly situated owners of homes in Magnolia Lakes or
alternatively in the State of Florida. The plaintiffs allege that the Company built their homes
with defective drywall, manufactured in China, that contains sulfur compounds that allegedly
corrode certain metals and that are allegedly capable of harming the health of individuals.
Plaintiffs allege physical and economic damages and seek legal and equitable relief, medical
monitoring and attorneys fees. On July 1, 2009, the Company filed a request to have this
complaint removed to the United States District Court for the Middle District of Florida and on
July 2, 2009 filed a motion to have the case transferred to the Eastern District of Louisiana
pursuant to an order from the United States Judicial Panel on Multidistrict Litigation. The
Company believes that the claims asserted in this complaint are governed by its home warranty or
are without merit. Accordingly, the Company intends to vigorously defend against this litigation.
Given the inherent uncertainties in this litigation, as of June 30, 2009, no accrual has been
recorded, as losses specifically related to this litigation, if any, are not both probable and
reasonably estimable.
We and certain of our subsidiaries have been named as defendants in various claims, complaints and
other legal actions, most relating to construction defects, moisture intrusion and product
liability. Certain of the liabilities resulting from these actions are covered in whole or part by
insurance. In our opinion, based on our current assessment, the ultimate resolution of these
matters will not have a material adverse effect on our financial condition, results of operations
or cash flows.
We have accrued $19.6 million and $17.9 million in other liabilities related to these matters as of
June 30, 2009 and September 30, 2008, respectively.
Recently, the lender of one of our unconsolidated joint ventures has filed individual lawsuits
against some of the joint venture partners and certain of those partners parent companies
(including the Company), seeking to recover damages under completion guarantees, among other
claims. We intend to vigorously defend against this legal action. We are a 2.58% partner in this
joint venture (see Note 3 for additional information). In addition, an estimate of possible loss
or range of loss if any, cannot presently be made with respect to the above matter. Given the
inherent uncertainties and complexities in this litigation, as of June 30, 2009, no accrual has
been recorded, as losses, if any, related to this matter are not both probable and reasonably
estimable.
25
We had performance bonds and total outstanding letters of credit of approximately $276.7 million
and $46.5 million, respectively, at June 30, 2009 related principally to our obligations to local
governments to construct roads and other improvements in various developments. Total outstanding
letters of credit includes approximately $6.2 million related to our land option contracts
discussed in Note 4.
(10) Stock Repurchase Program
On November 18, 2005, as part of an acceleration of Beazer Homes comprehensive plan to enhance
stockholder value, our Board of Directors authorized an increase in our stock repurchase plan to
ten million shares of our common stock. Shares may be purchased for cash in the open market, on the
NYSE or in privately negotiated transactions. We did not repurchase any shares in the open market
during the three months ended June 30, 2009 or 2008. At June 30, 2009, there are approximately
5.4 million shares available for purchase pursuant to the plan; however, we have currently
suspended our repurchase program and any resumption of such program will be at the discretion of
the Board of Directors, and as allowed by our debt covenants, and is unlikely in the foreseeable
future.
(11) Segment Information
As defined in SFAS 131, Disclosures About Segments of an Enterprise and Related Information, we
have four homebuilding segments operating in 17 states and one financial services segment. Revenues
in our homebuilding segments are derived from the sale of homes which we construct and from land
and lot sales. Revenues in our financial services segment are derived primarily from title services
provided predominantly to customers of our homebuilding operations. Our reportable segments,
described below, have been determined on a basis that is used internally by management for
evaluating segment performance and resource allocations in accordance with SFAS 131. The
reportable homebuilding segments, and all other homebuilding operations not required to be reported
separately, include operations conducting business in the following states:
West: Arizona, California, Nevada, New Mexico and Texas
East: Delaware, Maryland, New Jersey, New York, North Carolina (Raleigh), Pennsylvania, Tennessee
(Nashville) and Virginia
Southeast: Florida, Georgia and South Carolina
Other Homebuilding: California (Fresno), Colorado, Kentucky, North Carolina (Charlotte), Ohio,
South Carolina (Columbia) and Tennessee (Memphis)
Our Other Homebuilding segment includes those markets that we have decided to exit. These
operations will be reported as discontinued operations upon cessation of all activities in these
markets.
Managements evaluation of segment performance is based on segment operating income, which for our
homebuilding segments is defined as homebuilding and land sale revenues less the cost of home
construction, land development and land sales expenses, depreciation and amortization and certain
selling, general and administrative expenses which are incurred by or allocated to our homebuilding
segments. Segment operating income for our Financial Services segment is defined as revenues less
costs associated with our title services and certain selling, general and administrative expenses
incurred by or allocated to the Financial Services segment. The accounting policies of our segments
are those described in Note 1 herein and the notes to the consolidated financial statements
included in Item 8 of our 2008 Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
87,328 |
|
|
$ |
144,913 |
|
|
$ |
264,428 |
|
|
$ |
437,369 |
|
East |
|
|
95,043 |
|
|
|
161,241 |
|
|
|
240,029 |
|
|
|
472,507 |
|
Southeast |
|
|
41,343 |
|
|
|
69,516 |
|
|
|
123,250 |
|
|
|
250,903 |
|
Other homebuilding |
|
|
582 |
|
|
|
79,028 |
|
|
|
16,476 |
|
|
|
197,931 |
|
Financial Services |
|
|
357 |
|
|
|
880 |
|
|
|
1,157 |
|
|
|
2,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
224,653 |
|
|
$ |
455,578 |
|
|
$ |
645,340 |
|
|
$ |
1,361,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
(6,467 |
) |
|
$ |
(37,572 |
) |
|
$ |
(33,147 |
) |
|
$ |
(140,550 |
) |
East |
|
|
(923 |
) |
|
|
(3,632 |
) |
|
|
(14,760 |
) |
|
|
(63,026 |
) |
Southeast |
|
|
(3,877 |
) |
|
|
(14,475 |
) |
|
|
(20,546 |
) |
|
|
(88,621 |
) |
Other homebuilding |
|
|
(1,931 |
) |
|
|
(21,358 |
) |
|
|
(12,730 |
) |
|
|
(111,825 |
) |
Financial Services |
|
|
172 |
|
|
|
202 |
|
|
|
228 |
|
|
|
1,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total |
|
|
(13,026 |
) |
|
|
(76,835 |
) |
|
|
(80,955 |
) |
|
|
(403,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (a) |
|
|
(37,667 |
) |
|
|
(64,509 |
) |
|
|
(134,763 |
) |
|
|
(226,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
|
(50,693 |
) |
|
|
(141,344 |
) |
|
|
(215,718 |
) |
|
|
(629,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated
joint ventures |
|
|
(4,041 |
) |
|
|
(18,568 |
) |
|
|
(13,795 |
) |
|
|
(75,069 |
) |
Gain on early extinguishment of debt |
|
|
55,214 |
|
|
|
|
|
|
|
58,788 |
|
|
|
|
|
Other expense, net |
|
|
(22,370 |
) |
|
|
(13,489 |
) |
|
|
(59,958 |
) |
|
|
(20,907 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes |
|
$ |
(21,890 |
) |
|
$ |
(173,401 |
) |
|
$ |
(230,683 |
) |
|
$ |
(725,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
1,765 |
|
|
$ |
1,879 |
|
|
$ |
4,536 |
|
|
$ |
5,581 |
|
East |
|
|
1,570 |
|
|
|
1,913 |
|
|
|
4,105 |
|
|
|
5,632 |
|
Southeast |
|
|
515 |
|
|
|
560 |
|
|
|
1,156 |
|
|
|
2,361 |
|
Other homebuilding |
|
|
(3 |
) |
|
|
867 |
|
|
|
145 |
|
|
|
2,144 |
|
Financial Services |
|
|
|
|
|
|
8 |
|
|
|
9 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total |
|
|
3,847 |
|
|
|
5,227 |
|
|
|
9,951 |
|
|
|
15,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated (a) |
|
|
1,110 |
|
|
|
819 |
|
|
|
3,128 |
|
|
|
2,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
4,957 |
|
|
$ |
6,046 |
|
|
$ |
13,079 |
|
|
$ |
18,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Assets (b) |
|
|
|
|
|
|
|
|
West |
|
$ |
723,592 |
|
|
$ |
779,863 |
|
East |
|
|
453,661 |
|
|
|
507,412 |
|
Southeast |
|
|
200,339 |
|
|
|
225,125 |
|
Other homebuilding |
|
|
39,663 |
|
|
|
64,123 |
|
Financial Services |
|
|
33,853 |
|
|
|
38,156 |
|
Corporate and unallocated (c) |
|
|
657,363 |
|
|
|
1,024,681 |
|
Discontinued operations |
|
|
118 |
|
|
|
2,439 |
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
2,108,589 |
|
|
$ |
2,641,799 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and unallocated includes amortization of capitalized interest and numerous shared
services functions that benefit all segments, the costs of which are not allocated to the
operating segments reported above including information technology, national sourcing and
purchasing, treasury, corporate finance, legal, branding and other national marketing costs.
In addition, for the three and nine months ended June 30, 2009, corporate and unallocated also
includes $2.5 million and $7.5 million of investigation-related costs and approximately $3
million and $16 million for obligations related to the government investigations (see Note
9), respectively. For the three and nine months ended June 30, 2008, corporate and
unallocated includes $11.0 million and $28.2 million of investigation-related costs,
respectively. Corporate and unallocated also includes goodwill impairment |
27
|
|
|
|
|
charges of $0 and
$16.1 million for the three and nine months ended June 30, 2009 and $4.4 and $52.5 million for
the three and nine months ended June 30, 2008, respectively (see Note 1). |
|
(b) |
|
Segment assets as of September 30, 2008 include goodwill assigned from prior acquisitions.
See Note 1 for goodwill by segment as of June 30, 2009 and September 30, 2008. |
|
(c) |
|
Primarily consists of cash and cash equivalents, consolidated inventory not owned, deferred
taxes, capitalized interest and other corporate items that are not allocated to the segments. |
(12) Supplemental Guarantor Information
As discussed in Note 7, our obligations to pay principal, premium, if any, and interest under
certain debt are guaranteed on a joint and several basis by substantially all of our subsidiaries.
Effective with the 2008 amendments discussed in Note 7, Beazer Mortgage is a guarantor of our
Senior Notes. As a result, Beazer Mortgage has been included as a guarantor subsidiary for all
periods presented. Certain of our title, warranty and immaterial subsidiaries do not guarantee our
Senior Notes or our Secured Revolving Credit Facility. The guarantees are full and unconditional
and the guarantor subsidiaries are 100% owned by Beazer Homes USA, Inc. We have determined that
separate, full financial statements of the guarantors would not be material to investors and,
accordingly, supplemental financial information for the guarantors is presented.
28
Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
June 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Beazer Homes |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Beazer Homes |
|
|
USA, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
USA, Inc. |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
463,427 |
|
|
$ |
2,970 |
|
|
$ |
2,751 |
|
|
$ |
(4,199 |
) |
|
$ |
464,949 |
|
Restricted cash |
|
|
11,327 |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
11,902 |
|
Accounts receivable (net of allowance of $6,129) |
|
|
|
|
|
|
26,139 |
|
|
|
46 |
|
|
|
|
|
|
|
26,185 |
|
Income tax receivable |
|
|
13,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,957 |
|
Owned inventory |
|
|
|
|
|
|
1,397,181 |
|
|
|
|
|
|
|
|
|
|
|
1,397,181 |
|
Consolidated inventory not owned |
|
|
|
|
|
|
58,542 |
|
|
|
|
|
|
|
|
|
|
|
58,542 |
|
Investments in unconsolidated joint ventures |
|
|
3,093 |
|
|
|
26,812 |
|
|
|
|
|
|
|
|
|
|
|
29,905 |
|
Deferred tax assets, net |
|
|
22,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,109 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
30,071 |
|
|
|
|
|
|
|
|
|
|
|
30,071 |
|
Investments in subsidiaries |
|
|
202,174 |
|
|
|
|
|
|
|
|
|
|
|
(202,174 |
) |
|
|
|
|
Intercompany |
|
|
1,065,705 |
|
|
|
(1,073,731 |
) |
|
|
3,827 |
|
|
|
4,199 |
|
|
|
|
|
Other assets |
|
|
26,440 |
|
|
|
23,153 |
|
|
|
4,195 |
|
|
|
|
|
|
|
53,788 |
|
|
|
|
Total assets |
|
$ |
1,808,232 |
|
|
$ |
491,712 |
|
|
$ |
10,819 |
|
|
$ |
(202,174 |
) |
|
$ |
2,108,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
|
|
|
$ |
76,461 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
76,461 |
|
Other liabilities |
|
|
90,487 |
|
|
|
151,383 |
|
|
|
7,103 |
|
|
|
|
|
|
|
248,973 |
|
Intercompany |
|
|
476 |
|
|
|
|
|
|
|
(476 |
) |
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory
not owned |
|
|
|
|
|
|
31,764 |
|
|
|
|
|
|
|
|
|
|
|
31,764 |
|
Senior notes (net of discounts of $2,013) |
|
|
1,407,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,407,486 |
|
Junior subordinated notes |
|
|
103,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,093 |
|
Other notes payable |
|
|
|
|
|
|
34,122 |
|
|
|
|
|
|
|
|
|
|
|
34,122 |
|
Model home financing obligations |
|
|
46,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,908 |
|
|
|
|
Total liabilities |
|
|
1,648,450 |
|
|
|
293,730 |
|
|
|
6,627 |
|
|
|
|
|
|
|
1,948,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
159,782 |
|
|
|
197,982 |
|
|
|
4,192 |
|
|
|
(202,174 |
) |
|
|
159,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,808,232 |
|
|
$ |
491,712 |
|
|
$ |
10,819 |
|
|
$ |
(202,174 |
) |
|
$ |
2,108,589 |
|
|
|
|
29
Beazer Homes USA, Inc.
Unaudited Consolidating Balance Sheet Information
September 30, 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Beazer Homes |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Beazer Homes |
|
|
USA, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
USA, Inc. |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
575,856 |
|
|
$ |
14,806 |
|
|
$ |
5 |
|
|
$ |
(6,333 |
) |
|
$ |
584,334 |
|
Restricted cash |
|
|
|
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
297 |
|
Accounts receivable (net of allowance of $8,915) |
|
|
|
|
|
|
46,504 |
|
|
|
51 |
|
|
|
|
|
|
|
46,555 |
|
Income tax receivable |
|
|
173,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,500 |
|
Owned inventory |
|
|
|
|
|
|
1,545,006 |
|
|
|
|
|
|
|
|
|
|
|
1,545,006 |
|
Consolidated inventory not owned |
|
|
|
|
|
|
106,655 |
|
|
|
|
|
|
|
|
|
|
|
106,655 |
|
Investments in unconsolidated joint ventures |
|
|
3,093 |
|
|
|
29,972 |
|
|
|
|
|
|
|
|
|
|
|
33,065 |
|
Deferred tax assets, net |
|
|
20,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,216 |
|
Property, plant and equipment, net |
|
|
|
|
|
|
39,822 |
|
|
|
|
|
|
|
|
|
|
|
39,822 |
|
Goodwill |
|
|
|
|
|
|
16,143 |
|
|
|
|
|
|
|
|
|
|
|
16,143 |
|
Investments in subsidiaries |
|
|
393,783 |
|
|
|
|
|
|
|
|
|
|
|
(393,783 |
) |
|
|
|
|
Intercompany |
|
|
979,646 |
|
|
|
(989,138 |
) |
|
|
3,159 |
|
|
|
6,333 |
|
|
|
|
|
Other assets |
|
|
35,701 |
|
|
|
33,518 |
|
|
|
6,987 |
|
|
|
|
|
|
|
76,206 |
|
|
|
|
Total assets |
|
$ |
2,181,795 |
|
|
$ |
843,585 |
|
|
$ |
10,202 |
|
|
$ |
(393,783 |
) |
|
$ |
2,641,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
|
|
|
$ |
90,371 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
90,371 |
|
Other liabilities |
|
|
108,975 |
|
|
|
243,010 |
|
|
|
6,607 |
|
|
|
|
|
|
|
358,592 |
|
Intercompany |
|
|
1,210 |
|
|
|
|
|
|
|
(1,210 |
) |
|
|
|
|
|
|
|
|
Obligations related to consolidated inventory
not owned |
|
|
|
|
|
|
70,608 |
|
|
|
|
|
|
|
|
|
|
|
70,608 |
|
Senior notes (net of discounts of $2,565) |
|
|
1,522,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,522,435 |
|
Junior subordinated notes |
|
|
103,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,093 |
|
Other notes payable |
|
|
|
|
|
|
50,618 |
|
|
|
|
|
|
|
|
|
|
|
50,618 |
|
Model home financing obligations |
|
|
71,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,231 |
|
|
|
|
Total liabilities |
|
|
1,806,944 |
|
|
|
454,607 |
|
|
|
5,397 |
|
|
|
|
|
|
|
2,266,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
374,851 |
|
|
|
388,978 |
|
|
|
4,805 |
|
|
|
(393,783 |
) |
|
|
374,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
2,181,795 |
|
|
$ |
843,585 |
|
|
$ |
10,202 |
|
|
$ |
(393,783 |
) |
|
$ |
2,641,799 |
|
|
|
|
30
Beazer Homes USA, Inc.
Unaudited Consolidating Statement of Operations Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Beazer Homes |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Beazer Homes |
|
|
USA, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
USA, Inc. |
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
224,509 |
|
|
$ |
144 |
|
|
$ |
|
|
|
$ |
224,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
12,999 |
|
|
|
194,177 |
|
|
|
|
|
|
|
|
|
|
|
207,176 |
|
Inventory impairments and option contract
abandonments |
|
|
160 |
|
|
|
11,696 |
|
|
|
|
|
|
|
|
|
|
|
11,856 |
|
|
|
|
Gross (loss) profit |
|
|
(13,159 |
) |
|
|
18,636 |
|
|
|
144 |
|
|
|
|
|
|
|
5,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
51,485 |
|
|
|
(128 |
) |
|
|
|
|
|
|
51,357 |
|
Depreciation and amortization |
|
|
|
|
|
|
4,957 |
|
|
|
|
|
|
|
|
|
|
|
4,957 |
|
|
|
|
Operating (loss) income |
|
|
(13,159 |
) |
|
|
(37,806 |
) |
|
|
272 |
|
|
|
|
|
|
|
(50,693 |
) |
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
(4,041 |
) |
|
|
|
|
|
|
|
|
|
|
(4,041 |
) |
Gain on extinguishment of debt |
|
|
55,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,214 |
|
Other (expense) income, net |
|
|
(23,728 |
) |
|
|
1,566 |
|
|
|
(208 |
) |
|
|
|
|
|
|
(22,370 |
) |
|
|
|
(Loss) income from continuing operations before
income taxes |
|
|
18,327 |
|
|
|
(40,281 |
) |
|
|
64 |
|
|
|
|
|
|
|
(21,890 |
) |
(Benefit from) provision for income taxes |
|
|
7,615 |
|
|
|
(1,639 |
) |
|
|
14 |
|
|
|
|
|
|
|
5,990 |
|
Equity in loss of subsidiaries |
|
|
(38,592 |
) |
|
|
|
|
|
|
|
|
|
|
38,592 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(27,880 |
) |
|
|
(38,642 |
) |
|
|
50 |
|
|
|
38,592 |
|
|
|
(27,880 |
) |
Loss from discontinued operations, net of tax |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
96 |
|
|
|
|
|
Equity in loss of subsidiaries |
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
(96 |
) |
|
|
|
Net (loss) income |
|
$ |
(27,976 |
) |
|
$ |
(38,738 |
) |
|
$ |
50 |
|
|
$ |
38,688 |
|
|
$ |
(27,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
644,860 |
|
|
$ |
480 |
|
|
$ |
|
|
|
$ |
645,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
36,551 |
|
|
|
544,369 |
|
|
|
|
|
|
|
|
|
|
|
580,920 |
|
Inventory impairments and option contract
abandonments |
|
|
2,113 |
|
|
|
74,207 |
|
|
|
|
|
|
|
|
|
|
|
76,320 |
|
|
|
|
Gross (loss) profit |
|
|
(38,664 |
) |
|
|
26,284 |
|
|
|
480 |
|
|
|
|
|
|
|
(11,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
174,631 |
|
|
|
(35 |
) |
|
|
|
|
|
|
174,596 |
|
Depreciation and amortization |
|
|
|
|
|
|
13,079 |
|
|
|
|
|
|
|
|
|
|
|
13,079 |
|
Goodwill impairment |
|
|
|
|
|
|
16,143 |
|
|
|
|
|
|
|
|
|
|
|
16,143 |
|
|
|
|
Operating (loss) income |
|
|
(38,664 |
) |
|
|
(177,569 |
) |
|
|
515 |
|
|
|
|
|
|
|
(215,718 |
) |
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
(13,795 |
) |
|
|
|
|
|
|
|
|
|
|
(13,795 |
) |
Gain on extinguishment of debt |
|
|
55,214 |
|
|
|
3,574 |
|
|
|
|
|
|
|
|
|
|
|
58,788 |
|
Other (expense) income, net |
|
|
(65,987 |
) |
|
|
6,241 |
|
|
|
(212 |
) |
|
|
|
|
|
|
(59,958 |
) |
|
|
|
(Loss) income from continuing operations before
income taxes |
|
|
(49,437 |
) |
|
|
(181,549 |
) |
|
|
303 |
|
|
|
|
|
|
|
(230,683 |
) |
(Benefit from) provision for income taxes |
|
|
(17,071 |
) |
|
|
8,975 |
|
|
|
115 |
|
|
|
|
|
|
|
(7,981 |
) |
Equity in loss of subsidiaries |
|
|
(190,336 |
) |
|
|
|
|
|
|
|
|
|
|
190,336 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(222,702 |
) |
|
|
(190,524 |
) |
|
|
188 |
|
|
|
190,336 |
|
|
|
(222,702 |
) |
Loss from discontinued operations, net of tax |
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
|
472 |
|
|
|
|
|
Equity in loss of subsidiaries |
|
|
|
|
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
|
(472 |
) |
|
|
|
Net (loss) income |
|
$ |
(223,174 |
) |
|
$ |
(190,996 |
) |
|
$ |
188 |
|
|
$ |
190,808 |
|
|
$ |
(223,174 |
) |
|
|
|
31
Beazer Homes USA, Inc.
Unaudited Consolidating Statement of Operations Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Beazer Homes |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Beazer Homes |
|
|
USA, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
USA, Inc. |
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
455,427 |
|
|
$ |
151 |
|
|
$ |
|
|
|
$ |
455,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
26,693 |
|
|
|
380,819 |
|
|
|
|
|
|
|
|
|
|
|
407,512 |
|
Inventory impairments and option contract
abandonments |
|
|
1,875 |
|
|
|
93,607 |
|
|
|
|
|
|
|
|
|
|
|
95,482 |
|
|
|
|
Gross (loss) profit |
|
|
(28,568 |
) |
|
|
(18,999 |
) |
|
|
151 |
|
|
|
|
|
|
|
(47,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
83,452 |
|
|
|
65 |
|
|
|
|
|
|
|
83,517 |
|
Depreciation and amortization |
|
|
|
|
|
|
6,046 |
|
|
|
|
|
|
|
|
|
|
|
6,046 |
|
Goodwill impairment |
|
|
|
|
|
|
4,365 |
|
|
|
|
|
|
|
|
|
|
|
4,365 |
|
|
|
|
Operating (loss) income |
|
|
(28,568 |
) |
|
|
(112,862 |
) |
|
|
86 |
|
|
|
|
|
|
|
(141,344 |
) |
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
(18,568 |
) |
|
|
|
|
|
|
|
|
|
|
(18,568 |
) |
Other (expense) income, net |
|
|
(14,083 |
) |
|
|
567 |
|
|
|
27 |
|
|
|
|
|
|
|
(13,489 |
) |
|
|
|
(Loss) income before income taxes |
|
|
(42,651 |
) |
|
|
(130,863 |
) |
|
|
113 |
|
|
|
|
|
|
|
(173,401 |
) |
(Benefit from) provision for income taxes |
|
|
(15,964 |
) |
|
|
(47,776 |
) |
|
|
33 |
|
|
|
|
|
|
|
(63,707 |
) |
Equity in loss of subsidiaries |
|
|
(83,007 |
) |
|
|
|
|
|
|
|
|
|
|
83,007 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(109,694 |
) |
|
|
(83,087 |
) |
|
|
80 |
|
|
|
83,007 |
|
|
|
(109,694 |
) |
Loss from discontinued operations, net of tax |
|
|
|
|
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
(148 |
) |
Equity in loss of subsidiaries |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(109,842 |
) |
|
$ |
(83,235 |
) |
|
$ |
80 |
|
|
$ |
83,155 |
|
|
$ |
(109,842 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
1,361,146 |
|
|
$ |
503 |
|
|
|
|
|
|
$ |
1,361,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home construction and land sales expenses |
|
|
75,982 |
|
|
|
1,147,270 |
|
|
|
|
|
|
|
|
|
|
|
1,223,252 |
|
Inventory impairments and option contract
abandonments |
|
|
12,468 |
|
|
|
439,386 |
|
|
|
|
|
|
|
|
|
|
|
451,854 |
|
|
|
|
Gross (loss) profit |
|
|
(88,450 |
) |
|
|
(225,510 |
) |
|
|
503 |
|
|
|
|
|
|
|
(313,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
245,472 |
|
|
|
224 |
|
|
|
|
|
|
|
245,696 |
|
Depreciation and amortization |
|
|
|
|
|
|
18,250 |
|
|
|
|
|
|
|
|
|
|
|
18,250 |
|
Goodwill impairment |
|
|
|
|
|
|
52,470 |
|
|
|
|
|
|
|
|
|
|
|
52,470 |
|
|
|
|
Operating (loss) income |
|
|
(88,450 |
) |
|
|
(541,702 |
) |
|
|
279 |
|
|
|
|
|
|
|
(629,873 |
) |
Equity in loss of unconsolidated joint ventures |
|
|
|
|
|
|
(75,069 |
) |
|
|
|
|
|
|
|
|
|
|
(75,069 |
) |
Other (expense) income, net |
|
|
(28,122 |
) |
|
|
7,036 |
|
|
|
179 |
|
|
|
|
|
|
|
(20,907 |
) |
|
|
|
(Loss) income before income taxes |
|
|
(116,572 |
) |
|
|
(609,735 |
) |
|
|
458 |
|
|
|
|
|
|
|
(725,849 |
) |
(Benefit from) provision for income taxes |
|
|
(43,633 |
) |
|
|
(206,298 |
) |
|
|
160 |
|
|
|
|
|
|
|
(249,771 |
) |
Equity in loss of subsidiaries |
|
|
(403,139 |
) |
|
|
|
|
|
|
|
|
|
|
403,139 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(476,078 |
) |
|
|
(403,437 |
) |
|
|
298 |
|
|
|
403,139 |
|
|
|
(476,078 |
) |
Loss from discontinued operations, net of tax |
|
|
|
|
|
|
(1,893 |
) |
|
|
|
|
|
|
|
|
|
|
(1,893 |
) |
Equity in loss of subsidiaries |
|
|
(1,893 |
) |
|
|
|
|
|
|
|
|
|
|
1,893 |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(477,971 |
) |
|
$ |
(405,330 |
) |
|
$ |
298 |
|
|
$ |
405,032 |
|
|
$ |
(477,971 |
) |
|
|
|
32
Beazer Homes USA, Inc.
Unaudited Consolidating Statements of Cash Flow Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Beazer Homes |
|
Guarantor |
|
Non-Guarantor |
|
Consolidating |
|
Beazer Homes |
|
|
USA, Inc. |
|
Subsidiaries |
|
Subsidiaries |
|
Adjustments |
|
USA, Inc. |
|
|
|
For the nine months ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
61,635 |
|
|
$ |
(63,616 |
) |
|
$ |
3,481 |
|
|
$ |
|
|
|
$ |
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(5,484 |
) |
|
|
|
|
|
|
|
|
|
|
(5,484 |
) |
Investments in unconsolidated joint ventures |
|
|
|
|
|
|
(9,042 |
) |
|
|
|
|
|
|
|
|
|
|
(9,042 |
) |
Changes in restricted cash |
|
|
(11,327 |
) |
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
(11,605 |
) |
|
|
|
Net cash used in investing activities |
|
|
(11,327 |
) |
|
|
(14,804 |
) |
|
|
|
|
|
|
|
|
|
|
(26,131 |
) |
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Senior Notes |
|
|
(54,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,836 |
) |
Repayment of other secured notes payable |
|
|
|
|
|
|
(11,995 |
) |
|
|
|
|
|
|
|
|
|
|
(11,995 |
) |
Repayment of model home financing obligations |
|
|
(24,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,323 |
) |
Debt issuance costs |
|
|
(1,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,311 |
) |
Common stock redeemed |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22 |
) |
Tax benefit from stock transactions |
|
|
(2,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,267 |
) |
Advances to/from subsidiaries |
|
|
(79,978 |
) |
|
|
78,579 |
|
|
|
(735 |
) |
|
|
2,134 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(162,737 |
) |
|
|
66,584 |
|
|
|
(735 |
) |
|
|
2,134 |
|
|
|
(94,754 |
) |
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(112,429 |
) |
|
|
(11,836 |
) |
|
|
2,746 |
|
|
|
2,134 |
|
|
|
(119,385 |
) |
Cash and cash equivalents at beginning of period |
|
|
575,856 |
|
|
|
14,806 |
|
|
|
5 |
|
|
|
(6,333 |
) |
|
|
584,334 |
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
463,427 |
|
|
$ |
2,970 |
|
|
$ |
2,751 |
|
|
$ |
(4,199 |
) |
|
$ |
464,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
(193,242 |
) |
|
$ |
217,448 |
|
|
$ |
293 |
|
|
$ |
|
|
|
$ |
24,499 |
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(7,951 |
) |
|
|
2 |
|
|
|
|
|
|
|
(7,949 |
) |
Investments in unconsolidated joint ventures |
|
|
|
|
|
|
(11,137 |
) |
|
|
|
|
|
|
|
|
|
|
(11,137 |
) |
Changes in restricted cash |
|
|
|
|
|
|
4,268 |
|
|
|
|
|
|
|
|
|
|
|
4,268 |
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
|
|
|
|
(14,820 |
) |
|
|
2 |
|
|
|
|
|
|
|
(14,818 |
) |
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of other secured notes payable |
|
|
|
|
|
|
(100,472 |
) |
|
|
|
|
|
|
|
|
|
|
(100,472 |
) |
Repayment of model home financing obligations |
|
|
(27,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,728 |
) |
Debt issuance costs |
|
|
(21,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,135 |
) |
Common stock redeemed |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
Tax benefit from stock transactions |
|
|
(454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(454 |
) |
Advances to/from subsidiaries |
|
|
118,873 |
|
|
|
(102,979 |
) |
|
|
(111 |
) |
|
|
(15,783 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
69,529 |
|
|
|
(203,451 |
) |
|
|
(111 |
) |
|
|
(15,783 |
) |
|
|
(149,816 |
) |
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(123,713 |
) |
|
|
(823 |
) |
|
|
184 |
|
|
|
(15,783 |
) |
|
|
(140,135 |
) |
Cash and cash equivalents at beginning of period |
|
|
447,296 |
|
|
|
9,700 |
|
|
|
1,559 |
|
|
|
(4,218 |
) |
|
|
454,337 |
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
323,583 |
|
|
$ |
8,877 |
|
|
$ |
1,743 |
|
|
$ |
(20,001 |
) |
|
$ |
314,202 |
|
|
|
|
(13) Discontinued Operations
On February 1, 2008, the Company determined that it would discontinue its mortgage origination
services through Beazer Mortgage Corporation (BMC). In February 2008, the Company entered into a
new marketing services arrangement with Countrywide Financial Corporation (Countrywide), whereby
the Company would market Countrywide as the preferred mortgage provider to its customers. In
addition, during the three months ended March 31, 2008, the Company wrote off its entire $7.1
million investment in Homebuilders Financial Network LLC (HFN). HFN was a joint venture
investment which was established to provide loan processing services to mortgage originators. The
Company assigned its ownership interest to its joint venture partner. The Companys
33
joint venture
interest in HFN was not owned by Beazer Mortgage Corporation and, therefore, the associated
investment as of June 30, 2008 is not included in the discontinued operations information presented
below.
The Company has classified the results of operations of BMC, previously included in our Financial
Services segment, as discontinued operations in the accompanying unaudited condensed consolidated
statements of operations for all periods presented in accordance with SFAS 144. As of June 30,
2009, substantially all BMC operating activities have ceased. Discontinued operations were not
segregated in the unaudited condensed consolidated statements of cash flows. Therefore, amounts
for certain captions in the unaudited condensed consolidated statements of cash flows will not
agree with the respective data in the unaudited condensed consolidated statements of operations.
The results of the BMC operations classified as discontinued operations in the unaudited condensed
consolidated statements of operations for the three and nine months ended June 30, 2009 and 2008
were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,497 |
|
Exit and disposal charges of mortgage origination business |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(621 |
) |
Loss from discontinued operations before income taxes |
|
|
(96 |
) |
|
|
(237 |
) |
|
|
(472 |
) |
|
|
(3,034 |
) |
Benefit from income taxes |
|
|
|
|
|
|
(89 |
) |
|
|
|
|
|
|
(1,141 |
) |
Loss from discontinued operations, net of tax |
|
|
(96 |
) |
|
|
(148 |
) |
|
|
(472 |
) |
|
|
(1,893 |
) |
Assets and liabilities from discontinued operations at June 30, 2009 and September 30, 2008, which
entirely relates to BMC, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
4 |
|
|
|
2,305 |
|
Residential mortgage loans available-for-sale |
|
|
93 |
|
|
|
94 |
|
Other |
|
|
21 |
|
|
|
40 |
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
$ |
118 |
|
|
$ |
2,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Trade accounts payable and other liabilities |
|
$ |
300 |
|
|
$ |
360 |
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
$ |
300 |
|
|
$ |
360 |
|
|
|
|
|
|
|
|
(14) Fair Value of Financial Instruments
The fair value of our cash and cash equivalents, restricted cash, accounts receivable, trade
accounts payable, other liabilities, other secured notes payable and model home financing
obligations approximate their carrying amounts due to the short maturity of these assets and
liabilities and the variable interest rates on such obligations. Obligations related to
consolidated inventory not owned are recorded at estimated fair value. The carrying values and
estimated fair values of other financial assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
As of September 30, 2008 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Senior Notes |
|
$ |
1,407,486 |
|
|
$ |
761,189 |
|
|
$ |
1,522,669 |
|
|
$ |
1,051,150 |
|
Junior subordinated notes |
|
|
103,093 |
|
|
|
42,909 |
|
|
|
103,093 |
|
|
|
68,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,510,579 |
|
|
$ |
804,098 |
|
|
$ |
1,625,762 |
|
|
$ |
1,119,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values shown above for our publicly held Senior Notes have been determined using
quoted market rates. The fair value of our publicly held junior subordinated notes is estimated by
discounting scheduled cash flows through maturity. The discount
34
rate is estimated using market
rates currently being offered on loans with similar terms and credit quality. Judgment is required
in interpreting market data to develop these estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that we could realize in a current
market exchange.
(15) Subsequent Events
On July 31, 2009, we adopted a Section 382 stockholder rights plan (the Rights Plan). The
purpose of the stockholder rights plan is to protect stockholder value by preserving the value of
certain deferred tax assets of the Company primarily associated with net operating loss
carryforwards (NOL) under Section 382 of the Internal Revenue Code. The Rights Plan was adopted
to reduce the likelihood of an unintended ownership change, as defined by Section 382, occurring
as a result of ordinary buying and selling of the Companys common shares. We believe that the
Rights Plan serves the interests of all stockholders by attempting to protect our ability to use
our deferred tax assets to offset tax liabilities in the future. The Rights Plan was not adopted
as an anti-takeover measure and once the deferred tax assets have been substantially realized, the
Board of Directors intends to terminate the Rights Plan. Under the Rights Plan, one right will be
distributed for each share of common stock of the Company outstanding as of August 10, 2009. Under
the Rights Plan, if any person or group acquires 4.95% or more of the outstanding shares of common
stock of the Company without the approval of the Board of Directors, there would be a triggering
event causing significant dilution in the voting power of such person or group.
Effective August 6, 2009, Michael H. Furlow resigned his position as Executive Vice President and
Chief Operating Officer of the Company and became the division president of our South Carolina
homebuilding operations. In connection with this change in responsibilities, the Company has
entered into new two-year employment and supplemental employment agreements with Mr. Furlow which,
among other items, establishes his base salary during his employment term, entitles him to participate in the Companys
incentive compensation and welfare plans available to division presidents, and amends the change in
control provisions in his agreement to reflect his new two-year employment term.
As disclosed in Note 1, on August 4, 2009, we offered to exchange stock options/SSARs to purchase
310,011 shares of our common stock with exercise prices ranging from $26.51 to $62.02 per share for
newly issued restricted shares of common stock based on the exercise price of the eligible awards
exchanged. Eligible employees may voluntary elect to accept the offer of exchange through August
31, 2009, unless the offer is extended.
As disclosed in Note 3, subsequent to quarter end, one of our unconsolidated joint ventures
completed a modification of its loan agreement which resulted in, among other things, an extension
of the loan maturity for two years and the release of certain repayment, specific performance and
loan-to-value maintenance guarantees, the Company portion of which was estimated at a maximum of
$19.9 million. The Company contributed $9.7 million to the joint venture which was used to pay
down outstanding debt and which increased our investment in the joint venture.
As disclosed in Note 7, on August 5, 2009, the Secured Revolving Credit Facility was reduced to $22
million, and will be used to provide for future letter of credit needs. The restructured facility
will allow us to issue letters of credit collateralized by either cash or assets of the Company at
the Companys option, conditioned upon certain conditions and covenant compliance. We also entered
into three stand-alone, cash-secured, letter of credit agreements with banks to preserve the
pre-existing letters of credit issued under the Secured Revolving Credit Facility and to issue new
letters of credit.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview: Throughout fiscal 2008 and into the first half of fiscal 2009, the
homebuilding environment continued to deteriorate against a backdrop of macroeconomic recession,
declining consumer confidence and significant tightening in the availability of home mortgage
credit. While we have begun to see signs that some negative market trends may be moderating at
both local and national levels, key macroeconomic indicators remain soft or mixed. In addition,
throughout fiscal 2009, the credit markets and the mortgage industry have experienced a period of
disruption characterized by bankruptcy, financial institution failure, consolidation and an
unprecedented level of intervention by the United States federal government. While the ultimate
outcome of
35
these events cannot be predicted, it has made it more difficult for homebuyers to obtain
acceptable financing. Although the supply of new and resale homes in the marketplace has decreased
recently, it is still excessive for the current level of consumer demand and is challenged by an
increased number of foreclosed homes offered at substantially reduced prices. These pressures in
the marketplace have resulted in the use of increased sales incentives and price reductions in an
effort to generate sales and reduce inventory levels by us and many of our competitors throughout
much of our fiscal 2009.
We have responded to this challenging environment with a disciplined approach to the business with
continued reductions in direct costs, overhead expenses and land spending. We have limited our
supply of unsold homes under construction and have focused on the generation of cash from our
existing inventory supply as we strive to align our land supply and inventory levels to current
expectations for home closings.
During our second and third quarters of fiscal 2009, as the macro-economic environment tempered, we
continued to focus on cash generation from the sale of existing inventory supply and introduced
additional sales incentives and reduced sales prices in certain situations in order to move this
inventory. We also reevaluated pricing and incentives offered in select communities in response to
local market conditions to generate sales on to-be-built inventory. Certain of these changes
resulted in adjustments to our inventory valuations. See Note 4 to the unaudited condensed
consolidated financial statements for discussion of the current quarters inventory impairments.
In fiscal 2008, we completed a comprehensive review of each of our markets in order to refine our
overall investment strategy and to optimize capital and resource allocations in an effort to
enhance our financial position and to increase shareholder value. This review entailed an
evaluation of both external market factors and our position in each market and resulted in the
decision formalized and announced on February 1, 2008, to discontinue homebuilding operations in
Charlotte, NC, Cincinnati/Dayton, OH, Columbia, SC, Columbus, OH and Lexington, KY. During the
third quarter of fiscal 2008, we announced our decision to discontinue homebuilding operations in
Colorado and Fresno, CA. We are actively completing an orderly exit from each of these markets and
remain committed to our remaining customer care responsibilities. We have committed to complete all
homes under construction in these markets and are in the process of marketing the remaining land
positions for sale. While the underlying basis for exiting each market was different, in each
instance we concluded we could better serve shareholder interests by re-allocating the capital
employed in these markets. As of June 30, 2009, these markets represented less than 2% of the
Companys total assets and are aggregated in our Other Homebuilding segment.
In addition, as disclosed in our 2008 Form 10-K, the independent investigation, initiated in April
2007 by the Audit Committee of the Board of Directors (the Investigation) and concluded in May
2008, identified accounting and financial reporting errors and irregularities which resulted in the
restatement of certain of our prior period consolidated financial statements and found evidence
that employees of the Companys Beazer Mortgage Corporation (Beazer Mortgage) subsidiary, which
voluntarily ceased operations in February 2008, violated certain federal and/or state regulations,
including U.S. Department of Housing and Urban Development (HUD) regulations. Areas of concern
uncovered by the Investigation included our former practices in the areas of: down payment
assistance programs; the charging of discount points; the closure of certain HUD Licenses; closing
accommodations; and the payment of a number of realtor bonuses and decorator allowances in certain
Federal Housing Administration (FHA) insured loans and non-FHA conventional loans originated by
Beazer Mortgage dating back to at least 2000. The Investigation also uncovered limited improper
practices in relation to the issuance of a number of non-FHA Stated Income Loans. We reviewed the
loan documents and supporting documentation and determined that the assets were effectively
isolated from the seller and its creditors (even in the event of bankruptcy). Based on that
information, management continues to believe that sale accounting at the time of the transfer of
the loans to third parties was appropriate.
As explained in Note 9 to the unaudited condensed consolidated financial statements, on July 1,
2009, the Company announced that it has resolved the criminal and civil investigations by the
United States Attorneys Office in the Western District of North Carolina (the U.S. Attorney) and
other state and federal agencies concerning matters that were the subject of the Investigation
discussed above. Based on the deferred prosecution agreement (DPA) with the U.S. Attorney and a
settlement agreement with HUD and the civil division of the Department of Justice and our
settlement agreements with the North Carolina Real Estate Commission and North Carolina Office of
the Commissioner of Banks, we recognized expense for the three and nine months ended June 30, 2009
of approximately $3 million and $16 million to cover payments that we believe are probable and
reasonably estimable for fiscal years 2009 and 2010. Under the terms of the DPA, the Companys
liability in each of the fiscal years after 2010 through a portion of fiscal 2014 (unless extended
as described in Note 9) will also be equal to 4% of the Companys adjusted EBITDA (earnings before
interest, taxes, depreciation and amortization as defined in the DPA). The total amount of such
obligations will be dependent on several factors; however, the maximum liability under the DPA and
other settlement agreements discussed above will not be less than $15.5 million
36
and will not exceed
$55.0 million. While we believe that our accrual for this liability is adequate as of June 30,
2009, positive EBITDA results in future years may require us to increase our accrual and incur
additional expense in the future.
The Housing and Economic Recovery Act of 2008 (HERA) was enacted into law on July 30, 2008.
Among other things, HERA provides for a temporary first-time home buyer tax credit for purchases
made through July 1, 2009; reforms of Fannie Mae and Freddie Mac, including adjustments to the
conforming loan limits; modernization and expansion of the FHA, including an increase to 3.5% in
the minimum down payment required for FHA loans; and the elimination of seller-funded down payment
assistance programs for FHA loans approved after September 30, 2008. Overall, HERA was intended to
help stabilize and add consumer confidence to the housing industry. However, certain of the
changes, such as the elimination of the down payment assistance programs and the increase in
minimum down payments, have adversely impacted the ability of potential homebuyers to afford to
purchase a new home or obtain financing. The down payment assistance programs were utilized for a
number of our home closings in fiscal 2008.
The Emergency Economic Stabilization Act of 2008 (EESA) was enacted into law on October 3, 2008.
EESA authorizes up to $700 billion in new spending authority for the United States Secretary of the
Treasury (the Secretary) to purchase, manage and ultimately dispose of troubled assets. The
provisions of this law include an expansion of the Hope for Homeowners Program. This program
allows the Secretary to use loan guarantees and credit enhancements so that loans can be modified
to prevent foreclosures. Also, the Secretary can consent to term extensions, rate-reductions and
principal write-downs. Federal agencies that own mortgage loans are directed to seek modifications
prior to foreclosures. In February 2009, the $8,000 First Time Homebuyer Tax Credit was enacted
into law. This law enables homebuyers who have not owned a home in the past three years, subject
to certain income limits, to receive a tax credit of 10% of the purchase price of a home up to a
maximum of $8,000. While we expect the impact of this legislation will generally be favorable to
the economy, the impact on our operations is not yet determinable.
Outlook: In the third quarter of fiscal 2009, we have experienced sequential improvement in sales
trends compared to our first and second quarters of fiscal 2009. Historically low interest rates,
increased affordability and federal and state housing tax credits appear to have enticed more
prospective buyers to purchase a new home. Together with a competitive environment characterized
by much lower levels of competition from private builders, these factors offer a slight hint of
improvement, though it is premature to conclude that a sustainable recovery is yet underway.
Foreclosures are still having by far the most damaging impact on the market. In most of our
markets, appraisals continue to be negatively impacted by foreclosure comparables which put
additional pricing pressure on all home sales and limit financing availability. As a result, we
expect that the fourth quarter of fiscal 2009 will continue to pose significant challenges for us
and, as a result, it is likely that we will also incur additional net losses in the fourth quarter
of 2009, which will further reduce our stockholders equity.
Certain of our property-specific secured notes payable agreements contain covenants that require us
to maintain minimum levels of stockholders equity (or some variation, such as tangible net worth)
or maximum levels of debt to stockholders equity. Although the specific covenants and related
definitions vary among the agreements, further reductions in our stockholders equity, absent the
receipt of waivers, may cause breaches of some or all of these covenants. Breaches of certain of
these covenants, to the extent they lead to an acceleration, may result in cross defaults under our
senior notes. The dollar value of property-specific secured notes payable agreements containing
stockholders equity-related covenants totaled $22.7 million at June 30, 2009. There can be no
assurance that we will be able to obtain any future waivers or amendments that may become necessary
without significant additional cost or at all. In each instance, however, a covenant default can
be cured by repayment of the indebtedness. During the first nine months of fiscal 2009, we fully
satisfied a $16.5 million note, secured by a single property for $10.7 million and recognized a
$3.6 million gain on debt extinguishment which is included in gain on extinguishment of debt in the
unaudited condensed consolidated statement of operations.
There were no amounts outstanding under the Secured Revolving Credit Facility at June 30, 2009 or
September 30, 2008; however, as of June 30, 2009, we had provided $11.3 million of cash in addition
to pledged real estate assets to supplementally collateralize our outstanding letters of credit of
$46.5 million. The Company has decided to amend and restructure its Secured Revolving Credit
Facility and recognized expense of $3.3 million of previously capitalized unamortized debt issuance
costs for the three and nine months ended June 30, 2009, which is included in other expense, net in
the unaudited condensed consolidated statements of operations. As part of this restructuring, the
current Secured Revolving Credit Facility was reduced to $22 million and will be provided by one
lender. The restructured facility will continue to provide for future working capital and letter
of credit needs, collateralized by either cash or
37
assets of the Company at the Companys option,
conditioned upon certain conditions and covenant compliance. We also entered into three
stand-alone, cash-secured, letter of credit agreements with banks to maintain the pre-existing
letters of credit that had been under the current Secured Revolving Credit Facility. At closing on
August 5, 2009, we elected to secure all of our letters of credit using cash collateral which
required additional cash in restricted accounts of $37.8 million.
Obligations to consummate offers to purchase 10% of our non-convertible senior notes at par may be
triggered if our consolidated tangible net worth (stockholders equity less intangible assets, as
defined) is less than $85 million at the end of any two consecutive fiscal quarters. As of June
30, 2009, our consolidated tangible net worth was $125.8 million. If triggered and fully
subscribed in the future, this could result in our having to purchase $123.6 million of notes,
based on amounts outstanding at June 30, 2009.
During the three months ended June 30, 2009, S&P lowered the Companys corporate credit rating from
CCC+ to CCC and maintained its negative outlook. S&P also cut ratings on the companys senior
unsecured notes from CCC to CCC-. On March 6, 2009 Moodys lowered its rating from B2 to Caa2 and
reaffirmed its negative outlook. On March 12, 2009, Fitch lowered the Companys issuer-default
rating from B- to CCC and its senior notes from CCC+/RR5 to CC/RR5, all of which are non-investment
grade ratings. The rating agencies announced that these downgrades reflect continued deterioration
in our homebuilding operations, credit metrics, other earnings-based metrics and the significant
decrease in our tangible net worth over the past year. These ratings and our current credit
condition affect, among other things, our ability to access new capital, especially debt, and may
result in more stringent covenants and higher interest rates under the terms of any new debt. Our
credit ratings could be further lowered or rating agencies could issue adverse commentaries in the
future, which could have a material adverse effect on our business, results of operations,
financial condition and liquidity. In particular, a further weakening of our financial condition,
including any further increase in our leverage or decrease in our profitability or cash flows,
could adversely affect our ability to obtain necessary funds, result in a further credit rating
downgrade, or otherwise increase our cost of borrowing.
Further, several of our joint ventures are in default under their debt agreements at June 30, 2009
or are at risk of defaulting. Although neither the Company nor any of its subsidiaries is the
borrower of any of this joint venture debt, we have issued guarantees of various types with respect
to many of these joint ventures. To the extent that we are unable to reach satisfactory
resolutions, we may be called upon to perform under our applicable guarantees. The total dollar
value of our repayment and loan-to-value maintenance guarantees was $28.9 million at June 30, 2009.
See Note 3 to the unaudited condensed consolidated financial statements.
Our cash and cash equivalents at June 30, 2009 was $464.9 million. Although we expect to incur a
net loss during the remainder of fiscal 2009, we believe our cash and cash equivalents as of June
30, 2009, cash generated from our operations during the remainder of fiscal 2009 will be adequate
to meet our liquidity needs during fiscal 2009. Additionally, we may be able to reduce our
investment in land and homes to generate further liquidity. However, if we are required to fund
all of the potential obligations associated with lower levels of stockholders equity, tangible net
worth and joint venture defaults, we would have cash requirements totaling approximately $210
million which would significantly reduce our overall liquidity.
As a result of these issues, in addition to our continued focus on generation and preservation of
cash, we are also focused on increasing our stockholders equity and reducing our leverage. In
order to accomplish this goal, we will likely need to issue new common or preferred equity. Any
new issuance may take the form of public or private offerings for cash, equity issued to consummate
acquisitions of assets or equity issued in exchange for a portion of our outstanding debt. In
addition, we may from time to time seek to retire or purchase our outstanding debt through cash
purchases and/or exchanges for equity or other debt securities, in open market purchases, privately
negotiated transactions or otherwise. There can be no assurance that we will be able to complete
any of these transactions on favorable terms or at all.
Critical Accounting Policies: Some of our critical accounting policies require the use of judgment
in their application or require estimates of inherently uncertain matters. Although our accounting
policies are in compliance with accounting principles generally accepted in the United States of
America, a change in the facts and circumstances of the underlying transactions could significantly
change the application of the accounting policies and the resulting financial statement impact. As
disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2008, our most
critical accounting policies relate to inventory valuation (inventory held for development and land
held for sale), homebuilding revenues and costs, warranty reserves, investments in unconsolidated
joint ventures and income tax valuation allowances. Since September 30, 2008, there have been no
significant changes to those critical accounting policies.
38
Seasonal and Quarterly Variability: Our homebuilding operating cycle generally reflects escalating
new order activity in the second and third fiscal quarters and increased closings in the third and
fourth fiscal quarters. However, beginning in the second half of fiscal 2006 and continuing through
the third quarter of fiscal 2009, we continued to experience challenging conditions in most of our
markets which contributed to decreased revenues and closings as compared to prior periods including
prior quarters, thereby reducing typical seasonal variations.
RESULTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Nine Months Ended June 30, |
|
($ in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
223,219 |
|
|
$ |
431,723 |
|
|
$ |
641,087 |
|
|
$ |
1,324,166 |
|
Land and lot sales |
|
|
1,077 |
|
|
|
22,975 |
|
|
|
3,096 |
|
|
|
34,544 |
|
Financial Services |
|
|
357 |
|
|
|
880 |
|
|
|
1,157 |
|
|
|
2,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
224,653 |
|
|
$ |
455,578 |
|
|
$ |
645,340 |
|
|
$ |
1,361,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
5,168 |
|
|
$ |
(50,338 |
) |
|
$ |
(13,122 |
) |
|
$ |
(317,398 |
) |
Land and lot sales |
|
|
96 |
|
|
|
2,042 |
|
|
|
65 |
|
|
|
1,002 |
|
Financial Services |
|
|
357 |
|
|
|
880 |
|
|
|
1,157 |
|
|
|
2,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,621 |
|
|
$ |
(47,416 |
) |
|
$ |
(11,900 |
) |
|
$ |
(313,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative (SG&A) expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding |
|
$ |
51,172 |
|
|
$ |
82,847 |
|
|
$ |
173,676 |
|
|
$ |
243,790 |
|
Financial Services |
|
|
185 |
|
|
|
670 |
|
|
|
920 |
|
|
|
1,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
51,357 |
|
|
$ |
83,517 |
|
|
$ |
174,596 |
|
|
$ |
245,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
4,957 |
|
|
$ |
6,046 |
|
|
$ |
13,079 |
|
|
$ |
18,250 |
|
|
As a percentage of total revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin |
|
|
2.5 |
% |
|
|
-10.4 |
% |
|
|
-1.8 |
% |
|
|
-23.0 |
% |
SG&A homebuilding |
|
|
22.8 |
% |
|
|
18.2 |
% |
|
|
26.9 |
% |
|
|
17.9 |
% |
SG&A Financial Services |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment |
|
$ |
|
|
|
$ |
4,365 |
|
|
$ |
16,143 |
|
|
$ |
52,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture activities |
|
$ |
758 |
|
|
$ |
(302 |
) |
|
$ |
630 |
|
|
$ |
(12,238 |
) |
Impairments |
|
|
(4,799 |
) |
|
|
(18,266 |
) |
|
|
(14,425 |
) |
|
|
(62,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated joint ventures |
|
$ |
(4,041 |
) |
|
$ |
(18,568 |
) |
|
$ |
(13,795 |
) |
|
$ |
(75,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate from continuing operations |
|
|
-27.4 |
% |
|
|
36.7 |
% |
|
|
3.5 |
% |
|
|
34.4 |
% |
Three and Nine Month Periods Ended June 30, 2009 Compared to the Comparable Periods Ended June
30, 2008
Revenues. The continued deterioration of the housing industry contributed to 50.7% and 52.6%
decreases in revenues for the three and nine months ended June 30, 2009 compared to the comparable
periods ended June 30, 2008. Homes closed decreased by 43.4% to 950 from 1,677 for the quarters
ended June 30, 2009 and 2008, respectively. For the nine months ended June 30, 2009 compared to
the same period of the prior year, homes closed decreased by 48.5% primarily due to the tightening
of mortgage credit availability, an increase in home foreclosures and other economic factors that
impacted consumer homebuyers. Foreclosures are still having the most damaging impact on the
market. In every market, appraisals continue to be negatively impacted by foreclosure comparables
which put further pricing pressure on all home sales and limit financing availability. This
decline in closings was especially pronounced throughout our markets in our East and Southeast
segments. The average sales price of homes closed decreased by approximately 9%
39
compared to the
same quarter of the prior year due to increased price competition, changes in geographic
concentrations of homes closed and additional price discounting and increased sales incentives
employed subsequent to June 30, 2008 related to the challenging market conditions, including the
increased number of foreclosed homes on the market at below average sales prices.
In addition, we had $1.1 million and $3.1 million of land sales for the three and nine months ended
June 30, 2009 compared to $23.0 million and $34.5 million for the three and nine months ended June
30, 2008, respectively.
Gross Profit (Loss). Gross margin for three and nine months ended June 30, 2009 were 2.5% and
- -1.8% (7.8% and 10.0% without impairments and abandonments) compared to gross margins of -10.4% and
- -23.0% (10.6% and 10.2% without impairments and abandonments) for the comparable periods of the
prior year, respectively. Gross margins continued to be negatively impacted by weakness in the
homebuilding industry. The improvement in gross margin was directly related to a reduction in
non-cash pre-tax inventory impairments and option contract abandonments from $95.5 million and
$451.9 million for the three and nine months ended June 30, 2008 to $11.9 million and $76.3 million
for the three and nine months ended June 30, 2009, as well as from cost reductions related to our
cost control initiatives including renegotiated vendor pricing where possible, offset slightly by
increased warranty expense for the three months ended June 30, 2009 compared to the prior year.
In our continued efforts to redeploy assets to more profitable endeavors, we executed several land
sales in the comparable period of the prior year. We realized minimal profit on land sales of
$96,000 and $65,000 for the three and nine months ended June 30, 2009 compared to profit on land
sales of $2.0 million and $1.0 million for the three and nine months ended June 30, 2008,
respectively.
Selling, General and Administrative Expense. Selling, general and administrative expense (SG&A)
totaled $51.4 million and $83.5 million for the three months ended June 30, 2009 and 2008 and
$174.6 million and $245.7 million for the nine months ended June 30, 2009 and 2008, respectively.
The 38.5% and 28.9% decreases in SG&A expense during the fiscal 2009 three and nine month periods
is primarily related to cost reductions realized as a result of our comprehensive review and
realignment of our overhead structure in light of our reduced volume expectations, lower sales
commissions from decreased revenues and decreased investigation-related costs and severance costs
offset partially by approximately $3 million and $16 million in obligations related to the
government investigations recorded in the three and nine months ended June 30, 2009, respectively
(see Note 9 to the unaudited condensed consolidated financial statements). The three months ended
June 30, 2009 and 2008 include $2.5 million and $11.0 million, respectively, of investigation
related costs. For the nine months ended June 30, 2009 and 2008, investigation-related costs were
$7.5 million and $28.2 million. As of June 30, 2009, we had reduced our overall number of
employees by 626, or 40%, as compared to June 30, 2008, or a cumulative reduction of 78% since
September 30, 2006.
Depreciation and Amortization. Depreciation and amortization (D&A) totaled $5.0 million and
$13.1 million for the three and nine months ended June 30, 2009. D&A totaled $6.0 million and
$18.3 million for the three and nine months ended June 30, 2008, respectively. The decrease in D&A
during the periods presented is related to reduced spending on model furnishings and sales office
improvements as a result of our strategic review of our communities and reduced depreciation
related to the consolidation of divisional offices and the discontinuation of our mortgage services
in fiscal 2008.
Goodwill Impairment Charges. The Company experienced a significant decline in its market
capitalization during the three months ended December 31, 2008 (the first quarter of fiscal 2009).
As of December 31, 2008, we considered these current and expected future market conditions and
recorded a pretax, non-cash goodwill impairment charge of $16.1 million in the first quarter of
fiscal 2009 related to our reporting units in Houston, Texas, Maryland and Nashville, Tennessee.
During the three and nine months ended June 30, 2008, we recorded goodwill impairment charges
totaling $4.4 million and $52.5 million related to our reporting units in Arizona, Southern
California, New Jersey and Virginia. These charges are reported in Corporate and Unallocated and
are not allocated to our homebuilding segments. As a result of these goodwill impairments, as of
June 30, 2009, we had no goodwill remaining.
Joint Venture Impairment Charges. As a result of the further deterioration of the housing market
in fiscal 2008 and the first half of fiscal 2009 and the settlement of guarantees under debt
obligations of certain of our unconsolidated joint ventures, we recorded impairments in certain of
our unconsolidated joint ventures totaling $4.8 million and $14.4 million during the three and nine
months ended June 30, 2009, respectively (see Note 3 to the unaudited condensed consolidated
financial statements where further discussed). Impairments of investments in our unconsolidated
joint ventures totaled $18.3 million and $62.8 million for the three and nine months ended June 30,
2008, respectively. If these adverse market conditions continue or worsen, we may have to take
further impairments of our investments in these joint ventures that may have a material adverse
effect on our financial position and results of operations.
Income Taxes. As we are in a cumulative loss position, as analyzed under SFAS 109, and based on
the lack of sufficient objective evidence regarding the realization of our deferred tax assets in
the foreseeable future, beginning with the fourth quarter of fiscal 2008,
40
we have recorded a
valuation allowance for substantially all of our deferred tax assets (see Note 8 to the unaudited
condensed consolidated financial statements for additional information). Our tax provision of $6.0
million for the three months ended June 30, 2009 primarily resulted from a revision of our estimate
of future sources of taxable income that warranted additional valuation allowance on our deferred
tax assets. Our tax benefit of $8.0 million for the nine months ended June 30, 2009, primarily
resulted from the additional valuation allowance referred to above and a reduction in our
liabilities for unrecognized tax benefits related to effectively settling examinations with tax
authorities and the expiration of certain statutes of limitations, offset by interest expense on
our remaining liabilities for unrecognized tax benefits.
The principal difference between our effective rate and the U.S. federal statutory rate for the
three and nine months ended June 30, 2009 is due to our valuation allowance, state income taxes
incurred, the non-deductible goodwill impairment charge and adjustments related to our liabilities
for unrecognized tax benefits discussed above. The principal difference between our effective rate
and the U.S. federal statutory rate for the three and nine months ended June 30, 2008 is due to
state income taxes incurred and the non-deductible goodwill impairment charge.
Segment Results for the Three and Nine Months Ended June 30, 2009 and 2008:
Homebuilding Revenues and Average Selling Price. The table below summarizes homebuilding revenues
and the average selling prices of our homes by reportable segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
|
Homebuilding Revenues |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
West |
|
$ |
87,204 |
|
|
$ |
144,913 |
|
|
|
-39.8 |
% |
|
$ |
219.1 |
|
|
$ |
241.9 |
|
|
|
-9.4 |
% |
East |
|
|
95,043 |
|
|
|
161,107 |
|
|
|
-41.0 |
% |
|
|
258.3 |
|
|
|
312.2 |
|
|
|
-17.3 |
% |
Southeast |
|
|
40,648 |
|
|
|
69,516 |
|
|
|
-41.5 |
% |
|
|
223.3 |
|
|
|
228.7 |
|
|
|
-2.4 |
% |
Other |
|
|
324 |
|
|
|
56,187 |
|
|
|
-99.4 |
% |
|
|
162.0 |
|
|
|
217.8 |
|
|
|
-25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
223,219 |
|
|
$ |
431,723 |
|
|
|
-48.3 |
% |
|
$ |
235.0 |
|
|
$ |
257.4 |
|
|
|
-8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
Homebuilding Revenues |
|
|
Average Selling Price |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
West |
|
$ |
263,799 |
|
|
$ |
433,450 |
|
|
|
-39.1 |
% |
|
$ |
224.3 |
|
|
$ |
248.7 |
|
|
|
-9.8 |
% |
East |
|
|
240,029 |
|
|
|
469,853 |
|
|
|
-48.9 |
% |
|
|
262.9 |
|
|
|
281.0 |
|
|
|
-6.4 |
% |
Southeast |
|
|
122,510 |
|
|
|
250,443 |
|
|
|
-51.1 |
% |
|
|
220.3 |
|
|
|
236.3 |
|
|
|
-6.8 |
% |
Other |
|
|
14,749 |
|
|
|
170,420 |
|
|
|
-91.3 |
% |
|
|
258.8 |
|
|
|
218.5 |
|
|
|
18.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
641,087 |
|
|
$ |
1,324,166 |
|
|
|
-51.6 |
% |
|
$ |
237.3 |
|
|
$ |
252.0 |
|
|
|
-5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues decreased for the three and nine months ended June 30, 2009 compared to
comparable periods of the prior year due to a 43.4% and 48.5% decrease in closings, respectively,
related to reduced demand, a continued high rate of cancellations and excess capacity in both new
and resale markets (including increased foreclosures available at lower prices) as investors
continued to divest of prior home purchases and potential homebuyers have difficulty selling their
homes and/or obtaining financing. In addition, credit tightening in the mortgage markets,
increased unemployment and a decline in consumer confidence in the majority of our markets further
compounded the market pressures during the three and nine months ended June 30, 2009.
Homebuilding revenues in our West segment decreased 39.8% and 39.1%, respectively for the three and
nine months ended June 30, 2009 compared to the comparable periods of fiscal 2008. These decreases
were driven by decreased closings of 33.6% and 32.4%, and decreased average sales prices of 9.4%
and 9.8%. These decreases were particularly impacted by credit tightening in the mortgage markets,
the existence of excess capacity in both new home and resale markets and a decline in consumer
confidence in the majority of our markets in this segment.
For the three months ended June 30, 2009, our East segment homebuilding revenues decreased by 41.0%
driven by a 28.7% decline in closings and a 17.3% decrease in average selling price which was
particularly pronounced in our New Jersey and Virginia markets. For the nine months ended June 30,
2009 compared to the prior year, the decrease in homebuilding revenues was driven by a 45.4%
41
decrease in closings across all of our markets in this segment. These declines reflect the impact
of excess capacity in the resale markets, the impact of credit tightening in the mortgage markets
and a decline in consumer confidence.
Our Southeast segment continued to be challenged by significant declines in demand and excess
capacity in both the new home and resale markets, driving decreases in homebuilding revenues of
41.5% and 51.1% for the three and nine months ended June 30, 2009 as compared to the same periods
of the prior year. Home closings in the Southeast segment decreased from the prior year comparable
periods by 40.1% and 47.5% for the three and nine months ended June 30, 2009 due to deteriorating
market conditions and competitive pressures. The decrease in closings was driven by lower demand,
higher available supply or new and resale inventory, increased competition and the tightening of
credit requirements and decreased availability of mortgage options for potential homebuyers.
Homebuilding revenues in our Other Homebuilding markets significantly decreased as a result of our
fiscal 2008 strategic decision to exit these markets and optimize our capital and resource
allocation in markets better suited to enhance our long-term financial position. As of June 30,
2009, we had one home in backlog related to these communities.
Land and Lot Sales Revenues. The table below summarizes land and lot sales revenues by reportable
segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
West |
|
$ |
124 |
|
|
$ |
|
|
|
|
n/a |
|
|
$ |
629 |
|
|
$ |
3,919 |
|
|
|
-83.9 |
% |
East |
|
|
|
|
|
|
134 |
|
|
|
-100.0 |
% |
|
|
|
|
|
|
2,654 |
|
|
|
-100.0 |
% |
Southeast |
|
|
695 |
|
|
|
|
|
|
|
n/a |
|
|
|
740 |
|
|
|
460 |
|
|
|
60.9 |
% |
Other |
|
|
258 |
|
|
|
22,841 |
|
|
|
-98.9 |
% |
|
|
1,727 |
|
|
|
27,511 |
|
|
|
-93.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,077 |
|
|
$ |
22,975 |
|
|
|
-95.3 |
% |
|
$ |
3,096 |
|
|
$ |
34,544 |
|
|
|
-91.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and lot sales in our Other Homebuilding segment in both periods relate to our strategic
decision to exit these markets. Land and lot sales revenues in our remaining segments relate to
land and lots sold that did not fit within our homebuilding programs and strategic plans in these
markets.
Gross Profit (Loss). Homebuilding gross profit is defined as homebuilding revenues less home cost
of sales (which includes land and land development costs, home construction costs, capitalized
interest, indirect costs of construction, estimated warranty costs, closing costs and inventory
impairment and lot option abandonment charges). The following table sets forth our homebuilding
gross profit (loss) and gross margin by reportable segment and total gross profit (loss) and gross
margin ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Gross Profit |
|
|
Gross |
|
|
Gross (Loss) |
|
|
Gross |
|
|
|
(Loss) |
|
|
Margin |
|
|
Profit |
|
|
Margin |
|
West |
|
$ |
7,667 |
|
|
|
8.8 |
% |
|
$ |
(19,543 |
) |
|
|
-13.5 |
% |
East |
|
|
10,913 |
|
|
|
11.5 |
% |
|
|
14,637 |
|
|
|
9.1 |
% |
Southeast |
|
|
2,094 |
|
|
|
5.2 |
% |
|
|
(2,473 |
) |
|
|
-3.6 |
% |
Other |
|
|
(225 |
) |
|
|
-69.4 |
% |
|
|
(13,168 |
) |
|
|
-23.4 |
% |
Corporate & unallocated |
|
|
(15,281 |
) |
|
|
n/a |
|
|
|
(29,791 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding |
|
|
5,168 |
|
|
|
2.3 |
% |
|
|
(50,338 |
) |
|
|
-11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and lot sales |
|
|
96 |
|
|
|
8.9 |
% |
|
|
2,042 |
|
|
|
8.9 |
% |
Financial services |
|
|
357 |
|
|
|
100.0 |
% |
|
|
880 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,621 |
|
|
|
2.5 |
% |
|
$ |
(47,416 |
) |
|
|
-10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Gross Profit |
|
|
Gross |
|
|
Gross (Loss) |
|
|
Gross |
|
|
|
(Loss) |
|
|
Margin |
|
|
Profit |
|
|
Margin |
|
West |
|
$ |
11,777 |
|
|
|
4.5 |
% |
|
$ |
(84,463 |
) |
|
|
-19.5 |
% |
East |
|
|
22,493 |
|
|
|
9.4 |
% |
|
|
(5,161 |
) |
|
|
-1.1 |
% |
Southeast |
|
|
481 |
|
|
|
0.4 |
% |
|
|
(51,568 |
) |
|
|
-20.6 |
% |
Other |
|
|
(7,805 |
) |
|
|
-52.9 |
% |
|
|
(81,781 |
) |
|
|
-48.0 |
% |
Corporate & unallocated |
|
|
(40,068 |
) |
|
|
n/a |
|
|
|
(94,425 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total homebuilding |
|
|
(13,122 |
) |
|
|
-2.0 |
% |
|
|
(317,398 |
) |
|
|
-24.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and lot sales |
|
|
65 |
|
|
|
2.1 |
% |
|
|
1,002 |
|
|
|
2.9 |
% |
Financial services |
|
|
1,157 |
|
|
|
100.0 |
% |
|
|
2,939 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(11,900 |
) |
|
|
-1.8 |
% |
|
$ |
(313,457 |
) |
|
|
-23.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in gross margins across all segments is primarily due to lower inventory impairments
and lot option abandonment charges.
Corporate and unallocated. Corporate and unallocated costs include the amortization of capitalized
interest and indirect construction costs. The decrease in corporate and unallocated costs relates
primarily to reductions of $13.7 million and $39.4 million in the amortization of capitalized
interest costs due to a lower capitalizable inventory base and an increase in disallowed interest
for capitalization which is recorded as other expense, net in the unaudited condensed consolidated
financial statements. The three and nine months ended June 30, 2008 also included additional
expenses related to the impairment of capitalized interest and indirect costs in connection with
our impairment of inventory held for development and higher amortization of indirect construction
costs.
Land and Lot Sales Gross Profit (Loss). The table below summarizes land and lot sales gross profit
(loss) by reportable segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
2008 |
|
|
Change |
|
West |
|
$ |
51 |
|
|
$ |
|
|
|
|
n/a |
|
|
$ |
(3 |
) |
|
$ |
1,630 |
|
|
|
-100.2 |
% |
East |
|
|
|
|
|
|
1,559 |
|
|
|
-100.0 |
% |
|
|
|
|
|
|
1,564 |
|
|
|
-100.0 |
% |
Southeast |
|
|
20 |
|
|
|
|
|
|
|
n/a |
|
|
|
59 |
|
|
|
99 |
|
|
|
-40.4 |
% |
Other |
|
|
25 |
|
|
|
483 |
|
|
|
-94.8 |
% |
|
|
9 |
|
|
|
(2,291 |
) |
|
|
100.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
96 |
|
|
$ |
2,042 |
|
|
|
-95.3 |
% |
|
$ |
65 |
|
|
$ |
1,002 |
|
|
|
-93.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Inventory Impairments. The following tables set forth, by reportable segment, the inventory
impairments and lot option abandonment charges recorded for the three and nine months ended June
30, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, |
|
Nine Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Development projects
and homes in process
(Held for Development) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
3,534 |
|
|
$ |
19,269 |
|
|
$ |
31,021 |
|
|
$ |
135,237 |
|
East |
|
|
1,260 |
|
|
|
6,928 |
|
|
|
7,884 |
|
|
|
58,892 |
|
Southeast |
|
|
1,234 |
|
|
|
15,078 |
|
|
|
10,874 |
|
|
|
40,475 |
|
Other |
|
|
|
|
|
|
2,432 |
|
|
|
93 |
|
|
|
19,475 |
|
Unallocated |
|
|
241 |
|
|
|
3,053 |
|
|
|
3,515 |
|
|
|
19,790 |
|
|
|
|
|
|
Subtotal |
|
$ |
6,269 |
|
|
$ |
46,760 |
|
|
$ |
53,387 |
|
|
$ |
273,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Held for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
4,279 |
|
|
$ |
6,910 |
|
|
$ |
7,236 |
|
|
$ |
7,714 |
|
East |
|
|
|
|
|
|
8,500 |
|
|
|
307 |
|
|
|
17,671 |
|
Southeast |
|
|
141 |
|
|
|
804 |
|
|
|
2,452 |
|
|
|
34,608 |
|
Other |
|
|
64 |
|
|
|
4,752 |
|
|
|
8,922 |
|
|
|
50,066 |
|
|
|
|
|
|
Subtotal |
|
$ |
4,484 |
|
|
$ |
20,966 |
|
|
$ |
18,917 |
|
|
$ |
110,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lot Option Abandonments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West |
|
$ |
11 |
|
|
$ |
14,090 |
|
|
$ |
87 |
|
|
$ |
14,921 |
|
East |
|
|
1,092 |
|
|
|
135 |
|
|
|
2,808 |
|
|
|
7,543 |
|
Southeast |
|
|
|
|
|
|
1,176 |
|
|
|
927 |
|
|
|
18,415 |
|
Other |
|
|
|
|
|
|
12,355 |
|
|
|
194 |
|
|
|
27,047 |
|
|
|
|
|
|
|
Subtotal |
|
$ |
1,103 |
|
|
$ |
27,756 |
|
|
$ |
4,016 |
|
|
$ |
67,926 |
|
|
|
|
|
|
|
Total |
|
$ |
11,856 |
|
|
$ |
95,482 |
|
|
$ |
76,320 |
|
|
$ |
451,854 |
|
|
|
|
|
|
The inventory impaired during the three months ended June 30, 2009 represented 117 lots in 4
communities with an estimated fair value of $5.9 million compared to 2,430 lots in 44 communities
with an estimated fair value of $164.2 million for the three months ended June 30, 2008. For the
nine months ended June 30, 2009, the inventory impaired represented 2,208 lots in 32 communities
with an estimated fair value of $72.5 million compared to 8,850 lots in 191 communities with an
estimated fair value of $556.2 million for the comparable period of the prior year. During the
current period, for certain communities we determined that it was prudent to reduce sales prices or
further increase sales incentives in response to factors including competitive market conditions.
Because the projected cash flows used to evaluate the fair value of inventory are significantly
impacted by changes in market conditions including decreased sales prices, the change in sales
prices and changes in absorption estimates led to additional impairments in certain communities
during the current quarter. In future periods, we may again determine that it is prudent to reduce
sales prices, further increase sales incentives or reduce absorption rates which may lead to
additional impairments, which could be material. The impairments recorded on our held for
development inventory for the nine months ended June 30, 2009 and 2008, primarily resulted from the
continued decline in the homebuilding environment in those specific submarkets.
During the three and nine months ended June 30, 2009, as a result of challenging market conditions
and review of recent comparable transactions, certain of the Companys land held for sale was
further written down to net realizable value, less estimated costs to sell. During the three and
nine months ended June 30, 2008, as a result of the Companys decision to re-allocate capital
employed through strategic sales of select properties and through the exiting of certain markets no
longer viewed as strategic and based on current estimated fair values, less costs to sell, as
compared to book values, we recorded impairments on land held for sale. These impairments were
primarily located in our exit markets in Ohio and Charlotte, North Carolina.
We also have access to land inventory through lot option contracts, which generally enable us to
defer acquiring portions of properties owned by third parties and unconsolidated entities until we
have determined whether to exercise our lot option. A majority of our lot option contracts require
a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase
price of the land for the right to acquire lots during a specified period of time at a certain
price. Under lot option contracts, both with and without specific performance provisions, purchase
of the properties is contingent upon satisfaction of certain requirements by us and the sellers.
Our obligation with respect to options with specific performance provisions is included in our
consolidated balance sheets in other
44
liabilities. Under option contracts without specific
performance obligations, our liability is generally limited to forfeiture of the non-refundable
deposits, letters of credit and other non-refundable amounts incurred, which aggregated
approximately $41.5 million at June 30, 2009. This amount includes non-refundable letters of credit
of approximately $5.7 million. The total remaining purchase price, net of cash deposits, committed
under all options was $334.5 million as of June 30, 2009. Only $10.0 million of the net remaining
purchase price contains specific performance clauses which may require us to purchase the land or
lots upon the land seller meeting certain obligations.
In addition, we have also completed a strategic review of all of the markets within our
homebuilding segments and the communities within each of those markets with an initial focus on the
communities for which land has been secured with option purchase contracts. As a result of this
review, we have determined the proper course of action with respect to a number of communities
within each homebuilding segment was to abandon the remaining lots under option and to write-off
the deposits securing the option takedowns, as well as preacquisition costs. In determining
whether to abandon a lot option contract, we evaluate the lot option primarily based upon the
expected cash flows from the property that is the subject of the option. If we intend to abandon or
walk-away from a lot option contract, we record a charge to earnings in the period such decision is
made for the deposit amount and any related capitalized costs associated with the lot option
contract. We recorded lot option abandonment charges during the three and nine months ended June
30, 2009 of $1.1 million and $4.0 million, respectively, compared to $27.8 million and $67.9
million related to the three and nine months ended June 30, 2008, respectively. The abandonment
charges relate to our decision to abandon certain option contracts that no longer fit in our
long-term strategic plan and related to our prior year decision to exit certain markets.
Unit Data by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
New Orders, net |
|
Cancellation Rates |
|
Closings |
|
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Change |
West |
|
|
670 |
|
|
|
813 |
|
|
|
-17.6 |
% |
|
|
25.5 |
% |
|
|
34.7 |
% |
|
|
398 |
|
|
|
599 |
|
|
|
-33.6 |
% |
East |
|
|
599 |
|
|
|
386 |
|
|
|
55.2 |
% |
|
|
23.1 |
% |
|
|
48.3 |
% |
|
|
368 |
|
|
|
516 |
|
|
|
-28.7 |
% |
Southeast |
|
|
267 |
|
|
|
417 |
|
|
|
-36.0 |
% |
|
|
15.5 |
% |
|
|
21.9 |
% |
|
|
182 |
|
|
|
304 |
|
|
|
-40.1 |
% |
Other |
|
|
1 |
|
|
|
158 |
|
|
|
-99.4 |
% |
|
|
n/a |
|
|
|
43.8 |
% |
|
|
2 |
|
|
|
258 |
|
|
|
-99.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,537 |
|
|
|
1,774 |
|
|
|
-13.4 |
% |
|
|
23.0 |
% |
|
|
36.8 |
% |
|
|
950 |
|
|
|
1,677 |
|
|
|
-43.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
New Orders, net |
|
Cancellation Rates |
|
Closings |
|
|
2009 |
|
2008 |
|
Change |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Change |
West |
|
|
1,434 |
|
|
|
2,059 |
|
|
|
-30.4 |
% |
|
|
33.9 |
% |
|
|
37.8 |
% |
|
|
1,176 |
|
|
|
1,739 |
|
|
|
-32.4 |
% |
East |
|
|
1,238 |
|
|
|
1,255 |
|
|
|
-1.4 |
% |
|
|
27.8 |
% |
|
|
46.1 |
% |
|
|
913 |
|
|
|
1,672 |
|
|
|
-45.4 |
% |
Southeast |
|
|
521 |
|
|
|
1,101 |
|
|
|
-52.7 |
% |
|
|
25.7 |
% |
|
|
25.1 |
% |
|
|
556 |
|
|
|
1,060 |
|
|
|
-47.5 |
% |
Other |
|
|
18 |
|
|
|
567 |
|
|
|
-96.8 |
% |
|
|
45.5 |
% |
|
|
43.0 |
% |
|
|
57 |
|
|
|
780 |
|
|
|
-92.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,211 |
|
|
|
4,982 |
|
|
|
-35.5 |
% |
|
|
30.4 |
% |
|
|
38.5 |
% |
|
|
2,702 |
|
|
|
5,251 |
|
|
|
-48.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders and Backlog: New orders, net of cancellations, decreased 13.4% to 1,537 units for the
three months ended June 30, 2009 compared to 1,774 units for the same period in the prior year. For
the nine months ended June 30, 2009 and 2008, respectively, new orders, net of cancellations,
decreased 35.5% to 3,211 units compared to 4,982 units for the same period in the prior year.
Excluding the decrease in the Other Homebuilding segment which represents markets we decided to
exit in fiscal 2008, net new orders declined 5.0% and 27.7% for the three and nine months ended
June 30, 2009, respectively. The decrease in net new orders for the nine months ended June 30,
2009 compared to the prior year was driven by the weaker market conditions, including the
tightening of mortgage credit availability, an increase in home foreclosures and other economic
factors that have impacted homebuyers. Our 2009 fiscal third quarter net new orders reflect the
sequential improvement in sales trends we have experienced compared to our 2009 first and second
fiscal quarters. Historically low interest rates, increased affordability and federal and state
housing tax credits appear to have enticed more prospective buyers to purchase a new home;
however, foreclosures are still having a damaging impact on the market. In most of our markets,
appraisals continue to be negatively impacted by foreclosure comparables which put additional
pricing pressure on all home sales and limit financing availability.
45
For the three months ended June 30, 2009, we experienced cancellation rates of 23.0% compared to
36.8% for the same period of the prior year. These cancellation rates in both periods reflect the
continued challenging market environment which includes the inability of many potential homebuyers
to sell their existing homes and obtain affordable financing. The cancellation rate in our East
Segment for the three and nine months ended June 30, 2008 were impacted by our sale of two large
condominium projects in Virginia which resulted in the cancellation of 109 and 215 orders,
respectively. Excluding these transactions, our cancellation rates in the East Segment were 33.6%
and 36.9% for the three and nine months ended June 30, 2008. The decrease in cancellation rates
across all markets reflects the impact of historically low interest rates, increased affordability
and federal and state housing tax credits which appear to have enticed more prospective buyers to
purchase a new home.
Backlog reflects the number and value of homes for which the Company has entered into a sales
contract with a customer but has not yet delivered the home. The aggregate dollar value of homes
in backlog at June 30, 2009 of $430.8 million decreased 35.5% from $668.1 million at June 30, 2008,
related primarily to a 31.3% decrease in the number of homes in backlog from 2,716 units at June
30, 2008 to 1,867 units at June 30, 2009. The decrease in the number of homes in backlog across all
of our markets is driven primarily by the aforementioned market weakness and lower new orders in
addition to our fiscal 2008 decision to exit the markets included in Other homebuilding below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog at June 30, |
|
|
2009 |
|
2008 |
|
Change |
West |
|
|
785 |
|
|
|
1,125 |
|
|
|
-30.2 |
% |
East |
|
|
810 |
|
|
|
900 |
|
|
|
-10.0 |
% |
Southeast |
|
|
271 |
|
|
|
531 |
|
|
|
-49.0 |
% |
Other |
|
|
1 |
|
|
|
160 |
|
|
|
-99.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,867 |
|
|
|
2,716 |
|
|
|
-31.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog has declined in all of our homebuilding segments due primarily to lower new orders caused
by a competitive environment, increased foreclosures, the reduction in the availability of mortgage
credit for our potential homebuyers and our decision to sell certain large projects and exit
certain markets. Foreclosures are still having by far the most damaging impact on the market. In
most of our markets, appraisals continue to be negatively impacted by foreclosure comparables which
put additional pricing pressure on all home sales and limit financing availability. As the
availability of mortgage loans stabilizes and the inventory of new and used homes decreases,
backlog should increase; however, continued reduced levels of backlog will produce less revenue in
the future which could also result in additional asset impairment charges and lower levels of
liquidity.
Derivative Instruments and Hedging Activities. We are exposed to fluctuations in interest rates.
From time to time, we enter into derivative agreements to manage interest costs and hedge against
risks associated with fluctuating interest rates. As of June 30, 2009, we were not a party to any
such derivative agreements. We do not enter into or hold derivatives for trading or speculative
purposes.
Liquidity and Capital Resources. Our sources of cash liquidity include, but are not limited to,
cash from operations, amounts available under credit facilities, proceeds from senior notes and
other bank borrowings, the issuance of equity securities and other external sources of funds. Our
short-term and long-term liquidity depend primarily upon our level of net income, working capital
management (cash, accounts receivable, accounts payable and other liabilities) and bank borrowings.
Consistent with the seasonal nature of our business, we used $119.4 million and $140.1 million in
cash during the first nine months of fiscal 2009 and 2008, respectively, primarily for the payment
of liabilities incurred during the fourth quarter of the prior fiscal year, the repurchase of a
portion of our Senior Notes and the repayment of other secured notes payable. As of June 30, 2009,
our liquidity position consisted of $464.9 million in cash and cash equivalents.
For the nine months ended June 30, 2009, net cash provided by operating activities was $1.5 million
primarily due to income tax refunds, net of payments, totaling $159.5 million offset by significant
reductions in trade accounts payable and other liabilities. For the nine months ended June 30,
2008, net cash provided by operating activities was $24.5 million. Based on the applicable years
closings, as of June 30, 2009, our land bank includes a 6.4 year supply of owned and optioned
land/lots for current and future development. Our ending land bank includes 32,904 owned and
optioned lots and represents 17.0% and 28.8% decreases from the land bank as of September 30, 2008
and June 30, 2008, respectively. As the homebuilding market declined, we were successful in
significantly reducing our land bank through the abandonment of lot option contracts, the sale of
land assets not required in our homebuilding program and through the sale of new homes. The
decrease in the number of owned lots in our land bank from June 30, 2008 to June 30, 2009 is
related to our decision to eliminate non-strategic positions to align our land supply with our
expectations for future home closings.
46
Net cash used in investing activities was $26.1 million compared to $14.8 million for the nine
months ended June 30, 2009 and 2008, respectively, as we were required to increase the amount of
cash restricted under our amended Secured Revolving Credit Facility during fiscal 2009.
Net cash used in financing activities was $94.8 million for the nine months ended June 30, 2009
related primarily to the repurchase of a portion of our Senior Notes, the repayment of certain
secured notes payable and model home financing obligations and the payment of debt issuance costs.
Net cash used in financing activities was $149.8 million for the comparable prior period of fiscal
2008 and consisted primarily of the repayment of $100.5 million of other secured notes payable,
$21.1 million of debt issuance costs, and $27.7 million for the repayment of model home financing
obligations.
As the homebuilding markets have contracted, we have continued to decrease the size of our business
through a reduction in personnel and the closeout of additional communities. We have continued our
focus on cash generation and preservation to ensure we have the required liquidity to fund our
operations.
We fulfill our short-term cash requirements with cash generated from our operations. There were no
amounts outstanding under the Secured Revolving Credit Facility at June 30, 2009 or September 30,
2008; however, we had $46.5 million and $61.2 million of letters of credit outstanding under the
Secured Revolving Credit Facility at June 30, 2009 and September 30, 2008, respectively. We believe
that the cash and cash equivalents at June 30, 2009 of $464.9 million, cash generated from our
operations and availability of new debt financing, if any, will be adequate to meet our liquidity
needs during the remainder of fiscal 2009 and into fiscal 2010. However, if we are required to fund
all of the potential obligations associated with lower levels of stockholders equity and joint
venture defaults, we would have cash requirements totaling approximately $210 million which would
significantly reduce our overall liquidity.
As a result of these issues, in addition to our continued focus on generation and preservation of
cash, we are also focused on increasing our stockholders equity and reducing our leverage. In
order to accomplish this goal, we will likely need to issue new common or preferred equity. Any
new issuance may take the form of public or private offerings for cash, equity issued to consummate
acquisitions of assets or equity issued in exchange for a portion of our outstanding debt. We may
also from time to time seek to retire or purchase our outstanding debt through cash purchases
and/or exchanges for equity or other debt securities, in open market purchases, privately
negotiated transactions or otherwise. In addition, any material variance from our projected
operating results or land investments, or investments in or acquisitions of businesses, or amounts
paid to fulfill obligations with governmental entities, could require us to obtain additional
equity or debt financing. Any such equity transactions or debt financing may be on terms less
favorable or at higher costs than our current financing costs, depending on future market
conditions and other factors including any possible downgrades in our credit ratings or adverse
commentaries issued by rating agencies in the future. Also, there can be no assurance that we will
be able to complete any of these transactions on favorable terms or at all.
47
Borrowings
At June 30, 2009 and September 30, 2008 we had the following long-term debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
Maturity Date |
|
June 30, 2009 |
|
|
2008 |
|
Secured Revolving Credit Facility |
|
July 2011 |
|
$ |
|
|
|
$ |
|
|
8 5/8% Senior Notes* |
|
May 2011 |
|
|
175,000 |
|
|
|
180,000 |
|
8 3/8% Senior Notes* |
|
April 2012 |
|
|
312,599 |
|
|
|
340,000 |
|
6 1/2% Senior Notes* |
|
November 2013 |
|
|
182,990 |
|
|
|
200,000 |
|
6 7/8% Senior Notes* |
|
July 2015 |
|
|
315,240 |
|
|
|
350,000 |
|
8 1/8% Senior Notes* |
|
June 2016 |
|
|
250,670 |
|
|
|
275,000 |
|
4 5/8% Convertible Senior Notes* |
|
June 2024 |
|
|
173,000 |
|
|
|
180,000 |
|
Junior subordinated notes |
|
July 2036 |
|
|
103,093 |
|
|
|
103,093 |
|
Other secured notes payable |
|
Various Dates |
|
|
34,122 |
|
|
|
50,618 |
|
Model home financing obligations |
|
Various Dates |
|
|
46,908 |
|
|
|
71,231 |
|
Unamortized debt discounts |
|
|
|
|
(2,013 |
) |
|
|
(2,565 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
1,591,609 |
|
|
$ |
1,747,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Collectively, the Senior Notes |
Secured Revolving Credit Facility On August 7, 2008, we entered into an amendment to our Secured
Revolving Credit Facility which changed the size, covenants and pricing for the facility. The size
of the Secured Revolving Credit Facility was reduced from $500 million to $400 million and was
subject to further reductions to $250 million and $100 million if our consolidated tangible net
worth (Tangible Net Worth, defined in the agreement as stockholders equity less intangible
assets as defined) fell below $350 million and $250 million, respectively. As of September 30,
2008, our consolidated tangible net worth of $314.4 million resulted in a reduction of the facility
size to $250 million.
On May 4, 2009, the Company entered into a Third Limited Waiver related to the Companys Secured
Revolving Credit Facility. During the waiver period, which extended to the filing of this Form
10-Q for the period ending June 30, 2009, the waiver agreement 1) preserved the facility size at
$150 million, rather than shrinking to $100 million as required based on the Companys reported
Tangible Net Worth, 2) maintained, the collateral coverage in the secured borrowing base at 4.5x,
3) maintained the current facility pricing at the Eurodollar Margin of 5.0% and 4) waived a
potential breach of an investments covenant in the facility as of March 31, 2009. There were no
amounts outstanding under the Secured Revolving Credit Facility at June 30, 2009 or September 30,
2008; however, as of June 30, 2009, we had provided $11.3 million of cash in addition to pledged
real estate assets to supplementally collateralize our outstanding letters of credit of $46.5
million. The Company has decided to amend and restructure its Secured Revolving Credit Facility
and recognized expense of $3.3 million of previously capitalized unamortized debt issuance costs
related to the Secured Revolving Credit Facility for the three and nine months ended June 30, 2009,
which is included in other expense, net in the unaudited condensed consolidated statements of
operations.
As part of this restructuring, the current Secured Revolving Credit Facility was reduced to $22
million and will be provided by one lender. The restructured facility will continue to provide for
future working capital and letter of credit needs collateralized by either cash or assets of the
Company at the Companys option, conditioned upon certain conditions and covenant compliance. We
also entered into three stand-alone, cash-secured, letter of credit agreements with banks to
maintain the pre-existing letters of credit issued that had been under the current Secured
Revolving Credit Facility. At closing on August 5, 2009, we elected to secure all of our letters
of credit using cash collateral which required additional cash in restricted accounts of $37.8
million.
Senior Notes - The Senior Notes are unsecured obligations ranking pari passu with all other
existing and future senior indebtedness. Substantially all of our significant subsidiaries are full
and unconditional guarantors of the Senior Notes and are jointly and severally liable for
obligations under the Senior Notes and the Secured Revolving Credit Facility. Each guarantor
subsidiary is a 100% owned subsidiary of Beazer Homes.
The indentures under which the Senior Notes were issued contain certain restrictive covenants,
including limitations on payment of dividends. At June 30, 2009, under the most restrictive
covenants of each indenture, no portion of our retained earnings was available for cash dividends
or for share repurchases. The indentures provide that, in the event of defined changes in control
or if our consolidated tangible net worth falls below a specified level or in certain circumstances
upon a sale of assets, we are required to offer to repurchase certain specified amounts of
outstanding Senior Notes. Specifically, each indenture (other than the indenture governing the
48
convertible Senior Notes) requires us to offer to purchase 10% of each series of Senior Notes at
par if our consolidated tangible net worth (defined as stockholders equity less intangible assets
as defined) is less than $85 million at the end of any two consecutive fiscal quarters. Such offer
need not be made more than twice in any four-quarter period. If triggered and fully subscribed,
this could result in our having to purchase 10% of outstanding notes one or more times, in an
amount equal to $123.6 million for the first time based on the principal outstanding at June 30,
2009.
In June 2004, we issued $180 million aggregate principal amount of 4 5/8% Convertible Senior Notes
due 2024 (the Convertible Senior Notes). The Convertible Senior Notes are not convertible into
cash. We may at our option redeem for cash the Convertible Senior Notes in whole or in part at any
time on or after June 15, 2009 at specified redemption prices. Holders have the right to require
us to purchase all or any portion of the Convertible Senior Notes for cash on June 15, 2011, June
15, 2014 and June 15, 2019. In each case, we will pay a purchase price equal to 100% of the
principal amount of the Convertible Senior Notes to be purchased plus any accrued and unpaid
interest, if any, and any additional amounts owed, if any to such purchase date.
On October 26, 2007, we obtained consents from holders of our Senior Notes to approve amendments of
the indentures under which the Senior Notes were issued. These amendments restrict our ability to
secure additional debt in excess of $700 million until certain conditions are met and enable us to
invest up to $50 million in joint ventures. The consents also provided us with a waiver of any and
all defaults under the Senior Notes that may have occurred on or prior to May 15, 2008 relating to
filing or delivering annual and quarterly financial statements. Fees and expenses related to
obtaining these consents totaled approximately $21 million. Such fees and expenses have been
deferred, and included in Other Assets in the unaudited condensed consolidated balance sheets, and
are being amortized as an adjustment to interest expense in accordance with EITF 96-19 Debtors
Accounting for a Modification or Exchange of Debt Instruments.
During the three and nine months ended June 30, 2009, we repurchased in several individual open
market transactions, $115.5 million principal amount of Senior Notes ($5.0 million of 8 5/8% Senior
Notes due 2011, $27.4 million of 8 3/8% Senior Notes due 2012, $17.0 million of 6 1/2% Senior Notes
due 2013, $34.8 million of 6 7/8% Senior Notes due 2015, $24.3 million of 8 1/8% Senior Notes due
2016, and $7.0 million of Convertible Senior Notes due 2024). The aggregate purchase price for
these repurchases was $58.2 million plus accrued and unpaid interest. These repurchases resulted
in a gain on extinguishment of debt of $55.2 million, net of the write-off of unamortized discounts
and debt issuance costs related to these notes. The gain from the repurchases is included in the
unaudited condensed consolidated statements of operations for the three and nine months ended June
30, 2009 as gain on extinguishment of debt.
Junior Subordinated Notes On June 15, 2006, we completed a private placement of $103.1 million of
unsecured junior subordinated notes which mature on July 30, 2036 and are redeemable at par on or
after July 30, 2011 and pay a fixed rate of 7.987% for the first ten years ending July 30, 2016.
Thereafter, the securities have a floating interest rate equal to three-month LIBOR plus 2.45% per
annum, resetting quarterly. These notes were issued to Beazer Capital Trust I, which simultaneously
issued, in a private transaction, trust preferred securities and common securities with an
aggregate value of $103.1 million to fund its purchase of these notes. The transaction is treated
as debt in accordance with GAAP. The obligations relating to these notes and the related securities
are subordinated to the Secured Revolving Credit Facility and the Senior Notes.
Other Secured Notes Payable We periodically acquire land through the issuance of notes payable.
As of June 30, 2009 and September 30, 2008, we had outstanding notes payable of $34.1 million and
$50.6 million, respectively, primarily related to land acquisitions. These notes payable expire at
various times through 2011 and had fixed and variable rates ranging from 3.2% to 9.0% at June 30,
2009. These notes are secured by the real estate to which they relate. As of March 31, 2009, we
had negotiated a reduced payoff of one of our secured notes payable and recorded a $3.6 million
gain on debt extinguishment which is included in gain on extinguishment of debt in the accompanying
unaudited condensed consolidated statement of operations for the nine months ended June 30, 2009.
The agreements governing these secured notes payable contain various affirmative and negative
covenants. Certain of these secured notes payable agreements contain covenants that require us to
maintain minimum levels of stockholders equity (or some variation, such as tangible net worth) or
maximum levels of debt to stockholders equity. Although the specific covenants and related
definitions vary among the agreements, further reductions in our stockholders equity, absent the
receipt of waivers, may cause breaches of some or all of these covenants. Breaches of certain of
these covenants, to the extent they lead to an acceleration, may result in cross defaults under our
senior notes. The dollar value of these secured notes payable agreements containing stockholders
equity-related covenants totaled $22.7 million at June 30, 2009. There can be no assurance that we will be able to obtain any future waivers or
49
amendments that may become necessary without significant additional cost or at all. In each
instance, however, a covenant default can be cured by repayment of the indebtedness.
Model Home Financing Obligations - Due to a continuing interest in certain model home
sale-leaseback transactions, we have recorded $46.9 million and $71.2 million of debt as of June
30, 2009 and September 30, 2008, respectively, related to these financing transactions in
accordance with SFAS 98 (as amended), Accounting for Leases. These model home transactions incur
interest at a variable rate of one-month LIBOR plus 450 basis points, 4.8% as of June 30, 2009, and
expire at various times through 2015.
Stock Repurchases and Dividends On November 18, 2005, as part of an acceleration of Beazer Homes
comprehensive plan to enhance stockholder value, our Board of Directors authorized an increase in
our stock repurchase plan to ten million shares of our common stock. The plan provides that shares
may be purchased for cash in the open market, on the NYSE, or in privately negotiated transactions.
We did not repurchase any shares in the open market during the three months ended June 30, 2009 or
2008. At June 30, 2009, there are approximately 5.4 million additional shares available for
purchase pursuant to the plan. However, in December 2007, we suspended our repurchase program and
any resumption of such program will be at the discretion of the Board of Directors and as allowed
by our debt covenants and is unlikely in the foreseeable future. In addition, the indentures under
which our senior notes were issued contain certain restrictive covenants, including limitations on
share repurchases and the payment of dividends. At June 30, 2009, under the most restrictive
covenants of each indenture, none of our retained earnings was available for cash dividends or
share repurchases.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments. At June 30, 2009, we
controlled 32,904 lots (a 6-year supply based on the last twelve months closings). We owned 81%,
or 26,666 lots, and 6,238 lots, 19%, were under option contracts which generally require the
payment of cash or the posting of a letter of credit for the right to acquire lots during a
specified period of time at a certain price. We historically have attempted to control a portion of
our land supply through options. As a result of the flexibility that these options provide us, upon
a change in market conditions we may renegotiate the terms of the options prior to exercise or
terminate the agreement. Under option contracts, both with and without specific performance
provisions, purchase of the properties is contingent upon satisfaction of certain requirements by
us and the sellers. Our obligation with respect to options with specific performance provisions is
included in our consolidated balance sheets in other liabilities. Under option contracts without
specific performance obligations, our liability is generally limited to forfeiture of the
non-refundable deposits, letters of credit and other non-refundable amounts incurred, which
aggregated approximately $41.5 million at June 30, 2009. This amount includes non-refundable
letters of credit of $5.7 million. The total remaining purchase price, net of cash deposits,
committed under all options was $334.5 million as of June 30, 2009. Only $10.0 million of the total
remaining purchase price, net of cash deposits, contains specific performance clauses which may
require us to purchase the land or lots upon the land seller meeting certain obligations.
We expect to exercise substantially all of our remaining option contracts with specific performance
obligations and, subject to market conditions, most of our option contracts without specific
performance obligations. Various factors, some of which are beyond our control, such as market
conditions, weather conditions and the timing of the completion of development activities, will
have a significant impact on the timing of option exercises or whether land options will be
exercised.
We have historically funded the exercise of land options through a combination of operating cash
flows and borrowings under our credit facilities. We expect these sources to continue to be
adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the
exercise of our land options will have a material adverse effect on our liquidity.
Certain of our option contracts are with sellers who are deemed to be Variable Interest Entities
(VIEs) under FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51 (FIN 46R). We have determined that we are the primary
beneficiary of certain of these option contracts. Our risk is generally limited to the option
deposits that we pay, and creditors of the sellers generally have no recourse to the general credit
of the Company. Although we do not have legal title to the optioned land, for those option
contracts for which we are the primary beneficiary, we are required to consolidate the land under
option at fair value. We believe that the exercise prices of our option contracts approximate their
fair value. Our consolidated balance sheets at June 30, 2009 and September 30, 2008 reflect
consolidated inventory not owned of $58.5 million and $106.7 million, respectively. We
consolidated $46.8 million and $46.9 million of lot option agreements as consolidated inventory not
owned pursuant to FIN 46R as of June 30, 2009 and September 30, 2008, respectively. In addition,
as of June 30, 2009 and September 30, 2008, we recorded $11.7 million and $59.8 million,
respectively, of land under the caption consolidated inventory not owned related to lot option
agreements in accordance with SFAS 49, Product Financing Arrangements. Obligations related to
consolidated inventory not owned totaled $31.8 million at June 30, 2009 and $70.6 million at
September 30, 2008. The difference between the balances of consolidated inventory not owned and
obligations related to consolidated inventory not owned represents cash deposits paid under the
option agreements.
50
We participate in a number of land development joint ventures in which we have less than a
controlling interest. We enter into joint ventures in order to acquire attractive land positions,
to manage our risk profile and to leverage our capital base. Our joint ventures are typically
entered into with developers, other homebuilders and financial partners to develop finished lots
for sale to the joint ventures members and other third parties. We account for our interest in
these joint ventures under the equity method. Our consolidated balance sheets include investments
in joint ventures totaling $29.9 million and $33.1 million at June 30, 2009 and September 30, 2008,
respectively.
Our joint ventures typically obtain secured acquisition and development financing. At June 30,
2009, our unconsolidated joint ventures had borrowings outstanding totaling $465.7 million, of
which $327.9 million related to one joint venture in which we are a 2.58% partner. Generally, we
and our joint venture partners have provided varying levels of guarantees of debt or other
obligations of our unconsolidated joint ventures. At June 30, 2009, we had repayment guarantees of
$20.3 million and loan-to-value maintenance guarantees of $8.6 million of debt of unconsolidated
joint ventures. Several of our joint ventures are in default under their debt agreements at June
30, 2009 or are at risk of defaulting. To the extent that we are unable to reach satisfactory
resolutions, we may be called upon to perform under our applicable guarantees. As of June 30,
2009, we had accrued $3.2 million related to guarantees for the release of which we are in
negotiations with the applicable lenders. See Note 3 to the unaudited condensed consolidated
financial statements.
We had total outstanding letters of credit and performance bonds of approximately $46.5 million and
$276.7 million, respectively, at June 30, 2009 related principally to our obligations to local
governments to construct roads and other improvements in various developments. Total outstanding
letters of credit includes approximately $6.2 million related to our land option contracts
discussed above.
Recently Adopted Accounting Pronouncements. In September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 provides guidance for using fair value to measure assets and liabilities.
SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured
at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 includes
provisions that require expanded disclosure of the effect on earnings for items measured using
unobservable data. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and for
interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position
(FSP) 157-2, Effective Date of FASB Statement No. 157, delaying the effective date of certain
non-financial assets and liabilities to fiscal periods beginning after November 15, 2008. The
adoption of SFAS 157 did not have a material impact on our consolidated financial condition and
results of operations.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an amendment of FASB Statement No. 115. SFAS 159 permits
companies to measure certain financial instruments and other items at fair value. We have not
elected the fair value option applicable under SFAS 159.
In April 2009, the FASB issued FSP 107-1 and Accounting Principles Board Opinion (APB) 28-1,
Interim Disclosures about Fair Value of Financial Instruments. FSP 107-1 amends SFAS 107,
Disclosures about Fair Value Instruments and APB 28, Interim Financial Reporting, to require
disclosures about fair value of financial instruments during interim reporting periods. The
Company adopted the provisions of FSP 107-1 and APB 28-1 during the quarter ended June 30, 2009 and
has included the required disclosures in this Quarterly Report on Form 10-Q.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which establishes general standards
of accounting for and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 also requires the
disclosure of the date through which subsequent events have been evaluated and the basis for that
date. The Company adopted the provisions of SFAS 165 during the quarter ended June 30, 2009.
Recent Accounting Pronouncements Not Yet Adopted. In December 2007, the FASB issued SFAS 141
(revised 2007), Business Combinations. SFAS 141R amends and clarifies the accounting guidance for
the acquirers recognition and measurement of assets acquired, liabilities assumed and
noncontrolling interests of an acquiree in a business combination. SFAS 141R is effective for any
acquisitions completed by the Company after September 30, 2009.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB 51. SFAS 160 requires that a noncontrolling interest (formerly
minority interest) in a subsidiary be classified as equity and the amount of consolidated net
income specifically attributable to the noncontrolling interest be included in the consolidated
financial statements. SFAS 160 is effective for our fiscal year beginning October 1, 2009 and its
provisions will be applied retrospectively upon
51
adoption. We are currently evaluating the impact of
adopting SFAS 160 on our consolidated financial condition and results of operations.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) Issue No 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. FSP
03-6-1 clarifies that non-vested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to
be included in the computation of earnings per share under the two-class method described in SFAS
128, Earnings per Share and requires that prior period EPS and share data be restated
retrospectively for comparability. The Company grants restricted shares under a share-based
compensation plan that qualify as participating securities. FSP 03-6-1 is effective for the
Company beginning October 1, 2009 with early adoption prohibited. We are currently evaluating the
impact of adopting FSP 03-6-1 on our consolidated financial statements.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash Upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 applies to
convertible debt instruments that have a net settlement feature permitting settlement partially
or fully in cash upon conversion. FSP APB 14-1 is effective for the Company beginning October 1,
2009 and the provisions of FSP APB 14-1 are required to be applied retrospectively to all periods
presented. Due to the fact that the Companys convertible securities cannot be settled in cash
upon conversion, the adoption of FSP APB 14-1 is not expected to have a material impact on our
consolidated financial condition and results of operations.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which
revises the approach to determining the primary beneficiary of a variable interest entity (VIE)
to be more qualitative in nature and requires companies to more frequently reassess whether they
must consolidate a VIE. SFAS 167 also requires enhanced disclosures to provide more information
about an enterprises involvement in a variable interest entity. SFAS 167 is effective for the
Companys fiscal year beginning October 1, 2010. The Company is currently reviewing the effect of
SFAS 167 on its condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162,
(SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP. SFAS 168 is effective
for the Companys September 30, 2009 consolidated financial statements. SFAS 168 does not change
GAAP and will not have a material impact on the Companys consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to a number of market risks in the ordinary course of business. Our primary market
risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in
this area is material to cash flows or earnings. As of June 30, 2009, we had $69.6 million of
variable rate debt outstanding. Based on our average outstanding borrowings under our variable rate
debt at June 30, 2009, a one-percentage point increase in interest rates would negatively impact
our annual pre-tax earnings by approximately $0.7 million.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Companys
disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Companys
disclosure controls and procedures were effective as of June 30, 2009.
Attached as exhibits to this Quarterly Report on Form 10-Q are certifications of our CEO and CFO,
which are required by Rule 13a-14 of the Act. This Disclosure Controls and Procedures section
includes information concerning managements evaluation of disclosure controls and procedures
referred to in those certifications and, as such, should be read in conjunction with the
certifications of the CEO and CFO.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal controls over financial reporting during the
quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
52
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Investigations
United States Attorney, State and Federal Agency Investigations. On July 1, 2009, the Company
announced that it had resolved the criminal and civil investigations by the United States
Attorneys Office in the Western District of North Carolina (the U.S. Attorney) and other state
and federal agencies concerning the matters that were the subject of the independent investigation
by the Audit Committee of the Beazer Homes Board of Directors (the Investigation) completed in
May 2008. The Company has entered into a deferred prosecution agreement (DPA) with the U.S.
Attorney and a settlement agreement with the U.S. Department of Housing and Urban Development
(HUD) and the civil division of the Department of Justice. In addition, certain of the Companys
subsidiaries have entered into a settlement agreement with the North Carolina Real Estate
Commission (NCREC). Also, as previously disclosed, Beazer Mortgage Corporation (Beazer
Mortgage) has entered into a settlement agreement with the North Carolina Office of the
Commissioner of Banks (OCOB), under which Beazer Mortgage consented, without admitting the
alleged violations, to the entry of a consent order which provides that Beazer Mortgage will
provide approximately $2.5 million in restitution to certain borrowers in respect of the alleged
violations. The settlement agreement concludes the OCOBs investigation into these matters with
respect to Beazer Mortgage.
Under the DPA, the U.S. Attorney has agreed not to prosecute the Company in connection with the
matters that were the subject of the Investigation and are set forth in a Bill of Information filed
with the United States District Court for the Western District of North Carolina, provided that the
Company satisfies its obligations under the DPA over the next 60 months. The term of the DPA may
be less than 60 months in the event certain conditions, as described more fully in the DPA, are
met. The DPA recognizes the cooperation of the Company, its voluntary disclosure and its adoption
of remedial measures.
Under the terms of the DPA, in fiscal year 2009, the Company contributed $7.5 million to a
restitution fund established to compensate those Beazer customers who can demonstrate that they
were injured by certain of the practices identified in the Bill of Information. For fiscal year
2010 the Company will contribute to the restitution fund the greater of $1.0 million or an amount
equal to 4% of the Companys fiscal 2010 adjusted EBITDA as defined in the DPA. The Companys
liability in each of the fiscal years after 2010 will also be equal to 4% of the Companys adjusted
EBITDA through a portion of fiscal year 2014, unless extended as described below. Under the terms
of the DPA, the Companys total contributions to the restitution fund will not exceed $50.0
million.
Under the terms of the settlement agreement with HUD and the civil division of the Department of
Justice, the Company made an immediate payment of $4.0 million to HUD to resolve civil and
administrative investigations. In addition, on the first anniversary of the agreement, the Company
will make a $1.0 million payment to HUD.
Under the agreement with HUD, if the amounts paid into the restitution fund with the U.S. Attorney
described above do not reach $48.0 million at the end of 60 months, the restitution fund term will
be extended using the adjusted EBITDA formula until the earlier of an additional 24 months or the
time the Companys contribution reaches $48.0 million.
The amounts paid to the U.S. Attorney for contribution into the restitution fund and payments to
HUD do not include the $2.5 million contributed to resolve the investigation by the OCOB, although
this amount will be counted as part of the Companys maximum obligation to the restitution fund.
The Companys payment obligations under the DPA and the settlement agreement with HUD are
interrelated. The total amount of such obligations will be dependent on several factors; however,
the maximum liability under both agreements and the agreement with the OCOB will not be less than
$15.5 million and will not exceed $55.0 million.
With respect to the NCREC, Beazer/Squires Realty, Inc. (Beazer/Squires) and Beazer Homes Corp.
each has agreed to the entry of a consent order regarding violations of certain North Carolina
statutes. Under the respective consent orders, the NCREC agreed that a reprimand of Beazer Homes
would not be issued as long as Beazer Homes completed certain remedial measures and that the broker
license held by Beazer/Squires is revoked. The broker license held by Beazer/Squires has been on
inactive status since October 2007. There is no monetary payment by the Company or its
subsidiaries under either of the consent orders. The consent orders conclude the investigation by
the NCREC into these matters with respect to the Company.
Independent Investigation. In May 2008, the Audit Committee of the Beazer Homes Board of Directors
completed the Investigation of Beazer Homes mortgage origination business, including, among other
things, investigating certain evidence that the Companys
53
subsidiary, Beazer Mortgage, violated HUD
regulations and may have violated certain other laws and regulations in connection with certain of
its mortgage origination activities. The Investigation also found evidence that employees of the
Companys Beazer Mortgage subsidiary violated certain federal and/or state regulations, including
HUD regulations. Areas of concern uncovered by the Investigation included our former practices in
the areas of: down payment assistance program; the charging of discount points; the closure of
certain HUD Licenses; closing accommodations; and the payment of a number of realtor bonuses and
decorator allowances in certain Federal Housing Administration (FHA) insured loans and non-FHA
conventional loans originated by Beazer Mortgage dating back to at least 2000. The Investigation
also uncovered limited improper practices in relation to the issuance of a number of non-FHA Stated
Income Loans. We reviewed the loan documents and supporting documentation, and determined that the
assets were effectively isolated from the seller and its creditors (even in the event of
bankruptcy). Based on that information, management continues to believe that sale accounting at the
time of the transfer of the loans to third parties was appropriate. In addition, the Investigation
identified accounting and financial reporting errors and irregularities which resulted in the
restatement of certain prior period consolidated financial statements which was included in our
2007 Form 10-K filed with the SEC on May 12, 2008.
Litigation
Securities Class Action. Beazer Homes and certain of our current and former officers (the
Individual Defendants), as well as our Independent Registered Accounting Firm, are named as
defendants in putative class action securities litigation pending in the United States District
Court for the Northern District of Georgia. Three separate complaints were initially filed between
March 29 and May 21, 2007. The cases were subsequently consolidated by the court and the court
appointed Glickenhaus & Co. and Carpenters Pension Trust Fund for Northern California as lead
plaintiffs. On June 27, 2008, lead plaintiffs filed an Amended and Consolidated Class Action
Complaint for Violation of the Federal Securities Laws (Consolidated Complaint), which purports
to assert claims on behalf of a class of persons and entities that purchased or acquired the
securities of Beazer Homes during the period January 27, 2005 through May 12, 2008. The
Consolidated Complaint asserts a claim against the defendants under Section 10(b) of the
Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder for
allegedly making materially false and misleading statements regarding our business and prospects,
including, among other things, alleged misrepresentations and omissions related to alleged improper
lending practices in our mortgage origination business, alleged misrepresentations and omissions
related to improper revenue recognition and other accounting improprieties and alleged
misrepresentations and omissions concerning our land investments and inventory. The Consolidated
Complaint also asserts claims against the Individual Defendants under Sections 20(a) and 20A of the
Exchange Act. Lead plaintiffs seek a determination that the action is properly maintained as a
class action, an unspecified amount of compensatory damages and costs and expenses, including
attorneys fees. On November 3, 2008, the Company and the other defendants filed motions to
dismiss the Consolidated Complaint. Briefing of the motion was completed in March 2009. The
Company reached an agreement with lead plaintiffs to settle the lawsuit. Under the terms of the
proposed settlement, the lawsuit will be dismissed with prejudice, and the Company and all other
defendants do not admit any liability and will receive a full and complete release of all claims
asserted against them in the litigation, in exchange for the payment of an aggregate of $30.5
million. The monetary payment to be made on behalf of the Company and the individual defendants
will be funded from insurance proceeds. As a result, there will be no financial contribution by
the Company. The agreement is subject to court approval.
Derivative Shareholder Actions. Certain of Beazer Homes current and former officers and directors
were named as defendants in a derivative shareholder suit filed on April 16, 2007 in the United
States District Court for the Northern District of Georgia. The complaint also names Beazer Homes
as a nominal defendant. The complaint, purportedly on behalf of Beazer Homes, alleges that the
defendants (i) violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder;
(ii) breached their fiduciary duties and misappropriated information; (iii) abused their control;
(iv) wasted corporate assets; and (v) were unjustly enriched. Plaintiffs seek an unspecified amount
of compensatory damages against the individual defendants and in favor of Beazer Homes. An
additional lawsuit was filed subsequently on August 29, 2007 in the United States District Court
for the Northern District of Georgia asserting similar factual allegations. The two Georgia
derivative actions have been consolidated, and the plaintiffs have filed an amended, consolidated
complaint. On November 21, 2008, the Company and the other defendants filed motions to dismiss the
amended consolidated complaint. Briefing of the motion was completed in February 2009. The
defendants intend to vigorously defend against these actions.
ERISA Class Actions. On April 30, 2007, a putative class action complaint was filed on behalf of a
purported class consisting of present and former participants and beneficiaries of the Beazer Homes
USA, Inc. 401(k) Plan. The complaint was filed in the United States District Court for the Northern
District of Georgia. The complaint alleges breach of fiduciary duties, including those set forth in
the Employee Retirement Income Security Act (ERISA), as a result of the investment of retirement
monies held by the 401(k) Plan in common stock of Beazer Homes at a time when participants were
allegedly not provided timely, accurate and complete information concerning Beazer Homes. Four
additional lawsuits were filed subsequently on May 11, 2007, May 14, 2007, June 15, 2007 and
July 27, 2007 in the United States District Court for the Northern District of Georgia making
similar allegations. The court consolidated these five lawsuits, and on June 27, 2008, the
plaintiffs filed a consolidated amended complaint. The consolidated amended complaint
54
names as
defendants Beazer Homes, our chief executive officer, certain current and former directors of the
Company, including the members of the Compensation Committee of the Board of Directors, and certain
employees of the Company who acted as members of the Companys 401(k) Committee. On October 10,
2008, the Company and the other defendants filed a motion to dismiss the consolidated amended
complaint. Briefing of the motion was completed in January 2009. The Company intends to
vigorously defend against these actions.
Homeowners Class Action Lawsuits and Multi-Plaintiff Lawsuit. A putative class action was filed on
April 8, 2008 in the United States District Court for the Middle District of North Carolina,
Salisbury Division, against Beazer Homes, U.S.A., Inc., Beazer Homes Corp. and Beazer Mortgage
Corporation. The Complaint alleges that Beazer violated the Real Estate Settlement Practices Act
(RESPA) and North Carolina Gen. Stat. § 75-1.1 by (1) improperly requiring homebuyers to use
Beazer-owned mortgage and settlement services as part of a down payment assistance program, and
(2) illegally increasing the cost of homes and settlement services sold by Beazer Homes Corp. The
purported class consists of all residents of North Carolina who purchased a home from Beazer, using
mortgage financing provided by and through Beazer that included seller-funded down payment
assistance, between January 1, 2000 and October 11, 2007. The Complaint demands an unspecified
amount of damages, equitable relief, treble damages, attorneys fees and litigation expenses. The
defendants moved to dismiss the Complaint on June 4, 2008. On July 25, 2008, in lieu of a response
to the motion to dismiss, plaintiff filed an amended complaint. The Company has moved to dismiss
the amended complaint and intends to vigorously defend against this action.
Beazer Homes Corp. and Beazer Mortgage Corporation are also named defendants in a lawsuit filed on
July 3, 2007, in the General Court of Justice, Superior Court Division, County of Mecklenburg,
North Carolina. The case was removed to the U.S. District Court for the Western District of North
Carolina, Charlotte Division, but remanded on April 23, 2008 to the General Court of Justice,
Superior Court Division, County of Mecklenburg, North Carolina. The complaint was filed on behalf
of ten individual homeowners who purchased homes from Beazer in Mecklenburg County. The complaint
alleges certain deceptive conduct by the defendants and brings various claims under North Carolina
statutory and common law, including a claim for punitive damages. On June 27, 2008 a second amended
complaint, which added two plaintiffs to the lawsuit, was filed. The case has been designated as
exceptional pursuant to Rule 2.1 of the General Rules of Practice of the North Carolina Superior
and District Courts and has been assigned to the docket of the North Carolina Business Court. The
Company filed a motion to dismiss on July 30, 2008. On November 18, 2008, the plaintiffs filed a
third amended complaint. The Company filed a motion to dismiss the third amended complaint on
December 29, 2008. The Company intends to vigorously defend against this action.
Beazer Homes subsidiaries Beazer Homes Holdings Corp. and Beazer Mortgage Corporation were named
as defendants in a putative class action lawsuit originally filed on March 12, 2008, in the
Superior Court of the State of California, County of Placer. The lawsuit was amended on June 2,
2008, and named as defendants Beazer Homes Holdings Corp., Beazer Homes USA, Inc., and Security
Title Insurance Company. The purported class is defined as all persons who purchased a home from
the defendants or their affiliates, with the assistance of a federally related mortgage loan, from
March 25, 1999, to the present where Security Title Insurance Company received any money as a
reinsurer of the transaction. The complaint alleges that the defendants violated RESPA and asserts
claims under a number of state statutes alleging that defendants engaged in a uniform and
systematic practice of giving and/or accepting fees and kickbacks to affiliated businesses
including affiliated and/or recommended title insurance companies. The complaint also alleges a
number of common law claims. Plaintiffs seek an unspecified amount of damages under RESPA,
unspecified statutory, compensatory and punitive damages and injunctive and declaratory relief, as
well as attorneys fees and costs. Defendants removed the action to federal court. On November 26,
2008, plaintiffs filed a Second Amended Complaint which substituted new named-plaintiffs. The
Company filed a motion to dismiss the Second Amended Complaint. The federal court granted in part
Beazers motion to dismiss the Second Amended Complaint. The federal court dismissed the sole
federal claim, declined to rule on the state law claims, and remanded the case to the Superior
Court of California, Placer County, where Beazers motion to dismiss the state law claims is now
pending. On June 18, 2009, the Company filed a supplemental motion to dismiss/demurrer regarding
the remaining state law claims in the Second Amended Complaint. . The Company intends to continue
to vigorously defend against the action.
We cannot predict or determine the timing or final outcome of the lawsuits or the effect that any
adverse findings or adverse determinations in the pending lawsuits may have on us. In addition, an
estimate of possible loss or range of loss if any, cannot presently be made with respect to the
above pending matters. An unfavorable determination resulting from any governmental investigation
could result in the filing of criminal charges, payment of substantial criminal or civil
restitution, the imposition of injunctions on our conduct or the imposition of other penalties or
consequences, including but not limited to the Company having to adjust, curtail or terminate the
conduct of certain of our business operations. Any of these outcomes could have a material adverse
effect on our business, financial condition, results of operations and prospects. An unfavorable
determination in any of the pending lawsuits could result in the payment by us of substantial
monetary damages which may not be fully covered by insurance. Further, the legal costs
55
associated
with the lawsuits and the amount of time required to be spent by management and the Board of
Directors on these matters, even if we are ultimately successful, could have a material adverse
effect on our business, financial condition and results of operations.
Other Matters
In November 2003, Beazer Homes received a request for information from the EPA pursuant to Section
308 of the Clean Water Act seeking information concerning the nature and extent of storm water
discharge practices relating to certain of our projects completed or under construction. The EPA
has since requested information on additional projects and has conducted site inspections at a
number of locations. In certain instances, the EPA or the equivalent state agency has issued
Administrative Orders identifying alleged instances of noncompliance and requiring corrective
action to address the alleged deficiencies in storm water management practices. As of June 30,
2009, no monetary penalties had been imposed in connection with such Administrative Orders.
Consistent with its approach with other homebuilders, the EPA has contacted the Company about a
possible resolution of these issues. Settlement negotiations are in the preliminary stages. The
EPA has reserved the right to impose monetary penalties at a later date, the amount of which, if
any, cannot currently be estimated. Beazer Homes has taken action to comply with the requirements
of each of the Administrative Orders and is working to otherwise maintain compliance with the
requirements of the Clean Water Act.
In 2006, we received two Administrative Orders issued by the New Jersey Department of Environmental
Protection. The Orders allege certain violations of wetlands disturbance permits. The two Orders
assess proposed fines of $630,000 and $678,000, respectively. We have met with the Department to
discuss their concerns on the two affected projects and have requested hearings on both matters. We
believe that we have significant defenses to the alleged violations and intend to contest the
agencys findings and the proposed fines. We are currently pursuing settlement discussions with the
Department.
On June 3, 2009, a purported class action complaint was filed by the owners of one of our homes in
our Magnolia Lakes community in Ft. Myers, Florida. The complaint names the Company and certain
distributors and suppliers of drywall and was filed in the Circuit Court for Lee County, Florida on
behalf of the named plaintiffs and other similarly situated owners of homes in Magnolia Lakes or
alternatively in the State of Florida. The plaintiffs allege that the Company built their homes
with defective drywall, manufactured in China, that contains sulfur compounds that allegedly
corrode certain metals and that are allegedly capable of harming the health of individuals.
Plaintiffs allege physical and economic damages and seek legal and equitable relief, medical
monitoring and attorneys fees. On July 1, 2009, the Company filed a request to have this
complaint removed to the United States District Court for the Middle District of Florida and on
July 2, 2009 filed a motion to have the case transferred to the Eastern District of Louisiana
pursuant to an order from the United States Judicial Panel on Multidistrict Litigation. The
Company believes that the claims asserted in this complaint are governed by its home warranty or
are without merit. Accordingly, the Company intends to vigorously defend against this litigation.
Recently, the lender of one of our unconsolidated joint ventures has filed individual lawsuits
against some of the joint venture partners and certain of those partners parent companies
(including the Company), seeking to recover damages under completion guarantees, among other
claims. We intend to vigorously defend against this legal action. We are a 2.58% partner in this
joint venture (see Note 3 for additional information).
We and certain of our subsidiaries have been named as defendants in various claims, complaints and
other legal actions, most relating to construction defects, moisture intrusion and product
liability. Certain of the liabilities resulting from these actions are covered in whole or part by
insurance. In our opinion, based on our current assessment, the ultimate resolution of these
matters will not have a material adverse effect on our financial condition, results of operations
or cash flows.
Item 5. Other Information
Effective August 6, 2009, Michael H. Furlow resigned his position as Executive Vice President and
Chief Operating Officer of the Company and became the Division President-Charleston/Myrtle
Beach/Savannah. As part of this change in responsibility, Mr. Furlows employment agreements were
amended and restated. Pursuant to his amended and restated employment agreement, Mr. Furlows term
of employment will end on August 6, 2011. Mr. Furlows base salary for the first year of this
term shall be $569,800 and his base salary for the second year of this term shall be $800,000. In addition,
he will be entitled to participate in various incentive compensation and welfare plans to the same
extent as other Division Presidents. Effective August 6, 2009, we also entered into an amended and
restated supplemental employment agreement with Mr. Furlow, which pertains to certain employment
and compensation matters in the event of a change in control of the Company. The principal change
under Mr. Furlows amended and restated supplemental employment agreement was to delete the
automatic renewal mechanism of the agreement to reflect the new two year term of Mr. Furlows
employment.
56
Item 6. Exhibits
|
4.1 |
|
Section 382 rights Agreement, dated as of July 31, 2009, between Beazer Homes USA, Inc. and
American Stock Transfer & Trust Company, LLC, as Rights Agent incorporated herein by reference to Exhibit
10.1 of the Companys Form 8-K filed on August 3, 2009 (File No. 001-12822) |
|
|
10.1 |
|
Fourth Amendment, dated August 4, 2009, to and under the Credit Agreement, dated as of
July 25, 2007, among the Company, the lenders thereto and Wachovia Bank, National
Association, as Agent |
|
|
10.2 |
|
Amended and Restated Credit Agreement, dated August 5, 2009, between the Company, the
lenders and issuers thereto and CITIBANK, N.A., as Swing Line Lender and Agent |
|
|
10.3 |
|
Amended and restated employment agreement effective August 6, 2009 for Michael H.
Furlow |
|
|
10.4 |
|
Amended and rested supplemental agreement effective August 6, 2009 for Michael H. Furlow |
|
|
31.1 |
|
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
|
Certification pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Beazer Homes USA, Inc.
|
|
Date: August 7, 2009 |
By: |
/s/ Allan P. Merrill
|
|
|
Name: |
Allan P. Merrill |
|
|
|
Executive Vice President and
Chief Financial Officer |
|
|
57
exv10w1
Exhibit 10.1
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of August 4, 2009 (this Fourth Amendment), to the Credit
Agreement, dated as of July 25, 2007 (as heretofore amended, supplemented or otherwise modified,
the Credit Agreement), among Beazer Homes USA, Inc., a Delaware corporation (the
Borrower), the several lenders from time to time parties thereto (the Lenders)
and Wachovia Bank, National Association, as agent (in such capacity, the Agent) for the
Lenders and the Issuers (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend the Credit Agreement, and the
Required Lenders are agreeable to such request but only upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein,
and for other valuable consideration the receipt of which is hereby acknowledged, the Borrower, the
Required Lenders, and the Agent agree as follows:
SECTION 1 DEFINITIONS. Unless otherwise defined herein, capitalized terms are used herein as
defined in the Credit Agreement.
SECTION 2 AMENDMENTS.
2.1. Removal of Facility Letters of Credit.
(a) Notwithstanding anything to the contrary contained in the Credit Agreement, as of the
Fourth Amendment Effective Date (as defined below), (i) each Facility Letter of Credit issued prior
to the date hereof shall henceforth no longer be deemed to be a Facility Letter of Credit under the
terms of the Credit Agreement, (ii) all participations of the Lenders in all such Facility Letter
of Credit shall be terminated and of no further force and effect, and (iii)(A) each Facility Letter
of Credit issued prior to the date hereof by JPMorgan Chase Bank, N.A. shall be deemed issued under
an agreement dated on or about the date hereof between JPMorgan Chase Bank, N.A. and the Borrower
with respect to such Facility Letters of Credit, (B) each Facility Letter of Credit issued prior to
the date hereof by Regions Financial Corporation shall be deemed issued under that certain Letter
of Credit Agreement dated on or about the date hereof between the Borrower and Regions Financial
Corporation, and (C) each Facility Letter of Credit issued prior to the date hereof by Wachovia
Bank, National Association (Wachovia) shall be deemed issued under that certain
Continuing Letter of Credit Agreement dated on or about the date hereof between the Borrower and
Wachovia.
(b) The Borrower represents and warrants to the Lenders, Issuers and other parties to the
Credit Agreement that the Borrower has entered into agreements with each of JPMorgan Chase Bank,
N.A., Wachovia and Regions Financial Corporation (collectively, the Resigning Issuers)
whereby the Facility Letters of Credit (i) will remain outstanding on and after the Fourth
Amendment Effective Date subject to bi-lateral reimbursement arrangements between the Borrower and
each such Resigning Issuer and (ii) will cease to remain outstanding under the Credit Agreement.
(c) In connection with the bi-lateral arrangements with each of the Resigning Issuers, the
Borrower may grant security interests to each of the Resigning Issuers in cash collateral and
deposit accounts to secure the Borrowers obligations under the bi-lateral arrangements. The Agent
and the Lenders hereby release such cash collateral and deposit accounts from the security interest
of the Collateral Agreement, and such cash collateral and deposit accounts shall no longer secure
the Loans, Notes, and obligations under the Credit Agreement but may secure the obligations of the
Borrower under the bi-lateral arrangements with the Resigning Issuers.
2.2. Designation of Issuers.
(a) Notwithstanding anything to the contrary contained in the Credit Agreement, (i) the
Resigning Issuers hereby resign as Issuers under the Credit Agreement effective as of the Fourth
Amendment Effective Date, and (ii) Citibank, N.A. (Citibank)is designated as an Issuer
under the Credit Agreement, effective as of the Fourth Amendment Effective Date.
(b) As of the Fourth Amendment Effective Date, each of the Resigning Issuers (i) confirms that
the obligations of the Borrower to such Resigning Issuer in respect of Facility Letters of Credit
will remain outstanding under bi-lateral arrangements between such Resigning Issuer and the
Borrower and will cease to be outstanding under the Credit Agreement, (ii) releases and discharges
the Lenders, the other Issuers and the other parties to the Credit Agreement (other than the
Borrower) from further obligations to such Resigning Issuer in respect of Facility Letters of
Credit, (iii) agrees that its rights as against and duties and obligations of such other parties in
respect of Facility Letters of Credit are permanently cancelled and terminated, and (iv) shall no
longer have any duties or obligations as an Issuer under the Credit Agreement and all such duties
and obligations of the Resigning Issuers are permanently cancelled and terminated.
2.3. Partial Termination of Aggregate Commitments. As of the Fourth Amendment
Effective Date, (i) the Commitment of each Lender other than Citibank, N.A. shall be reduced to
zero Dollars ($0.00), and (ii) the Commitment of Citibank, N.A. shall be reduced to Twenty-Two
Million and No/100 Dollars ($22,000,000.00).
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2.4. Termination of Lenders.
(a) As of the Fourth Amendment Effective Date, all Lenders other than Citibank, N.A. shall be
terminated as Lenders (the Terminating Lenders) under the Credit Agreement and, except as set
forth in Section 2.5 below, all obligations of the Terminating Lenders under the Credit Agreement
shall be terminated.
(b) Promptly following the Fourth Amendment Effective Date, each Terminating Lender shall use
its best efforts to deliver its original Note to the Borrower for cancellation or, if a Terminating
Lender cannot locate its original Note, a lost note affidavit and indemnity agreement substantially
in the form adopted by The Loan Syndications and Trading Association, Inc.
2.5. Survival of Certain Provisions. Notwithstanding anything to the contrary
contained herein, (i) with respect to the Resigning Issuers and the Terminating Lenders, the
obligations of the Borrower under Sections 2.05(c), 2.14, 2.15, 2.17, 10.04 and 10.06 of the Credit
Agreement shall survive effectiveness of this Amendment and the transactions contemplated hereby,
and (ii) with respect to all Lenders the obligations of the Lenders under Section 9.05 of the
Credit Agreement with respect to acts or omissions of the Agent prior to the Fourth Amendment
Effective Date shall survive effectiveness of this Amendment and the transactions contemplated
hereby.
2.6. Termination of Cash Collateral Agreement. As of the Fourth Amendment Effective
Date, the Cash Collateral Agreement and the Agents rights as secured party thereunder shall be
terminated, the Cash Collateral Agreement shall no longer be a Security Document or Loan Document
and the Accounts described in the Cash Collateral Agreement and any assets therein shall be
released and no longer secure the Loans, Notes, and obligations under the Credit Agreement. Agent
or any successor thereof may notify Evergreen Service Company, LLC that the Cash Collateral
Agreement is terminated, and this Fourth Amendment shall constitute notice to the Borrower of the
termination of the Cash Collateral Agreement.
SECTION 3 CONDITIONS PRECEDENT.
3.1. Effective Date. This Fourth Amendment shall become effective as of the date (the
Fourth Amendment Effective Date) on which all of the following conditions have been
satisfied or waived:
(a) The Agent shall have received:
(1) this Fourth Amendment, executed and delivered by a duly authorized officer
of the Borrower, the Required Lenders, the Issuers and the Agent;
(2) an Acknowledgment and Consent, in the form set forth as Exhibit A
hereto, executed and delivered by a duly authorized
officer of
- 3 -
each Guarantor (such Acknowledgment and Consent, together with this Fourth
Amendment, the Amendment Documents);
(3) execution and delivery of the Successor Agency and Amendment Agreement
(the Agency Agreement) dated as of the date hereof, by and among
Wachovia, Citicorp North America, Inc., Citibank, the Borrower and the Guarantors;
(4) payment from the Borrower of all fees and expenses related to this Fourth
Amendment and the Agency Agreement to be paid by Borrower; and
(5) payment from the Borrower of all accrued fees (including (A) commitment
fees on the average daily unused portion of each Lenders Commitment pursuant to
Section 2.9(b) of the Credit Agreement and (B) Facility Letter of Credit Fees) and
expenses and other Obligations due and owing to any of the Lenders and to the Agent
in accordance with the Credit Agreement.
(b) Each of the Resigning Issuers shall have received their applicable documents executed and
delivered by the Borrower as set forth in clauses (i), (ii) and (iii) of Section 2.1.
(c) After giving effect to this Fourth Amendment, there shall be no Default or Event of
Default.
SECTION 4 GENERAL.
4.1. Representations and Warranties.
(a) In order to induce the Agent, the Issuers and the Lenders to enter into this Fourth
Amendment, the Borrower hereby represents and warrants to the Agents, the Issuers and the Lenders
that (i) each of the Borrower and the Guarantors has all necessary corporate power and authority to
execute and deliver the Amendment Documents, (ii) the execution and delivery by each such party of
the Amendment Documents have been duly authorized by all necessary corporate action on its part,
and (iii) the Amendment Documents have been duly executed and delivered by each such party and
constitute each such partys legal, valid and binding obligation, enforceable in accordance with
its terms.
(b) In order to induce the Agent, the Issuers and the Lenders to enter into this Fourth
Amendment, the Borrower hereby represents and warrants to the Agent, the Issuers and the Lenders
that after giving effect to this Fourth Amendment, there shall not exist or be continuing any
Default or Event of Default.
4.2. Waiver of Claims. The Borrower acknowledges that the Agent and Lenders have
acted in good faith and have conducted themselves in a commercially
- 4 -
reasonable manner in their relationships with the Loan Parties in connection with this Fourth
Amendment and in connection with the Credit Agreement and the other Loan Documents, the Borrower
hereby waiving and releasing any claims to the contrary. The Borrower, on its own behalf and on
behalf of each of its Affiliates, irrevocably releases and discharges the Agent and each Lender,
all Affiliates of the Agent and each Lender, all officers, directors, employees, attorneys and
agents of the Agent and each Lender or any of their Affiliates, and all of their predecessors in
interest, from any and all claims, defenses, damages, losses, demands, liabilities, obligations and
causes of action arising out of or in any way related to any of the Loan Documents, whether known
or unknown, and whether now existing or hereafter arising, including without limitation, any usury
claims, that have at any time been owned, or that are hereafter owned, in tort or in contract by
the Borrower or any Affiliate of the Borrower and that arise out of any one or more circumstances
or events that occurred prior to the date of this Fourth Amendment.
4.3. Notice of Effectiveness. The Agent and Citibank shall promptly advise the
Lenders and the Borrower that this Fourth Amendment has become effective and of the Fourth
Amendment Effective Date, but such advice shall not be a representation by the Agent or Citibank
that Section 3.1(c) is correct.
4.4. APPLICABLE LAW AND JURISDICTION. THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
4.5. Counterparts. This Fourth Amendment may be executed by the parties hereto in any
number of separate counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. Delivery of an executed counterpart of a signature page to
this Fourth Amendment by facsimile or other electronic image shall be effective as delivery of a
manually executed counterpart of this Fourth Amendment.
4.6. Successors and Assigns. This Fourth Amendment shall be binding upon and inure to
the benefit of the Borrower and its successors and assigns, and the Agent and the Lenders and each
of their respective successors and assigns. The execution and delivery of this Fourth Amendment by
any Lender prior to the Fourth Amendment Effective Date shall be binding upon its successors and
assigns and shall be effective as to any loans or commitments assigned to it after such execution
and delivery.
4.7. Continuing Effect. Except as expressly amended hereby, the Credit Agreement as
amended by this Fourth Amendment shall continue to be and shall remain in full force and effect in
accordance with its terms. This Fourth Amendment shall not constitute an amendment or waiver of
any provision of the Credit Agreement not expressly referred to herein and shall not be construed
as an amendment, waiver or consent to any action on the part of the Borrower that would require an
amendment, waiver or consent of the Agent or the Lenders except as expressly stated herein. Any
reference to the Credit Agreement in any Loan Document or any related documents
- 5 -
shall be deemed to be a reference to the Credit Agreement as amended by this Fourth Amendment.
4.8. Headings. Section headings used in this Fourth Amendment are for convenience of
reference only, are not part of this Fourth Amendment and are not to affect the constructions of,
or to be taken into consideration in interpreting, this Fourth Amendment.
[Signature Pages Follow]
- 6 -
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed and
delivered by their respective duly authorized officers as of the date first above written.
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BORROWER: |
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BEAZER HOMES USA, INC., |
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a Delaware corporation |
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By:
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/s/ Jeffrey S. Hoza
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Name: Jeffrey S. Hoza |
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Title: Vice President & Treasurer |
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Signature Page to Fourth Amendment
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WACHOVIA BANK, NATIONAL ASSOCIATION, |
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as Agent and as a Lender and as an Issuer |
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By:
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/s/ R. Scott Holtzapple
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Name: R. Scott Holtzapple |
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Title: Director |
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CITIBANK, N.A., as a Lender and as an Issuer |
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By:
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/s/ Ricardo James
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Name: Ricardo James |
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Title: Director |
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BNP PARIBAS, as a Lender |
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By:
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/s/ Duane Helkowski
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Name: Duane Helkowski |
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Title: Managing Director |
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By:
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/s/ Berangere Allen |
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Name: Berangere Allen |
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Title: Vice President |
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THE ROYAL BANK OF SCOTLAND, as a Lender |
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By:
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/s/ Vlad Barshtak |
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Name: Vlad Barshtak |
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Title: Vice President |
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GUARANTY BANK, as a Lender |
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By:
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/s/ Charles Sebesta |
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Name: Charles Sebesta |
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Title: Senior Vice President |
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Signature Page to Fourth Amendment
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REGIONS FINANCIAL CORPORATION, |
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as a Lender and as an Issuer |
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By:
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/s/ Ronny Hudspeth
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Name: Ronny Hudspeth |
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Title: Sr. Vice President |
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JPMORGAN CHASE BANK, N.A., as a Lender and |
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as an Issuer |
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By:
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/s/ Kimberly L. Turner
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Name: Kimberly L. Turner |
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Title: Executive Director |
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CITY NATIONAL BANK, a national banking |
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association, as a Lender |
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By:
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/s/ Xavier Barrera
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Name: Xavier Barrera |
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Title: Vice President |
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PNC BANK, N.A., as a Lender |
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By:
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/s/ Luis Donoso
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Name: Luis Donoso |
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Title: Vice President |
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UBS LOAN FINANCE, LLC, as a Lender |
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By:
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/s/ Marie A. Haddad /s/ Irja R. Otsa
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Name: Marie A. Haddad Irja R. Otsa |
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Title: Associate Director Associate Director |
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COMERICA BANK, as a Lender |
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By:
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/s/ Sarah R. West
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Name: Sarah R. West |
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Title: Vice President |
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Signature Page to Fourth Amendment
EXHIBIT A
ACKNOWLEDGMENT AND CONSENT
Reference is made to the Fourth Amendment, dated as of August 4, 2009 (the Fourth
Amendment), to and under the Credit Agreement, dated as of July 25, 2007 (as heretofore
amended, supplemented or otherwise modified, the Credit Agreement), among Beazer Homes
USA, Inc., a Delaware corporation, the several Lenders and Issuers from time to time parties
thereto and Wachovia Bank, National Association, as Agent. Unless otherwise defined herein,
capitalized terms used herein and defined in the Credit Agreement are used herein as therein
defined.
Each of the undersigned parties to the Guaranty hereby (a) consents to the transactions
contemplated by the Fourth Amendment, (b) acknowledges and agrees that the guarantees made by such
party contained in the Guaranty and the grants of security interests made by such party in the
Collateral Agreement are, and shall remain, in full force and effect after giving effect to the
Fourth Amendment, and (c) on its own behalf and on behalf of each of its Affiliates, irrevocably
releases and discharges the Agent and each Lender, all Affiliates of the Agent and each Lender, all
officers, directors, employees, attorneys and agents of the Agent and each Lender or any of their
Affiliates, and all of their predecessors in interest, from any and all claims, defenses, damages,
losses, demands, liabilities, obligations and causes of action arising out of or in any way related
to any of the Loan Documents, whether known or unknown, and whether now existing or hereafter
arising, including without limitation, any usury claims, that have at any time been owned, or that
are hereafter owned, in tort or in contract by the undersigned or any Affiliate of the undersigned
and that arise out of any one or more circumstances or events that occurred prior to the date of
the Fourth Amendment.
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GUARANTORS: |
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APRIL CORPORATION |
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BEAZER ALLIED COMPANIES HOLDINGS, INC. |
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BEAZER GENERAL SERVICES, INC. |
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BEAZER HOMES CORP. |
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BEAZER HOMES HOLDINGS CORP. |
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BEAZER HOMES INDIANA HOLDINGS CORP. |
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BEAZER HOMES SALES, INC. |
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BEAZER HOMES TEXAS HOLDINGS, INC. |
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BEAZER REALTY, INC. |
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BEAZER REALTY CORP. |
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BEAZER REALTY LOS ANGELES, INC. |
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BEAZER REALTY SACRAMENTO, INC. |
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BEAZER/SQUIRES REALTY, INC. |
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HOMEBUILDERS TITLE SERVICES, INC. |
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HOMEBUILDERS TITLE SERVICES OF VIRGINIA, INC. |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza
Title: |
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Acknowledgement and Consent
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BEAZER MORTGAGE CORPORATION |
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By:
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/s/ Peggy Caldwell (SEAL)
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Name: Peggy Caldwell |
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Title: Secretary |
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ARDEN PARK VENTURES, LLC |
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BEAZER CLARKSBURG, LLC |
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BEAZER COMMERCIAL HOLDINGS, LLC |
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BEAZER HOMES INVESTMENTS, LLC |
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BEAZER HOMES MICHIGAN, LLC |
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DOVE BARRINGTON DEVELOPMENT LLC |
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By:
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BEAZER HOMES CORP., its Sole Member |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza |
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Title: |
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BEAZER SPE, LLC |
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By:
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BEAZER HOMES HOLDINGS CORP., |
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its Sole Member |
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By:
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/s/ Jeffrey S. Hoza (SEAL) |
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Name: Jeffrey S. Hoza |
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Title: |
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BEAZER HOMES INDIANA LLP |
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By:
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BEAZER HOMES INVESTMENTS, LLC, |
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its Managing Partner |
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By:
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BEAZER HOMES CORP., |
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its Sole Member |
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Acknowledgement and Consent
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By: |
/s/ Jeffrey S. Hoza (SEAL)
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Name: |
Jeffrey S. Hoza |
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Title: |
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Acknowledgement and Consent
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BEAZER REALTY SERVICES, LLC |
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By:
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BEAZER HOMES INVESTMENTS, LLC, |
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its Sole Member |
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By:
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BEAZER HOMES CORP., |
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its Sole Member |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza |
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Title: |
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PARAGON TITLE, LLC |
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TRINITY HOMES, LLC |
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By:
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BEAZER HOMES INVESTMENTS, LLC, |
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a Member |
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By:
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BEAZER HOMES CORP., |
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its Sole Member |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza |
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Title: |
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BEAZER HOMES TEXAS, L.P. |
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TEXAS LONE STAR TITLE, L.P. |
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By:
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BEAZER HOMES TEXAS HOLDINGS, |
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INC., its General Partner |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza
Title: |
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Acknowledgement and Consent
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BH BUILDING PRODUCTS, LP |
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By:
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BH PROCUREMENT SERVICES, LLC, |
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its General Partner |
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By:
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BEAZER HOMES TEXAS, L.P., |
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its Sole Member |
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By:
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BEAZER HOMES TEXAS HOLDINGS, |
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INC., its General Partner |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza |
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Title: |
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BH PROCUREMENT SERVICES, LLC |
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By:
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BEAZER HOMES TEXAS, L.P., |
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its Sole Member |
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By:
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BEAZER HOMES TEXAS HOLDINGS, |
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INC., its General Partner |
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By:
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/s/ Jeffrey S. Hoza (SEAL)
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Name: Jeffrey S. Hoza |
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Title: |
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Address for Notices to all Guarantors |
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c/o Beazer Homes USA, Inc. |
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1000 Abernathy Road |
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Suite 1200 |
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Atlanta, Georgia 30328 |
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Attention: President |
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Tel: (770) 829-3700 |
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Fax: (770) 481-0431 |
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Acknowledgement and Consent
exv10w2
Exhibit 10.2
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 5, 2009
BEAZER HOMES USA, INC.,
THE LENDERS PARTY HERETO,
THE ISSUERS PARTY HERETO,
CITIBANK, N.A.,
as Swing Line Lender,
and
CITIBANK, N.A.,
as Agent
CITIGROUP GLOBAL MARKETS INC.
Lead Arranger and Bookrunner
$22,000,000 364-DAY REVOLVING CREDIT FACILITY
Table of Contents
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Page |
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS |
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1 |
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Section 1.01 |
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Defined Terms |
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1 |
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Section 1.02 |
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Accounting Terms |
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24 |
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Section 1.03 |
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Rules of Construction |
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25 |
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ARTICLE II AMOUNTS AND TERMS OF THE LOANS |
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26 |
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Section 2.01 |
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The Facility. |
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26 |
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Section 2.02 |
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Reductions of and Increases in Aggregate Commitment |
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34 |
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Section 2.03 |
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Notice and Manner of Borrowing |
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36 |
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Section 2.04 |
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Non-Receipt of Funds by Agent |
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37 |
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Section 2.05 |
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[Intentionally Deleted] |
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38 |
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Section 2.06 |
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Conversions and Renewals |
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38 |
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Section 2.07 |
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Interest |
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39 |
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Section 2.08 |
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Interest Rate Determination |
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40 |
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Section 2.09 |
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Fees |
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40 |
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Section 2.10 |
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Notes |
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40 |
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Section 2.11 |
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Prepayments |
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41 |
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Section 2.12 |
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Method of Payment |
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41 |
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Section 2.13 |
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Use of Proceeds |
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42 |
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Section 2.14 |
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Yield Protection |
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42 |
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Section 2.15 |
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Changes in Capital Adequacy Regulations |
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43 |
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Section 2.16 |
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Availability of Eurodollar Loans |
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44 |
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Section 2.17 |
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Funding Indemnification |
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44 |
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Section 2.18 |
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Lender Statements; Survival of Indemnity |
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44 |
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Section 2.19 |
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Extension of Termination Date |
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44 |
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Section 2.20 |
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Replacement of Certain Lenders |
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46 |
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Section 2.21 |
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Swing Line |
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48 |
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Section 2.22 |
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Facility Letters of Credit |
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48 |
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ARTICLE III CONDITIONS PRECEDENT |
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58 |
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Section 3.01 |
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Conditions Precedent to Closing Date |
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58 |
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Section 3.02 |
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Conditions Precedent to Cash Secured Option |
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59 |
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Section 3.03 |
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Conditions Precedent to Secured Borrowing Base Option |
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61 |
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Section 3.04 |
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Conditions Precedent to All Loans |
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61 |
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Section 3.05 |
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Conditions Precedent to Facility Letters of Credit |
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62 |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES |
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62 |
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Section 4.01 |
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Incorporation, Formation, Good Standing, and Due Qualification |
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62 |
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Section 4.02 |
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Power and Authority |
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63 |
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Section 4.03 |
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Legally Enforceable Agreement |
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63 |
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Section 4.04 |
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Financial Statements |
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63 |
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Section 4.05 |
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Labor Disputes and Acts of God |
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64 |
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Section 4.06 |
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Other Agreements |
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64 |
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Section 4.07 |
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Litigation |
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64 |
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Section 4.08 |
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No Defaults on Outstanding Judgments or Orders |
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64 |
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Section 4.09 |
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Ownership and Liens |
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65 |
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Section 4.10 |
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Subsidiaries and Ownership of Stock |
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65 |
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Section 4.11 |
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ERISA |
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65 |
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Section 4.12 |
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Operation of Business |
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65 |
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Section 4.13 |
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Taxes |
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66 |
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Section 4.14 |
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Laws; Environment |
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66 |
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Section 4.15 |
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Investment Company Act |
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67 |
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Section 4.16 |
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OFAC |
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67 |
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Section 4.17 |
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Accuracy of Information |
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67 |
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Section 4.18 |
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Security Documents. |
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68 |
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ARTICLE V AFFIRMATIVE COVENANTS |
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69 |
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Section 5.01 |
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Maintenance of Existence |
|
|
69 |
|
Section 5.02 |
|
Maintenance of Records |
|
|
69 |
|
Section 5.03 |
|
Maintenance of Properties |
|
|
69 |
|
Section 5.04 |
|
Conduct of Business |
|
|
69 |
|
Section 5.05 |
|
Maintenance of Insurance |
|
|
69 |
|
Section 5.06 |
|
Compliance with Laws |
|
|
70 |
|
Section 5.07 |
|
Right of Inspection |
|
|
70 |
|
Section 5.08 |
|
Reporting Requirements |
|
|
70 |
|
Section 5.09 |
|
[Intentionally Deleted] |
|
|
72 |
|
Section 5.10 |
|
Environment |
|
|
72 |
|
Section 5.11 |
|
Use of Proceeds |
|
|
73 |
|
Section 5.12 |
|
Ranking of Obligations |
|
|
73 |
|
Section 5.13 |
|
Taxes |
|
|
73 |
|
Section 5.14 |
|
[Intentionally Deleted] |
|
|
73 |
|
Section 5.15 |
|
New Subsidiaries |
|
|
73 |
|
|
|
|
|
|
|
|
ARTICLE VI NEGATIVE COVENANTS |
|
|
74 |
|
Section 6.01 |
|
Liens |
|
|
74 |
|
Section 6.02 |
|
Secured Debt |
|
|
75 |
|
Section 6.03 |
|
Mergers, Etc |
|
|
76 |
|
Section 6.04 |
|
Leases |
|
|
76 |
|
Section 6.05 |
|
Sale and Leaseback |
|
|
76 |
|
Section 6.06 |
|
Sale of Assets |
|
|
76 |
|
Section 6.07 |
|
Investments |
|
|
77 |
|
Section 6.08 |
|
Guaranties, Etc |
|
|
78 |
|
Section 6.09 |
|
Transactions with Affiliates |
|
|
78 |
|
Section 6.10 |
|
[Intentionally Deleted] |
|
|
79 |
|
Section 6.11 |
|
[Intentionally Deleted] |
|
|
79 |
|
Section 6.12 |
|
Non-Guarantors |
|
|
79 |
|
Section 6.13 |
|
Negative Pledge |
|
|
79 |
|
ii
|
|
|
|
|
|
|
|
|
|
|
Page |
ARTICLE VII FINANCIAL COVENANTS |
|
|
79 |
|
Section 7.01 |
|
Minimum Consolidated Tangible Net Worth |
|
|
79 |
|
Section 7.02 |
|
Leverage Ratio |
|
|
79 |
|
Section 7.03 |
|
Interest Coverage Ratio |
|
|
80 |
|
Section 7.04 |
|
Minimum Liquidity |
|
|
80 |
|
|
|
|
|
|
|
|
ARTICLE VIII EVENTS OF DEFAULT |
|
|
80 |
|
Section 8.01 |
|
Events of Default |
|
|
80 |
|
Section 8.02 |
|
Set Off |
|
|
84 |
|
|
|
|
|
|
|
|
ARTICLE IX AGENCY PROVISIONS |
|
|
84 |
|
Section 9.01 |
|
Authorization and Action |
|
|
85 |
|
Section 9.02 |
|
Liability of Agent |
|
|
85 |
|
Section 9.03 |
|
Rights of Agent Individually |
|
|
86 |
|
Section 9.04 |
|
Independent Credit Decisions |
|
|
87 |
|
Section 9.05 |
|
Indemnification |
|
|
87 |
|
Section 9.06 |
|
Successor Agent |
|
|
88 |
|
Section 9.07 |
|
Sharing of Payments, Etc |
|
|
88 |
|
Section 9.08 |
|
Withholding Tax Matters |
|
|
89 |
|
Section 9.09 |
|
Syndication Agents, Documentation Agents, Managing Agents or Co-Agents |
|
|
89 |
|
|
|
|
|
|
|
|
ARTICLE X MISCELLANEOUS |
|
|
89 |
|
Section 10.01 |
|
Amendments, Etc |
|
|
89 |
|
Section 10.02 |
|
Notices, Etc |
|
|
90 |
|
Section 10.03 |
|
No Waiver |
|
|
92 |
|
Section 10.04 |
|
Costs, Expenses, and Taxes |
|
|
92 |
|
Section 10.05 |
|
Integration |
|
|
93 |
|
Section 10.06 |
|
Indemnity |
|
|
93 |
|
Section 10.07 |
|
CHOICE OF LAW |
|
|
94 |
|
Section 10.08 |
|
Severability of Provisions |
|
|
94 |
|
Section 10.09 |
|
Counterparts |
|
|
94 |
|
Section 10.10 |
|
Headings |
|
|
94 |
|
Section 10.11 |
|
CONSENT TO JURISDICTION |
|
|
94 |
|
Section 10.12 |
|
WAIVER OF JURY TRIAL |
|
|
95 |
|
Section 10.13 |
|
Governmental Regulation |
|
|
95 |
|
Section 10.14 |
|
No Fiduciary Duty |
|
|
95 |
|
Section 10.15 |
|
Confidentiality |
|
|
95 |
|
Section 10.16 |
|
USA Patriot Act Notification |
|
|
98 |
|
Section 10.17 |
|
Register |
|
|
98 |
|
Section 10.18 |
|
Waiver of Consequential Damages, Etc |
|
|
99 |
|
|
|
|
|
|
|
|
ARTICLE XI BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS |
|
|
99 |
|
Section 11.01 |
|
Successors and Assigns |
|
|
99 |
|
Section 11.02 |
|
Assignments |
|
|
99 |
|
Section 11.03 |
|
Participations |
|
|
100 |
|
Section 11.04 |
|
Pledge to Federal Reserve Bank |
|
|
101 |
|
iii
LIST OF SCHEDULES AND EXHIBITS
|
|
|
|
|
Schedule |
|
Description |
|
Reference |
Schedule I |
|
Commitments |
|
2.01 |
|
|
|
|
|
Schedule II |
|
[Intentionally Deleted] |
|
|
|
|
|
|
|
Schedule III |
|
Guarantors |
|
Definition |
|
|
|
|
|
Schedule IV |
|
Secured Borrowing Base Conditions |
|
Definition |
|
|
|
|
|
Schedule V |
|
Metropolitan Statistical Areas |
|
1.01 |
|
|
|
|
|
Schedule 4.07 |
|
Claims |
|
4.07 |
|
|
|
|
|
Schedule 4.10 |
|
Subsidiaries of Borrower |
|
4.10 |
|
|
|
|
|
Schedule 4.14 |
|
Environmental Matters |
|
4.10, 5.06, 5.10, 8.01(10) |
|
|
|
|
|
Schedule 5.16 |
|
Post-Closing Matters |
|
5.16 |
|
Exhibit |
|
Description |
|
Reference |
Exhibit A-1 |
|
Form of Amended and Restated Guaranty |
|
Definition |
|
|
|
|
|
Exhibit A-2 |
|
Form of Cash Collateral Agreement |
|
|
|
|
|
|
|
Exhibit A-3 |
|
Form of Amended and Restated Collateral Agreement |
|
|
|
|
|
|
|
Exhibit B |
|
Form of Note |
|
Definition |
|
|
|
|
|
Exhibit C |
|
Commitment and Acceptance |
|
2.02.2(a) |
|
|
|
|
|
Exhibit D |
|
Form of Certificate for Borrowings and |
|
2.22.3(iii), 3.02 |
|
|
Facility Letters of Credit |
|
|
|
|
|
|
|
Exhibit E |
|
Opinion of Borrowers Counsel |
|
3.01(5) |
|
|
|
|
|
Exhibit F |
|
Assignment Agreement |
|
11.02(b)(ii) |
|
Exhibit G |
|
Form of Officers Certification |
|
Schedule IV |
iv
AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 5, 2009 among BEAZER HOMES USA, INC.,
a Delaware corporation (the Borrower), the Lenders that are signatories hereto, the Issuers that
are signatories hereto, CITIBANK, N.A., a national banking association, as Swing Line Lender, and
CITIBANK, N.A., a Delaware corporation, as Agent (the Agent) for the Lenders and the Issuers.
PRELIMINARY STATEMENTS
(1) The Borrower entered into that certain Credit Agreement dated as of July 25, 2007 (the
Original Credit Agreement), among the Borrower, the several lenders party thereto as lenders and
as issuers, and Wachovia Bank, National Association, as agent, as modified by (i) the First
Amendment, (ii) that certain Second Limited Waiver dated as of June 30, 2009, (iii) the Second
Amendment, (iv) the Third Amendment, (v) that certain Third Limited Waiver dated as of May 4, 2009,
and (vi) the Fourth Amendment, each entered into among the Borrower, the several lenders party
thereto as lenders and Wachovia Bank, National Association, as agent (the Original Credit
Agreement, as so modified, and as heretofore otherwise amended, supplemented or otherwise modified,
being hereinafter referred to as the Existing Credit Agreement).
(2) Pursuant to that certain Successor Agency and Amendment Agreement dated as of the date
hereof among Wachovia Bank, National Association, Citibank, N.A., the lenders and issuers under the
Existing Credit Agreement, the Borrower and the Guarantors (as hereinafter defined), Wachovia Bank,
National Association resigned as agent under the Existing Credit Agreement and Citibank, N.A. was
appointed as successor agent.
(3) The Borrower, the Lenders, the Issuers and the Agent desire to amend and restate the
Existing Credit Agreement in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Defined Terms. As used in this Agreement, the following terms have the
following meanings (terms defined in the singular shall have the same meaning when used in the
plural and vice versa):
ABR Loan means a Loan which bears interest at the Alternate Base Rate, other than a Swing
Line Loan.
Acceptable Appraisal means an appraisal commissioned by and addressed to the Agent
(reasonably acceptable to the Agent as to form, assumptions, substance, and appraisal
date), prepared by a qualified professional appraiser reasonably acceptable to the Agent, and
complying in all material respects with the requirements of the Federal Financial Institutions
Reform, Recovery and Enforcement Act of 1989.
Acquisition means any transaction, or any series of related transactions, consummated on or
after the date of this Agreement by which the Borrower or any of its Subsidiaries (i) acquires any
going concern or all or substantially all of the assets of any Person 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 or by percentage of voting power) of the Common Equity of another Person.
Adjusted Cash Flow from Operations means, for any period of four consecutive fiscal quarters
of the Borrower and its Subsidiaries (other than those Subsidiaries that are not Guarantors), the
sum of (a) the cash generated by (or used in) operating activities, as calculated on the quarterly
financial statements for the Borrower and its Subsidiaries, on a consolidated basis for such
period, as determined in accordance with GAAP, such amount being reflected in the line item
designated Net Cash (used in) provided by operating activities on the Borrowers quarterly
financial statements, plus (b) Interest Incurred of the Borrower and its Subsidiaries, on a
consolidated basis for such four consecutive fiscal quarters, as determined in accordance with
GAAP.
Adjusted LIBO Rate means, with respect to any Eurodollar Loan for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the
LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the
Agent.
Affected Lender is defined in Section 2.20(a).
Affiliate means, with respect to any Person, any other Person (1) which directly or
indirectly controls, or is controlled by, or is under common control with, such Person or a
Subsidiary of such Person; (2) which directly or indirectly beneficially owns or holds five percent
(5%) or more of any class of voting equity interests of such Person or any Subsidiary of such
Person; or (3) five percent (5%) or more of the voting equity interests of which is directly or
indirectly beneficially owned or held by such Person or a Subsidiary of such Person. The term
control means the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
2
Agent has the meaning assigned to such term in the opening paragraph of this Agreement.
Agents Fee Letter means that certain fee letter dated August 3, 2009 from the Agent and
Arranger to the Borrower and accepted by the Borrower.
Aggregate Commitment means, at any time after the Effective Date, the aggregate Commitments
of all the Lenders.
Aggregate Outstanding Extensions of Credit means, at any time, the sum of the aggregate
principal amount of all Loans (including all Swing Line Loans) and the Facility Letter of Credit
Obligations, in each case outstanding at such time.
Agreement means the Existing Credit Agreement, as amended and restated by this Amended and
Restated Credit Agreement, as further amended, supplemented or otherwise modified from time to
time; except that any reference to the date of this Agreement shall mean the date of this Amended
and Restated Credit Agreement.
Alternate Base Rate means, for any day, the sum of (a) a rate per annum equal to the greater
of (i) the Base Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%, plus (b) the Applicable Margin. Any change in the Alternate Base Rate due
to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and
including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively.
Amended and Restated Guaranty means the Amended and Restated Guaranty dated as of the date
hereof among each Guarantor identified on Schedule III and the Agent, substantially in the form
attached as Exhibit A-1.
Applicable Letter of Credit Rate means, as at any date of determination, a rate per annum
equal to the then effective Applicable Margin for Eurodollar Loans.
Applicable Margin means, as at any date of determination, the margin indicated below for the
applicable type of Loan for each of the Cash Secured Option and the Secured Borrowing Base Option,
as applicable:
|
|
|
|
|
|
|
|
|
Pricing Option |
|
Eurodollar Loans |
|
Base Rate Loans |
Cash Secured Option |
|
|
1.50 |
% |
|
|
0.50 |
% |
Secured Borrowing Base
Option |
|
|
6.00 |
% |
|
|
5.00 |
% |
3
Appraised Value means, with respect to any Real Property or any portion thereof, the
appraised value of such Real Property or portion thereof set forth in the most-recent Acceptable
Appraisal obtained by the Agent pursuant to the Loan Documents. The Appraised Value of (a) a Real
Property shall be adjusted to take into account any portion that has been sold or otherwise
transferred, and (b) a portion of a Real Property shall be calculated based upon the Acceptable
Appraisal for such Real Property and allocated to such portion of such Real Property by the
Borrower based upon a reasonable methodology approved by the Agent, including a methodology to
reflect the value of ongoing or completed construction of Housing Units and improvements to Lots
Under Development.
Approved Electronic Communications means each Communication that the Borrower or any
Guarantor is obligated to, or otherwise chooses to, provide to the Agent pursuant to any Loan
Document or the transactions contemplated therein, including any financial statement, financial and
other report, notice, request, certificate and other information material; provided,
however, that, solely with respect to delivery of any such Communication by the Borrower or
any Guarantor to the Agent and without limiting or otherwise affecting either the Agents right to
effect delivery of such Communication by posting such Communication to the Approved Electronic
Platform or the protections afforded hereby to the Agent in connection with any such posting,
Approved Electronic Communication shall exclude (i) any notice of borrowing, letter of credit
request, notice of conversion or continuation, and any other notice, demand, communication,
information, document and other material relating to a request for a new, or a conversion of an
existing, Borrowing, (ii) any notice of prepayment pursuant to Section 2.11 and any other notice
relating to the payment of any principal or other amount due under any Loan Document prior to the
scheduled date therefor, (iii) all notices of any Default or Event of Default and (iv) any notice,
demand, communication, information, document and other material required to be delivered to satisfy
any of the conditions set forth in Article III or any other condition to any Borrowing or other
extension of credit hereunder or any condition precedent to the effectiveness of this Agreement.
Approved Electronic Platform is defined in Section 10.02(d).
Approved Fund means any Person (other than a natural person) that is engaged in making,
purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary
course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a
Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
4
Arranger means Citigroup Global Markets Inc.
Assignment and Assumption is defined in Section 11.02(b)(ii).
Base Indenture 2001 has the meaning set forth in the definition of the term Senior Notes.
Base Indenture 2002 has the meaning set forth in the definition of the term Senior Notes.
Base Indenture 2004 has the meaning set forth in the definition of the term Senior Notes.
Base Rate means the fluctuating rate of interest announced publicly by Citibank, N.A. in New
York, New York from time to time as its base rate.
Board means the Board of Governors of the Federal Reserve System of the United States of
America.
BMC means Beazer Mortgage Corporation, a Delaware corporation and Wholly-Owned Subsidiary of
the Borrower.
Borrowing means a borrowing consisting of Loans of the same type made, renewed or converted
on the same day.
Business Day means (i) with respect to any Borrowing, payment or rate selection of
Eurodollar Loans, a day (other than a Saturday or Sunday) on which banks generally are open in New
York City 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 New
York City for the conduct of substantially all of their commercial lending activities.
Capital Lease means all leases which have been or should be capitalized on the books of the
lessee in accordance with GAAP.
Cash Collateral Account means the Account (as such term is defined in the Cash Collateral
Agreement) maintained under the Cash Collateral Agreement.
Cash Collateral Agreement means the Cash Collateral Agreement to be executed and delivered
by the Borrower in accordance with Section 3.01, substantially in the form of Exhibit A-2.
5
Cash Equivalents means:
(a) certificates of deposit, time deposits, bankers acceptances, and other obligations placed
with commercial banks organized under the laws of the United States of America or any state
thereof, or branches or agencies of foreign banks licensed under the laws of the United States of
America or any state thereof, having a short-term rating of not less than A- by each of Moodys and
S&P at the time of acquisition, and having a maturities of not more than one year; provided
that the aggregate principal Investment at any one time in any one such institution shall not
exceed the Borrowers specified investment limit for such institution under the Borrowers
investment policy as in effect from time to time;
(b) direct obligation of the United States or any agency thereof with maturities of one year
or less from the date of acquisition;
(c) money market funds provided that such funds (A) have total net assets of at least $2
billion, (B) have investment objectives and policies that substantially conform with the Borrowers
investment policy as in effect from time to time, (C) purchase only first-tier or U.S. government
obligations as defined by Rule 2a-7 of the Securities and Exchange Commission promulgated under the
Investment Company Act of 1940, and (D) otherwise comply with such Rule 2a-7; provided that
the aggregate principal Investment at any one time in any one such money market fund shall not
exceed $100,000,000, if the Investment is to be for more than three Business Days;
(d) investments in other short-term securities permitted as investments under the Borrowers
investment policy in effect from time to time and consented to by Required Lenders.
Cash Secured Option means the option of the Borrower to designate pursuant to Section 2.03
that availability of the Facility will be conditioned upon Aggregate Outstanding Extensions of
Credit at all times being fully secured by Unrestricted Cash Collateral under the Cash Collateral
Agreement in an amount equal to or greater than 105% of the Aggregate Outstanding Extensions of
Credit.
Change of Control means any of the following: (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Borrower or (except for an Internal
Reorganization) of a Significant Guarantor or Significant Subsidiary, as an entirety or
substantially as an entirety to any Person or group (within the meaning of Section 13(d)(3) of
the Exchange Act) in one or a series of transactions; (ii) the acquisition by any Person or group
of fifty percent (50%) or more of the aggregate voting power of all classes of Common Equity of the
Borrower or (except for an Internal Reorganization) of a Significant Guarantor or Significant
Subsidiary in one transaction or a series of related transactions; (iii) the liquidation or
dissolution of the Borrower or (except for an Internal Reorganization) of a Significant Guarantor
or Significant Subsidiary; (iv) any transaction or a series of related transactions (as a result of
a
6
tender offer, merger, consolidation or otherwise but excluding an Internal Reorganization)
that results in, or that is in connection with, (a) any Person or group acquiring beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty
percent (50%) or more of the aggregate voting power of all classes of Common Equity of the
Borrower, a Significant Guarantor or a Significant Subsidiary, or of any Person or group that
possesses beneficial ownership (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of fifty percent (50%) or more of the aggregate voting power of all classes of Common
Equity of the Borrower, a Significant Guarantor or a Significant Subsidiary, or (b) less than fifty
percent (50%) (measured by the aggregate voting power of all classes) of the Common Equity of the
Borrower being registered under Section 12(b) or 12(g) of the Exchange Act; (v) a majority of the
Board of Directors of the Borrower, a Significant Guarantor or a Significant Subsidiary, not being
comprised of persons who (a) were members of the Board of Directors of such Borrower, Significant
Guarantor or Significant Subsidiary, as of the date of this Agreement (Original Directors), or
(b) were nominated for election or elected to the Board of Directors of such Borrower, Significant
Guarantor, or Significant Subsidiary, with the affirmative vote of at least a majority of the
directors who themselves were Original Directors or who were similarly nominated for election or
elected; or (vi) with respect to any Significant Guarantor or Significant Subsidiary which is not a
corporation, any loss by the Borrower of the right or power directly, or indirectly through one or
more intermediaries, to control the activities of any such Significant Guarantor or Significant
Subsidiary. Nothing herein contained shall modify or otherwise affect the provisions of Section
6.06.
Closing Date is defined in Section 3.01.
Code means the Internal Revenue Code of 1986, as amended from time to time, and the
regulations and published interpretations thereof.
Collateral means all property of the Loan Parties, now owned or hereafter acquired, upon
which a Lien is purported to be created by any Security Document.
Collateral Agreement means the Amended and Restated Collateral Agreement dated as of the
date hereof among the Borrower, each Guarantor identified on Schedule III and the Agent,
substantially in the form of Exhibit A-3.
Collateral Shortfall Amount has the meaning assigned to that term in Section 8.01.
Commitment means, for each of the Lenders, the obligation of such Lender to make Loans and
to purchase participations in Facility Letters of Credit in the aggregate not exceeding the amount
set forth in Schedule I hereto as its Commitment, as such amount may be decreased from time to
time pursuant to the terms of Section 2.02.1 or increased pursuant to
7
Section 2.02.2; provided, however, that the Commitment of a Lender may not be
increased without its prior written approval.
Commitment and Acceptance is defined in Section 2.02.2(a).
Common Equity of any Person means any and all shares, rights to purchase, warrants or
options (whether or not currently exercisable), participations, or other equivalents of or
interests in (however designated) the equity (which includes, but is not limited to, common stock,
preferred stock and partnership and joint venture interests) of such Person (excluding any debt
securities convertible into, or exchangeable for, such equity) to the extent that the foregoing is
entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a
corporation, vote or otherwise participate in the selection of the governing body, partners,
managers or other persons that will control the management and policies of such Person.
Commonly Controlled Entity means an entity, whether or not incorporated, which is under
common control with the Borrower within the meaning of Section 414(b) or 414(c) of the Code.
Communications means each notice, demand, communication, information, document and other
material provided for under this Agreement or under any other Loan Document or otherwise
transmitted between the parties hereto relating this Agreement, the other Loan Documents, the
Borrower or any Guarantor or their respective Affiliates, or the transactions contemplated by this
Agreement or the other Loan Documents including, without limitation, all Approved Electronic
Communications.
Consolidated Debt means the Debt of the Borrower and its Subsidiaries determined on a
consolidated basis (but shall not include Debt of any Subsidiary which is not a Guarantor, except
to the extent that such Debt is guaranteed by the Borrower or a Guarantor).
Consolidated Tangible Assets of the Borrower means, as of any date, the total amount of
assets of the Borrower and its Subsidiaries (less applicable reserves) on a consolidated basis at
the end of the fiscal quarter immediately preceding such date (or on such date if such date is the
last day of the fiscal quarter), as determined in accordance with GAAP, less (i) Intangible Assets
and (ii) appropriate adjustments on account of minority interests of other Persons holding equity
Investments in Subsidiaries, in the case of each of clauses (i) and (ii) above, as would be
reflected on a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the
fiscal quarter immediately preceding such date (or on such date if such date is the last day of the
fiscal quarter), prepared in accordance with GAAP.
Consolidated Tangible Net Worth of the Borrower means, at any date, the consolidated
stockholders equity of the Borrower determined in accordance with GAAP, less Intangible Assets,
all determined as of the last day of the most recently ended fiscal quarter for
8
which financial statements have been delivered (or were required to have been delivered)
pursuant to Section 5.08(1) or (2).
Construction Inspector means the architectural or engineering firm or such party which the
Agent shall designate to perform various services on behalf of the Agent and the Lenders. The
services to be performed by the Construction Inspector shall include inspections, review of the
plans and all proposed changes to them, preparation of a cost breakdown construction analysis,
periodic inspections of construction work for conformity with the plans, approval of draw requests
and the issuance of reports and certifications solely for the benefit of the Agent and the Lenders
and shall not impose upon the Agent or any Lender any obligation to make inspections, or to correct
or require any other Person to correct any defects, or to notify any Person with respect to such
defects.
Debt means, without duplication, with respect to any Person (1) indebtedness or liability
for borrowed money, including, without limitation, subordinated indebtedness (other than trade
accounts payable and accruals incurred in the ordinary course of business); (2) obligations
evidenced by bonds, debentures, notes, or other similar instruments; (3) obligations for the
deferred purchase price of property (including, without limitation, seller financing of any
Inventory) or services, provided, however, that Debt shall not include (A)
obligations with respect to options to purchase real property that have not been exercised, or (B)
trade payables arising in the ordinary course of business that are no more than 90 days overdue;
(4) obligations as lessee under Capital Leases to the extent that the same would, in accordance
with GAAP, appear as liabilities in the Borrowers consolidated balance sheet; (5) current
liabilities in respect of unfunded vested benefits under Plans and incurred withdrawal liability
under any Multiemployer Plan; (6) reimbursement obligations under letters of credit (including
contingent obligations with respect to letters of credit not yet drawn upon); (7) obligations under
acceptance facilities; (8) all guaranties, endorsements (other than for collection or deposit in
the ordinary course of business), and other contingent obligations to purchase, to provide funds
for payment, to supply funds to invest in any other Person or entity, or otherwise to assure a
creditor against loss, provided, however, that Debt shall not include guaranties
of performance obligations; (9) obligations secured by any Liens on any property of such Person,
whether or not the obligations have been assumed; and (10) net liabilities under interest rate
swap, exchange or cap agreements (valued as the termination value thereof, computed in accordance
with a method approved by the International Swaps and Derivatives Association and agreed to by such
Person in the applicable agreement).
Default means any of the events specified in Section 8.01, whether or not any requirement
for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.
Defaulting Lender means any Lender that has (a) failed to fund any portion of its Loans or
participations in Facility Letters of Credit within three (3) Business Days of the date
9
required to be funded by it hereunder, which failure has not been cured, (b) otherwise failed
to pay to the Agent or any other Lender any other amount required to be paid by it hereunder within
three (3) Business Days of the date when due, unless the subject of a good faith dispute, which
failure has not been cured, or (c) (i) become insolvent or has a parent company that has become or
is insolvent or (ii) become the subject of a bankruptcy or insolvency proceeding, or has had a
receiver, conservator, trustee or custodian appointed for it, or has taken any action in
furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or
appointment or has a parent company that has become the subject of a bankruptcy or insolvency
proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken
any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such
proceeding or appointment.
Deferred Tax Valuation Allowance means any valuation allowance applied to deferred tax
assets as determined in accordance with GAAP and included in the financial statements of the
Borrower.
Disqualified Stock means any equity interest which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon the happening of
any event, (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, in whole or in part, on or prior to the date which is six months after the Termination
Date, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for
(i) debt securities or (ii) any equity interests referred to in (a) above, in each case at any time
on or prior to the date which is six months after the Termination Date, or (c) contains any
repurchase obligation which may come into effect prior to payment in full of all Obligations and
termination of all Commitments; provided, however, that any equity interests that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof (or the holders of
any security into or for which such equity interests is convertible, exchangeable or exercisable)
the right to require the issuer thereof to redeem such equity interests upon the occurrence of a
change in control or an asset sale occurring prior to the Termination Date shall not constitute
Disqualified Stock if such equity interests provide that the issuer thereof will not redeem any
such equity interests pursuant to such provisions prior to the repayment in full of the Obligations
and termination of all Commitments.
Dollars and the sign $ mean lawful money of the United States of America.
EBITDA means, for any period, on a consolidated basis for the Borrower and its Subsidiaries
(other than those Subsidiaries that are not Guarantors), the sum of the amounts for such period of
(i) Net Income (but excluding from such Net Income for the applicable period any income derived
from any Investment in a Joint Venture referred to in Section 6.07(10) to the extent that such
income exceeds the cash distributions thereof received by the Borrower or its Subsidiaries (other
than those Subsidiaries that are not Guarantors) in such period), plus (ii) charges against
income for foreign, federal, state and local taxes, plus (iii) Interest Expense,
plus
10
(iv) depreciation, plus (v) amortization expense, including, without limitation,
amortization of goodwill and other intangible assets and amortization of deferred compensation
expense, plus (vi) extraordinary losses (and all other non-cash items reducing Net Income,
including but not limited to impairment charges for land and other long-lived assets and option
deposit forfeitures), minus (vii) interest income, minus (viii) extraordinary gains
(and any unusual gains and non-cash credits arising in or outside of the ordinary course of
business not included in extraordinary gains that have been included in the determination of such
Net Income), all determined in accordance with GAAP.
Entitled Land means all Lots that are neither Lots Under Development nor Finished Lots.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the regulations and published interpretations thereof.
Eurodollar Loan means any Loan when and to the extent that the interest rate therefor is
determined by reference to the Eurodollar Rate.
Eurodollar Rate means, with respect to a Eurodollar Loan for the relevant Interest Period,
the sum of (a) the Adjusted LIBO Rate applicable to such Interest Period plus (b) the Applicable
Margin.
Event of Default means any of the events specified in Section 8.01, provided that any
requirement for the giving of notice, the lapse of time, or both, or any other condition, has been
satisfied.
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
Extension Request is defined in Section 2.19(a).
Facility means the revolving credit and letter of credit facilities described in Section
2.01, together with the Swing Line facility described in Section 2.21.
Facility Increase is defined in Section 2.02.2(a).
Facility Letter of Credit means any Letter of Credit issued by an Issuer for the account of
the Borrower in accordance with Section 2.22.
Facility Letter of Credit Collateral Account is defined in Section 2.22.13.
Facility Letter of Credit Fee means a fee, payable with respect to each Facility Letter of
Credit issued by an Issuer, in an amount per annum equal to the product of (i) the
11
Applicable Letter of Credit Rate (determined as of the date on which the quarterly installment
of such fee is due) and (ii) the undrawn outstanding amount of such Facility Letter of Credit,
which fee shall be calculated in the manner provided in Section 2.22.7.
Facility Letter of Credit Obligations means, at any date, the sum of (i) the aggregate
undrawn face amount of all outstanding Facility Letters of Credit, and (ii) the aggregate amount
paid by an Issuer on any Facility Letters of Credit to the extent (if any) not reimbursed by the
Borrower or by the Lenders under Section 2.22.4.
Facility Letter of Credit Sublimit means an amount equal to the Aggregate Commitment.
Federal Funds Effective Rate means, for each day, a fluctuating 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, 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 11:00 A.M. New York City time on such day on such
transactions received by the Agent from three Federal Funds brokers of recognized standing selected
by the Agent in its sole discretion.
Financial Letter of Credit means any Letter of Credit of the Borrower or a Guarantor that is
not a Performance Letter of Credit.
Finished Lots means Lots in respect of which a building permit, from the applicable local
governmental authority, has been or could be obtained; provided, however, that the
term Finished Lots shall not include any Land upon which the construction of a Housing Unit has
commenced.
First Amendment means the Waiver and First Amendment, dated as of October 10, 2007, to and
under the Original Credit Agreement.
First Amendment Effective Date means the date that the First Amendment becomes effective in
accordance with its terms.
Fourth Amendment means the Fourth Amendment, dated as of the date hereof, to and under the
Original Credit Agreement.
GAAP means generally accepted accounting principles in the United States in effect from time
to time (subject to the provisions of Section 1.02).
Guarantor means (a) the Subsidiaries of Borrower identified on Schedule III hereto
and (b) any Person that, pursuant to a Supplemental Guaranty, guarantees the Obligations.
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Guaranty means (a) the Amended and Restated Guaranty or (b) a Supplemental Guaranty.
Housing Unit means a dwelling, including the Land on which such dwelling is located, whether
such dwelling is a Single Family Housing Unit or a Multifamily Housing Unit (including condominiums
but excluding mobile homes), which dwelling is either under construction or completed and is (or,
upon completion of construction thereof, will be) available for sale.
Housing Unit Under Contract means a Housing Unit owned by the Borrower or a Subsidiary as to
which the Borrower or such Subsidiary has a bona fide contract of sale, in a form
customarily employed by the Borrower or such Subsidiary and reasonably satisfactory to the Agent
with a Person who is not an Affiliate, under which contract no defaults then exist and not less
than $1,000.00 toward the purchase price has been paid; provided, however, that in
the case of any Housing Unit the purchase of which is to be financed in whole or in part by a loan
insured by the Federal Housing Administration or guaranteed by the Veterans Administration, the
required minimum down payment shall be the amount (if any) required under the rules of the relevant
agency.
Housing Unit Closing means a closing of the sale of a Housing Unit by the Borrower or a
Subsidiary (including any company or other entity acquired in an Acquisition by the Borrower or a
Subsidiary) to a bona fide purchaser for value that is not an Affiliate.
Incur means to, directly or indirectly, create, incur, assume, guarantee, extend the
maturity of or otherwise become liable with respect to any Debt; provided, however, that neither
the accrual of interest (whether such interest is payable in cash or kind) nor the accretion of
original issue discount shall be considered an Incurrence of Debt.
Intangible Assets means, at any time, the amount (to the extent reflected in determining
consolidated stockholders equity of the Borrower and its Subsidiaries) of (i) Investments in any
Subsidiaries that are not Guarantors and (ii) all unamortized debt discount and expense,
unamortized deferred charges, good will, patents, trademarks, service marks, trade names,
copyrights and all other items which would be treated as intangibles on a consolidated balance
sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP.
Interest Coverage Ratio means, for any period, the ratio of (a) EBITDA to (b) the sum (on a
consolidated basis for the Borrower and its Subsidiaries (other than those Subsidiaries that are
not Guarantors)) of all interest incurred (whether expensed or capitalized), less the amount of
interest income for such period.
Interest Deficit is defined in Section 2.08(b).
13
Interest Expense means, for any period, the total interest expense of the Borrower and its
Subsidiaries (other than those Subsidiaries that are not Guarantors), whether paid directly or
amortized through cost of sales (including the interest component of Capital Leases).
Notwithstanding that GAAP may otherwise provide, the Borrower shall not be required to include in
Interest Expense the amount of any premium paid to prepay Debt.
Interest Incurred means, for any period, the sum (on a consolidated basis for the Borrower
and its Subsidiaries (other than those Subsidiaries which are not Guarantors)) of all interest
incurred (whether expensed or capitalized) of the Borrower and its Subsidiaries, less the amount of
interest income for such period.
Interest Period means, with respect to any Eurodollar Loan, the period commencing on the
date of such Eurodollar Loan and ending on the numerically corresponding day in the calendar month
that is one, two, three or six months thereafter, as the Borrower may elect; provided, that
(i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a Eurodollar Loan only, such
next succeeding Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a
Eurodollar Loan that commences on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the last calendar month of such Interest Period) shall
end on the last Business Day of the last calendar month of such Interest Period. For purposes, the
date of a Eurodollar Loan initially shall be the date on which such Eurodollar Loan is made and
thereafter shall be the effective date of the most recent conversion or continuation of such
Eurodollar Loan.
Internal Reorganization means any reorganization between or among the Borrower and any
Subsidiary or Subsidiaries or between or among any Subsidiary and one or more other Subsidiaries or
any combination thereof by way of liquidations, mergers, consolidations, conveyances, assignments,
sales, transfers and other dispositions of all or substantially all of the assets of a Subsidiary
(whether in one transaction or in a series of transactions); provided that (a) the
Borrower shall preserve and maintain its status as a validly existing corporation and (b) all
assets, liabilities, obligations and guarantees of any Subsidiary party to such reorganization will
continue to be held by such Subsidiary or be assumed by the Borrower or a Wholly-Owned Subsidiary
of the Borrower.
Inventory means all Housing Units, Lots, goods, merchandise and other personal property
wherever located to be used for or incorporated into any Housing Unit.
Inventory Valuation Date means the last day of the most recent calendar month of the
Borrower with respect to which the Borrower is required to have delivered a Secured Borrowing Base
Certificate pursuant to Section 5.08(6) and Section 2.01.2(b)(ix).
14
Investment has the meaning provided therefor in Section 6.07. The amount of any Investment
shall include (a) in the case of any loan or advance, the outstanding amount of such loan or
advance and (b) in the case of any equity Investment, the amount of the net equity investment as
determined in accordance with GAAP.
Issuance Date means the date on which a Facility Letter of Credit is issued, amended or
extended.
Issuer means, with respect to each Facility Letter of Credit Citibank, N.A. or such other
Lender selected by the Borrower with the approval of the Agent to issue such Facility Letter of
Credit, provided such other Lender consents to act in such capacity.
Joint Venture means any Person (other than a Subsidiary) in which the Borrower or a
Subsidiary holds any stock, partnership interest, joint venture interest, limited liability company
interest or other equity interest.
Land means land owned by the Borrower or a Subsidiary, which land is being developed or is
held for future development or sale.
Lenders means each of the Persons listed on Schedule I and any other Person that
shall have become a party hereto pursuant to a Commitment and Acceptance or pursuant to an
Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to
an Assignment and Assumption.
Lending Office means, with respect to any Lender, the Lending Office of such Lender (or of
an affiliate of such Bank) heretofore designated in writing by such Lender to the Agent or such
other office or branch of such Lender (or of an affiliate of such Lender) as that Lender may from
time to time specify to the Borrower and the Agent as the office or branch at which its Loans (or
Loans of a type designated in such notice) are to be made and maintained.
Letter of Credit of a Person means a letter of credit or similar instrument which is issued
by a financial institution upon the application of such Person or upon which such Person is an
account party or for which such Person is in any way liable.
Lender Party means any Lender, any Issuer or the Swing Line Lender.
Leverage Ratio means, as of any date, the ratio of (a) an amount equal to (i) Consolidated
Debt minus (ii) the excess (if any) of (A) the average of the month-end balances of
Unrestricted Cash for the fiscal quarter then, or most recently, ended, over (B) $20,000,000 to
(b) Consolidated Tangible Net Worth.
LIBO Rate means, with respect to any Eurodollar Loan for any Interest Period, the rate
appearing on Reuters Screen LIBOR01 Page, or on any successor or substitute page of
15
such service, or any successor to or substitute for such service, providing rate quotations
comparable to those currently provided on such page of such service, as determined by the Agent
from time to time for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market, at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not available at such
time for any reason, then the LIBO Rate with respect to such Eurodollar Loan for such
Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity
comparable to such Interest Period are offered by the principal London office of Citibank, N.A. in
immediately available funds in the London interbank market at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period.
Lien means any mortgage, deed of trust, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority,
or other security agreement or preferential arrangement, charge, or encumbrance of any kind or
nature whatsoever (including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the foregoing).
Loan means, with respect to a Lender, a Loan made by such Lender pursuant to Section 2.01.1
and any conversion or continuation thereof and, unless the context otherwise indicates, shall
include Swing Line Loans made pursuant to Section 2.21.
Loan Documents means this Agreement, the Notes, the Guaranties, the Security Documents, the
Reimbursement Agreements, and any and all documents delivered hereunder or pursuant hereto.
Loan Party means the Borrower and each Guarantor.
Lots means all Land owned by the Borrower and/or a Subsidiary which is zoned by the
municipality in which such real property is located for residential building and use, and with
respect to which the Borrower or such Subsidiary has obtained all necessary approvals for its
subdivision for Housing Units; provided, however, that the term Lots shall not
include any Land upon which the construction of a Housing Unit has commenced.
Lots Under Development means Lots with respect to which construction of streets or other
subdivision improvements has commenced but which are not Finished Lots.
Moodys means Moodys Investors Service, Inc.
16
Mortgaged Property means the real estate of the Loan Parties, as to which the Agent for the
benefit of the Lenders has been granted a Lien pursuant to a Mortgage.
Mortgages means each of the mortgages, deeds of trust and similar instruments (including any
spreader, amendment, restatement or similar modification of any existing Mortgage) made by any Loan
Party in favor of the Agent or for the benefit of the Agent, for the benefit of the Lenders, in
form and substance reasonably satisfactory to the Agent and the Borrower.
Multiemployer Plan means a plan described in Section 4001(a)(3) of ERISA in respect of which
the Borrower, a Subsidiary or a Commonly Controlled Entity is an employer as defined in Section
3(5) of ERISA.
Multifamily Housing Unit means any residential dwelling that has twenty (20) or more units
or four (4) or more stories.
Net Income means, for any period, the net earnings (or loss) after taxes of the Borrower and
its Subsidiaries on a consolidated basis for such period.
New Lender means a Lender or other entity (in each case approved by the Agent, which
approval shall not be unreasonably withheld) that elects, upon request by Borrower, to issue a
Commitment or, in the case of an existing Lender, to increase its existing Commitment, pursuant to
Section 2.02.2.
Note means a promissory note in substantially the form of Exhibit B hereto, executed
and delivered by the Borrower payable to the order of a Lender in the amount of its Commitment,
including any amendment, modification, restatement, renewal or replacement of such promissory note.
Obligations means (a) the due and punctual payment of principal of and interest on the Loans
and the Notes, (b) the due and punctual payment of the Facility Letter of Credit Obligations, and
(c) the due and punctual payment of fees, expenses, reimbursements, indemnifications and other
present and future monetary obligations of the Borrower and each Guarantor to the Lenders or to any
Lender, the Agent, any Issuer or any indemnified party, in each case arising under the Loan
Documents.
Participant is defined in Section 11.03.
PBGC means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all
of its functions under ERISA.
Performance Letter of Credit means any Letter of Credit of the Borrower or a Guarantor that
is issued for the benefit of a municipality, other governmental authority, utility,
17
water or sewer authority, or other similar entity for the purpose of assuring such beneficiary
of the Letter of Credit of the proper and timely completion of construction work.
Permitted Acquisition means any Acquisition (other than by means of a hostile takeover,
hostile tender offer or other similar hostile transaction) of a business or entity engaged
primarily in the business of home building; provided that, immediately before and after giving
effect to such Acquisition, no Default or Event of Default has occurred and is continuing.
Permitted Secured Debt Conditions means, with respect to any Secured Debt permitted to be
incurred under Section 6.02, the collective reference to the following conditions: (i) no Default
or Event of Default shall have occurred and be continuing, (ii) all representations and warranties
shall be true and correct in all material respects immediately prior to, and immediately after
giving effect to, the incurrence of such Secured Debt and (iii) all covenants in Article VII shall
continue to be in compliance immediately after giving effect to the incurrence of such Secured
Debt.
Person means an individual, partnership, corporation, business trust, joint stock company,
trust, limited liability company, unincorporated association, joint venture, governmental
authority, or other entity of whatever nature.
Plan means any pension plan which is covered by Title IV of ERISA and in respect of which
(a) the Borrower or a Subsidiary or a Commonly Controlled Entity is an employer as defined in
Section 3(5) of ERISA and (b) the Borrower or a Subsidiary has any material liability;
provided, however, that the term Plan shall not include any Multiemployer Plan.
Prohibited Transaction means any transaction set forth in Section 406 of ERISA or Section
4975 of the Code that could subject the Borrower or any Subsidiary to any material liability.
Pro Rata Share means, at any time for any Lender, the ratio that such Lenders Commitment
bears to the Aggregate Commitment; provided, however, that if the Aggregate
Commitment has terminated or been terminated in full, the Pro Rata Share shall be the ratio that
(x) the sum of such Lenders outstanding Loans and Facility Letter of Credit Obligations bears to
(y) the sum of all outstanding Loans and Facility Letter of Credit Obligations; and
provided, further, that this definition is subject to the provisions of Section
2.02.2(c) (if and when applicable).
Quarterly Payment Date means October 1, 2009 and the first day of each January, April, July
and October thereafter.
18
Real Property means all of those plots, pieces or parcels of land now owned, leased or
hereafter acquired or leased by a Loan Party (the Land), together with the right, title
and interest of such Loan Party in and to the streets, the land lying in the bed of any streets,
roads or avenues, opened or proposed, in front of, the air space and development rights pertaining
to the Land and the right to use such air space and development rights, all rights of way,
privileges, liberties, tenements, hereditaments and appurtenances belonging or in any way
appertaining thereto, all fixtures, all easements now or hereafter benefiting the Land and all
royalties and rights appertaining to the use and enjoyment of the Land necessary for the
residential development of such Land, together with all of the buildings and other improvements now
or hereafter erected on the Land, and any fixtures appurtenant thereto. It is understood that any
calculation of the book value of Real Property shall be calculated as of the month end last
reported in a Secured Borrowing Base Certificate.
Receivables means the net proceeds payable to, but not yet received by, the Borrower or a
Subsidiary following a Housing Unit Closing.
Refinancing Debt means Debt that refunds, refinances or extends any applicable Debt
(Refinanced Debt) but only to the extent that (i) the Refinancing Debt is subordinated in right
of payment to or pari passu in right of payment with the Obligations to the same extent as
such Refinanced Debt, if at all, (ii) such Refinancing Debt is in an aggregate amount that is equal
to or less than the sum of (A) the aggregate amount then outstanding under the Refinanced Debt,
plus (B) accrued and unpaid interest on such Refinanced Debt, plus (C) reasonable
fees and expenses incurred in obtaining such Refinancing Debt, it being understood that this clause
(ii) shall not preclude the Refinancing Debt from being a part of a Debt financing that includes
other or additional Debt otherwise permitted herein, (iii) such Refinancing Debt is Incurred by the
same Person that initially Incurred such Refinanced Debt or by another Person of which the Person
that initially Incurred such Refinanced Debt is a Subsidiary, and (iv) such Refinancing Debt is
Incurred within 60 days after such Refinanced Debt is so refunded, refinanced or extended.
Register is defined in Section 10.17.
Regulation D means Regulation D of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor thereto or other regulation or official
interpretation of said Board of Governors relating to reserve requirements applicable to member
banks of the Federal Reserve System.
Regulation U means Regulation U of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor or other regulation or official interpretation of
said Board of Governors relating to the extension of credit by banks for the purpose of purchasing
or carrying margin stocks applicable to member banks of the Federal Reserve System.
19
Regulation X means Regulation X of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor or other regulation or official interpretation of
said Board of Governors relating to the extension of credit by foreign lenders for the purpose of
purchasing or carrying margin stock (as defined therein).
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 the applicable Issuer may employ in the ordinary course of business
for its own account, with the modifications thereto as may be agreed upon by such Issuer and the
Borrower and as are not materially adverse (in the reasonable judgment of such Issuer and the
Agent) to the interests of the 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 2.19(a).
Rejecting Lenders Termination Date is defined in Section 2.19(a).
Related Parties means, with respect to any Person, such Persons Affiliates and such
Persons and such Persons Affiliates respective managers, administrators, trustees, partners,
directors, officers, employees, agents, fund managers and advisors.
Replacement Lender is defined in Section 2.20.
Reportable Event means any of the events set forth in Section 4043 of ERISA with respect to
a Plan (excluding any such event with respect to which the PBGC has waived the 30-day notice
requirement).
Required Lenders means Lenders whose Pro Rata Shares are equal to or greater than 66-2/3%.
S&P means Standard & Poors Rating Services.
Second Amendment means the Second Amendment, dated as of October 26, 2007, to and under the
Original Credit Agreement.
Secured Borrowing Base means, with respect to any date of determination, an amount equal to
the sum of (x) 100% of Unrestricted Cash then held in the Cash Collateral Account plus (y)
22.5% of all other Secured Borrowing Base Assets, valued at the lesser of book or Appraised Value;
provided, however, that (i) if any Secured Borrowing Base Asset is subject to a
Lien permitted under Section 6.01(7), the book and Appraised Value of such Secured Borrowing Base
Asset shall be reduced by (A) the amount to be paid by the Borrower or any Subsidiary under any
profit sharing, deferred consideration, marketing or similar agreement with
20
the seller of such Secured Borrowing Base Assets if the amount due under such agreement is a
determined dollar amount or (B) if the amount to be paid by the Borrower or any Subsidiary under
any profit sharing, deferred consideration, marketing or similar agreement with the seller of such
Secured Borrowing Base Asset is a percentage of book value or gross sales price of such Secured
Borrowing Base Asset, the agreed upon percentage multiplied by the book value of such Secured
Borrowing Base Asset; (ii) if any Secured Borrowing Base Asset is subject to a Lien to secure a
repurchase right permitted under Section 6.01(8), the book and Appraised Value of such Secured
Borrowing Base Asset shall be reduced by the amount (if any) by which the value of such Secured
Borrowing Base Asset in the Secured Borrowing Base exceeds the repurchase price; (iii) not more
than 30% of the total aggregate Secured Borrowing Base shall be comprised of Finished Lots; and
(iv) not more than 50% of the total aggregate Secured Borrowing Base shall be comprised of
Speculative Housing Units.
Secured Borrowing Base Assets means those assets of the Loan Parties with respect to which
the Secured Borrowing Base Conditions shall have been satisfied.
Secured Borrowing Base Certificate means a written certificate in a form acceptable to the
Required Lenders setting forth the amount of the Secured Borrowing Base with respect to the
calendar month most recently completed, certified as true and correct by the Chief Financial
Officer or other officer of the Borrower.
Secured Borrowing Base Conditions means those conditions set forth on Schedule IV.
Secured Borrowing Base Option means the option of the Borrower to designate pursuant to
Section 2.03 that availability of the Facility will be conditioned upon Aggregate Outstanding
Extensions of Credit at all times being fully secured by Secured Borrowing Base Assets.
Secured Debt means all Debt of the Borrower or any of its Subsidiaries (excluding the
Obligations and Debt owing to the Borrower or any of its Subsidiaries) that is secured by a Lien on
assets of the Borrower or any of its Subsidiaries, including amounts owing under letter of credit
reimbursement arrangements, purchase money indebtedness, secured project loans and junior Lien
Debt.
Security Documents means the collective reference to the Cash Collateral Agreement, the
Collateral Agreement, the Mortgages and all other security documents hereafter delivered to the
Agent granting a Lien on any property of any Person to secure the Obligations of the Loan Parties
under any Loan Document.
Senior Debt means the Senior Notes or, if the Senior Notes are refinanced, the Refinancing
Debt with respect thereto.
21
Senior Indentures means the Base Indenture 2001, the Base Indenture 2002, the Base Indenture
2004, the Supplemental Indentures and any other Indenture hereafter entered into by the Borrower
pursuant to which the Borrower Incurs any Refinancing Debt with respect to any of the Senior Notes.
Senior Notes means (i) the 8-3/8% Senior Notes due 2012 of the Borrower issued in the
original principal amount of $350,000,000, pursuant to the Indenture dated April 17, 2002 (the
Base Indenture 2002) and First Supplemental Indenture dated April 17, 2002, (ii) the
8-5/8% Senior Notes due 2011 of the Borrower issued in the original principal amount of
$200,000,000 pursuant to the Indenture dated May 21, 2001 (the Base Indenture 2001) and
First Supplemental Indenture dated May 21, 2001, (iii) the 61/2% Senior Notes due 2013 of the
Borrower issued in the original principal amount of $200,000,000 pursuant to the Base Indenture
2002 and Second Supplemental Indenture dated November 13, 2003, (iv) the 4-5/8% Convertible Senior
Notes due 2024 of the Borrower issued in the original principal amount of $180,000,000 pursuant to
the Indenture dated June 8, 2004 (the Base Indenture 2004), (v) the 6-7/8% Senior Notes
due 2015 of the Borrower issued in the original principal amount of $350,000,000 pursuant to the
Base Indenture 2002 and Fifth Supplemental Indenture dated June 8, 2005, and (vi) the 8.125% Senior
Notes due 2016 of the Borrower issued in the original principal amount of $275,000,000 pursuant to
the Base Indenture 2002 and the Eighth Supplemental Indenture dated June 6, 2006.
Significant Guarantor means, at any date of determination thereof, any Guarantor that
(together with its Subsidiaries) accounts for ten percent (10%) or more of the Consolidated
Tangible Assets as of the last day of the most recent fiscal quarter then ended and ten percent
(10%) or more of the consolidated net revenues for the twelve-month period ending on the last day
of the most recent fiscal quarter then ended, in each case of the Borrower and its Subsidiaries
taken as a whole. Such percentage shall be determined on the basis of financial reports that shall
be available not later than 25 days (or, in the case of the last fiscal quarter of the fiscal year,
35 days) following the end of such fiscal quarter.
Significant Subsidiary means, at any date of determination thereof, any Subsidiary that
(together with its Subsidiaries) accounts for five percent (5%) or more of the Consolidated
Tangible Assets as of the last day of the most recent fiscal quarter then ended and five percent
(5%) or more of the consolidated net revenues for the twelve-month period ending on the last day of
the most recent fiscal quarter then ended, in each case of the Borrower and its Subsidiaries taken
as a whole. Such percentage shall be determined on the basis of financial reports that shall be
available not later than 25 days (or, in the case of the last fiscal quarter of the fiscal year, 35
days) following the end of such fiscal quarter.
Single Family Housing Unit means any residential dwelling that is not a Multifamily Housing
Unit.
22
Speculative Housing Unit means any Housing Unit owned by the Borrower or a Subsidiary that
is not a Housing Unit Under Contract.
Statutory Reserve Rate means a fraction (expressed as a decimal), the numerator of which is
the number one and the denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Agent is subject for eurocurrency funding
(currently referred to as Eurocurrency Liabilities in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be
deemed to constitute eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available from time to time
to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in any reserve
percentage.
Subsidiary means, as to the Borrower or a Guarantor, in the case of a corporation, a
corporation of which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation are at the time owned, or the management of which
is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by
the Borrower or such Guarantor, as the case may be, or in the case of an entity which is not a
corporation, the activities of which are controlled directly, or indirectly through one or more
intermediaries, or both, by the Borrower or such Guarantor, as the case may be.
Supplemental Guaranty means a Supplemental Guaranty in the form provided for in, and
attached to, the form of Amended and Restated Guaranty attached hereto as Exhibit A.
Supplemental Indentures means the Supplemental Indentures identified in the definition of
the term Senior Notes.
Swing Line Commitment means the commitment of the Swing Line Lender to make Swing Line Loans
pursuant to Section 2.21(a). The Swing Line Commitment is in the amount of $5,000,000.
Swing Line Lender means Citibank, N.A. or any assignee to which Citibank, N.A. assigns the
Swing Line Commitment in accordance with Section 11.02.
Swing Line Loan is defined in Section 2.21(a).
23
Taxes means any and all present or future taxes, duties, levies, imposts, deductions,
charges or withholdings, and any and all liabilities with respect to the foregoing, imposed by the
United States. but excluding, in the case of each Lender or applicable Lending Office, the Issuer
and the Agent, (a) taxes imposed on or measured by its overall net income, and franchise taxes
imposed on it, by (i) the jurisdiction under the laws of which such Lender, the Issuer or the Agent
is incorporated or organized or (ii) the jurisdiction in which the Agents, Issuers or such
Lenders principal executive office or such Lenders applicable Lending Office is located and (b)
taxes that are in effect and would apply at the time such Person becomes a Lender, Issuer or Agent
hereunder.
Termination Date means August 4, 2010, subject, however, to earlier termination in whole of
the Aggregate Commitment pursuant to the terms of this Agreement and to extension of such date as
provided in Section 2.19.
Third Amendment means the Third Amendment, dated as of August 7, 2008, to and under the
Original Credit Agreement.
Title Companies means Security Title Insurance Company, a Vermont corporation, and Beazer
Title Agency, LLC, a Nevada limited liability company, each of which is a Wholly-Owned Subsidiary
of Borrower.
UHIC means United Homes Insurance Corporation, a Vermont corporation and Wholly-Owned
Subsidiary of the Borrower.
Unrestricted Cash of a Person means the cash and Cash Equivalents of such Person that would
not be identified as restricted on a balance sheet of such Person prepared in accordance with
GAAP, except to the extent such cash is identified as restricted as a result of the Liens
pursuant to the Security Documents.
Wholly-Owned Subsidiary of any Person means (i) a Subsidiary, of which one hundred percent
(100%) of the outstanding Common Equity (except for directors qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements that there be more
than one stockholder, but which interest is not in excess of what is required for such purpose) is
owned directly by such Person or through one or more other Wholly-Owned Subsidiaries of such
Person, or (ii) any entity other than a corporation in which such Person, directly or indirectly,
owns all of the outstanding Common Equity of such entity.
Section 1.02 Accounting Terms. (a) All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistent with those applied in the preparation
of the financial statements referred to in Section 4.04, and all financial data submitted pursuant
to this Agreement shall be prepared in accordance with such principles.
24
(b) Notwithstanding anything to the contrary contained in this Agreement, in determining the
Borrowers compliance with the provisions of Article VII hereof, GAAP shall not include
modifications of generally accepted accounting principles that become effective after the date
hereof.
Section 1.03 Rules of Construction. (a) The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.
(b) Whenever the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
(c) The words include, includes and including shall be deemed to be followed by the
phrase without limitation.
(d) The word will shall be construed to have the same meaning and effect as the word
shall.
(e) Unless the context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such agreement, instrument
or other document as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference
herein to any person shall be construed to include such persons successors and assigns (subject to
any restrictions on such assignments set forth herein), (iii) the words herein, hereof and
hereunder, and words of similar import shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (iv) all references herein to Articles,
Sections, Schedules and Exhibits shall be construed to refer to Articles and Sections of, and
Schedules and Exhibits to, this Agreement, (v) the words asset and property shall be construed
to have the same meaning and effect and to refer to any and all tangible and intangible assets and
properties, and (vi) any reference to any law, rule or regulation shall be construed to mean that
law, rule or regulation as amended and in effect from time to time.
(f) Each covenant in this Agreement shall be given independent effect, and the fact that any
act or omission may be permitted by one covenant and prohibited or restricted by any other covenant
(whether or not dealing with the same or similar events) shall not be construed as creating any
ambiguity, conflict or other basis to consider any matter other than the express terms hereof in
determining the meaning or construction of such covenants and the enforcement thereof in accordance
with their respective terms.
(g) This Agreement is being entered into by and between competent and sophisticated parties
who are experienced in business matters and represented by legal counsel and other advisors, and
has been reviewed by the parties and their legal counsel and other
25
advisors. Therefore, any ambiguous language in this Agreement will not be construed against
any particular party as the drafter of the language.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
Section 2.01 The Facility.
Section 2.01.1 Revolving Credit Facility. (a) On and after the Closing Date and prior
to the Termination Date, upon the terms and conditions set forth in this Agreement and in reliance
upon the representations and warranties of the Borrower herein set forth, each Lender severally
agrees to make Loans to the Borrower, provided that (i) in no event may the aggregate
principal amount of all outstanding Loans (including, in the case of the Swing Line Lender,
outstanding Swing Line Loans) and the Facility Letter of Credit Obligations of any Lender exceed
its Commitment, and (ii) in no event may the sum of the aggregate principal amount of all
outstanding Loans, (including all outstanding Swing Line Loans) and the Facility Letter of Credit
Obligations exceed the Aggregate Commitment.
(b) On and after the Closing Date and prior to the Termination Date, each Lender severally
agrees, on the terms and conditions set forth in this Agreement and in reliance upon the
representations and warranties of Borrower herein set forth, to participate in Facility Letters of
Credit issued pursuant to Section 2.22 for the account of the Borrower, provided that (i)
in no event may the aggregate principal amount of all outstanding Loans and Facility Letter of
Credit Obligations of any Lender exceed its Commitment and (ii) in no event may the aggregate
amount of all Facility Letter of Credit Obligations exceed the lesser of (A) the Facility Letter of
Credit Sublimit and (B) an amount equal to the Aggregate Commitment minus the sum of all
outstanding Loans (including all outstanding Swing Line Loans).
(c) Loans hereunder (other than Swing Line Loans) shall be made ratably by the several Lenders
in accordance with their respective Pro Rata Shares. Participations in Facility Letters of Credit
hereunder shall be ratable among the several Lenders in accordance with their respective Pro Rata
Shares.
(d) All Obligations shall be due and payable by the Borrower on the Termination Date unless
such Obligations shall sooner become due and payable pursuant to Section 8.01 or as otherwise
provided in this Agreement.
(e) Each Borrowing which shall not utilize the Aggregate Commitment in full shall be in an
amount not less than Two Hundred Fifty Thousand Dollars ($250,000) in the case of a Borrowing
consisting of Eurodollar Loans and One Hundred Thousand Dollars ($100,000) in the case of a
Borrowing consisting of ABR Loans. Each Borrowing shall consist of a Loan made by each Lender in
the proportion of its Pro Rata Share. Within the limits of the Aggregate
26
Commitment, the Borrower may borrow, repay pursuant to Section 2.11, and reborrow Loans under
this Section 2.01. On such terms and conditions, the Loans may be outstanding as ABR Loans or
Eurodollar Loans. Each type of Loan shall be made and maintained at the applicable Lenders
Lending Office for such type of Loan. The failure of any Lender to make any requested Loan to be
made by it on the date specified for such Loan shall not relieve any other Lender of its obligation
(if any) to make such Loan on such date, but no Lender shall be responsible for the failure of any
other Lender to make such Loan to be made by such other Lender. The provisions of this
Section 2.01.1(e) shall not apply to Swing Line Loans.
(f) No Loan shall be made at any time that any Swing Line Loan is outstanding, except for
Loans that are used, on the day on which made, to repay in full the outstanding principal balance
of the Swing Line Loans.
Section 2.01.2 Facility Options.
(a) Cash Secured Option.
(i) On and after the date that the conditions set forth in Section 3.02 have been
satisfied or waived by the Agent and the Lenders, the Cash Secured Option shall apply to
the Facility and be in effect when elected by the Borrower pursuant to
Section 2.01.2(c). During all times that the Cash Secured Option applies to the
Facility, no Loan shall be made, and no Facility Letter of Credit shall be issued or
amended, if after giving effect to the incurrence of such Loan or the issuance or
amendment of such Facility Letter of Credit, the amount of Unrestricted Cash held in the
Cash Collateral Account under the Cash Collateral Agreement would be less than 105% of
the Aggregate Outstanding Extensions of Credit at such date; provided that, a
Loan shall not be deemed to have increased the amount of the Aggregate Outstanding
Extensions of Credit to the extent that the proceeds of such Loan are immediately used
to repay a Swing Line Loan theretofore included in the calculation of Aggregate
Outstanding Extensions of Credit.
(ii) Not more than once during each calendar month, the Borrower may request that
the Agent release any amount of Unrestricted Cash held in the Cash Collateral Account
under the Cash Collateral Agreement in excess of an amount equal to 105% of the then
Aggregate Outstanding Extensions of Credit to the Borrower and the Agent shall promptly
release such excess amount, subject to the terms of the Cash Collateral Agreement.
(b) Secured Borrowing Base Option.
(i) On and after the date that the conditions set forth in Section 3.03 have been
satisfied or waived by the Agent and the Lenders, the Borrower may elect
27
pursuant to Section 2.01.2(c) to have the Secured Borrowing Base Option apply to
the Facility. During all times that the Secured Borrowing Base Option applies to the
Facility, (A) the Secured Borrowing Base must exceed the Aggregate Outstanding Extension
of Credit as of the most recent date of determination, and (B) no Loan shall be made,
and no Facility Letter of Credit shall be issued or amended, if after giving effect to
the incurrence of such Loan or the issuance or amendment of such Facility Letter of
Credit, the then effective Secured Borrowing Base does not exceed the Aggregate
Outstanding Extensions of Credit as of the most recent date of determination;
provided that, a Loan shall not be deemed to have increased the amount of the
Aggregate Outstanding Extensions of Credit to the extent that the proceeds of such Loan
are immediately used to repay a Swing Line Loan theretofore included in the calculation
of Aggregate Outstanding Extensions of Credit.
(ii) The Borrower may, upon not less than seven days prior notice, request in
writing that the Agent release its Liens on Mortgaged Properties or any portion thereof
that the Borrower or the applicable Loan Party has a Housing Unit under Contract to be
sold in the ordinary course of business with a closing date that is within thirty days
of the requested release. In the event that the Agent receives such request in
accordance herewith, then the Agent shall release its Liens on such Mortgaged Property
(or the portion thereof, including any related personal property) within five Business
Days prior to the date of the Housing Unit Closing so long as no Default has occurred.
Upon the release of the Agents Liens on any portion of the Mortgaged Properties, such
portion of the Mortgaged Properties shall no longer be included in the calculation of
the Secured Borrowing Base as reflected in the next Secured Borrowing Base Certificate
to be delivered by the Borrower. The Borrower shall be deemed to have represented and
warranted to the Agent and the Lenders that as of the effective date of each release the
Secured Borrowing Base, after giving effect to such release and all other releases of
Mortgaged Property since the date of the most recent Secured Borrowing Base Certificate,
exceeds the Aggregate Outstanding Extensions of Credit as of the effective date of such
release. Notwithstanding the foregoing, if the Secured Borrowing Base value of a
Housing Unit requested to be released under this Section 2.01.2(b)(ii) plus the
aggregate Secured Borrowing Base value of all Housing Units previously released by the
Agent under this Section 2.01.2(b)(ii) during any period between delivery of the Secured
Borrowing Base Certificate then in effect and the next Secured Borrowing Base
Certificate scheduled to be delivered by the Borrower exceeds 10% of the value of the
aggregate Borrowing Base Assets (excluding Unrestricted Cash) used in the calculation of
the Secured Borrowing Base, then the Agent shall have no obligation to deliver such
requested release until the Borrower shall have provided to the Agent an updated Secured
Borrowing Base Certificate demonstrating that the Secured
28
Borrowing Base, after giving effect to such additional requested release, would
exceed the Aggregate Outstanding Extensions of Credit.
(iii) With respect to Unrestricted Cash or Mortgaged Property included in the
calculation of the Secured Borrowing Base, from time to time, the Borrower may request
in writing (which in the case of any release of Unrestricted Cash in exchange for the
pledge of Mortgaged Property, shall include a certification that any such Unrestricted
Cash released shall be paid in immediately available funds to the Loan Party which shall
have pledged such Mortgaged Property substituting therefor), that the Agent release its
Lien on (x) such Unrestricted Cash, (y) such Mortgaged Property (or any portion thereof,
including any related personal property) in order to substitute one or more Mortgaged
Properties in lieu thereof or (z) on Unrestricted Cash or Mortgaged Property (or any
portion thereof, including any related personal property), or any combination thereof as
the Borrower may determine in its sole discretion at any time that the Secured Borrowing
Base exceeds the Aggregate Outstanding Extensions of Credit as of the most recent date
of determination in an amount not to exceed such excess. In the event that the Agent
receives such request in accordance herewith, then (A) so long as no Event of Default
has occurred and is continuing or would result therefrom and (B) either (I) after giving
effect to such release and any substitution of Mortgaged Properties (or any portion
thereof) the Aggregate Outstanding Extensions of Credit does not exceed the Secured
Borrowing Base, or (II) the Required Lenders approve such release, the Agent shall,
within ten days of such request, release its Lien on such Unrestricted Cash or such
Mortgaged Property (or any portion thereof, including any related personal property);
provided that (X) if Unrestricted Cash is subject to the request for release,
(Y) in the case of a release described in clause (z) above or (Z) if Mortgaged Property
subject to the request for a release constitutes more than 10% of the book value of the
aggregate Secured Borrowing Base Assets used in the calculation of the Secured Borrowing
Base, then the Borrower shall provide to the Agent an updated Secured Borrowing Base
Certificate evidencing compliance with the Secured Borrowing Base as described above.
Any Unrestricted Cash released hereunder in exchange for Mortgaged Property shall be
paid in immediately available funds to the Loan Party which shall have pledged such
Mortgaged Property substituting therefor. Upon the release of the Agents Liens on any
Unrestricted Cash or Mortgaged Property, such Unrestricted Cash or Mortgaged Property
shall no longer be included in the calculation of the Secured Borrowing Base.
(iv) A Loan Party may, without the consent of any Lender, the Agent or any other
Person, (A) make immaterial dispositions (including, but not limited to, lot line
adjustments) of portions of any Mortgaged Property for dedication or public use to, or
permit the creation of Liens to secure the levy of special assessments in favor of,
governmental authorities, community development districts and property owners
29
associations, (B) make immaterial dispositions of portions of the Mortgaged
Property to third parties for the purpose of resolving any encroachment issues, (C)
grant easements, restrictions, covenants, reservations and rights-of-way for resolving
minor encroachment issues or for access, water and sewer lines, telephone, cable and
internet lines, electric lines or other utilities or for other similar purposes, and (D)
consent to or join in any land use or other development approval documents (including
subdivision plats, easements and the like) provided that such disposition, grant or
consent is usual and customary in the normal course of the Borrowers development
business and otherwise does not materially impair the value, utility or operation of the
applicable Mortgaged Property. In connection with any disposition or creation of any
Lien or any grant or consent permitted pursuant to this Section, the Agent shall execute
and deliver or cause to be executed and delivered any instrument reasonably necessary or
appropriate in the case of the dispositions referred to above to release the portion of
the Mortgaged Property affected by such disposition from the Lien of the applicable
Mortgage, or to subordinate the Lien of the applicable Mortgage, or acknowledge that the
Lien of any Mortgage is subordinate, to such Liens, easements, restrictions, covenants,
reservations and rights-of-way or other similar grants, or to evidence such consent or
joinder, in each case upon receipt by the Agent of (x) five Business Days prior written
notice thereof; (y) a copy of the applicable instrument or instruments of disposition or
subordination; and (z) a certificate from an officer of the Borrower stating that such
disposition is usual and customary in the normal course of the Borrowers development
business and otherwise does not materially impair the value, utility or operation of the
applicable Mortgaged Property.
(v) The Agent and the Lenders hereby agree that (A) upon satisfaction of the
Permitted Secured Debt Conditions, all of the security interests and Liens shall be
deemed to be forever released, discharged and terminated on the applicable Collateral
being pledged to the secured party providing the Secured Debt only to the extent such
Secured Debt is permitted under Section 6.02 (it being understood that, in the case of
this clause (A), no Liens shall be released, discharged or terminated on Collateral
included in the Secured Borrowing Base and the proceeds thereof) and (B) upon the
occurrence of the Termination Date and payment in full of the all outstanding
Obligations (or, with respect to outstanding Facility Letters of Credit, cash
collateralization or other arrangements reasonably satisfactory to Issuer thereof and
the Agent) all of the security interests in, and Liens on, the Collateral, shall be
deemed to be forever released, discharged and terminated. From and after the date that
the Permitted Secured Debt Conditions shall have been satisfied or the Termination Date
shall have occurred and all outstanding Obligations shall have been paid in full (or,
with respect to outstanding Facility Letters of Credit, cash collateralized or provided
for pursuant to other arrangements reasonably satisfactory
30
to Issuer thereof and the Agent), the Agent shall (x) execute (as applicable) and
deliver Uniform Commercial Code termination statements (and to, the extent permitted
under the Uniform Commercial Code in effect in any relevant jurisdiction, does hereby
authorize the Loan Parties from and after the date that the Permitted Secured Debt
Conditions shall have been satisfied to file, or cause to be filed, such termination
statements), intellectual property release documents and such other instruments of
release and discharge pertaining to the security interests and other Liens granted to
the Agent pursuant to the Security Documents in any of the Collateral being so released
as the Borrower may reasonably request to effectuate, or reflect of public record, the
release and discharge of all such security interests and Liens and (y) deliver promptly
all Collateral in its possession to the extent that the Liens on such Collateral are
being released, discharged or terminated. All of the foregoing deliveries shall be at
the expense of the Borrower, with no liability to the Agent or any Lender, and with no
representation or warranty by or recourse to the Agent or any Lender.
(vi) The Agent will be entitled to obtain, and at the request of Required Lenders
shall obtain, at Borrowers expense a new Acceptable Appraisal of each Real Property (or
any portion thereof) included in the Secured Borrowing Base, but not more than once
every twelve (12) months during the term of this Agreement; provided that, in
addition to the foregoing, the Agent will be entitled to obtain, at the Borrowers
expense, additional Acceptable Appraisals of any such Real Property (or any portion
thereof) if (x) an Event of Default exists or (y) an appraisal is required under
applicable Law.
(vii) The Secured Borrowing Base shall be administered by the Agent in accordance
with such requirements as may be established by the Agent from time to time.
Administration of the Secured Borrowing Base shall include, without limitation:
|
(A) |
|
Inspections. The Agent, Construction
Inspector or their respective employees, agents or representatives shall
be entitled to inspect the Collateral included in the Secured Borrowing
Base from time to time, as follows: (I) at the Agents option, but
typically no more than once each quarter, the Construction Inspector may
review the inventory status from the financial records of the Loan
Parties, which will include sales reports, copies of contracts, paid
invoices, etc.; (II) at the Agents option, a portion of the vertical
construction will be selected at random, but extensions will not be
predicated upon satisfactory inspections prior to the extension of such
credit; (III) at the Agents option, at least once each quarter, the
Construction Inspector may review up to 5% of the Housing |
31
|
|
|
Units of two divisions of the Loan Parties included in the Secured
Borrowing Base; (IV) land development work for Mortgaged Properties
in which Loan proceeds are requested to be advanced will be inspected
periodically by the Construction Inspector at the Agents sole
discretion; and (V) material negative variances will be discussed
with the Borrower and, if not satisfactorily resolved, will be
reflected in the current months Secured Borrowing Base Certificate.
All inspections made by the Agent, Construction Inspector or their
respective employees, agents or representatives, shall be made solely
and exclusively for the protection and benefit of the Lenders and
neither the Borrower nor any other Person shall be entitled to claim
any loss or damage against the Agent, the Construction Inspector, any
Lender or any of their respective employees, agents or
representatives for failure to properly discharge any alleged duties
of the Agent. |
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(B) |
|
Work-in-Progress Documentation. The
Agent shall be entitled to inspect not more than once each quarter the
documentation with respect to all work-in-progress including, without
limitation, sales contracts, end loan commitments, buyer deposits, lot
purchase closing statements, certificates of occupancy, notices of
commencement, etc. Further, the Agent may request such documentation
monthly with respect to a random sample pool of such documentation. |
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|
(C) |
|
Budget. Upon request of the Agent from
time to time, a budget setting forth the estimates of the total cost of
construction for specific Housing Units included in the Secured
Borrowing Base shall be provided by the Borrower to the Agent, at the
Borrowers sole expense. |
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(D) |
|
Plan and Cost Review. Upon request of
the Agent from time to time, plans and cost budgets with respect to land
development work in respect of Mortgaged Properties included in the
Secured Borrowing Base shall be provided by the Borrower to the Agent,
at the Borrowers expense. |
|
|
(E) |
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Title Updates. The Agent may require,
from time to time, such title updates (including without limitation,
ownership and encumbrance reports) with respect to the Collateral in the
Secured Borrowing Base to confirm the lien status of such Collateral (in
particular, that the Security Documents continue to constitute a |
32
|
|
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first lien on and security interest in such Collateral subject only
to Permitted Encumbrances), as the Agent deems reasonably prudent all
at the Borrowers sole expense. |
(viii) The Borrower shall pay all reasonable fees and expenses associated with any
of the actions taken under this Section 2.01.2(b) including, without limitation, (A) all
reasonable fees and charges with respect to any appraisal, re-appraisal, and survey
costs, (B) title insurance charges and premiums, (C) title search or examination costs,
including abstracts, abstractors certificates and uniform commercial code searches,
(D) judgment and tax lien searches for each Loan Party, (E) reasonable fees and costs of
environmental investigations site assessments and remediations, (F) recordation taxes,
documentary taxes, transfer taxes and mortgage taxes, and (G) filing and recording fees.
(ix) The Secured Borrowing Base shall be calculated at the times and in the manner
set forth below in this Section:
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(A) |
|
Within thirty-five (35) days after the end of
each calendar month, beginning with the calendar month ending July 31,
2009, and at such other times as the Agent or the Required Lenders may
reasonably require, the Borrower shall provide the Agent with a Secured
Borrowing Base Certificate showing the Borrowers calculations of the
components of the Secured Borrowing Base together with all documentation
and other data supporting such calculations as the Agent may require.
The Agent shall have a period of five Business Days following receipt of
a Secured Borrowing Base Certificate to notify the Borrower of its
disapproval thereof. Failure of the Agent to so notify the Borrower
within such five Business Day period shall be deemed approval and such
Secured Borrowing Base as set forth in such Secured Borrowing Base
Certificate shall be effective as of the date approved (or deemed
approved) by the Agent. The amount so approved (or deemed approved)
shall constitute the Secured Borrowing Base until such time as a new
Secured Borrowing Base Certificate is delivered and approved in
accordance with this Section. |
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(B) |
|
In the event that the Agent timely notifies the
Borrower of its disapproval of a Secured Borrowing Base Certificate,
then the Agent shall notify the Borrower in writing of the amount of the
Secured Borrowing Base as reasonably determined by the Agent and the
basis of such determination, and the effective date thereof |
33
|
|
|
(which shall be the date of the giving of such notice by the Agent),
and such amount shall thereupon and thereafter constitute the Secured
Borrowing Base which shall remain in effect until such time as a new
Secured Borrowing Base Certificate is delivered and approved in
accordance with this Section. |
|
|
(C) |
|
Each determination of the Secured Borrowing Base
in accordance with this Section shall be binding and conclusive upon the
parties hereto, provided that the Lenders are not bound to rely
on information and figures provided by the Borrower if the Agent
reasonably determines in good faith that it would be inappropriate to do
so. Nothing contained herein shall be deemed to restrict the Borrower
from submitting additional Secured Borrowing Base Certificates to the
Agent for its approval at times other than those required hereunder. |
(c) Designation of Facility Option. Not more than once during each calendar month,
the Borrower may by written notice the Agent elect to designate that the Secured Borrowing Base
Option shall apply in substitution for the Cash Secured Option then in effect, or designate that
the Cash Secured Option shall apply in substitution for the Secured Borrowing Base Option then in
effect, as the case may be. Any such notice designating that the Secured Borrowing Base Option
shall apply shall be accompanied by a Secured Borrowing Base Certificate dated as of the date of
such notice. Any such designation shall apply to the Facility until a different designation is
made by the Borrower pursuant to this Section 2.01.3. No such designation shall be required for
the Cash Secured Option to apply to the Facility prior to the date that the conditions set forth in
Section 3.03 have been satisfied or waived by the Agent and the Lenders.
Section 2.02 Reductions of and Increases in Aggregate Commitment.
Section 2.02.1 Reduction of Aggregate Commitment. The Borrower shall have the right,
upon at least three (3) Business Days prior notice to the Agent, to terminate in whole or reduce
in part the unused portion of the Aggregate Commitment, provided that each partial
reduction shall be in the amount of at least Two Million Dollars ($2,000,000), and provided
further that no reduction shall be permitted if, after giving effect thereto, and to any
prepayment made therewith, the sum of (i) the outstanding and unpaid principal amount of the Loans
and (ii) the Facility Letter of Credit Obligations shall exceed the Aggregate Commitment. Each
reduction in part of the unused portion of each Lenders Commitment shall be made in the proportion
that such Commitment bears to the total amount of the Aggregate Commitment. Any Commitment, once
reduced or terminated, may not be reinstated (except as otherwise provided in Section 8.01(v)) and
may not be increased (except in accordance with Section 2.02.2).
34
Section 2.02.2 Increase in Aggregate Commitment.
(a) Request for Facility Increase. The Borrower may, at any time and from time to
time, request, by notice to the Agent, the Agents approval of an increase of the Aggregate
Commitment (a Facility Increase) within the limitations hereafter described, which request shall
set forth the amount of each such requested Facility Increase. Within twenty (20) days of such
request, the Agent shall advise the Borrower of its approval or disapproval of such request;
failure to so advise the Borrower shall constitute disapproval. If the Agent approves any such
Facility Increase, then the Aggregate Commitment may be increased (up to the amount of such
approved Facility Increase, in the aggregate) by having one or more New Lenders increase the amount
of their then existing Commitments or become Lenders, subject to and in accordance with this
provisions of this Section 2.02.2. Any Facility Increase shall be subject to the following
limitations and conditions: (i) any increase (in the aggregate) in the Aggregate Commitment, any
increase in any Commitment and any new Commitment shall (unless otherwise agreed to by the Borrower
and the Agent) not be less than $5,000,000 (and (unless otherwise agreed to by the Borrower and the
Agent) shall be in integral multiples of $1,000,000 if in excess thereof); (ii) no Facility
Increase pursuant to this Section 2.02.2 shall increase the Aggregate Commitment to an amount in
excess of $700,000,000; (iii) the Borrower and each New Lender shall have executed and delivered a
commitment and acceptance (the Commitment and Acceptance) substantially in the form of
Exhibit C hereto, and the Agent shall have accepted and executed the same; (iv) the
Borrower shall have executed and delivered to the Agent such Note or Notes as the Agent shall
require to reflect such Facility Increase; (v) the Borrower shall have delivered to the Agent
opinions of counsel (substantially similar to the forms of opinions provided for in
Section 3.01(6), modified to apply to the Facility Increase and each Note and Commitment and
Acceptance executed and delivered in connection therewith); (vi) the Guarantors shall have
consented in writing to the Facility Increase and shall have agreed that their Guaranties continue
in full force and effect; and (vii) the Borrower and each New Lender shall otherwise have executed
and delivered such other instruments and documents as the Agent shall have reasonably requested in
connection with such Facility Increase. The form and substance of the documents required under
clauses (iii) through (vii) above shall be fully acceptable to the Agent. The Agent shall provide
written notice to all of the Lenders hereunder of any Facility Increase.
(b) New Lenders Loans and Participation in Facility Letters of Credit. Upon the
effective date of any increase in the Aggregate Commitment pursuant to the provisions hereof (the
Increase Date), which Increase Date shall be mutually agreed upon by the Borrower, each New
Lender and the Agent, (i) such New Lender shall be deemed to have irrevocably and unconditionally
purchased and received, without recourse or warranty from the Lenders, an undivided interest and
participation in any Facility Letter of Credit then outstanding, ratably, such that each Lender
(including each New Lender) holds a participation interest in each such Facility Letter of Credit
in the amount of its then Pro Rata Share thereof; (ii) on such Increase Date, the Borrower shall
repay all outstanding ABR Loans and reborrow an ABR Loan
35
in a like amount from the Lenders (including the New Lender); (iii) such New Lender shall not
participate in any then outstanding Loan that is a Eurodollar Loan; (iv) if the Borrower shall at
any time on or after such Increase Date convert or continue any Loan that is a Eurodollar Loan that
was outstanding on such Increase Date, the Borrower shall be deemed to repay such Loan on the date
of the conversion or continuation thereof and then to re-borrow as a Loan a like amount on such
date so that the New Lender shall make a Loan on such date in the amount of its Pro Rata Share of
such Borrowing; and (v) such New Lender shall make its Pro Rata Share of all Loans made on or after
such Increase Date (including those referred to in clauses (ii) and (iv) above) 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 a Default prior to the date on which such New
Lender is holding its Pro Rata Share of all Loans hereunder, such New Lender shall, upon notice
from the Agent given on or after the date on which the Obligations are accelerated or become due
following such Default, pay to the Agent (for the account of the other Lenders, to which the Agent
shall pay their ratable shares thereof upon receipt) a sum equal to such New Lenders Pro Rata
Share of each Loan that is a Eurodollar Loan then outstanding with respect to which such New Lender
does not then hold an interest; such payment by such New Lender shall constitute an ABR Loan
hereunder.
(c) Required Lenders. Solely for purposes of the calculation of Pro Rata Shares as
used in the definition of Required Lenders, until such time as a New Lender holds its Pro Rata
Share of all outstanding Loans (if any), the amount of such New Lenders new Commitment or the
increased amount of its Commitment shall be excluded from the amount of the Commitments and
Aggregate Commitment and there shall be included in lieu thereof at any time an amount equal to the
sum of the outstanding Loans and the participation interests in Facility Letters of Credit held by
such New Lender with respect to its new Commitment or the increased amount of its Commitment.
(d) No Obligation to Increase Commitment. Nothing contained herein shall constitute,
or otherwise be deemed to be, a commitment or agreement on the part of the Borrower or the Agent to
give or grant any Lender the right to increase its Commitment hereunder at any time or a commitment
or agreement on the part of any Lender to increase its Commitment hereunder at any time, and no
Commitment of a Lender shall be increased without its prior written approval.
Section 2.03 Notice and Manner of Borrowing. The Borrower shall give the Agent notice
of any Loans under this Agreement, on the Business Day of each ABR Loan, and at least three (3)
Business Days before each Eurodollar Loan, specifying: (1) the date of such Loan; (2) the amount of
such Loan; (3) the type of Loan (whether an ABR Loan or a Eurodollar Loan); and (4) in the case of
a Eurodollar Loan, the duration of the Interest Period applicable thereto, provided,
however, that (a) no Interest Period may extend beyond the Termination Date and (b) not
more than eight (8) Interest Periods for Eurodollar Loans may be outstanding at any one time. All
notices given by the Borrower under this Section 2.03 shall be irrevocable and shall be
36
given not later than 11:00 A.M. New York City time on the day specified above for such notice.
The Agent shall notify each Lender of each such notice not later than noon New York City time on
the date it receives such notice from the Borrower if such notice is received by the Agent at or
before 11:00 A.M. New York City time. In the event such notice from the Borrower is received after
11:00 A.M. New York City time, it shall be treated as if received on the next succeeding Business
Day, and the Agent shall notify each Lender of such notice as soon as practicable but not later
than noon New York City time on the next succeeding Business Day. Not later than 2:00 P.M. New
York City time on the date of such Loans, each Lender will make available to the Agent in
immediately available funds, such Lenders Pro Rata Share of such Loans. After the Agents receipt
of such funds, on the date of such Loans and upon fulfillment of the applicable conditions set
forth in Article III, the Agent will make such Loans available to the Borrower in immediately
available funds by crediting the amount thereof to the Borrowers account with the Agent. The
provisions of this Section 2.03 shall not apply to Swing Line Loans.
Section 2.04 Non-Receipt of Funds by Agent. (a) Unless the Agent shall have received
notice from a Lender prior to the date (in the case of a Eurodollar Loan), or by 1:00 P.M. New York
City time on the date (in the case of an ABR Loan), on which such Lender is to provide funds to the
Agent for a Loan to be made by such Lender that such Lender will not make available to the Agent
such funds, the Agent may assume that such Lender has made such funds available to the Agent on the
date of such Loan in accordance with Section 2.03 and the Agent in its sole discretion may, but
shall not be obligated to, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent such Lender shall not have given the notice
provided for above and shall not have made such funds available to the Agent, such Lender agrees to
repay to the Agent forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until the date such amount
is repaid to the Agent, at the Federal Funds Effective Rate for three (3) Business Days and
thereafter at the Alternate Base Rate. If such Lender shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Lenders applicable Loan for purposes of this
Agreement. If such Lender does not pay such corresponding amount forthwith upon Agents demand
therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such
corresponding amount to the Agent with interest thereon, for each day from the date such amount is
made available to the Borrower until the date such amount is repaid to the Agent, at the rate of
interest applicable at the time to such proposed Loan. Nothing set forth in this Section shall
affect the rights of the Borrower with respect to any Lender that defaults in the performance of
its obligation to make a Loan hereunder.
(b) Unless the Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Lenders hereunder that the Borrower will not make such payment in full,
the Agent may assume that the Borrower has made such payment in full to the Agent on such date and
the Agent in its sole discretion may, but shall not be obligated to, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an
37
amount equal to the amount then due such Lender. If and to the extent the Borrower shall not
have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on
demand such amount distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Effective Rate for three Business Days and thereafter at the Alternate
Base Rate.
(c) The provisions of this Section 2.04 shall not apply to Swing Line Loans.
Section 2.05 [Intentionally Deleted].
Section 2.06 Conversions and Renewals. The Borrower may elect from time to time to
convert all or a part of one type of Loan into another type of Loan or to renew all or part of a
Loan by giving the Agent notice at least one (1) Business Day before conversion into an ABR Loan,
and at least three (3) Business Days before the conversion into or renewal of a Eurodollar Loan,
specifying: (1) the renewal or conversion date; (2) the amount of the Loan to be converted or
renewed; (3) in the case of conversions, the type of Loan to be converted into; and (4) in the case
of renewals of or a conversion into a Eurodollar Loan, the duration of the Interest Period
applicable thereto; provided that (a) the minimum principal amount of each Eurodollar Loan
outstanding after a renewal or conversion shall be One Million Dollars ($1,000,000) and the minimum
amount of each ABR Loan outstanding after a renewal or conversion shall be Two Hundred Fifty
Thousand Dollars ($250,000) and in each case in integral multiples of $100,000 if in excess of such
minimum amounts; (b) Eurodollar Loans may be converted on a Business Day that is not the last day
of the Interest Period for such Loan only if the Borrower pays on the date of conversion all
amounts due pursuant to Section 2.17; (c) the Borrower may not renew a Eurodollar Loan or convert
an ABR Loan into a Eurodollar Loan at any time that a Default has occurred that is continuing; (d)
no Interest Period may extend beyond the Termination Date; and (e) not more than eight (8) Interest
Periods for Eurodollar Loans may be outstanding at any one time. At all times that Secured
Borrowing Base Option applies to the Facility, each such notice shall be accompanied by a Secured
Borrowing Base Certificate dated as of the date of such notice. All conversions and renewals shall
be made in the proportion of the Lenders respective Pro Rata Shares. All notices given by the
Borrower under this Section 2.06 shall be irrevocable and shall be given not later than 11:00 A.M.
New York City time on the day which is not less than the number of Business Days specified above
for such notice. The Agent shall notify each Lender of each such notice not later than noon
Charlotte, North Carolina time on the date it receives such notice from the Borrower if such notice
is received by the Agent at or before 11:00 A.M. New York City time. In the event such notice from
the Borrower is received after 11:00 A.M. New York City time, it shall be treated as if received on
the next succeeding Business Day, and the Agent shall notify each Lender of such notice as soon as
practicable but not later than noon New York time on the next succeeding Business Day.
Notwithstanding the foregoing, if the Borrower shall fail to give the Agent the notice as specified
above for the renewal or conversion of a Eurodollar Loan prior to the end of the Interest Period
with respect thereto, such
38
Eurodollar Loan shall automatically be converted into an ABR Loan on the last day of the
Interest Period for such Loan. The provisions of this Section 2.06 shall not apply to Swing Line
Loans.
Section 2.07 Interest. (a) The Borrower shall pay interest to the Agent, for the
account of the applicable Lender or Lenders on the outstanding and unpaid principal amount of the
Loans at the following rates:
(i) If an ABR Loan or Swing Line Loan, then at a rate per annum equal to the
Alternate Base Rate in effect from time to time as interest accrues; and
(ii) If a Eurodollar Loan, then at a rate per annum for the Interest Period
applicable to such Eurodollar Loan equal to the Eurodollar Rate for such Interest
Period.
(b) Any change in the interest rate based on the Alternate Base Rate resulting from a change
in the Alternate Base Rate shall be effective (without notice) as of the opening of business on the
day on which such change in the Alternate Base Rate becomes effective. Interest on each Eurodollar
Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed.
Interest on each ABR Loan and Swing Line Loan calculated on the basis of the Base Rate shall be
calculated on the basis of a year of 365 or 366 days (as appropriate) for the actual number of days
elapsed and interest on each ABR Loan and Swing Line Loan calculated based on the Federal Funds
Effective Rate shall be calculated on the basis of a year of 360 days for the actual number of days
elapsed.
(c) Interest on the Loans shall be paid (in an amount set forth in a statement delivered by
the Agent to the Borrower, provided, however, that the failure of the Agent to
deliver such statement shall not limit or otherwise affect the obligations of the Borrower
hereunder) in immediately available funds to the Agent at the office of Agent from time to time
designated by it in writing for the account of the applicable Lending Office of each applicable
Lender as follows:
|
(1) |
|
For each ABR Loan and Swing Line Loan on the first day of each calendar
month commencing on the first such date after such Loan is made; |
|
|
(2) |
|
For each Eurodollar Loan, on the last day of the Interest Period with
respect thereto, except that, if such Interest Period is longer than three months,
interest shall also be paid on the last day of the third month of such Interest
Period; and |
|
|
(3) |
|
If not sooner paid, then on the Termination Date or such earlier date
as the Loans may be due or declared due hereunder. |
39
(d) Any principal amount of any Loan not paid when due (at maturity, by acceleration, or
otherwise) shall bear interest thereafter until paid in full, payable on demand, at a rate per
annum equal to the Alternate Base Rate or the applicable Eurodollar Rate, as the case may be, for
such Loan in effect from time to time as interest accrues, plus two percent (2%) per annum.
Section 2.08 Interest Rate Determination. (a) The Agent shall determine each Adjusted
LIBO Rate. The Agent shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Agent pursuant to the terms of this Agreement.
(b) If the provisions of this Agreement or any Note would at any time require payment by the
Borrower to a Lender of any amount of interest in excess of the maximum amount then permitted by
the law applicable to any Loan, the interest payments to such Lender shall be reduced to the extent
necessary so that such Lender shall not receive interest in excess of such maximum amount. If, as
a result of the foregoing a Lender shall receive interest payments hereunder or under a Note in an
amount less than the amount otherwise provided hereunder, such deficit (hereinafter called
Interest Deficit) will cumulate and will be carried forward (without interest) until the
termination of this Agreement. Interest otherwise payable to a Lender hereunder and under a Note
for any subsequent period shall be increased by the maximum amount of the Interest Deficit that may
be so added without causing such Lender to receive interest in excess of the maximum amount then
permitted by the law on the applicable Loans. The amount of the Interest Deficit relating to the
Loans shall be treated as a prepayment premium (to the extent permitted by law) and paid in full at
the time of any optional prepayment by the Borrower to the applicable Lenders of all the applicable
Loans at that time outstanding pursuant to Section 2.11. The amount of the Interest Deficit
relating to the applicable Loans at the time of any complete payment of the Loans at that time
outstanding (other than an optional prepayment thereof pursuant to Section 2.11) shall be canceled
and not paid.
Section 2.09 Fees. (a) The Borrower shall pay to each Issuer of a Facility Letter of
Credit the fee to paid by the Borrower to such Issuer on the date of the issuance of such Facility
Letter of Credit pursuant to Section 2.22.7.
(b) The Borrower agrees to pay to the Agent for the account of each Lender the Facility Letter
of Credit Fees pursuant to Section 2.22.7.
(c) The Borrower shall pay to the Agent such additional fees as are specified in the Agents
Fee Letter.
Section 2.10 Notes. All Loans made by each Lender under this Agreement shall be
evidenced by, and repaid with interest in accordance with, a single Note of the Borrower in
substantially the form of Exhibit B hereto, in each case duly completed, dated the date of
this Agreement and payable to such Lender for the account of its applicable Lending Office, such
40
Note to represent the obligation of the Borrower to repay the Loans made by such Lender. Each
Lender is hereby authorized by the Borrower, but no Lender shall be required, to endorse on the
schedule attached to the Note or Notes held by it the amount and type of such applicable Loan and
each renewal, conversion, and payment of principal amount received by such applicable Lender for
the account of its applicable Lending Office on account of its applicable Loans, which endorsement
shall, in the absence of manifest error, be conclusive as to the outstanding balance of such Loans
made by such Lender; provided, however, that the failure to make such notation with
respect to any Loan or renewal, conversion, or payment shall not limit or otherwise affect the
obligations of the Borrower under this Agreement or the Note or Notes held by such Lender. All
Loans shall be repaid on the Termination Date.
Section 2.11 Prepayments. (a) The Borrower may, upon notice to the Agent not later
than noon New York City time on the date of prepayment in the case of ABR Loans and at least three
(3) Business Days prior notice to the Agent in the case of Eurodollar Loans, prepay (including,
without limitation, all amounts payable pursuant to the terms of Section 2.17) the Loans in whole
or in part with accrued interest to the date of such prepayment on the amount prepaid,
provided that (1) each partial payment shall be in a principal amount of not less than One
Million Dollars ($1,000,000) in the case of a Eurodollar Loan and Two Hundred Fifty Thousand
Dollars ($250,000) in the case of an ABR Loan; and (2) Eurodollar Loans may be prepaid only on the
last day of the Interest Period for such Loans; provided, however, that such
prepayment of Eurodollar Loans may be made on any other Business Day if the Borrower pays at the
time of such prepayment all amounts due pursuant to Section 2.17. Upon receipt of any such
prepayments, the Agent will promptly thereafter cause to be distributed the Pro Rata Share of such
prepayment to each Lender for the account of its applicable Lending Office, except that prepayments
of Swing Line Loans shall be made solely to the Swing Line Lender.
(b) The Borrower shall immediately upon a Change in Control prepay the Notes in full and all
accrued interest to the date of such prepayment, and in the case of Eurodollar Loans all amounts
due pursuant to Section 2.17.
(c) If (i) (A) during any time that the Cash Secured Option applies to the Facility, the
amount of Unrestricted Cash held in the Cash Collateral Account under the Cash Collateral Agreement
at any time is less than 105% of the Aggregate Outstanding Extensions of Credit at such time, or
(B) during any time that the Secured Borrowing Base Option applies to the Facility, the amount of
the Secured Borrowing Base as determined by the most recent Secured Borrowing Base Certificate is
less than the Aggregate Outstanding Extensions of Credit, or (ii) at any time, the Aggregate
Outstanding Extensions of Credit exceeds the Available Commitments, then the Borrower shall within
two (2) Business Days thereafter prepay Loans and/or cash collateralize the Facility Letter of
Credit Obligations in an aggregate amount equal to any such shortfall.
Section 2.12 Method of Payment. The Borrower shall make each payment under this
Agreement and under any of the Notes not later than noon New York city time on the date when
41
due in lawful money of the United States to the Agent for the account of the applicable
Lending Office of each Lender (or, in the case of Swing Line Loans, for the account of the Swing
Line Lender) in immediately available funds. The Agent will promptly thereafter cause to be
distributed (1) the Pro Rata Share of such payments of principal and interest with respect to Loans
(other than Swing Line Loans) in like funds to each Lender for the account of its applicable
Lending Office, (2) such payments of principal and interest with respect to Swing Line Loans solely
to the Swing Line Lender and (3) other fees payable to any Lender to be applied in accordance with
the terms of this Agreement. If any such payment is not received by a Lender on the Business Day
on which the Agent received such payment (or the following Business Day if the Agents receipt
thereof occurs after 3:00 P.M. New York City time, such Lender shall be entitled to receive from
the Agent interest on such payment at the Federal Funds Effective Rate for three Business Days and
thereafter at the Alternate Base Rate (which interest payment shall not be an obligation for the
Borrowers account, including under Section 10.04 or Section 10.06). The Borrower hereby
authorizes each Lender, if and to the extent payment is not made when due under this Agreement or
under any of the Notes, to charge from time to time against any account of the Borrower with such
Lender any amount as due. Whenever any payment to be made under this Agreement or under any of the
Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and such extension of time shall be included in the computation
of the payment of interest and the commitment fee, as the case may be, except, in the case of a
Eurodollar Loan, if the result of such extension would be to extend such payment into another
calendar month, such payment shall be made on the immediately preceding Business Day.
Section 2.13 Use of Proceeds. The proceeds of the Loans hereunder shall be used by
the Borrower (a) for working capital and general corporate purposes of the Borrower and the
Guarantors to the extent permitted in this Agreement and (b) to repay Swing Line Loans. The
Borrower will not, directly or indirectly, use any part of such proceeds for the purpose of
repaying the Senior Notes or for purchasing or carrying any margin stock within the meaning of
Regulation U or to extend credit to any Person for the purpose of purchasing or carrying any such
margin stock, or for any purpose which violates, or is inconsistent with, Regulation X.
Section 2.14 Yield Protection. If any law or any governmental or quasi-governmental
rule, regulation, policy, guideline or directive (whether or not having the force of law), or any
interpretation thereof, or the compliance of any Lender or Issuer therewith,
(i) subjects any Lender or Issuer or any applicable Lending Office to any tax,
duty, charge or withholding on or from payments due from the Borrower (excluding federal
taxation of the overall net income of any Lender or Issuer or applicable Lending
Office), or changes the basis of taxation of payments to any Lender or Issuer in respect
of its Loans or Facility Letters of Credit or other amounts due it hereunder, or
42
(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 Issuer or any applicable Lending
Office (other than reserves and assessments taken into account in determining the
interest rate applicable to Loans), or
(iii) imposes any other condition the result of which is to increase the cost to
any Lender or Issuer or any applicable Lending Office of making, funding or maintaining
loans or issuing or participating in letters of credit or reduces any amount receivable
by any Lender or Issuer or any applicable Lending Office in connection with loans, or
requires any Lender or Issuer or any applicable Lending Office to make any payment
calculated by reference to the amount of loans held, letters of credit issued or
interest received by it, by an amount deemed material by such Lender or Issuer,
then, within fifteen (15) days of demand by such Lender or Issuer, the Borrower shall pay such
Lender or Issuer that portion of such increased expense incurred or reduction in an amount received
which such Lender or Issuer reasonably determines is attributable to making, funding and
maintaining its Loans and its Commitment and issuing or participating in Letters of Credit.
Section 2.15 Changes in Capital Adequacy Regulations. If a Lender or Issuer
determines the amount of capital required or expected to be maintained by such Lender or Issuer,
any Lending Office of such Lender or Issuer or any corporation controlling such Lender or Issuer is
increased as a result of a Change, then, within 10 days of demand by such Lender or Issuer, the
Borrower shall pay such Lender or 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 Issuer determines
is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after
taking into account such Lenders or Issuers policies as to capital adequacy); provided,
however, that a Lender or Issuer shall impose such cost upon the Borrower only if such
Lender or Issuer is generally imposing such cost on its other borrowers having similar credit
arrangements. Change means (i) any change after the date of this Agreement in the Risk- Based
Capital Guidelines or (ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or
not having the force of law) after the date of this Agreement which affects the amount of capital
required or expected to be maintained by any Lender or Issuer or any Lending Office or any
corporation controlling any Lender or Issuer. Risk-Based Capital Guidelines means (i) the
risk-based capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988 report of the Basle
Committee on Banking Regulation and Supervisory Practices Entitled International Convergence of
Capital Measurements and Capital Standards, including transition rules, and any amendments to such
regulations adopted prior to the date of this Agreement.
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Section 2.16 Availability of Eurodollar Loans. If any Lender determines that
maintenance of its Eurodollar Loans at the Lending Office selected by the Lender would violate any
applicable law, rule, regulation, or directive, whether or not having the force of law (and it is
not reasonably possible for the Lender to designate an alternate Lending Office without being
adversely affected thereby), or if the Required Lenders determine that (i) deposits of a type and
maturity appropriate to match fund Eurodollar Loans are not available or (ii) the interest rate
applicable to Eurodollar Loans does not accurately reflect the cost of making or maintaining such
Eurodollar Loans, then the Agent shall suspend the availability of Eurodollar Loans and require any
Eurodollar Loans to be repaid.
Section 2.17 Funding Indemnification. If any payment of a Eurodollar Loan occurs on a
date which is not the last day of the applicable Interest Period, whether because of acceleration,
prepayment or otherwise, or a Eurodollar Loan is not made on the date specified by the Borrower for
any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss
or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits required to fund or maintain the Eurodollar Loan.
Section 2.18 Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Office with respect to its Eurodollar
Loans to reduce any liability of the Borrower to such Lender under Sections 2.14 and 2.15 or to
avoid the unavailability of Eurodollar Loans. Each Lender shall deliver a written statement of
such Lender as to the amount due, if any, under Sections 2.14, 2.15 or 2.17. Such written
statement shall set forth in reasonable detail the calculations upon which such Lender determined
such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest
error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan
shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a
deposit of the type and maturity corresponding to the deposit used as a reference in determining
the Eurodollar Rate 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 on demand
after receipt by the Borrower of the written statement. The obligations of the Borrower under
Sections 2.14, 2.15 and 2.17 shall survive payment of the Obligations and termination of this
Agreement.
Section 2.19 Extension of Termination Date. (a) Not more than once in any fiscal
year of the Borrower, the Borrower may request an extension of the Termination Date to a date that
is 364 days after the then scheduled Termination Date by submitting a request for an extension to
the Agent not earlier than 45 days prior to the then scheduled Termination Date. At the time of or
prior to the delivery of such request, the Borrower shall propose to the Agent the amount of the
fees that the Borrower would agree to pay with respect to such extension if approved by the
Lenders. Promptly upon (but not later than five Business Days after) the Agents receipt and
approval of the extension request and fee proposal (as so approved, the
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Extension Request), the Agent shall deliver to each Lender a copy of; and shall request each
Lender to approve, the Extension Request. Each Lender approving the Extension Request shall
deliver its written approval no earlier than 30 days prior to the then scheduled Termination Date.
If the written approval of the Extension Request by the Lenders whose Pro Rata Shares equal or
exceed 66-2/3% in the aggregate is received by the then scheduled Termination Date, the Termination
Date shall be extended to a date that is 364 days after the then scheduled Termination Date but
only with respect to the Lenders that have given such written approval. Except to the extent that
a Lender that did not give its written approval to such Extension Request (Rejecting Lender) is
replaced as provided in Section 2.20, prior to the Termination Date (as determined prior to such
Extension Request), then on such date (the Rejecting Lenders Termination Date) (i) the
Commitment of each such Rejecting Lender shall terminate, (ii) the Aggregate Commitment shall be
reduced by the aggregate amount of such terminated Commitments and (iii) all Loans and other
Obligations to each such Rejecting Lender shall be paid in full by the Borrower. If the sum of the
principal balance of all Loans outstanding and all Facility Letter of Credit Obligations following
the payment provided for in clause (iii) above exceeds the Aggregate Commitment (as reduced as
provided in clause (ii) above), the Borrower shall, on the Rejecting Lenders Termination Date,
repay outstanding Loans or cause to be canceled, released and returned to the applicable Issuer
outstanding Facility Letters of Credit in the amounts necessary to cause the sum of the principal
balance of all Loans outstanding and all Facility Letter of Credit Obligations to equal but not
exceed the Aggregate Commitment (as reduced).
(b) Within ten days of the Agents notice to the Borrower that the Lenders whose Pro Rata
Shares equal or exceed 66-2/3% in the aggregate have approved an Extension Request, the Borrower
shall pay to the Agent for the account of each Lender that has approved the Extension Request the
applicable extension fees specified in the Extension Request.
(c) If Lenders whose Pro Rata Shares equal or exceed 66-2/3% in the aggregate approve the
Extension Request, the Borrower, upon notice to the Agent and any Rejecting Lender, may, subject to
the provisions of the last sentence of Section 2.19(d), terminate the Commitment of such Rejecting
Lender (or such portion of such Commitment as is not assigned to a Replacement Lender in accordance
with Section 2.20), which termination shall occur as of a date set forth in such Borrowers notice
but in no event more than thirty (30) days following such notice (subject to the provisions of
Section 2.20(b)). The termination of a Rejecting Lenders Commitment shall be effected in
accordance with Section 2.19(d).
(d) If the Borrower elects to terminate the Commitment of a Rejecting Lender pursuant to
Section 2.19(c), the Borrower shall pay to the Rejecting Lender all Obligations due and owing to it
hereunder or under any other Loan Document, including, without limitation, the aggregate
outstanding principal amount of the Loans owed to such Rejecting Lender, together with accrued
interest thereon through the date of such termination, amounts payable under Sections 2.14 and 2.15
and the fees payable to such Rejecting Lender under Section 2.09(b).
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Upon request by the Borrower or the Agent, the Rejecting Lender will deliver to the Borrower
and the Agent a letter setting forth the amounts payable to the Rejecting Lender as set forth
above. Upon the termination of such Rejecting Lenders Commitment and payment of the amounts
provided for in the immediately preceding sentence, the Borrower shall have no further obligations
to such Rejecting Lender under this Agreement and such Rejecting Lender shall cease to be a Lender,
provided, however, that such Rejecting Lender shall continue to be entitled to the
benefits of Sections 2.14, 2.15, 2.17, 10.04 and 10.06, as well as to any fees accrued for its
account hereunder not yet paid, and shall continue to be obligated under Section 9.05 with respect
to obligations and liabilities accruing prior to the termination of such Rejecting Lenders
Commitment. If, as a result of the termination of the Rejecting Lenders Commitment, any payment
of a Eurodollar Loan occurs on a day which is not the last day of the applicable Interest Period,
the Borrower shall pay to the Agent for the benefit of the Lenders (including any Rejecting Lender)
any loss or cost incurred by the Lenders (including any Rejecting Lender) resulting therefrom in
accordance with Section 2.17. Upon the effective date of the termination of the Rejecting Lenders
Commitment, the Aggregate Commitment shall be reduced by the amount of the terminated Commitment of
the Rejecting Lender, and each other Lender shall be deemed to have irrevocably and unconditionally
purchased and received (subject to the provisions of the last sentence of this Section 2.19(d)),
without recourse or warranty, from the Rejecting Lender, an undivided interest and participation in
any Facility Letter of Credit then outstanding, ratably, such that each Lender (excluding the
Rejecting Lender but including any Replacement Lender that acquires an interest in the Facility
hereunder from such Rejecting Lender) holds a participation interest in each Facility Letter of
Credit in proportion to the ratio that such Rejecting Lenders Commitment (upon the effective date
of such termination of the Rejecting Lenders Commitment) bears to the Aggregate Commitment (as
reduced by the termination of such Rejecting Lenders Commitment or a part thereof).
Notwithstanding the foregoing, if, upon the termination of the Commitment of such Rejecting Lender
under this Section 2.19(d), the sum of the outstanding principal balance of the Loans and the
Facility Letter of Credit Obligations would exceed the Aggregate Commitment (as reduced), the
Borrower may not terminate such Rejecting Lenders Commitment unless the Borrower, on or prior to
the effective date of such termination, prepays, in accordance with the provisions of this
Agreement, outstanding Loans or causes to be canceled, released and returned to the applicable
Issuer outstanding Facility Letters of Credit in sufficient amounts such that, on the effective
date of such termination, the sum of the outstanding principal balance of the Loans and the
Facility Letter of Credit Obligations does not exceed the Aggregate Commitment (as reduced).
Section 2.20 Replacement of Certain Lenders. (a) In the event a Lender (Affected
Lender): (i) shall have requested compensation from the Borrower under Sections 2.14 or 2.15 to
recover additional costs incurred by such Lender that are not being incurred generally by the other
Lenders, (ii) shall have delivered a notice pursuant to Section 2.16 claiming that such Lender is
unable to extend Eurodollar Loans to the Borrower for reasons not generally applicable to the other
Lenders, (iii) shall have invoked Section 10.13 or (iv) is a Rejecting Lender pursuant
46
to Section 2.19, then, in any such case, the Borrower or the Agent may effect the replacement
of such Affected Lender in accordance with the provisions of this Section 2.20, provided,
however, that if the replacement of such Affected Lender is by reason of clause (iv) above,
the replacement of such Affected Lender shall be subject to the provisions of Section 2.20(b). The
Borrower or the Agent may elect to replace an Affected Lender and make written demand on such
Affected Lender (with a copy to the Agent in the case of a demand by the Borrower and a copy to the
Borrower in the case of a demand by the Agent) for the Affected Lender to assign, and, if a
Replacement Lender (as hereinafter defined) notifies the Affected Lender of its willingness to
purchase the Affected Lenders interests in the Facility and the Agent and the Borrower consent
thereto in writing, then such Affected Lender shall assign pursuant to one or more duly executed
Assignment and Assumption in substantially and in all material respects in the form and substance
of Exhibit F five (5) Business Days after the date of such demand, to one or more financial
institutions that comply with the provisions of Section 11.02 that the Borrower or the Agent, as
the case may be, shall have engaged for such purpose (each a Replacement Lender), all (or, to the
extent required or permitted under Section 2.20(b), a part) of such Affected Lenders rights and
obligations (from and after the date of such assignment) under this Agreement and the other Loan
Documents in accordance with Section 11.02. The Agent agrees, upon the occurrence of such events
with respect to an Affected Lender and upon the written request of the Borrower, to use its
reasonable efforts to obtain commitments from one or more financial institutions to act as a
Replacement Lender. As a condition to any such assignment, the Affected Lender shall have
concurrently received, in cash, all amounts (except as otherwise provided in Section 2.20(b)) 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 2.14 and 2.15 with respect to such Affected Lender and the fees payable to such Affected
Lender under Section 2.09(b); provided that upon such Affected Lenders replacement, such
Affected Lender shall (except as otherwise provided in Section 2.20(b)) cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.17, 10.04 and 10.06, as
well as to any fees accrued for its account hereunder and not yet paid, and shall continue to be
obligated under Section 9.05 with respect to obligations and liabilities accruing prior to the
replacement of such Affected Lender.
(b) In the event that the Affected Lender is a Rejecting Lender, the Borrower may elect to
have a part of the Rejecting Lenders rights and obligations under this Agreement and the other
Loan Documents assigned pursuant to this Section 2.20, provided that the Borrower also
elects, pursuant to Section 2.19(c), to terminate the entire amount of such Rejecting Lenders
Commitment not so assigned, which termination shall be effective on the date on which such
assignment of the Rejecting Lenders rights and obligations is consummated under this Section 2.20.
(c) Notwithstanding anything to the contrary contained in this Agreement, each Replacement
Lender must be approved by the Agent in its sole discretion.
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Section 2.21 Swing Line. (a) The Swing Line Lender agrees, on the terms and
conditions hereinafter set forth, to make loans (Swing Line Loans) to the Borrower from time to
time during the period from the date of this Agreement, up to but not including the Termination
Date, in an aggregate principal amount not to exceed at any time outstanding the lesser of (i) the
Swing Line Commitment or (ii) the amount by which the Swing Line Lenders Commitment exceeds the
sum of (A) the outstanding principal amount of the Loans made by the Swing Line Lender pursuant to
Section 2.01.1 and (B) the Swing Line Lenders Pro Rata Share of the outstanding Facility Letter of
Credit Obligations, subject in each case to the limitations set forth in Section 2.01.3.
(b) Each Swing Line Loan which shall not utilize the Swing Line Commitment in full shall be in
an amount not less than One Million Dollars ($1,000,000) and, if in excess thereof, in integral
multiples of One Million Dollars ($1,000,000). Within the limits of the Swing Line Commitment, the
Borrower may borrow, repay and reborrow under this Section 2.21.
(c) The Borrower shall give the Swing Line Lender notice of any request for a Swing Line Loan
not later than 3:00 p.m. New York City time on the Business Day of such Swing Line Loan,
specifying the amount of such requested Swing Line Loan. Each such notice shall be accompanied by
a Secured Borrowing Base Certificate dated as of the date of such notice (and by the notice
provided for in Section 2.21(d)). All notices given by the Borrower under this Section 2.21(c)
shall be irrevocable. Upon fulfillment of the applicable conditions set forth in Article III, the
Swing Line Lender will make the Swing Line Loan available to the Borrower in immediately available
funds by crediting the amount thereof to the Borrowers account with the Swing Line Lender.
(d) On the fifth Business Day following the making of a Swing Line Loan, such Swing Line Loan
shall be paid in full from the proceeds of a Loan made pursuant to Section 2.01.1. Each notice
given by the Borrower under Section 2.21(c) shall include, or, if it does not include, shall be
deemed to include, an irrevocable notice under Section 2.03 requesting the Lenders to make an ABR
Loan on the fifth succeeding Business Day in the full amount of such Swing Line Loan.
Section 2.22 Facility Letters of Credit.
Section 2.22.1 Issuance of Facility Letters of Credit. (a) Each Issuer agrees, on
the terms and conditions set forth in this Agreement, to issue from time to time for the account of
the Borrower, through such offices or branches as it and the Borrower may jointly agree, one or
more Facility Letters of Credit in accordance with this Section 2.22, during the period commencing
on the date hereof and ending on the thirtieth (30th) day prior to the Termination Date.
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(b) The Borrower shall not request, and no Issuer shall issue, a Facility Letter of Credit for
any purpose other than for purposes for which Loan proceeds may by used, provided that, the
Borrower shall not request Facility Letters of Credit for any purposes other than for such purposes
which are permitted to be secured by a Permitted Lien under, and as defined in, the Base
Indenture 2002 as modified by the Ninth Supplemental Indenture dated October 26, 2007 (without
regard to the provisions of clause (xi) thereunder), or any comparable provision of any other
Senior Indenture.
Section 2.22.2 Limitations. An Issuer shall not 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 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 Issuer;
(ii) if, after giving effect to the issuance, amendment or extension of the Facility
Letter of Credit requested hereunder, the aggregate principal amount of the Facility Letter
of Credit Obligations would exceed the Facility Letter of Credit Sublimit;
(iii) if, after giving effect to the issuance, amendment or extension of the Facility
Letter of Credit requested hereunder, (A) during any time the Cash Secured Option applies to
the Facility, the amount of Unrestricted Cash held in the Cash Collateral Account under the
Cash Collateral Agreement would be less than 105% of the then Aggregate Outstanding
Extensions of Credit, and (B) during any time the Secured Borrowing Base Option applies to
the Facility, the then Aggregate Outstanding Extensions of Credit would exceed the Secured
Borrowing Base as of the most recent Inventory Valuation Date;
(iv) if, after giving effect to the issuance, amendment or extension of the Facility
Letter of Credit requested hereunder, the Aggregate Outstanding Extensions of Credit would
exceed the Aggregate Commitment;
(v) unless such Issuer receives written notice from the Agent on or before the proposed
Issuance Date of such Facility Letter of Credit that the issuance, amendment or extension of
such Facility Letter of Credit is within the limitations specified in clauses (ii), (iii)
and (iv) of this Section 2.22.2;
(vi) that has an expiration date (taking into account any automatic renewal provisions
thereof) later than one year after the date that is thirty (30) days prior to the scheduled
Termination Date; or
49
(vii) that is in a currency other than U.S. Dollars or that provides for drawings other
than by sight draft.
Section 2.22.3 Conditions. The issuance, amendment or extension of any Facility
Letter of Credit is subject to the satisfaction in full of the following conditions on the Issuance
Date:
(i) the Borrower shall have delivered to the Issuer at such times and in such manner as
the 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 Issuer in form and
content, provided, however, in the event of any conflict between the terms of this Agreement
and the terms of the Reimbursement Agreement, the terms of this Agreement shall control;
(ii) as of the Issuance Date no order, judgment or decree of any court, arbitrator or
governmental authority shall enjoin or restrain such Issuer from issuing the Facility Letter
of Credit and no law, rule or regulation applicable to the Issuer and no directive from any
governmental authority with jurisdiction over the Issuer shall prohibit such Issuer from
issuing Letters of Credit generally or from issuing that Facility Letter of Credit;
(iii) the following statements shall be true, and the Agent and such Issuer shall have
received a certificate, substantially in the form of the certificate attached hereto as
Exhibit D, signed by a duly authorized officer of the Borrower dated the Issuance
Date stating that:
|
(a) |
|
the representations and warranties contained in Article
IV of this Agreement are correct in all material respects on and as of such
Issuance Date as though made on and as of such Issuance Date except to the
extent that any such representation or warranty is stated to relate solely
to an earlier date, in which case such representation or warranty is
correct in all material respects as of such earlier date; and |
|
|
(b) |
|
No Default or Event of Default has occurred and is
continuing or would result from the issuance, amendment or extension of
such Facility Letter of Credit; |
(iv) the Issuer and the Agent shall have received such other approvals, opinions, or
documents as either may reasonably request.
Section 2.22.4 Procedure for Issuance of Facility Letters of Credit. (a) The
Borrower shall give the applicable Issuer and the Agent not less than two (2) Business Days
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prior written notice of any requested issuance of a Facility Letter of Credit under this
Agreement (except that, in lieu of such written notice, the Borrower may give the Issuer and the
Agent telephonic notice of such request if confirmed in writing by delivery to such Issuer and the
Agent (i) immediately (A) of a telecopy of the written notice required hereunder which has been
signed by an authorized officer of the Borrower or (B) of an e-mail containing all information
required to be contained in such written notice and (ii) promptly (but in no event later than the
requested Issuance Date) of the written notice required hereunder containing the original signature
of an authorized officer of the Borrower). Such notice shall specify (i) the stated amount of the
Facility Letter of Credit requested, which amount shall be in compliance with the requirements of
Section 2.22.2, (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 2.22.2(vi), (iv) the purpose for which such Facility Letter of Credit
is to be issued, which purpose shall be in compliance with the requirements of Section 2.22.1(b),
and (v) the Person for whose benefit the requested Facility Letter of Credit is to be issued. At
the time such request is made, the Borrower shall also provide the Agent with a copy of the form of
the Facility Letter of Credit it is requesting be issued. Such notice, to be effective, must be
received by the Issuer and the Agent not later than 3:00 p.m. New York City time on the last
Business Day on which notice can be given under this Section 2.22.4. Promptly after receipt of
such notice, the Issuer shall confirm with the Agent (by telephone or in writing) that the Agent
has received a copy of such notice from the Borrower and, if not, the Issuer shall promptly provide
the Agent with a copy thereof
(b) Promptly following receipt of a request for issuance of a Facility Letter of Credit in
accordance with Section 2.22.4(a), such Issuer shall approve or disapprove, in its reasonable
discretion, the issuance 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
Section 2.22.
(c) Subject to the terms and conditions of this Section 2.22 (including, without limitation,
Sections 2.22.2 and 2.22.3), the applicable Issuer shall, on the Issuance Date, issue the requested
Facility Letter of Credit in accordance with such Issuers usual and customary business practices
unless such Issuer has actually received written or telephonic notice from the Borrower
specifically revoking the request to issue such Facility Letter of Credit. The Issuer shall
promptly give the Agent written notice, or telephonic notice confirmed promptly thereafter in
writing, of the issuance, amendment, extension or cancellation of a Facility Letter of Credit, and
the Agent shall promptly thereafter so notify all Lenders.
(d) No Issuer shall extend or amend any Facility Letter of Credit unless the requirements of
this Section 2.22.4 are met as though a new Facility Letter of Credit were being requested and
issued.
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(e) Any Lender may, but shall not be obligated to, issue to the Borrower or any of its
Subsidiaries 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 Section 2.22 shall apply to any Letter of Credit
that is not a Facility Letter of Credit.
Section 2.22.5 Duties of Issuer. Any action taken or omitted to be taken by an 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 Issuer under any resulting liability to
any Lender or, assuming that such Issuer has complied in all material respects with the procedures
specified in Section 2.22.4, relieve any Lender of its obligations hereunder to such Issuer. In
determining whether to pay under any Facility Letter of Credit, such Issuer shall have no
obligation to the 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.
Section 2.22.6 Participation. (a) Immediately upon the issuance by an Issuer of any
Facility Letter of Credit in accordance with Section 2.22.4, each Lender shall be deemed to have
irrevocably and unconditionally purchased and received from such Issuer, without recourse or
warranty, an undivided interest and participation ratably (in the proportion of such Lenders Pro
Rata Share) in such Facility Letter of Credit (including, without limitation, all obligations of
the Borrower with respect thereto other than amounts owing to such Issuer under Section 2.15).
(b) In the event that an Issuer makes any payment under any Facility Letter of Credit and the
Borrower shall not have repaid such amount to such Issuer on or before the date of such payment by
such Issuer, such Issuer shall promptly so notify the Agent, which shall promptly so notify each
Lender. Upon receipt of such notice, each Lender shall promptly and unconditionally pay to the
Agent for the account of such Issuer the amount of such Lenders Pro Rata Share of such payment in
same day funds, and the Agent shall promptly pay such amount, and any other amounts received by the
Agent for such Issuers account pursuant to this Section 2.22.6, to such Issuer. If the Agent so
notifies such Lender prior to noon New York City time on any Business Day, such Lender shall make
available to the Agent for the account of such Issuer such Lenders ratable 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 ratable share of the amount of such payment available to the Agent for the account
of the Issuer, such Lender agrees to pay to the Agent for the account of the 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 the Agent for the account of the Issuer, at the
Federal Funds Effective Rate. The failure of any Lender to make available to the Agent for the
account of an Issuer such Lenders ratable share of any such payment shall not relieve any other
Lender of its obligation hereunder to make available to the Agent for the account of such Issuer
its ratable share of any payment on the date such payment is to be made.
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(c) If any draft is paid under any Facility Letter of Credit, the Borrower shall reimburse the
Issuing Lender for the amount of (a) the draft so paid and (b) any taxes, fees, charges or other
costs or expenses incurred by the Issuing Lender in connection with such payment, not later than
12:00 Noon, Charlotte, North Carolina time, on (i) the Business Day immediately following the day
that the Borrower receives notice of such draft, if such notice is received on such day prior to
10:00 A.M. New York City time, or (ii) if clause (i) above does not apply, the second Business Day
following the day that the Borrower receives such notice. Each such payment shall be made to the
Issuing Lender at its address for notices referred to herein in Dollars and in immediately
available funds. Interest shall be payable on any such amounts from the date on which the relevant
draft is paid until payment in full at the rate set forth in (x) until the Business Day next
succeeding the date when such payment is required as set forth above, Section 2.07(a) and (y)
thereafter, Section 2.07(d).
(d) Upon the request of the Agent or any Lender, each Issuer shall furnish to the requesting
Agent or Lender copies of any Facility Letter of Credit or Reimbursement Agreement to which such
Issuer is party.
(e) The obligations of the Lenders to make payments to the Agent for the account of an 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 the terms and conditions of this
Agreement under all circumstances, including, without limitation, the following:
(i) any lack of validity or enforceability of this Agreement or any of the other
Loan Documents;
(ii) the existence of any claim, setoff, defense or other right which the 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), the Issuer, the 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 the Borrower or any Subsidiary and the beneficiary named in any Facility Letter
of Credit);
(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 or any statement therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance or observance
of any of the terms of any of the Loan Documents;
53
(v) any failure by the Agent or an Issuer to make any reports required pursuant to
Section 2.22.8; or
(vi) the occurrence of any Default or Event of Default.
(f) For purposes of determining the unused portion of the Aggregate Commitment and the unused
portion of a Lenders Commitment under Sections 2.02.1 and 2.09(b), the Aggregate Commitment shall
be deemed used to the extent of the aggregate undrawn face amount of the outstanding Facility
Letters of Credit and the Lenders Commitment shall be deemed used to the extent of such Lenders
Pro Rata Share of the aggregate undrawn face amount of the outstanding Facility Letters of Credit.
Section 2.22.7 Compensation for Facility Letters of Credit. (a) The Borrower agrees
to pay to the Agent, in the case of each Facility Letter of Credit, the Facility Letter of Credit
Fee therefor, payable quarterly in arrears not later than five (5) Business Days following Agents
delivery to Borrower of the quarterly statement specifying the amount of the Facility Letter of
Credit Fees properly due and payable hereunder with respect to the preceding calendar quarter
(which payment shall be a pro rata portion of the annual Facility Letter of Credit Fee for such
preceding calendar quarter) and on the Termination Date (which payment shall be in the amount of
all accrued and unpaid Facility Letter of Credit Fees). Facility Letter of Credit Fees shall be
calculated, on a pro rata basis for the period to which such payment applies, for actual days on
which such Facility Letter of Credit was outstanding during such period, on the basis of a 360-day
year. The Agent shall, with reasonable promptness following receipt from all Issuers of the
reports provided for in Section 2.22.8 for the months of March, June, September and December,
respectively, deliver to the Borrower a quarterly statement of the Facility Letter of Credit Fees
then due and payable. The Agent shall promptly remit such Facility Letter of Credit Fees, when
received by the Agent, ratably to all Lenders.
(b) The Borrower agrees to pay the applicable Issuer of each Facility Letter of Credit an
issuance fee of 0.125% of the stated amount of such Facility Letter of Credit, payable prior to the
issuance of such Letter of Credit.
(c) An Issuer shall also have the right to receive, solely for its own account, its
out-of-pocket costs of issuing and servicing Facility Letters of Credit, as the Borrower may agree
in writing.
Section 2.22.8 Issuer Reporting Requirements. Each Issuer shall, no later than the
third (3rd) Business Day following the last day of each month, provide to the Agent a schedule of
the Facility Letters of Credit issued by it 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 indicating, with respect to each
Facility Letter of Credit, whether it is a Financial Letter of Credit or Performance
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Letter of Credit) and the aggregate amount (if any) payable by the Borrower to such Issuer
during the month pursuant to Section 2.15. Copies of such reports shall be provided promptly to
each Lender by the Agent. The reporting requirements hereunder are in addition to those set forth
in Section 2.22.4.
Section 2.22.9 Indemnification; Nature of Issuers Duties. (a) In addition to
amounts payable as elsewhere provided in this Section 2.22, the Borrower hereby agrees to protect,
indemnify, pay and save the Agent, each Issuer and each Lender harmless 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 the Agent, any Issuer
or any Lender as a consequence, direct or indirect, of (i) the issuance of any Facility Letter of
Credit other than, in the case of an Issuer, as a result of its willful misconduct or gross
negligence, or (ii) the failure of an Issuer to honor a drawing under a Facility Letter of Credit
as a result of any act or omission, whether rightful or wrongful, of any government, court or other
governmental agency or authority.
(b) As among the Borrower, the Lenders, the Agent and each Issuer, the 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 an Issuer nor the 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, facsimile transmission or otherwise; (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; or (viii) for any consequences arising from
causes beyond the control of the Agent, such Issuer and the Lenders including, without limitation,
any act or omission, whether rightful or wrongful, of any government, court or other governmental
agency or authority. None of the above shall affect, impair, or prevent the vesting of any of such
Issuers rights or powers under this Section 2.22.9.
(c) In furtherance and extension and not in limitation of the specific provisions hereinabove
set forth, any action taken or omitted by an Issuer under or in connection with the Facility
Letters of Credit or any related certificates, if taken or omitted in good faith, shall not
55
put such Issuer, the Agent or any Lender under any resulting liability to the Borrower or
relieve the Borrower of any of its obligations hereunder to any such Person, but the foregoing
shall not relieve such Issuer of its obligation to confirm that any documents required to be
delivered under a 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.
(d) Notwithstanding anything to the contrary contained in this Section 2.22.9, the Borrower
shall have no obligation to indemnify an Issuer under this Section 2.22.9 in respect of any
liability incurred by an Issuer arising primarily out of the willful misconduct or gross negligence
of such Issuer, as determined by a court of competent jurisdiction, or out of the wrongful dishonor
by such Issuer of a proper demand for payment made under the Facility Letters of Credit issued by
such Issuer, unless such dishonor was made at the request of the Borrower.
Section 2.22.10 Designation or Resignation of Issuer. (a) Upon request by the
Borrower and approval by the Agent, a Lender may at any time agree to be designated as an Issuer
hereunder, which designation shall be set forth in a written instrument or instruments delivered by
the Borrower, the Agent and such Lender. The Agent shall promptly deliver to the other Lenders a
copy of such instrument or instruments. From and after such designation and unless and until such
Lender resigns as an Issuer in accordance with Section 2.22.10(b), such Lender shall have all of
the rights and obligations of an Issuer hereunder,
(b) An Issuer shall continue to be the Issuer unless and until (i) it shall have given the
Borrower and the Agent notice that it has elected to resign as Issuer and (ii) unless there is, at
the time of such notice, at least one other Issuer, another Lender shall have agreed to be the
replacement Issuer and shall have been approved in writing by the Agent and the Borrower. A
resigning Issuer shall continue to have the rights and obligations of the Issuer hereunder solely
with respect to Facility Letters of Credit theretofore issued by it notwithstanding the designation
of a replacement Issuer hereunder, but upon its notice of resignation (or, if at the time of such
notice, there is not at least one other Issuer, then upon such designation of a replacement
Issuer), the resigning Issuer shall not thereafter issue any Facility Letters of Credit (unless it
shall again thereafter be designated as an Issuer in accordance with the provisions of this
Section 2.22.10). The assignment of, or grant of a participation interest in, or termination
pursuant to Section 2.19 of, all or any part of its Commitment or Loans by a Lender that is also
the Issuer shall not constitute an assignment or transfer of any of its rights or obligations as an
Issuer.
Section 2.22.11 Termination of Issuers Obligation. In the event that the Lenders
obligations to make Loans terminate or are terminated as provided in Section 8.01, each Issuers
obligation to issue Facility Letters of Credit shall also terminate.
Section 2.22.12 Obligations of Issuer and Other Lenders. Except to the extent that a
Lender shall have agreed to be designated as an Issuer, no Lender shall have any obligation
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to accept or approve any request for, or to issue, amend or extend, any Letter of Credit, and
the obligations of an Issuer to issue, amend or extend any Facility Letter of Credit are expressly
limited by and subject to the provisions of this Section 2.22.
Section 2.22.13 Facility Letter of Credit Collateral Account. The Borrower agrees
that it will, during any time the Secured Borrowing Base Option applies to the Facility, upon the
request of the Agent or the Required Lenders and until the final expiration date of any Facility
Letter of Credit and thereafter as long as any amount is payable to the Issuer or the Lenders in
respect of any Facility Letter of Credit, maintain a special collateral account pursuant to
arrangements satisfactory to the Agent (the Facility Letter of Credit Collateral Account) at the
Agents office at the address specified pursuant to Section 10.02, in the name of the Borrower but
under the sole dominion and control of the Agent, for the benefit of the Lenders and in which such
Borrower shall have no interest other than as set forth in Section 8.01. The Borrower hereby
pledges, assigns and grants to the Agent, on behalf of and for the ratable benefit of the Lenders
and the Issuer, a security interest in all of the Borrowers right, title and interest in and to
all funds which may from time to time be on deposit in the Facility Letter of Credit Collateral
Account to secure the prompt and complete payment and performance of (a) the obligations of the
Borrower to reimburse the Issuer and (if applicable) the Lenders for amounts (if any) from time to
time drawn on Facility Letters of Credit and interest thereon and other sums from time to time
payable under Reimbursement Agreements, and (b) if and when all such obligations of the Borrower
have been paid in full and no Facility Letters of Credit remain outstanding, all other Obligations.
The Agent will invest any funds on deposit from time to time in the Facility Letter of Credit
Collateral Account in Cash Equivalents reasonably acceptable the agent having a maturity not
exceeding 30 days. Nothing in this Section 2.22.13 shall either obligate the Agent to require the
Borrower to deposit any funds in the Facility Letter of Credit Collateral Account or limit the
right of the Agent to release any funds held in the Facility Letter of Credit Collateral Account in
each case other than as required by Section 22.15.
Section 2.22.14 Issuers Rights. All of the representations, warranties, covenants
and agreements of the Borrower to the Lenders under this Agreement and of the Borrower under any
other Loan Document shall inure to the benefit of each Issuer (unless the context otherwise
indicates).
Section 2.22.15 Defaulting Lenders. Notwithstanding any provision of this Agreement
to the contrary, if during the any time the Secured Borrowing Base Option applies to the Facility
any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as
such Lender is a Defaulting Lender:
(a) Subject to the provisions of Section 2.22.15(c), if any Facility Letter of Credit
Obligations are outstanding at the time a Lender is a Defaulting Lender, the Borrower shall within
three (3) Business Days following notice by the Agent cash collateralize such Defaulting Lenders
Facility Letter of Credit Obligations by paying to the Agent an amount in immediately
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available funds equal to such Defaulting Lenders Facility Letter of Credit Obligations, which
funds shall be held in the Facility Letter of Credit Collateral Account in accordance with Section
2.22.13 for so long as such Facility Letter of Credit Obligations are outstanding and such Lender
is a Defaulting Lender;
(b) Subject to the provisions of Section 2.22.15(c), no Issuer shall be required to issue,
amend (other than to reduce) or increase any Facility Letter of Credit unless cash collateral has
been provided by the Borrower in accordance with Section 2.22.15(a); and
(c) Notwithstanding the provisions of Sections 2.22.15(a) and (b), if within three (3)
Business Days following the Agents notice under Section 2.22.15(a) the Borrower shall by notice to
the Agent advise the Agent that the Borrower intends to effect the assignment by such Defaulting
Lender of all of its right, title and interest under this Agreement to a Person that is not a
Defaulting Lender (subject to and in accordance with the provisions of Section 11.02), the date by
which the Borrower shall be required to comply with the provisions of Section 2.22.15(a) shall be
extended to the 14th day after the date of the Agents notice; provided, however, that such
extension shall not extend the date by which the Borrower is obligated to cash collateralize
Facility Letters of Credit pursuant to any other provisions of this Agreement. A Defaulting Lender
shall not be obligated to assign its interest under this Agreement except to the extent that the
provisions of Section 2.20 require an assignment.
Section 2.22.16 End of Term Cash Collateralization. On the date that is 30 days prior
to the scheduled Termination Date, if the Secured Borrowing Base Option is then in effect, the
Borrower shall deposit in the Cash Collateral Account an amount not less than 105% of the Facility
Letter of Credit Obligations as of such date. Not more than once during each calendar month
following the Termination Date, provided that no Event of Default has occurred and is then
continuing, the Borrower may request that the Agent release any amount of Unrestricted Cash held in
the Cash Collateral Account under the Cash Collateral Agreement in excess of an amount equal to
105% of the then Facility Letter of Credit Obligations to the Borrower, and the Agent shall
promptly release such excess amount, subject to the terms of the Cash Collateral Agreement.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01 Conditions Precedent to Closing Date. This Agreement and the Commitments
of each Lender shall be effective on the date (the Closing Date) on which each of the following
conditions precedent shall have been satisfied or waived by the Agent and each Lender:
(1) Fourth Amendment and Successor Agency and Amendment Agreement. The Fourth Amendment
Effective Date shall have occurred under the Fourth Amendment and
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the Effective Date shall have occurred under the Successor Agency and Amendment Agreement in
accordance with their respective terms.
(2) Credit Agreement. The Agent shall have received this Agreement duly executed by each of
the parties hereto;
(3) Replacement Note. A Note payable to each Lender duly executed by the Borrower, and the
original promissory note issued to such Lender under the Existing Credit Agreement to be delivered
to the Borrower for cancellation upon the Closing Date;
(4) Amended and Restated Guaranty. The Agent shall have received the Amended and Restated
Guaranty, duly executed by each Guarantor listed in Schedule III.
(5) Amended and Restated Collateral Agreement. The Agent shall have received the Amended and
Restated Collateral Agreement, duly executed by each party thereto (provided that the
Borrower may designate one or more schedules as to be updated as required pursuant to Section 3.02);
(6) No Default or Event of Default. After giving effect to this Agreement, no Default or
Event of Default shall have occurred and be continuing;
(7) Closing Fee. The Borrower shall have paid a cash fee to the Agent in accordance with the
terms of the Agents Fee Letter; and
(8) Other Documents. The Agent shall have received such other documents as the Agent, its
counsel or any Lender may reasonably request.
Section 3.02 Conditions Precedent to Cash Secured Option. The Lenders shall not be
required to make Loans or participate in any Facility Letters of Credit under the Cash Secured
Option, and the Issuers shall not be required to issue any Facility Letters of Credit under the
Cash Secured Option, unless and until the Closing Date has occurred and the Agent shall have
received each of the following, in form and substance satisfactory to the Agent:
(1) Secretarys Certificate of the Borrower. A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying (A) the names and true signatures of each officer of the
Borrower who has been authorized to execute and deliver this Agreement and any other Loan Document
or other document required to be executed and delivered by or on behalf of the Borrower under this
Agreement, (B) that the attached copies of the certificate of incorporation and by-laws of the
Borrower have not been amended except as set forth therein and remain in full force and effect and
(C) the attached copy of resolutions of the Board of Directors of the Borrower approving and
authorizing the execution, delivery and performance of this Agreement and the other Loan Documents
to which it is a party;
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(2) Good Standing Certificate of the Borrower. A currently dated certificate of good standing
for the Borrower issued by the Secretary of State of the State of Delaware;
(3) Secretarys Certificates of the Guarantors. A certificate of the Secretary or an
Assistant Secretary of each corporate Guarantor or the general partner of each limited partnership
Guarantor or managing member of each limited liability company Guarantor certifying (A) the names
and true signatures of each officer, partner, member or other representative of such Guarantor who
has been authorized to execute and deliver the Amended and Restated Guaranty and any other Loan
Document or other document required to be executed and delivered by or on behalf of such Guarantor
under this Agreement, (B) that the attached copies of the certificate of incorporation and by-laws
of such corporate Guarantor, or certificate of limited partnership and limited partnership
agreement of such limited partnership Guarantor, or certificate of formation and limited liability
company or operating agreement of each limited liability company guarantor, or equivalent
applicable constituent documents of such Guarantor, have not been amended except as set forth
therein and remain in full force and effect and (C) the attached copy of resolutions of the Board
of Directors of such corporate Guarantor, or the consents of such limited partnership or limited
liability company Guarantor, approving and authorizing the execution, delivery and performance of
the Amended and Restated Guaranty and the other Loan Documents to which it is a party;
(4) Good Standing Certificate of the Borrower. A currently dated certificate of good standing
for each Guarantor issued by the secretary of state or other appropriate governmental officer in
its jurisdiction of incorporation or formation;
(5) Updated Schedules to Amended and Restated Collateral Agreement. The Borrower shall have
delivered updated schedules to the Amended and Restated Collateral Agreement if so noted as
referred to in clause (6) of Section 3.01;
(6) Cash Collateral Agreement. The Agent shall have received the Cash Collateral Agreement
duly executed by each of the Borrower and the Agent;
(7) Opinions of Counsel. A favorable opinion of (A) Troutman Sanders LLP, counsel for the
Borrower and for certain of the Guarantors, in substantially the form of Exhibit E and (B)
counsel to each other Guarantor that is formed or organized to do business in the State of Indiana
or in the State of Tennessee (as approved by the Agent), in form similar to that furnished pursuant
to clause (A) and reasonably satisfactory to the Agent;
(8) Costs and Expenses. The Borrower shall have paid all costs and invoiced out-of-pocket
expenses of the Agent in connection with the execution and delivery of the documents and
instruments described in Section 3.01 and clauses (1) through (6) of this Section 3.02, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent; and
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(9) Other Documents. Such other and further documents as any Lender or the Agent or its
counsel may have reasonably requested.
Section 3.03 Conditions Precedent to Secured Borrowing Base Option. The Lenders shall
not be required to make Loans or participate in any Facility Letters of Credit under the Secured
Borrowing Base Option, and the Issuers shall not be required to issue any Facility Letters of
Credit under the Secured Borrowing Base Option, unless and until the Closing Date has occurred, the
condition precedent set forth in Section 3.02 have been satisfied or waived by the Agent and the
Lenders, and the Agent shall have received each of the following, in form and substance
satisfactory to the Agent:
(1) Assignments of Financing Statements. Recorded or file-stamped copies of assignments from
Wachovia Bank, National Association, as original secured party, to the Agent of each financing
statement filed or recorded with respect to any Security Document;
(2) Assignments of Mortgages. Recorded copies of assignments by Wachovia Bank, National
Association, to the Agent of all Mortgages delivered under the Existing Credit Agreement;
(3) Endorsements to Title Insurance Policies. Endorsements to all title insurance policies
referred to in subclause (c) of item (4) of the Secured Borrowing Base Conditions previously issued
by the Title Insurance Company, reflecting Agent as the holder of the Mortgage insured under such
title insurance policy;
(4) Other Secured Borrowing Base Conditions. With respect to all Mortgaged Property covered
by the Mortgages referred to in
clause (2) above, evidence satisfactory to the Agent that all other
Secured Borrowing Base Conditions have been satisfied with respect to such Mortgaged Property; and
(5) Costs and Expenses. The Borrower shall have paid all costs and invoiced out-of-pocket
expenses of the Agent in connection with the execution and delivery of the documents and
instruments described in clauses (1) through (4) of this Section 3.03, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent; and
(6) Other Documents. Such other and further documents as any Lender or the Agent or its
counsel may have reasonably requested.
Section 3.04 Conditions Precedent to All Loans. The obligation of each Lender to make
each Loan (including, in the case of the Swing Line Lender, any Swing Line Loan) shall be subject
to the further conditions precedent that (except as hereinafter provided) on the date of such Loan:
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(1) The following statements shall be true and the Agent shall have received a certificate,
substantially in the form of the certificate attached hereto as Exhibit D, signed by a duly
authorized officer of the Borrower dated the date of such Loan, stating that:
|
(a) |
|
The representations and warranties contained in
Article IV of this Agreement are correct in all material respects on and
as of the date of such Loan as though made on and as of such date except
to the extent that any such representation or warranty is stated to relate
solely to an earlier date, in which case such representation or warranty
is correct in all material respects as of such earlier date; and |
|
|
(b) |
|
No Default or Event of Default has occurred and is
continuing, or would result from such Loan. |
(2) The Agent shall have received such other approvals, opinions, or documents as any Lender
through the Agent may reasonably request.
Notwithstanding the foregoing, in the case of a Loan (provided for in Section 2.21(d)) made to
repay a Swing Line Loan, the satisfaction of the foregoing conditions with respect to such Swing
Line Loan shall constitute satisfaction of such conditions with respect to the Loan made pursuant
to Section 2.21(d) to repay such Swing Line Loan.
Section 3.05 Conditions Precedent to Facility Letters of Credit. The obligations of
each Issuer to issue, amend or extend any Facility Letter of Credit shall be subject to the
conditions precedent set forth in Section 2.22.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.01 Incorporation, Formation, Good Standing, and Due Qualification. The
Borrower, each Subsidiary, and each of the Guarantors is (in the case of a corporation) a
corporation duly incorporated or (in the case of a limited partnership) a limited partnership duly
formed or (in the case of a limited liability company) a limited liability company duly formed,
validly existing, and in good standing under the laws of the jurisdiction of its incorporation or
formation; has the power and authority to own its assets and to transact the business in which it
is now engaged or proposed to be engaged; and is duly qualified and in good standing under the laws
of each other jurisdiction in which such qualification is required, except where the failure to be
so qualified could not reasonably be expected to result in a Material Adverse Effect.
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Section 4.02 Power and Authority. The execution, delivery and performance by the
Borrower and the Guarantors of the Loan Documents to which each is a party have been duly
authorized by all necessary corporate, partnership or limited liability company action, as the case
may be, and do not and will not (1) require any consent or approval of the stockholders of such
corporation, partners of such partnership or members of such limited liability company (except such
consents as have been obtained as of the date hereof); (2) contravene such corporations charter or
bylaws, such partnerships partnership agreement or such limited liability companys articles or
certificate of formation or operating agreement; (3) violate, in any material respect, any
provision of any law, rule, regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree,
determination, or award presently in effect having applicability to such corporation, partnership
or limited liability company; (4) result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other material agreement, lease, or instrument to which such
corporation, partnership or limited liability company is a party or by which it or its properties
may be bound or affected; (5) result in, or require, the creation or imposition of any Lien, upon
or with respect to any of the properties now owned or hereafter acquired by such corporation,
partnership or limited liability company, other than Liens securing the Obligations; and (6) cause
such corporation, partnership or limited liability company to be in default, in any material
respect, under any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination, or award or any such indenture, agreement, lease or instrument.
Section 4.03 Legally Enforceable Agreement. This Agreement is, and each of the other
Loan Documents when delivered under this Agreement will be legal, valid, and binding obligations of
the Borrower or each Guarantor, as the case may be, enforceable against the Borrower or each
Guarantor, as the case may be, in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws
affecting creditors rights generally.
Section 4.04 Financial Statements. The consolidated balance sheet of the Borrower and
its Subsidiaries as at March 31, 2009, and the consolidated statements of operations, cash flow and
changes to stockholders equity of the Borrower and its Subsidiaries for the period of two fiscal
quarters ended March 31, 2009, are complete and correct and fairly present as at such date the
financial condition of the Borrower and its Subsidiaries and the results of their operations for
the periods covered by such statements, all in accordance with GAAP consistently applied (subject
to the absence of footnotes and year-end adjustments), and since March 31, 2009, there has been no
material adverse change in the condition (financial or otherwise), business, or operations of the
Borrower and its Subsidiaries. There are no liabilities of the Borrower or any Subsidiary, fixed
or contingent, which are material but are not reflected in the financial statements or in the notes
thereto, other than liabilities arising in the ordinary course of business since March 31, 2009.
No information, exhibit, or report furnished by the Borrower to any Lender in connection with the
negotiation of this Agreement, taken together, contained any
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material misstatement of fact or omitted to state a material fact or any fact necessary to
make the statements contained therein not materially misleading.
Section 4.05 Labor Disputes and Acts of God. Neither the business nor the properties
of the Borrower or any Subsidiary or any Guarantor are 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), materially and
adversely affecting such business or properties or the operation of the Borrower or such Subsidiary
or such Guarantor.
Section 4.06 Other Agreements. Neither the Borrower nor any Significant Subsidiary
nor any Significant Guarantor is a party to any indenture, loan, or credit agreement, or to any
lease or other agreement or instrument or subject to any charter, corporate or other restriction
which could reasonably be expected to have a material adverse effect on the business, properties,
assets, operations, or conditions, financial or otherwise, of the Borrower or any Significant
Subsidiary or any Significant Guarantor, or the ability of the Borrower or any Significant
Guarantor to carry out its obligations under the Loan Documents to which it is a party. Neither
the Borrower nor any Significant Subsidiary nor any Significant Guarantor is in default in any
material respect in the performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument material to its business to which
it is a party.
Section 4.07 Litigation. Except as disclosed in Schedule 4.07 or
Schedule 4.14, or reflected in or reserved for in the financial statements referred to in
Section 4.04, there is no pending or, to the knowledge of the Borrower or any Guarantor, threatened
action or proceeding against or affecting the Borrower or any Significant Subsidiary or any
Significant Guarantor before any court, governmental agency, or arbitrator, which could reasonable
be expected, in any one case or in the aggregate, to materially adversely affect the financial
condition, operations, properties, or business of the Borrower or any Significant Subsidiary or any
Significant Guarantor or the ability of the Borrower or any Significant Guarantor to perform its
obligations under the Loan Documents to which it is a party.
Section 4.08 No Defaults on Outstanding Judgments or Orders. Except for judgments
with respect to which the uninsured liability of the Borrower, each Significant Subsidiary and each
Significant Guarantor does not exceed $10,000,000 in the aggregate for all such judgments, (a) the
Borrower, each Significant Subsidiary and each Significant Guarantor have satisfied all judgments,
and (b) neither the Borrower nor any Significant Subsidiary nor any Significant Guarantor is in
default with respect to any judgment, writ, injunction, decree, ruling or order of any court,
arbitrator, or federal, state, municipal, or other governmental authority, commission, board,
bureau, agency, or instrumentality, domestic or foreign.
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Section 4.09 Ownership and Liens. The Borrower and each Subsidiary 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 4.04 (other than any properties or assets disposed of
in the ordinary course of business), and none of the properties and assets owned by the Borrower or
any Subsidiary or any Guarantor and none of their leasehold interests is subject to any Lien,
except such as may be permitted pursuant to Section 6.01.
Section 4.10 Subsidiaries and Ownership of Stock. Set forth in Schedule 4.10
hereto is a complete and accurate list, as of the date hereof, of the Subsidiaries of the Borrower,
showing the jurisdiction of incorporation or formation of each and showing the percentage of the
Borrowers ownership of the outstanding stock or partnership interest or membership interest of
each Subsidiary. All of the outstanding capital stock of each such corporate Subsidiary has been
validly issued, is fully paid and nonassessable, and is owned by the Borrower free and clear of all
Liens. The limited partnership agreement of each such limited partnership Subsidiary is in full
force and effect and has not been amended or modified, except for such amendments or modifications
as are delivered to the Agent under Section 3.02. Each of the Guarantors is a Wholly-Owned
Subsidiary of the Borrower.
Section 4.11 ERISA. The Borrower and each Subsidiary and each Guarantor are in
compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable
Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no
notice of intent to terminate a Plan has been filed, nor has any Plan been terminated; no
circumstances exist which constitute grounds entitling the PBGC to institute proceedings to
terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither the Borrower nor any Commonly Controlled Entity has completely or partially
withdrawn from a Multiemployer Plan under circumstances that could subject the Borrower or any
Subsidiary to material withdrawal liability; the Borrower and each Commonly Controlled Entity have
met their minimum funding requirements under ERISA with respect to all of their Plans and the
present value of all vested benefits under each Plan does not materially exceed the fair market
value of all Plan assets allocable to such benefits, as determined on the most recent valuation
date of the Plan and in accordance with the provisions of ERISA; and neither the Borrower nor any
Commonly Controlled Entity has incurred any material liability to the PBGC under ERISA.
Section 4.12 Operation of Business. The Borrower, each Subsidiary and each Guarantor
possess all material 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 and the Borrower and each of its Subsidiaries and each
Guarantor are not in violation of any valid rights of others with respect to any of the foregoing
where the failure to possess such licenses, permits, franchises, patents, copyrights, trademarks,
trade names or rights thereto or the violation of the valid rights of others
65
with respect thereto could reasonably be expected to, in any one case or in the aggregate,
adversely affect in any material respect the financial condition, operations, properties, or
business of the Borrower or any Significant Subsidiary or any Significant Guarantor or the ability
of the Borrower or any Significant Guarantor to perform its obligation under the Loan Documents to
which it is a party.
Section 4.13 Taxes. All federal and state income tax liabilities or income tax
obligations, and all other material income tax liabilities or material income tax obligations, of
the Borrower, each Subsidiary and each Guarantor have been paid or have been accrued by or reserved
for by the Borrower. The Borrower constitutes the parent of an affiliated group of corporations
for purposes of filing a consolidated United States federal income tax return.
Section 4.14 Laws; Environment. Except as disclosed in Schedule 4.14 hereto,
(a) the Borrower, each Subsidiary and each Guarantor have duly complied, and their businesses,
operations, assets, equipment, property, leaseholds, or other facilities 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), except where the failure to so comply could not
reasonably be expected to, in any one case or in the aggregate, adversely affect in any material
respect the financial condition, operations, properties or business of the Borrower or any
Subsidiary or the ability of the Borrower or any Guarantor to perform its obligations under the
Loan Documents to which it is a party; (b) the Borrower, each Subsidiary and each Guarantor have
been issued and will maintain all required federal, state, and local permits, licenses,
certificates, and approvals relating to (1) air emissions; (2) discharges to surface water or
groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) 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 (6)
other environmental, health or safety matters, to the extent for any of the foregoing that failure
to maintain the same could reasonably be expected to, in any one case or in the aggregate,
adversely affect in any material respect the financial condition, operations, properties, or
business of the Borrower or any Significant Subsidiary or any Significant Guarantor or the ability
of the Borrower or any Significant Guarantor to perform its obligations under the Loan Documents to
which it is a party; (c) neither the Borrower nor any Subsidiary nor any Guarantor has received
notice of, or has actual knowledge of any violations of any federal, state, or local environmental,
health, or safety laws, codes or ordinances or any rules or regulations promulgated thereunder with
respect to its businesses, operations, assets, equipment, property, leaseholds, or other
facilities, which violation could reasonably be expected to, in any one case or in the aggregate,
adversely affect in any material respect the financial condition, operations, properties, or
business of the Borrower or any Significant Subsidiary or any Significant Guarantor or the ability
of the Borrower or any Significant Guarantor to perform its obligations under the Loan Documents to
which it is a party; (d) except in accordance with a valid
66
governmental permit, license, certificate or approval, 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 the premises, of any toxic or hazardous substances or
hazardous wastes at or from the premises, in each case related to the premises of the Borrower,
each Subsidiary and each Guarantor; and accordingly the premises of the Borrower, each Subsidiary
and each Guarantor have not been adversely affected, in any material respect, by any toxic or
hazardous substances or wastes; (e) there has been no complaint, order, directive, claim, citation,
or notice by any governmental authority or any person or entity with respect to material violations
of law or material damages by reason of Borrowers or any Subsidiarys (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
the premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) use, generation,
storage, transportation, or disposal of toxic or hazardous substances or hazardous waste; or (6)
other environmental, health or safety matters affecting the Borrower, any Subsidiary or any
Guarantor or its business, operations, assets, equipment, property, leaseholds, or other
facilities; and (f) neither the Borrower nor any Subsidiary 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).
Section 4.15 Investment Company Act. Neither the Borrower nor any Subsidiary thereof
is an investment company or a company controlled by an investment company, within the meaning
of the Investment Company Act of 1940, as amended.
Section 4.16 OFAC. Neither Borrower nor any Guarantor is (or will be) a person with
whom any Lender is restricted from doing business under regulations of the Office of Foreign Asset
Control (OFAC) of the Department of the Treasury of the United States of America (including,
those Persons named on OFACs Specially Designated and Blocked Persons list) or under any statute,
executive order (including, the September 24, 2001 Executive Order Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or
other governmental action and is not and shall not engage in any dealings or transactions or
otherwise be associated with such persons. In addition, Borrower hereby agrees to provide to any
Lender with any additional information that such Lender deems necessary from time to time in order
to ensure compliance with all applicable Laws concerning money laundering and similar activities.
Section 4.17 Accuracy of Information. The representations and warranties by the
Borrower or any Guarantor contained herein or in any other Loan Document or made hereunder or in
any other Loan Document and the certificates, schedules, exhibits, reports or other
67
documents provided or to be provided by the Borrower or any Guarantor in connection with the
transactions contemplated hereby or thereby (including, without limitation, the negotiation of and
compliance with the Loan Documents), when taken together as a whole, do not contain and will not
contain a misstatement of a material fact or omit to state a material fact required to be stated
therein in order to make the statements contained therein, in the light of the circumstances under
which made, not materially misleading at the time such statements were made or are deemed made.
Section 4.18 Security Documents.
(a) Each of the Cash Collateral Agreement and the Collateral Agreement is effective until
release thereof permitted under this Agreement to create in favor of the Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral described therein
and proceeds thereof. In the case of the Collateral described in the Collateral Agreement, the
Collateral Agreement constitutes a fully perfected Lien on all right, title and interest of the
Borrower and the Guarantors in such Collateral (other than such Collateral in which a security
interest cannot be perfected by filing of a financing statement under the UCC as in effect at the
relevant time in the relevant jurisdiction) and the proceeds thereof, as security for the
Obligations (as defined in the Collateral Agreement), in each case prior and superior in right to
any other Person except Liens permitted under Section 6.01(1) through (7). In the case of the
Collateral described in the Cash Collateral Agreement, the Cash Collateral Agreement constitutes a
fully perfected Lien on all right, title and interest of the Borrower and the Guarantors in such
Collateral and the proceeds thereof, as security for the Obligations (as defined in the Cash
Collateral Agreement), in each case prior and superior in right to any other Person.
(b) Upon execution and delivery thereof until release thereof permitted under this Agreement,
each of the Mortgages is effective to create in favor of the Agent, for the benefit of the Lenders,
a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the appropriate recording offices, each such Mortgage
shall constitute a fully perfected Lien on, and security interest in, all right, title and interest
of Borrower and the Guarantors in the Mortgaged Properties and the proceeds thereof, as security
for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (other than those exceptions to title set forth in the applicable title
insurance policy described in subclause (c) of item (4) of the Secured Borrowing Base Conditions
and other than Liens permitted pursuant to clause (g) of the definition of Mortgage Conditions or
Section 6.01(7)).
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Note shall remain unpaid or any Facility Letter of Credit Obligations shall
remain outstanding or any Lender shall have any Commitment under this Agreement, the Borrower will
(unless otherwise agreed to by the Required Lenders in writing):
Section 5.01 Maintenance of Existence. Preserve and maintain, and cause each
Subsidiary to preserve and maintain (except for a Subsidiary that ceases to maintain its existence
solely as a result of an Internal Reorganization), its corporate, limited partnership or limited
liability company existence and good standing in the jurisdiction of its incorporation or formation
and qualify and remain qualified to transact business in each jurisdiction in which such
qualification is required except where the failure to so qualify to transact business could not
reasonably be expected to affect in any material respect the financial condition, operations,
properties or business of the Borrower or any Subsidiary.
Section 5.02 Maintenance of Records. Keep and cause each Subsidiary to keep, adequate
records and books of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Borrower and its Subsidiaries.
Section 5.03 Maintenance of Properties. Maintain, keep, and preserve, and cause each
Subsidiary to maintain, keep, and preserve, all of its properties (tangible and intangible)
necessary or useful in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.
Section 5.04 Conduct of Business. Continue, and cause each Subsidiary to continue
(except in the case of a Subsidiary that ceases to engage in business solely as a result of an
Internal Reorganization), to engage in a business of the same general type and in the same manner
as conducted by it on the date of this Agreement.
Section 5.05 Maintenance of Insurance. Maintain, and cause each Subsidiary to
maintain, insurance with financially sound reputable insurance companies or associations (or, in
the case of insurance for construction warranties and builder default protection for buyers of
Housing Units from the Borrower or any of its Subsidiaries or UHIC) in such amounts and covering
such risks as are usually carried by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable deductibility from coverage thereof.
In addition, if any structure on any Mortgaged Property is located in an area identified by the
Federal Emergency Management Agency as a special flood hazard area and in which flood insurance has
been made available under the National Flood Insurance Act of 1968, then the Borrower shall
maintain or cause its applicable Subsidiary to maintain, a policy of flood insurance as described
in subclause (c) of item (4) of the Secured Borrowing Base Conditions.
69
Section 5.06 Compliance with Laws. Comply, and cause each Subsidiary to comply, in
all material respects with all applicable laws, rules, regulations, and orders, the noncompliance
with which could not reasonably be expected to, in any one case or in the aggregate, adversely
affect in any material respect the financial condition, operations, properties or business of the
Borrower or any Subsidiary or the ability of the Borrower or any Guarantor to perform its
obligations under the Loan Documents to which it is a party, and such compliance to include,
without limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property, other than any such taxes, assessments
and charges being contested by the Borrower in good faith which will not have a material adverse
effect on the financial condition of the Borrower; and with respect to the matters disclosed in
Schedule 4.14, implement prudent measures to achieve compliance with all relevant laws and
regulations within a reasonable time and in accordance with requirements negotiated with applicable
regulatory agencies.
Section 5.07 Right of Inspection. At any reasonable time and from time to time,
permit any Lender or any agent or representative thereof to examine and make copies of and
abstracts from the records and books of account of, and visit the properties of, the Borrower and
any Subsidiary, and to discuss the affairs, finances, and accounts of the Borrower and any
Subsidiary with any of their respective officers and directors and the Borrowers independent
accountants.
Section 5.08 Reporting Requirements. Furnish to the Agent for delivery to each of the
Lenders:
(1) Quarterly financial statements. As soon as available and in any event within fifty (50)
days after the end of each of the first three quarters of each fiscal year of the Borrower, an
unaudited condensed consolidated balance sheet of the Borrower and its Subsidiaries as of the end
of such quarter, unaudited condensed consolidated statements of operations and cash flow of the
Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, and unaudited condensed consolidated statements of changes in
stockholders equity of the Borrower and its Subsidiaries for the portion of the fiscal year ended
with the last day of such quarter, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP consistently applied and certified by the chief financial officer
of the Borrower (subject to year-end adjustments); the timely filing by the Borrower of the
Borrowers quarterly 10-Q report with the Securities and Exchange Commission shall satisfy the
foregoing requirements.
(2) Annual financial statements. As soon as available and in any event within ninety-five
(95) days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of such fiscal year, consolidated statements of
operations and cash flow of the Borrower and its Subsidiaries for such fiscal year,
70
and consolidated statements of changes in stockholders equity of the Borrower and its
Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the prior fiscal year and all prepared
in accordance with GAAP consistently applied and accompanied by an opinion thereon acceptable to
the Agent by Deloitte & Touche or other independent accountants selected by the Borrower and
acceptable to the Agent; the timely filing by the Borrower of the Borrowers annual 10-K report
with the Securities and Exchange Commission shall satisfy the foregoing requirements.
(3) [Intentionally deleted.]
(4) [Intentionally deleted.]
(5) Management letters. Promptly upon receipt thereof, copies of any reports submitted to the
Borrower or any Subsidiary by independent certified public accountants in connection with
examination of the financial statements of the Borrower or any Subsidiary made by such accountants.
(6) [Intentionally deleted.]
(7) Compliance certificate. Within fifty (50) days after the end of each of the first three
quarters, and within ninety-five (95) days after the end of each fourth quarter, of each fiscal
year of the Borrower, a certificate of the President or chief financial officer of the Borrower
certifying (a) the Borrowers compliance with all financial covenants including, without
limitation, those set forth in Section 6.10 and Article VII hereof, which certificate shall set
forth in reasonable detail the computation thereof and (b) certifying that to the best of his
knowledge no Default or Event of Default has occurred and is continuing, or if a Default or Event
of Default has occurred and is continuing, a statement as to the nature thereof and the action
which is proposed to be taken with respect thereto.
(8) [Intentionally deleted.]
(9) [Intentionally deleted.]
(10) Notice of litigation. 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 the Borrower or any Subsidiary which, if
determined adversely to the Borrower or such Subsidiary, would reasonably be expected to result in
a judgment against the Borrower or such Subsidiary in excess of $10,000,000 (to the extent not
covered by insurance) or would reasonably be expected to have a material adverse effect on the
financial condition, properties, or operations of the Borrower or such Subsidiary.
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(11) Notice of Defaults and Events of Default. As soon as possible and in any event within
ten (10) days after the occurrence of each Default or Event of Default, a written notice setting
forth the details of such Default or Event of Default and the action which is proposed to be taken
by the Borrower with respect thereto.
(12) ERISA reports. As soon as possible, and in any event within thirty (30) days after the
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 the Borrower
or any Commonly Controlled Entity, and promptly but in any event within two (2) Business Days of
receipt by the Borrower or any Commonly Controlled Entity 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 $50,000 with respect to the Borrower or any Commonly Controlled Entity, the Borrower
will deliver to each Lender a certificate of the chief financial officer of the Borrower setting
forth all relevant details and the action which the Borrower proposes to take with respect thereto.
(13) [Intentionally deleted.]
(14) Proxy statements, etc. Promptly after the sending or filing thereof, copies of all proxy
statements, financial statements, and reports which the Borrower or any Subsidiary sends to its
stockholders, and copies of all regular, periodic, and special reports, and all registration
statements which the Borrower or any Subsidiary files with the Securities and Exchange Commission
or any governmental authority which may be substituted therefor, or with any national securities
exchange.
(15) [Intentionally deleted].
(16) General information. Such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any Subsidiary as any Lender may from time to time
reasonably request.
Section 5.09 [Intentionally Deleted].
Section 5.10 Environment. Be and remain, and cause each Subsidiary to be and remain,
in compliance with the provisions of all federal, state, and local environmental, health, and
safety laws, codes and ordinances, and all rules and regulations issued thereunder, except where
the failure to so comply could not reasonably be expected to, in any one case or in the aggregate,
adversely affect in any material respect the financial condition, operations, properties or
business of the Borrower or any Subsidiary or the ability of the Borrower or any Guarantor to
perform its obligations under the Loan Documents to which it is a party; with respect to matters
disclosed in Schedule 4.14, implement prudent measures to achieve compliance with all
relevant
72
laws and regulations within a reasonable time and in accordance with requirements negotiated
with applicable regulatory agencies; notify the Agent promptly of any notice of a hazardous
discharge or environmental complaint received from any governmental agency or any other party (and
the Agent shall notify the Lenders promptly following its receipt of any such notice from the
Borrower); notify the Agent promptly of any hazardous discharge from or affecting its premises if
(i) the storage, treatment or cleanup of such hazardous discharge (all in accordance with
applicable laws and regulations) or (ii) the diminution in the value of the assets affected by such
hazardous discharge, is reasonably expected to exceed $10,000 (and the Agent shall notify the
Lenders promptly following its receipt of any such notice from the Borrower); promptly contain and
remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed
in connection therewith; permit any Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at such Lenders request,
and at the Borrowers 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 the condition has been corrected.
Section 5.11 Use of Proceeds. Use the proceeds of the Loans solely as provided in
Section 2.13.
Section 5.12 Ranking of Obligations. Ensure that at all times its Obligations under
the Loan Documents shall be and constitute unconditional general obligations of the Borrower
ranking at least pari passu with all its other unsecured Debt.
Section 5.13 Taxes. Pay and cause each Subsidiary to pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits or property, except
those which are being contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been set aside.
Section 5.14 [Intentionally Deleted].
Section 5.15 New Subsidiaries. Within fifty (50) days after the end of any fiscal
quarter of the Borrower during which any Person shall have become a Subsidiary, cause such
Subsidiary to (i) execute and deliver to the Agent, for the benefit of the Lenders, a Supplemental
Guaranty, (ii) become a Grantor under the Collateral Agreement by executing and delivering an
assumption agreement to the Collateral Agreement substantially in the form of Annex I thereto, and
(iii) deliver or cause to be delivered an opinion of counsel, certified copies of resolutions,
articles of incorporation or other formation documents, incumbency certificates and other documents
with respect to such Subsidiary and its Guaranty substantially similar to the documents delivered
pursuant to Section 3.02 with respect to the Guarantors, all of which shall be reasonably
satisfactory to the Agent in form and substance; provided that if and so long as any such
Subsidiary has total assets the book value of which is not more than $5,000,000, the
73
Borrower shall not be required to comply with this Section. None of the Title Companies nor
UHIC nor BMC shall be required to deliver a Guaranty.
ARTICLE VI
NEGATIVE COVENANTS
Except during any period when the Cash Secured Option shall apply to the Facility, so long as
any Note shall remain unpaid or any Facility Letter of Credit Obligations shall remain outstanding
or any Lender shall have any Commitment under this Agreement, the Borrower and each Guarantor will
not (unless otherwise agreed to by the Required Lenders in writing):
Section 6.01 Liens. Create, incur, assume, or suffer to exist, or permit any
Subsidiary to create, incur, assume, or suffer to exist, any Lien, upon or with respect to any of
its properties, now owned or hereafter acquired, except the following:
(1) Liens for taxes or assessments or other government charges or levies if not yet due and
payable or, if due and payable, if they are being contested in good faith by appropriate
proceedings and for which appropriate reserves are maintained;
(2) Liens imposed by law, such as mechanics, materialmens, landlords, warehousemens, and
carriers Liens, and other similar Liens, securing obligations incurred in the ordinary course of
business which are not past due for more than ninety (90) days or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been established;
(3) Liens under workers compensation, unemployment insurance, Social Security, or similar
legislation (other than Liens imposed by ERISA);
(4) Liens, deposits, or pledges to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), Capital Leases (permitted under the terms of this
Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance, or other
similar bonds, or other similar obligations arising in the ordinary course of business;
(5) Judgment and other similar Liens arising in connection with any court proceeding, provided
the execution or other enforcement of such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate proceedings;
(6) Easements, rights-of-way, restrictions (including zoning, building and land use
restrictions), restrictive covenants (including, without limitation, any Lien rights granted
pursuant to any recorded declaration of covenants, conditions and restrictions to any property
owners association or similar Person that has authority to impose and collect dues or
74
assessments), and other similar encumbrances which, in the aggregate, do not materially
interfere with the occupation, use, and enjoyment by the Borrower or any Subsidiary of the property
or assets encumbered thereby in the normal course of its business or materially impair the value of
the property subject thereto;
(7) Liens in favor of a seller of Entitled Land, Lots Under Development or Finished Lots
requiring the Borrower or any Subsidiary to make a payment upon the future sale of such Entitled
Land, Lots Under Development or Finished Lots;
(8) Rights of repurchase and/or rights of first refusal in favor of sellers of property or
assets;
(9) Liens securing Secured Debt (A) permitted under clause (1) of Section 6.02, but only to
the extent such Liens are limited to (i) Real Property that is not a Secured Borrowing Base Asset,
(ii) personal property rights arising solely from Real Property described in clause (A), and
(iii) Cash Equivalents not constituting Collateral, and (B) permitted under clause (2) of Section
6.02, but only to the extent such Liens are subordinated in the manner required under clause (2) of
Section 6.02; and
(10) Liens pursuant to the Security Documents.
Section 6.02 Secured Debt. Create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Secured Debt, except for:
(1) Secured Debt in an aggregate principal amount outstanding at any one time not exceeding
(A) if no Secured Debt referred to in clause (2) of this Section 6.02 is then outstanding, a
principal amount equal to $200,000,000 minus the Aggregate Commitments or (B) if Secured
Debt referred to in clause (2) of this Section 6.02 is then outstanding, a principal amount equal
to $700,000,000 minus the then outstanding principal amount of such Secured Debt referred
to in clause (2) of this Section 6.02 minus the Aggregate Commitments, and such Secured
Debt either:
|
(A) |
|
is (i) Secured Debt the proceeds of which are used by the
Borrower and its Subsidiaries solely for working capital purposes and general
corporate purposes and (ii) secured only by Liens permitted under clause (9)(A)
of Section 6.; or |
|
|
(B) |
|
is Secured Debt of an entity acquired by Borrower or any of its
Subsidiaries after the Closing Date; provided that, (i) such Secured
Debt was in existence prior to the date of such Acquisition and was not
incurred in anticipation thereof and (ii) the Liens securing such Secured Debt
do not |
75
|
|
|
extend to any other assets other than those theretofore encumbered by such
Liens; and |
(2) Junior lien Secured Debt in an aggregate principal amount outstanding at any one time not
exceeding $700,000,000 minus the aggregate then outstanding principal amount of Secured
Debt described in clause (1) above; provided that (A) the Agent is granted first priority
Liens on all assets of the Borrower and its Subsidiaries granted to the holders of such junior Lien
Debt, other than assets encumbered by Liens described in clause (1) and clause (2) above, and (B)
Liens securing such Secured Debt shall be fully subordinated silent junior Liens subordinated to
all Liens securing the Obligations pursuant to an intercreditor agreement to be entered into
between the Agent and the agent or indenture trustee for such junior lien Secured Debt, which shall
be in form and substance satisfactory to the Agent and the Lenders in their respective sole and
absolute discretion.
Section 6.03 Mergers, Etc. Wind up, liquidate or dissolve itself, reorganize, merge
or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to any Person, or acquire all or substantially all the
assets or the business of any Person, or permit any Subsidiary to do so, except (1) for any
Permitted Acquisition, (2) that any Guarantor may merge into or transfer assets to the Borrower as
a result of an Internal Reorganization or otherwise and (3) that any Guarantor may merge into or
consolidate with or transfer assets to any other Guarantor as a result of an Internal
Reorganization or otherwise.
Section 6.04 Leases. Create, incur, assume, or suffer to exist, or permit any
Subsidiary to create, incur, assume, or suffer to exist, any obligation as lessee for the rental or
hire of any real or personal property, except (1) Capital Leases not otherwise prohibited by the
terms of this Agreement; (2) leases existing on the date of this Agreement and any extension or
renewals thereof; (3) leases between the Borrower and any Subsidiary or between any Subsidiaries;
(4) operating leases entered into in the ordinary course of business; and (5) any lease of property
having a value of $500,000 or less.
Section 6.05 Sale and Leaseback. Sell, transfer or otherwise dispose of, or permit
any Subsidiary to sell, transfer, or otherwise dispose of, any real or personal property to any
Person and thereafter directly or indirectly lease back the same or similar property, except for
the sale and leaseback of model homes.
Section 6.06 Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of,
or permit any Subsidiary to sell, lease, assign, transfer, or otherwise dispose of, any of its now
owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness
of subsidiaries, receivables, and leasehold interests), except (a) for (1) Inventory disposed of in
the ordinary course of business; (2) the sale or other disposition of assets no
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longer used or useful in the conduct of its business, provided that the Borrower is in
compliance with Section 2.01.2(b)(i) hereof and no Event of Default has occurred and is continuing;
or (3) the sale and leaseback of model homes; (b) that any Guarantor may sell, lease, assign, or
otherwise transfer its assets to the Borrower or any other Guarantor in connection with an Internal
Reorganization or otherwise; and (c) that the provisions of this Section 6.06 shall not affect or
limit the Borrowers obligations under Section 6.03.
Section 6.07 Investments. Make, or permit any Subsidiary to make, any loan or advance
to any Person, or purchase or otherwise acquire, or permit any Subsidiary to purchase or otherwise
acquire, any capital stock, assets (other than assets acquired in the ordinary course of business),
obligation, or other securities of, make any capital contribution to, or otherwise invest in or
acquire any interest in any Person including, without limitation, any hostile takeover, hostile
tender offer or similar hostile transaction (collectively, Investments), except:
(1) Cash Equivalents;
(2) securities permitted as investments under the Borrowers investment policy in effect from
time to time and consented to by Required Lenders;
(3) stock, obligation, or securities received in settlement of debts (created in the ordinary
course of business) owing to the Borrower or any Subsidiary provided such issuance is approved by
the board of directors of the issuer thereof;
(4) a loan or advance from the Borrower to a Subsidiary, or from a Subsidiary to a Subsidiary,
or from a Subsidiary to the Borrower (subject, however, to the limitations set forth below in the
case of Investments in Subsidiaries that are not Guarantors);
(5) any Permitted Acquisition;
(6) an Investment in a Wholly-Owned Subsidiary, which Investment is, or constitutes a part of,
an Internal Reorganization (subject, however, to the limitations set forth below in the case of
Investments in Subsidiaries that are not Guarantors);
(7) redemptions and repurchases of senior Debt; provided that in each instance the
Borrower shall continue to be in compliance with the minimum liquidity covenant in Section 7.04
immediately after giving effect to such redemption or repurchase;
(8) redemption and repurchases in respect of any subordinated Debt of Borrower or any of its
Wholly-Owned Subsidiaries; provided that in each instance the Borrower shall continue to be
in compliance with the minimum liquidity covenant in Section 7.04 immediately after giving effect
to such redemption or repurchase;
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(9) any redemption, repurchase, exchange or refinancing of Debt (A) in exchange for, or out of
the proceeds of the substantially concurrent issuance and sale of, equity interests (other than
Disqualified Stock), or (B) in exchange for, or out of the proceeds of the substantially concurrent
incurrence of, Refinancing Debt;
(10) Investments in Subsidiaries that are not Guarantors and Investments in Joint Ventures
(including Guarantees of Debt and other obligations of Joint Ventures);
(11) any other Investment not identified in clauses (1) though (9) above (subject; however, to
the limitations set forth below);
provided, that the aggregate amount of all Investments by the Borrower and its Subsidiaries
permitted under clauses (10) and (11) above and the contingent obligations under guaranties
permitted under clause (3) of Section 6.08 below does not at any time exceed $100,000,000.
Section 6.08 Guaranties, Etc. Assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable, or permit any Subsidiary to assume, guarantee,
endorse, or otherwise be or become directly or contingently responsible or liable (including, but
not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to
supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such
Person to maintain a minimum working capital or net worth or otherwise to assure the creditors of
any Person against loss), for obligations of any Person, except: (1) guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the ordinary course of
business; (2) guaranties of performance obligations in the ordinary course of business; (3)
guaranties of the Debt or other obligations of any Joint Venture or any Subsidiary that is not a
Guarantor, and (4) that the Borrower or any Subsidiary or any Guarantor may, whether as a result of
an Internal Reorganization or otherwise, guarantee the Debt of any other Subsidiary (other than any
Subsidiary that is not a Guarantor) or Guarantor or the Borrower permitted under this Agreement.
Section 6.09 Transactions with Affiliates. Enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering of any service,
with any Affiliate, or permit any Subsidiary to enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any service, with any
Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the
Borrowers or such Guarantors or any Subsidiarys business and upon fair and reasonable terms no
less favorable to the Borrower or such Guarantor or any Subsidiary than would obtain in a
comparable arms-length transaction with a Person not an Affiliate (which exception shall include
the payment of insurance premiums to UHIC for the purchase of construction warranties and builder
default protection for buyers of Housing Units from the Borrower or any of its Subsidiaries and to
the Title Companies for title insurance); provided, however, that, the following
transactions shall not be prohibited by this Section 6.09: (i) transactions involving the
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purchase, sale or exchange of property having a value of $500,000 or less; (ii) transactions
otherwise permitted by this Agreement; (iii) the issuance of any equity interests (whether common
or preferred), other than Disqualified Stock, to Affiliates that are not officers or directors of
Borrower or any Guarantor; and (iv) the execution of customary agreements entered into with
shareholders relating to (x) registration rights and, related to such registration rights,
reasonable indemnification rights and reasonable cost reimbursements, (y) board observation rights
and (z) other provisions reasonably acceptable to the Agent.
Section 6.10 [Intentionally Deleted].
Section 6.11 [Intentionally Deleted].
Section 6.12 Non-Guarantors. Permit UHIC to engage in any business other than the
issuance of construction warranties and builder default protection for buyers of Housing Units from
the Borrower or any of its Subsidiaries or permit any of the Title Companies to engage in any
business other than title insurance.
Section 6.13 Negative Pledge. Directly or indirectly enter into any agreement with
any Person that prohibits or restricts or limits the ability of the Borrower or any Guarantor to
create, incur, pledge or suffer to exist any Lien upon any assets of the Borrower or any Guarantor
in favor of or for the benefit of the Agent for the benefit of the Lenders and the Issuers, as
contemplated by clause (2) of Section 6.02 or as required to satisfy any condition of the Cash
Secured Option or with respect to any Facility Letter of Credit.
ARTICLE VII
FINANCIAL COVENANTS
So long as any Note shall remain unpaid or any Facility Letter of Credit shall remain
outstanding or any Lender shall have any Commitment under this Agreement (unless otherwise agreed
to by the Required Lenders in writing):
Section 7.01 Minimum Consolidated Tangible Net Worth. The Borrower will, as of the
last day of each fiscal quarter, maintain a Consolidated Tangible Net Worth of not less than: (a)
during any time that the Cash Secured Option applies to the Facility, $1, and (b) during any time
that the Secured Borrowing Base Option applies to the Facility, $85,000,000.
Section 7.02 Leverage Ratio. The Borrower will not permit the Leverage Ratio to
exceed at any time (a) during any time that the Cash Secured Option applies to the Facility, 100.0
to 1.0, and (b) during any time that the Secured Borrowing Base Option applies to the
Facility, 8.0
to 1.0.
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Section 7.03 Interest Coverage Ratio. The Borrower shall maintain an Interest
Coverage Ratio of not less than (a) during any time that the Cash Secured Option applies to the
Facility, -10.0 to 1.0, and (b) during any time that the Secured Borrowing Base Option applies to
the Facility, -10.0 to 1.0.
Section 7.04 Minimum Liquidity. If, as of the last day of the fiscal quarter most
recently ended, the Interest Coverage Ratio is less than 2.0 to 1.0, the Borrower shall maintain
Unrestricted Cash not included in the Secured Borrowing Base in an amount of not less than
$120,000,000.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01 Events of Default. If any of the following events shall occur:
(1) The Borrower shall fail to pay (a) the principal of any Note, or any amount of a
commitment or other fee, as and when due and payable or (b) interest on any Note within five (5)
Business Days after the same is due and payable;
(2) Any representation or warranty made or deemed made by the Borrower or by any Guarantor in
any Loan Document or which is contained in any certificate, document, opinion, or financial or
other statement furnished at any time under or in connection with this Agreement shall prove to
have been incorrect, incomplete, or misleading in any material respect on or as of the date made or
deemed made;
(3) The Borrower or any Guarantor shall fail to perform or observe any term, covenant, or
agreement contained in Articles V, VI or VII hereof, and such failure shall continue for a period
of thirty (30) consecutive days after delivery of written notice thereof from the Agent to the
Borrower or such Guarantor;
(4) The Borrower or any Significant Subsidiary or any Significant Guarantor shall (a) fail to
pay (within the applicable cure period, if any) any amount in respect of indebtedness for borrowed
money equal to or in excess of $25,000,000 in the aggregate (other than the Notes) of the Borrower
or such Significant Subsidiary or such Significant Guarantor, as the case may be, or any interest
or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise); or (b) fail to perform or observe any term, covenant, or condition on its
part to be performed or observed (within the applicable cure period, if any) under any agreement or
instrument relating to any such indebtedness, when required to be performed or observed, if the
effect of such failure to perform or observe is to accelerate the maturity of such indebtedness, or
to permit the acceleration of the maturity of such indebtedness after the giving of notice or
passage of time, or both, and after giving effect to any amendment or waiver; or (c) any such
indebtedness shall be declared to be due and payable, or required to be
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prepaid (other than by a regularly scheduled required prepayment), repurchased (or an offer to
repurchase to be made) or redeemed prior to the stated maturity thereof (other than as otherwise
permitted under the terms of this Agreement);
(5) The Borrower or any Significant Subsidiary or any Significant Guarantor (a) shall
generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its
debts as such debts become due; or (b) shall make an assignment for the benefit of creditors, or
petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it
or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (d) shall have had any such petition or
application filed or any such proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made and which remains undismissed for a period of
sixty (60) days or more; or (e) shall take any corporate partnership, limited liability company or
similar organizational action indicating its consent to, approval of, or acquiescence in any such
petition, application, proceeding, or order for relief or the appointment of a custodian, receiver,
or trustee for all or any substantial part of its properties; or (f) shall suffer any such
custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60)
days or more. If the Borrower is required to provide an amount of cash collateral pursuant to
Section 2.22.15, such amount shall be returned to the Borrower from the Facility Letter of Credit
Collateral Account from time to time to the extent that no Event of Default is continuing and
either the amount deposited shall exceed the Defaulting Lenders Facility Letter of Credit
Obligations or if such Lender ceases to be a Defaulting Lender;
(6) One or more judgments, decrees, or orders for the payment of money in excess of
$25,000,000 in the aggregate shall be rendered against the Borrower and/or any Subsidiary and/or
any Guarantor, and such judgments, decrees, or orders shall continue unsatisfied and in effect for
a period of twenty (20) consecutive days without being vacated, discharged, satisfied, or stayed or
bonded pending appeal;
(7) Any Guaranty hereunder shall at any time after its execution and delivery and for any
reason cease to be in full force and effect or shall be declared null and void, or the validity or
enforceability thereof shall be contested by the Guarantor or the Guarantor shall deny it has any
further liability or obligation under, or shall fail to perform its obligations under, the Guaranty
(except to the extent that the foregoing occurs solely by reason of the liquidation or dissolution
of a Guarantor as a result of an Internal Reorganization);
(8) Any Change of Control of the Borrower or any Subsidiary or any Guarantor shall occur;
(9) Any of the following events shall occur or exist with respect to the Borrower, any
Subsidiary or any Commonly Controlled Entity under ERISA: any Reportable Event shall
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occur; complete or partial withdrawal from any Multiemployer Plan shall take place; any
Prohibited Transaction shall occur; a notice of intent to terminate a Plan shall be filed, or a
Plan shall be terminated; or circumstances shall exist which constitute grounds entitling the PBGC
to institute proceedings to terminate a Plan, or the PBGC shall institute such proceedings; and in
each case above, such event or condition, together with all other events or conditions described in
this Section 8.01(9), if any, could subject the Borrower or any Significant Guarantor or
Significant Subsidiary to any tax, penalty, or other liability which in the aggregate may exceed
$1,000,000;
(10) If any federal, state, or local agency asserts a material claim against the Borrower or
any Significant Guarantor or Significant Subsidiary and/or its assets, equipment, property,
leaseholds, or other facilities for damages or cleanup costs relating to a hazardous discharge or
an environmental complaint; provided, however, that such claim shall not constitute
a Default if, within fifteen (15) days of the occurrence giving rise to the claim, (a) the Borrower
can prove to the reasonable satisfaction of the Required Lenders that the Borrower has commenced
and is diligently pursuing either: (i) a cure or correction of the event which constitutes the
basis for the claim, and continues diligently to pursue such cure or correction, it being hereby
acknowledged by the Lenders that (with respect to the matters disclosed in Schedule 4.14)
the Borrowers compliance with the covenants contained in Sections 5.06 and 5.10 shall satisfy the
requirements of this clause (i), or (ii) proceedings for an injunction, a restraining order or
other appropriate emergent relief preventing such agency or agencies from asserting such claim,
which relief is granted within thirty (30) days of the occurrence giving rise to the claim and the
injunction, order, or emergent relief is not thereafter resolved or reversed on appeal or (iii) the
defense against the claim through action in a court or agency exercising jurisdiction over the
claim; and (b) in any of the foregoing events (except for the matters disclosed in
Schedule 4.14, as to which no security is required), the Borrower has posted a bond, letter
of credit, or other security satisfactory in form, substance, and amount to the Required Lenders
and the agency or entity asserting the claim to secure the correction of the event which
constitutes the basis for the claim in accordance with applicable laws;
(11) Except with respect to releases of Liens permitted under this Agreement, any of the
Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party
or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and priority purported to be created
thereby;
(12) Any Loan Party shall default in the observance or performance of any term, covenant or
agreement contained in the Cash Collateral Agreement, the Collateral Agreement or any Mortgage, and
such default shall continue unremedied for 30 consecutive days after the delivery of notice thereof
from the Agent to such Loan Party.
then the following provisions shall apply:
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(i) if any Event of Default described in Section 8.01(5) occurs with respect to
the Borrower, the obligations of the Lenders to make Loans hereunder and the
obligation and power of the Issuers to issue Facility Letters of Credit shall
automatically terminate and the Obligations shall immediately become due and
payable without any election or action on the part of the Agent, any Issuer or
any Lender and, if at such time the Secured Borrowing Base Option is in effect,
the Borrower will be and become thereby unconditionally obligated, without any
further notice, act or demand, to pay to the Agent an amount in immediately
available funds, which funds shall be held in the Cash Collateral Account,
equal to the difference of (x) 105% of the amount of Facility Letter of Credit
Obligations at such time, less (y) the amount on deposit in the Facility Letter
of Credit Collateral Account at such time which is free and clear of all rights
and claims of third parties and has not been applied against the Obligations
(such difference, the Collateral Shortfall Amount). If any other Event of
Default occurs, the Required Lenders (or the Agent with the consent of the
Required Lenders) may (a) terminate or suspend the obligations of the Lenders
to make Loans hereunder and the obligation and power of the Issuers to issue
Facility Letters of Credit, 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 the
Borrower hereby expressly waives, and (b) upon notice to the Borrower and in
addition to the continuing right to demand payment of all amounts payable under
this Agreement, make demand on the Borrower to pay, and the Borrower will,
forthwith upon such demand and without any further notice or act, pay to the
Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Cash Collateral Account.
(ii) If at any time while any Event of Default is continuing, the Agent
determines that the Collateral Shortfall Amount at such time is greater than
zero, the Agent may make demand on the Borrower to pay, and the Borrower will,
forthwith upon such demand and without any further notice or act, pay to the
Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Cash Collateral Account.
(iii) The Agent may, at any time or from time to time after funds are deposited
in the Cash Collateral Account or the Facility Letter of Credit Collateral
Account, apply such funds to the payment of the Obligations and any other
amounts as shall from time to time have become due and payable by the Borrower
to the Lenders or the Issuer under the Loan Documents.
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(iv) At any time while any Event of Default is continuing, neither the Borrower
nor any Person claiming on behalf of or through the Borrower shall have any
right to withdraw any of the funds held in the Cash Collateral Account or the
Facility Letter of Credit 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 Cash Collateral Account or the Facility
Letter of Credit Collateral Account shall be returned by the Agent to the
Borrower or paid to whomever may be legally entitled thereto at such time.
(v) If within 30 days after acceleration of the maturity of the Obligations or
termination of the obligations of the Lenders to make Loans and the obligation
and power of the Issuer to issue Facility Letters of Credit hereunder as a
result of any Event of Default (other than any Event of Default as described in
Section 8.01(5) with respect to the 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, the Agent shall,
by notice to the Borrower, rescind and annul such acceleration and/or
termination.
(vi) Upon the occurrence and during the continuance of any Event of Default,
the Agent may exercise any and all remedies provided under any of the Security
Documents or otherwise provided by law.
Section 8.02 Set Off. Upon the occurrence and during the continuance of any Event of
Default, each Lender is hereby authorized at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter existing under this
Agreement or any Note or Notes held by such Lender or any other Loan Document, irrespective of
whether or not the Agent or such Lender shall have made any demand under this Agreement or any Note
or Notes held by such Lender or such other Loan Document and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower (with a copy to the Agent) after any
such set-off and application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender under this Section 8.02 are in
addition to other rights and remedies (including, without limitation, other rights of set-off)
which each Lender may have.
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ARTICLE IX
AGENCY PROVISIONS
Section 9.01 Authorization and Action. Each Lender hereby irrevocably appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise such powers under
this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto. The duties of the Agent
shall be mechanical and administrative in nature and the Agent shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender or Issuer. The Agent
shall have no duties or responsibilities except those expressly set forth in this Agreement and the
other Loan Documents. As to any matters not expressly provided for by this Agreement or any other
Loan Document (including, without limitation, enforcement or collection of the Notes), the Agent
shall not be required to act or to refrain from acting except upon the instructions of the Required
Lenders or, to the extent required under Section 10.01, all Lenders (and shall be fully protected
in so acting or so refraining from acting), and such instructions shall be binding upon all
Lenders, all Issuers and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law. The Agent shall administer the Loan in the same
manner that it would administer a comparable loan held 100% for its own account. The Agent may
perform any of its duties under this Agreement and any other Loan Document by and through its
agents (which shall include any third party sub-agent or mortgage servicer).
Section 9.02 Liability of Agent. Neither the Agent nor any of its Affiliates or any
of their respective directors, officers, agents, employees or advisors shall be liable for any
action taken or omitted to be taken by it or them in good faith under or in connection with this
Agreement or any other Loan Document in the absence of its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, the Agent (1) may treat the payee of
any Note as the holder thereof until the Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the Agent; (2) may consult with
legal counsel (including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants, or experts; (3) makes no
warranty or representation to any Lender and shall not be responsible to any Lender for any
statements, warranties, or representations made in or in connection with this Agreement; (4) shall
not have any duty to ascertain or to inquire as to the performance or observance of any terms,
covenants, or conditions of this Agreement on the part of the Borrower (other than the payment of
principal, interest and fees due hereunder), or to inspect the property (including the books and
records) of the Borrower; (5) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, perfection, sufficiency or value of this Agreement
or any other instrument or document furnished pursuant hereto or the value, sufficiency, creation,
perfection or priority of any Lien in any collateral security; and (6) shall incur no liability
under or in respect of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be sent by any telecommunication device capable of creating a
written
85
record (including electronic mail)) reasonably believed by it to be genuine and signed or sent
by the proper party or parties.
Section 9.03 Rights of Agent Individually. (a) The Person serving as the Agent shall
have the same rights and powers in its capacity as a Lender as any other Lender and may exercise
the same as though it were not the Agent and the term Lender or Lenders shall, unless otherwise
expressly indicated or unless the context otherwise requires, include the Person serving as the
Agent in its individual capacity. Such Person and its Affiliates may accept deposits from, lend
money to, act as the financial advisor or in any other advisory capacity for and generally engage
in any kind of business with the Borrower or any of its Subsidiaries or other Affiliate thereof as
if such Person were not the Agent and without any duty to account therefor to the Lenders.
(b) Each Lender and each Issuer understands that the Person serving as Agent, acting in its
individual capacity, and its Affiliates (collectively, the Agents Group) are engaged in
a wide range of financial services and businesses (including investment management, financing,
securities trading, corporate and investment banking and research) (such services and businesses
are collectively referred to in this Section 9.03 as Activities) and may engage in the
Activities with or on behalf of one or more of the Loan Parties or their respective Affiliates.
Furthermore, the Agents Group may, in undertaking the Activities, engage in trading in financial
products or undertake other investment businesses for its own account or on behalf of others
(including the Loan Parties and their Affiliates and including holding, for its own account or on
behalf of others, equity, debt and similar positions in any of the Borrower, another Loan Party or
their respective Affiliates), including trading in or holding long, short or derivative positions
in securities, loans or other financial products of one or more of the Loan Parties or their
Affiliates. Each Lender and each Issuer understands and agrees that in engaging in the Activities,
the Agents Group may receive or otherwise obtain information concerning the Loan Parties or their
Affiliates (including information concerning the ability of the Loan Parties to perform their
respective Obligations hereunder and under the other Loan Documents) which information may not be
available to any of the Lenders that are not members of the Agents Group. None of the Agent nor
any member of the Agents Group shall have any duty to disclose to any Lender or use on behalf of
the Lenders, and shall not be liable for the failure to so disclose or use, any information
whatsoever about or derived from the Activities or otherwise (including any information concerning
the business, prospects, operations, property, financial and other condition or creditworthiness of
any Loan Party or any Affiliate of any Loan Party) or to account for any revenue or profits
obtained in connection with the Activities, except that the Agent shall deliver or otherwise make
available to each Lender such documents as are expressly required by any Loan Document to be
transmitted by the Agent to the Lenders.
(c) Each Lender and each Issuer further understands that there may be situations where members
of the Agents Group or their respective customers (including the Loan Parties and their
Affiliates) either now have or may in the future have interests or take actions that may
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conflict with the interests of any one or more of the Lenders (including the interests of the
Lenders hereunder and under the other Loan Documents). Each Lender and each Issuer agrees that no
member of the Agents Group is or shall be required to restrict its activities as a result of the
Person serving as Agent being a member of the Agents Group, and that each member of the Agents
Group may undertake any Activities without further consultation with or notification to any Lender
or any Issuer. None of (i) this Agreement or any other Loan Document, (ii) the receipt by the
Agents Group of information concerning the Loan Parties or their Affiliates (including information
concerning the ability of the Loan Parties to perform their respective Obligations hereunder and
under the other Loan Documents) or (iii) any other matter shall give rise to any fiduciary,
equitable or contractual duties (including without limitation any duty of trust or confidence)
owing by the Agent or any member of the Agents Group to any Lender including any such duty that
would prevent or restrict the Agents Group from acting on behalf of customers (including the Loan
Parties or their Affiliates) or for its own account.
Section 9.04 Independent Credit Decisions. Each Lender and each Issuer acknowledges
that it has, independently and without reliance upon the Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender and each Issuer also acknowledges that it will,
independently and without reliance upon the Agent 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. The Agent shall promptly provide the Lenders
and Issuers with copies of all notices of default and other formal notices sent or received by the
Agent in accordance with Section 10.02, any written notice relating to changes in the Borrowers
debt ratings received by the Agent from the Borrower or a ratings agency, any documents received by
the Agent pursuant to Section 5.08 (except to the extent that the Borrower has furnished the same
directly to the Lenders) and any other documents or notices received by the Agent with respect to
this Agreement and requested in writing by any Lender.
Section 9.05 Indemnification. The Lenders severally agree to indemnify the Agent and
each of its Affiliates, and each of their respective directors, officers, employees, agents and
advisors (to the extent not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), in the proportion of their Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent or any of its Affiliates, or any of their respective directors, officers,
employees, agents and advisors, in any way relating to or arising out of this Agreement or the
other Loan Documents or any action taken or omitted by the Agent under this Agreement or the other
Loan Documents, provided that no Lender shall be liable for any portion of any of the
foregoing (i) resulting from the gross negligence or willful misconduct of the Agent or such
Affiliate, director, officer, employee, agent or advisor, (ii) on account of a strictly internal or
regulatory matter relating to the Agent (such as relating to legal lending limit violation by the
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Agent), or (iii) in connection with a breach of an agreement made by the Agent to a Lender
under this Agreement. Without limitation of the foregoing, each Lender severally agrees to
reimburse the Agent (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) promptly upon demand for such Lenders Pro Rata Share of any
reasonable out-of-pocket expenses (including fees) incurred by the Agent in connection with the
preparation, administration, or enforcement of, or legal advice in respect of rights or
responsibilities under, this Agreement or the other Loan Documents; provided,
however, that no Lender shall be required to reimburse the Agent for any such expenses
incurred (i) resulting from the Agents gross negligence or willful misconduct, or (ii) in
connection with a breach of an agreement made by the Agent to a Lender under this Agreement.
Section 9.06 Successor Agent. (a) The Agent may resign at any time by giving at
least sixty (60) days prior written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any such resignation or
removal, the Required Lenders shall have the right to appoint a successor Agent, subject to
Section 9.06(b). If no successor Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within thirty (30) days after the retiring Agents giving of
notice of resignation or the Required Lenders removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank or
federal savings bank organized under the laws of the United States of America or of any State
thereof, subject to Section 9.06(b). Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any retiring Agents
resignation or removal hereunder as Agent, the provisions of this Article IX shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent under this
Agreement.
(b) The appointment of any successor Agent that is not a Lender shall, as long as no Event of
Default shall have occurred and be continuing, be subject to the prior written approval of the
Borrower, which approval shall not be unreasonably withheld or delayed.
Section 9.07 Sharing of Payments, Etc. If any Lender shall obtain any payments
(whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on
account of any Note or Notes held by it in excess of its Pro Rata Share of payments on account of
the Notes obtained by all Lenders, such Lender shall purchase from the other Lenders such
participations in the Notes held by them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of the other Lenders, provided, however,
that if all or any portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and each applicable Lender shall repay to
the purchasing Lender the purchase price to the extent of such recovery together with an amount
equal to such Lenders ratable share (according to the proportion of (1) the amount of such
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Lenders required repayment to (2) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in respect of the total
amount so recovered. The Borrower agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section 9.07 may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount of such
participation.
Section 9.08 Withholding Tax Matters. Each Lender which is a Non-United States Person
agrees to execute and deliver to the Agent for delivery to the Borrower, before the first scheduled
payment date in each year (and, in the case of a Lender that becomes a Lender hereunder by
assignment, before the first scheduled payment date following such assignment), two duly completed
copies of United States Internal Revenue Service Forms W-8BEN or W8ECI, or any successor forms, as
appropriate, properly completed and certifying that such Lender is entitled to receive payments
under this Agreement without withholding or deduction of United States federal taxes. Each Lender
which is a Non-United States Person represents and warrants to the Borrower and to the Agent that,
at the date of this Agreement, (i) its Lending Offices are entitled to receive payments of
principal, interest, and fees hereunder without deduction or withholding for or on account of any
taxes imposed by the United States or any political subdivision thereof and (ii) it is permitted to
take the actions described in the preceding sentence under the laws and any applicable double
taxation treaties of the jurisdictions specified in the preceding sentence. Each Lender which is a
Non-United States Person further agrees that, to the extent any form claiming complete or partial
exemption from withholding and deduction of United States federal taxes delivered under this
Section 9.08 is found to be incomplete or incorrect in any material respect, such Lender shall
execute and deliver to the Agent a complete and correct replacement form.
Section 9.09 Syndication Agents, Documentation Agents, Managing Agents or Co-Agents.
None of the Lenders identified in this Agreement as a Syndication Agent, Documentation Agent,
Managing Agent or Co-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 acknowledgements with respect to such Lenders as it
makes with respect to the Agent in Section 9.04.
ARTICLE X
MISCELLANEOUS
Section 10.01 Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Loan Document to which the Borrower is a party, nor consent to any departure
by the Borrower from any Loan Document to which it is a party, shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders and the
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Borrower, and then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall (a) unless in writing and signed by the Borrower and all of the Lenders do,
or have the effect of doing, any of the following: (1) increase the Commitments of the Lenders
(except for increases in the Aggregate Commitment in accordance with Section 2.02.2;
provided that no such increase shall result in the Aggregate Commitment exceeding
$700,000,000) or subject the Lenders to any additional obligations; (2) reduce the principal of, or
interest on, the Notes or any fees (other than the Agents fees) hereunder; (3) postpone any date
fixed for any payment of principal of or interest on, the Notes or any fees (other than the Agents
fees) hereunder; (4) change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes or the number of Lenders which shall be required for the Lenders or any of them
to take action hereunder (including, without limitation, any change in the percentage of Lenders
required to extend the Termination Date under the provisions of Section 2.19; (5) release any
Significant Guarantor or (except as otherwise provided in Section 8.01) release any sums held in
the Facility Letter of Credit Collateral Account; or (6) amend, modify or waive any provision of
the Guaranty, this Section 10.01 or clause (i) of Section 11.01; (b) unless in writing and signed
by the Agent in addition to the Lenders required herein to take such action, affect the rights or
duties of the Agent under any of the Loan Documents; (c) unless in writing and signed by the Swing
Line Lender and the Required Lenders, affect any provisions of this Agreement that relate to the
Swing Line Loans or otherwise affect the rights or duties of the Swing Line Lender; or (d) unless
in writing and signed by the Issuers and the Required Lenders, affect any of the provisions of this
Agreement that relate to the Facility Letters of Credit or otherwise affect the rights or duties of
any Issuer.
Section 10.02 Notices, Etc. (a) All notices, demands, requests, consents and other
communications provided for in this Agreement shall be given in writing, or by any
telecommunication device capable of creating a written record (including electronic mail), and
addressed to the party to be notified at its address for notices set forth on its signature page to
this Agreement or in the case of any subsequent Lender, in its Administrative Questionnaire, or at
such other address as shall be notified in writing (x) in the case of the Borrower and the Agent,
to the other parties and (y) in the case of all other parties, to the Borrower and the Agent.
(b) All notices, demands, requests, consents and other communications described in Section
10.02(a) shall be effective (i) if delivered by hand, including any overnight courier service, upon
personal delivery, (ii) if delivered by mail, when deposited in the mails, (iii) if delivered by
posting to an Approved Electronic Platform, an Internet website or a similar telecommunication
device requiring that a user have prior access to such Approved Electronic Platform, website or
other device (to the extent permitted by Section 10.02(d) to be delivered thereunder), when such
notice, demand, request, consent and other communication shall have been made generally available
on such Approved Electronic Platform, Internet website or similar device to the class of Person
being notified (regardless of whether any such Person must accomplish, and whether or not any such
Person shall have accomplished, any action prior to
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obtaining access to such items, including registration, disclosure of contact information,
compliance with a standard user agreement or undertaking a duty of confidentiality) and such Person
has been notified in respect of such posting that a communication has been posted to the Approved
Electronic Platform, and (iv) if delivered by electronic mail or any other telecommunications
device, when transmitted to an electronic mail address (or by another means of electronic delivery)
as provided in Section 10.02(a); provided, however, that notices and communications
to the Agent pursuant to Article II or Article IX shall not be effective until received by the
Agent.
(c) Notwithstanding Sections 10.02(a) and (b) (unless the Agent requests that the provisions
of Sections 10.02(a) and (b) be followed) and any other provision in this Agreement or any other
Loan Document providing for the delivery of any Approved Electronic Communication by any other
means, the Borrower shall deliver all Approved Electronic Communications to the Agent by properly
transmitting such Approved Electronic Communications in an electronic/soft medium in a format
acceptable to the Agent to oploanswebadmin@citigroup.com or such other electronic mail address (or
similar means of electronic delivery) as the Agent may notify to the Borrower. Nothing in this
clause (c) shall prejudice the right of the Agent or any Lender to deliver any Approved Electronic
Communication to the Borrower in any manner authorized in this Agreement or to request that the
Borrower effect delivery in such manner.
(d) Each Lender, each Issuer and the Borrower agree that the Agent may, but shall not be
obligated to, make the Approved Electronic Communications available to the Lenders and the Issuers
by posting such Approved Electronic Communications on IntraLinks or a substantially similar
electronic platform chosen by the Agent to be its electronic transmission system (the Approved
Electronic Platform).
(e) Although the Approved Electronic Platform and its primary web portal are secured with
generally-applicable security procedures and policies implemented or modified by the Agent from
time to time (including, as of the Closing Date, a dual firewall and a User ID/Password
Authorization System) and the Approved Electronic Platform is secured through a
single-user-per-deal authorization method whereby each user may access the Approved Electronic
Platform only on a deal-by-deal basis, each of the Lenders, the Issuers and the Borrower
acknowledges and agrees that the distribution of material through an electronic medium is not
necessarily secure and that there are confidentiality and other risks associated with such
distribution. In consideration for the convenience and other benefits afforded by such
distribution and for the other consideration provided hereunder, the receipt and sufficiency of
which is hereby acknowledged, each of the Lenders, the Issuers and the Borrower hereby approves
distribution of the Approved Electronic Communications through the Approved Electronic Platform and
understands and assumes the risks of such distribution.
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(f) THE APPROVED ELECTRONIC PLATFORM AND THE APPROVED ELECTRONIC COMMUNICATIONS ARE PROVIDED
AS IS AND AS AVAILABLE. NONE OF THE AGENT NOR ANY OF ITS AFFILIATES WARRANT THE ACCURACY,
ADEQUACY OR COMPLETENESS OF THE APPROVED ELECTRONIC COMMUNICATIONS OR THE APPROVED ELECTRONIC
PLATFORM AND EACH EXPRESSLY DISCLAIMS ANY LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED
ELECTRONIC COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. NO WARRANTY OF ANY KIND, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE
DEFECTS, IS MADE BY THE AGENT IN CONNECTION WITH THE APPROVED ELECTRONIC COMMUNICATIONS OR THE
APPROVED ELECTRONIC PLATFORM.
(g) Each of the Lenders, the Issuers and the Borrower agrees that the Agent may, but (except
as may be required by applicable law) shall not be obligated to, store the Approved Electronic
Communications on the Approved Electronic Platform in accordance with the Agents
generally-applicable document retention procedures and policies.
Section 10.03 No Waiver. No failure or delay on the part of any Lender or the Agent
or the Issuer in exercising any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any
other or further exercise thereof or the exercise of any other right, power, or remedy hereunder.
The making of a Loan or issuance, amendment or extension of a Facility Letter of Credit
notwithstanding the existence of a Default or Event of Default shall not constitute any waiver or
acquiescence of such Default or Event of Default, and the making of any Loan or issuance, amendment
or extension of a Facility Letter of Credit notwithstanding any failure or inability to satisfy the
conditions precedent to such Loan or issuance, amendment or extension of a Facility Letter of
Credit shall not constitute any waiver or acquiescence with respect to such conditions precedent
with respect to any subsequent Loans or subsequent issuance, amendment or extension of a Facility
Letter of Credit. The rights and remedies provided herein are cumulative, and are not exclusive of
any other rights, powers, privileges, or remedies, now or hereafter existing, at law, in equity or
otherwise.
Section 10.04 Costs, Expenses, and Taxes. (a) The Borrower agrees to reimburse the
Agent for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable
fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent)
paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery,
review, amendment, modification and administration of the Loan Documents. The Borrower also agrees
to reimburse the Agent, the Lenders and the Issuers for any reasonable costs, internal charges and
out-of-pocket expenses (including attorneys fees and time charges of attorneys for the Agent, the
Lenders and the Issuers which attorneys may be
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employees of the Agent, the Lenders and the Issuers) paid or incurred by the Agent, the
Arrangers, any Lender or Issuer in connection with the collection of the Obligations and
enforcement of the Loan Documents, including during any workout or restructuring in respect of the
Loan Documents.
(b) The Borrower shall pay any and all stamp and other taxes and fees payable or determined to
be payable in connection with the execution, delivery, filing, and recording of any of the Loan
Documents and the other documents to be delivered under any such Loan Documents, and agrees to hold
the Agent and each of the Lenders harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or failing to pay such taxes and fees.
(c) All payments by the Borrower to or for the account of any Lender, Issuer or the Agent
hereunder or under any Note or Reimbursement Agreement shall be made free and clear of and without
deduction for any and all Taxes. If the Borrower shall be required by law to deduct any Taxes from
or in respect of any such payable hereunder to any Lender, Issuer or the Agent, upon notice from
the Agent to the Borrower (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums payable under this
paragraph) such Lender, Issuer or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower shall make such
deductions, (iii) the Borrower shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Borrower shall furnish to the Agent the original copy
of a receipt evidencing payment thereof within 30 days after such payment is made.
(d) This Section 10.04 shall survive termination of this Agreement.
Section 10.05 Integration. This Agreement (including the Borrowers obligation to pay
the fees as provided in Section 2.09(c) and the Fee Letter referred to therein) and the Loan
Documents contain the entire agreement between the parties relating to the subject matter hereof
and supersede all oral statements and prior writings with respect thereto.
Section 10.06 Indemnity. The Borrower hereby agrees to defend, indemnify, and hold
the Agent and each Lender and each of their respective Affiliates, and each of their respective
directors, officers, employees, agents and advisors (each an Indemnified Party) harmless from and
against all claims, damages, judgments, penalties, costs, and expenses (including reasonable
attorney fees and court costs now or hereafter arising from the aforesaid enforcement of this
clause) arising directly or indirectly from the activities of the Borrower and its Subsidiaries,
its predecessors in interest, or third parties with whom it has a contractual relationship, or
arising directly or indirectly from the violation of any environmental protection, health, or
safety law, whether such claims are asserted by any governmental agency or any other person, other
than claims, damages, judgments, penalties, costs and expenses arising as a result of any
Indemnified
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Partys willful misconduct or gross negligence as determined by a court of competent
jurisdiction by a final and nonappealable judgment. This indemnity shall survive termination of
this Agreement.
Section 10.07 CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW
(OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
Section 10.08 Severability of Provisions. Any provision of any Loan Document which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the remaining provisions of
such Loan Document or affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 10.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties to this Agreement in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken together shall constitute
one and the same Agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile or other electronic image shall be effective as delivery of a manually
executed counterpart of this Agreement.
Section 10.10 Headings. Article and Section headings in the Loan Documents are
included in such Loan Documents for the convenience of reference only and shall not constitute a
part of the applicable Loan Documents for any other purpose.
Section 10.11 CONSENT TO JURISDICTION. (a) ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK SITTING IN THE CITY AND COUNTY OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER
HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
THAT ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.
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(b) THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN SUCH ACTION OR
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENT BY THE MAILING
(BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID) OF COPIES OF SUCH PROCESS TO AN APPOINTED
PROCESS AGENT OR THE BORROWER AT ITS ADDRESS SPECIFIED IN SECTION 10.02. THE BORROWER AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING CONTAINED IN
THIS SECTION 10.11 SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER OR ISSUER TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
BORROWER OR ANY OTHER LOAN PARTY IN ANY OTHER JURISDICTION.
Section 10.12 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT EACH ISSUER AND EACH
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL ACTION OR 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.
Section 10.13 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in
violation of any limitation or prohibition provided by any applicable statute or regulation.
Section 10.14 No Fiduciary Duty. The relationship between the Borrower and the
Issuers and the Lenders and the Agent shall be solely that of borrower and lender. Neither the
Agent nor any Issuer or Lender shall have any fiduciary responsibilities to the Borrower. Neither
the Agent nor any Issuer or Lender undertakes any responsibility to the Borrower to review or
inform the Borrower of any matter in connection with any phase of the Borrowers business or
operations.
Section 10.15 Confidentiality. (a) Each of the Agent and the Lender Parties agree to
maintain the confidentiality of the Information (as defined below), except that Information may be
disclosed (a) to its respective Related Parties (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any regulatory authority
purporting to have jurisdiction over it (including any self-regulatory authority, such as the
National Association of Insurance Commissioners), (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in
connection with the exercise of any remedies hereunder or under any other Loan Document, any action
or proceeding relating to this Agreement or any other Loan Document, the
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enforcement of rights hereunder or thereunder or any litigation or proceeding to which the
Agent or any Lender Party or any of its respective Affiliates may be a party, (f) subject to an
agreement containing provisions substantially the same as those of this Section 10.15, to (i) any
assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights
or obligations under this Agreement, (ii) any actual or prospective party (or its managers,
administrators, trustees, partners, directors, officers, employees, agents, advisors and other
representatives) surety, reinsurer, guarantor or credit liquidity enhancer (or their advisors) to
or in connection with any swap, derivative or other similar transaction under which payments are to
be made by reference to the Obligations or to the Borrower and its obligations or to this Agreement
or payments hereunder, (iii) to any rating agency when required by it, (iv) the CUSIP Service
Bureau or any similar organization, (g) with the consent of the Borrower or (h) to the extent such
Information (x) becomes publicly available other than as a result of a breach of this Section 10.15
or (y) becomes available to the Agent, any Lender Party or any of their respective Affiliates on a
nonconfidential basis from a source other than the Borrower or any of its Subsidiaries. For
purposes of this Section 10.15, Information means all information received from the Borrower or
any of its Subsidiaries relating to the Borrower or any of its Subsidiaries or any of their
respective businesses, other than any such information that is available to the Agent or any Lender
Party on a nonconfidential basis prior to disclosure by the Borrower or any of its Subsidiaries,
provided that, in the case of information received from the Borrower or any of its Subsidiaries
after the date hereof, such information shall be deemed confidential unless it is clearly
identified at the time of delivery as not being confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own confidential
information.
(b) Certain of the Lenders may enter into this Agreement and take or not take action hereunder
or under the other Loan Documents on the basis of information that does not contain material
non-public information with respect to the Borrower or any of its Subsidiaries or their securities
(Restricting Information). Other Lenders may enter into this Agreement and take or not take
action hereunder or under the other Loan Documents on the basis of information that may contain
Restricting Information. Each Lender Party acknowledges that United States federal and state
securities laws prohibit any person from purchasing or selling securities on the basis of material,
non-public information concerning the issuer of such securities or, subject to certain limited
exceptions, from communicating such information to any other Person. Neither the Agent nor any of
its Related Parties shall, by making any Communications (including Restricting Information)
available to a Lender Party, by participating in any conversations or other interactions with a
Lender Party or otherwise, make or be deemed to make any statement with regard to or otherwise
warrant that any such information or Communication does or does not contain Restricting Information
nor shall the Agent or any of its Related Parties be responsible or liable in any way for any
decision a Lender Party may make to limit or to not limit
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its access to Restricting Information. In particular, none of the Agent nor any of its
Related Parties (i) shall have, and the Agent, on behalf of itself and each of its Related Parties,
hereby disclaims, any duty to ascertain or inquire as to whether or not a Lender Party has or has
not limited its access to Restricting Information, such Lender Partys policies or procedures
regarding the safeguarding of material, nonpublic information or such Lender Partys compliance
with applicable laws related thereto or (ii) shall have, or incur, any liability to the Borrower or
any of its Subsidiaries or any Lender Party or any of their respective Related Parties arising out
of or relating to the Agent or any of its Related Parties providing or not providing Restricting
Information to any Lender Party.
(c) The Borrower agrees that (i) all Communications it provides to the Agent intended for
delivery to the Lender Parties whether by posting to the Approved Electronic Platform or otherwise
shall be clearly and conspicuously marked PUBLIC if such Communications do not contain
Restricting Information which, at a minimum, shall mean that the word PUBLIC shall appear
prominently on the first page thereof, (ii) by marking Communications PUBLIC, the Borrower shall
be deemed to have authorized the Agent and the Lender Parties to treat such Communications as
either publicly available information or not material information (although, in this latter case,
such Communications may contain sensitive business information and, therefore, remain subject to
the confidentiality undertakings of Section 10.15(a)) for purposes of United States Federal and
state securities laws, (iii) all Communications marked PUBLIC may be delivered to all Lender
Parties and may be made available through a portion of the Approved Electronic Platform designated
Public Side Information, and (iv) the Agent shall be entitled to treat any Communications that
are not marked PUBLIC as Restricting Information and may post such Communications to a portion of
the Approved Electronic Platform not designated Public Side Information. Neither the Agent nor
any of its Affiliates shall be responsible for any statement or other designation by the Borrower
regarding whether a Communication contains or does not contain material non-public information with
respect to the Borrower or any of its Subsidiaries or their securities nor shall the Agent or any
of its Affiliates incur any liability to the Borrower or any of its Subsidiaries, any Lender Party
or any other Person for any action taken by the Agent or any of its Affiliates based upon such
statement or designation, including any action as a result of which Restricting Information is
provided to a Lender Party that may decide not to take access to Restricting Information. Nothing
in Section 10.15(b) or this Section 10.15(c) shall modify or limit a Lender Partys obligations
under Section 10.15(a) with regard to Communications and the maintenance of the confidentiality of
or other treatment of Information.
(d) Each Lender Party acknowledges that circumstances may arise that require it to refer to
Communications that might contain Restricting Information. Accordingly, each Lender Party agrees
that it will nominate at least one designee to receive Communications (including Restricting
Information) on its behalf and identify such designee (including such designees contact
information) on such Lender Partys Administrative Questionnaire. Each Lender Party agrees to
notify the Agent from time to time of such Lender Partys designees
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e-mail address to which notice of the availability of Restricting Information may be sent by
electronic transmission.
(e) Each Lender Party acknowledges that Communications delivered under this Agreement and
under the other Loan Documents may contain Restricting Information and that such Communications are
available to all Lender Parties generally. Each Lender Party that elects not to take access to
Restricting Information does so voluntarily and, by such election, acknowledges and agrees that the
Agent and other Lender Parties may have access to Restricting Information that is not available to
such electing Lender Party. None of the Agent nor any Lender Party with access to Restricting
Information shall have any duty to disclose such Restricting Information to such electing Lender
Party or to use such Restricting Information on behalf of such electing Lender Party, and shall not
be liable for the failure to so disclose or use, such Restricting Information.
(f) The provisions of this Section 10.15 are designed to assist the Agent, the Lender Parties,
the Borrower and its Subsidiaries in complying with their respective contractual obligations and
applicable law in circumstances where certain Lender Parties express a desire not to receive
Restricting Information notwithstanding that certain Communications under this Agreement or under
the other Loan Documents or other information provided to the Lender Parties under this Agreement
or the other Loan Documents may contain Restricting Information. Neither the Agent nor any of its
Related Parties warrants or makes any other statement with respect to the adequacy of such
provisions to achieve such purpose nor does the Agent or any of its Related Parties warrant or make
any other statement to the effect that adherence to such provisions by the Borrower and its
Subsidiaries or by the Lender Parties will be sufficient to ensure compliance by the Borrower or
such Subsidiary or Lender Party with its contractual obligations or its duties under applicable law
in respect of Restricting Information and each Lender Party assumes the risks associated therewith.
Section 10.16 USA Patriot Act Notification. 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 the Borrower that pursuant to the requirements of the Act, it is
required to obtain, verify and record information that identifies the Borrower, which information
includes the name and address of the Borrower and other information that will allow such Lender to
identify the Borrower in accordance with the Act.
Section 10.17 Register. The Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered
to it and a register for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and Facility Letter of Credit Obligations 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 the Borrower, the Agent, the Issuers
and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms
98
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the Issuers and any
Lender, at any reasonable time and from time to time upon reasonable prior notice.
Section 10.18 Waiver of Consequential Damages, Etc. To the fullest extent permitted
by applicable law, the no party hereto shall assert, and each such party hereby waives, any claim
against all other parties hereto, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the transactions contemplated hereby or thereby, any Loan or the use of the
proceeds thereof and any Facility Letter of Credit and the use thereof.
ARTICLE XI
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
Section 11.01 Successors and Assigns. The provisions of this Agreement and the other
Loan Documents shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of an Issuer that
issues any Facility Letter of Credit), except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder or under the other Loan Documents without the
prior written consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder or under the other Loan Documents except in accordance with
this Article XI. Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors and assigns permitted
hereby (including any Affiliate of an Issuer that issues any Facility Letter of Credit) and
Participants (to the extent provided in Section 11.03)) any legal or equitable right, remedy or
claim under or by reason.
Section 11.02 Assignments.
(a) Subject to the conditions set forth in Section 11.02(b), any Lender may assign to one or
more assignees all or a portion of its rights and obligations under this Agreement and the other
Loan Documents (including all or a portion of its Commitment and the Loans at the time owing to
it); provided that the written consents (which consents shall not be unreasonably withheld or
delayed) of the Agent and (unless an Event of Default has occurred and is continuing) the Borrower
shall be required prior to an assignment becoming effective with respect to an assignee which,
prior to such assignment, is not a Lender, an Affiliate of a Lender or an Approved Fund.
(b) Assignments shall be subject to the following additional conditions:
99
(i) each partial assignment shall be made as an assignment of a proportionate part
of all the assigning Lenders rights and obligations under this Agreement,
(ii) the parties to each assignment shall execute and deliver to the Agent an
Assignment and Assumption (Assignment and Assumption) in substantially the form of
Exhibit F hereto, together with a processing and recordation fee of $3,500; and
(iii) the assignee, if it shall not be a Lender, shall deliver to the Agent an
Administrative Questionnaire.
(c) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning
Lender and an assignee, the assignees completed Administrative Questionnaire (unless the assignee
shall already be a Lender hereunder), the processing and recordation fee referred to in
Section 11.02(b)(ii) and any written consent to such assignment required by Section 11.02(a), the
Agent shall accept such Assignment and Assumption and record the information contained therein in
the Register; provided that if either the assigning Lender or the assignee shall have
failed to make any payment required to be made by it pursuant to Section 2.04(a), 2.21(d),
2.22.6(b) or 9.05, the Agent shall have no obligation to accept such Assignment and Assumption and
record the information therein in the Register unless and until such payment shall have been made
in full, together with all accrued interest thereon. No assignment shall be effective for purposes
of this Agreement unless it has been recorded in the Register as provided in this paragraph.
Section 11.03 Participations. Any Lender may, without the consent of the Borrower,
the Agent, the Issuer or the Swing Line Lender, sell participations to one or more banks or other
entities (a Participant) in all or a portion of such Lenders rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lenders obligations under this Agreement and the
other Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of any such Note for all purposes under the Loan Documents, (iv) all amounts payable by
the Borrower under this Agreement shall be determined as if such Lender had not sold participating
interests and (v) the Borrower, the Agent, the Issuer and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lenders rights and obligations under
this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve
any amendment, modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver that (i) forgives principal, interest
or fees (other than Agents fees) or reduces the interest rate (other
100
than Agents fees), (ii) postpones any date fixed for any regularly scheduled payment of
principal of, or interest or fees (other than Agents fees) or (iii) releases any Significant
Guarantor.
Section 11.04 Pledge to Federal Reserve Bank. Any Lender may at any time pledge or
assign a security interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender to a Federal Reserve Bank, and this Article shall not apply to any such
pledge or assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder or substitute any
such pledgee or assignee for such Lender as a party hereto.
[remainder of page intentionally left blank; signature pages follow]
101
[Signature Page to Amended and Restated Credit Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first written.
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BEAZER HOMES USA, INC.
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By: |
/s/ Jeffrey S. Hoza
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Name: |
Jeffrey S. Hoza |
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Title: |
Vice President & Treasurer |
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Address for Notices
1000 Abernathy Road
Suite 1200
Atlanta, Georgia 30328
Attention: President
Tel: (770) 829-3700
Fax: (770) 481-0431
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[Signature Page to Amended and Restated Credit Agreement]
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CITIBANK, N.A., as the Agent and as a Lender,
the Swing Line Lender and an Issuer
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By: |
/s/ Marni McManus
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Name: |
Marni McManus |
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Title: |
Director |
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Address for Notices of Borrowings
Citi Origination Operations
Global Loans Delaware
1615 Brett Road, Ops III
New Castle, DE 19720
Attn: Kisha Bailey
Tel: (302) 894-6004
Fax:
Email: kisha.bailey@citi.com
Address for all other Notices
Citibank, N.A.
Citi Markets and Banking
North America Investment Banking North America
Homebuilding
388 Greenwich Street
New York, NY 10013
Attn: Marni McManus
Tel: (212) 816-7461
Fax: (646) 291-1193
Email: marni.mcmanus@citi.com
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Schedule I
COMMITMENT SCHEDULE
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Lenders |
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Commitment Percentage |
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Commitment |
Citibank, N.A. |
|
|
100 |
% |
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$ |
22,000,000 |
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TOTAL |
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100 |
% |
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$ |
22,000,000 |
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exv10w3
Exhibit 10.3
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this Agreement) is made effective as of the
6th day of August, 2009 (the Effective Date) by and between BEAZER HOMES USA, INC., a Delaware
corporation (the Company), and MICHAEL H. FURLOW, an individual resident of the State of Georgia
(Executive).
WITNESSETH:
WHEREAS, the Company and Executive have heretofore entered into an Employment Agreement dated
September 1, 2004, as amended (the Existing Agreement); and
WHEREAS, the Company and Executive desire to amend certain provisions of, and to restate in
its entirety the Existing Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements
herein contained, the Company and Executive hereby agree as follows:
1. Employment and Duties.
(a) The Company hereby agrees to employ Executive for the Term (as hereinafter defined) as its
Division President-Charleston/Myrtle Beach/Savannah. The parties agree that effective on the date
hereof Executive shall resign his position as Executive Vice President and Chief Operating Officer
of the Company and any other positions he has with the Companys subsidiaries and affiliates. If
requested by the Board of Directors of the Company (the Board), Executive shall also serve on the
Board without additional compensation, if requested. Executive shall also serve, if requested by
the Board, as an executive officer and/or director of any subsidiaries and/or affiliated companies
and shall comply with the policy of the Compensation Committee of the Board (the Compensation
Committee) with regard to retention or forfeiture of any directors fees. As used in this
Agreement, the term affiliated companies shall include any company controlled by, controlling or
under common control with the Company.
(b) The Executive shall have such management and oversight responsibilities and authority as
are necessary to efficiently administer the affairs of the Division and as are customary of an
Division President. All powers herein granted to the Executive are subject to supervisory approval
of the President and Chief Executive Officer of the Company (the CEO), and the Executive may be
given such further reasonably related supervisory duties, powers and prerogatives as may be
delegated to him from time to time by said CEO. The Executive shall report exclusively to the CEO
and further shall render such advice to the CEO as said CEO may from time to time request.
(c) During the Term, and excluding any periods of vacation and sick leave to which the
Executive is entitled, Executive shall devote substantially all of his business time and efforts to
the business and affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, use the Executives reasonable best efforts
to perform faithfully such responsibilities. In performing such duties hereunder, Executive shall
comply with the policies and procedures as adopted from time to time by the Board, shall give the
Company the benefit of his special knowledge, skills, contacts and business experience, shall
perform his duties and carry out his responsibilities hereunder in a diligent manner.
(d) During the Employment Term, it shall not be a violation of this Agreement for the
Executive to (i) with the prior approval of the CEO in each case, serve on corporate, civic or
charitable boards or committees, (ii) with the prior approval of the Board in each case, deliver
lectures, fulfill speaking engagements or teach at educational institutions, and (iii) manage
personal investments, so long as such activities do not significantly interfere or constitute a
conflict of interest with the performance of the Executives responsibilities as an employee of the
Company in accordance with this Agreement.
(e) The principal location for performance of Executives services hereunder shall be at the
offices of Beazer Homes USA, Inc. in Charleston, South Carolina, subject to reasonable travel
requirements during the course of such performance. Executive shall not be required, without his
consent, to regularly report to any office of the Company which is located more than thirty-five
(35) miles from the Divisions current office location set forth above, provided Executive will be
expected to travel to the extent reasonably necessary to fulfill his responsibilities.
2. Employment Term. The term of Executives employment hereunder (the Term) shall
commence effective as of the date hereof and shall end on the second anniversary thereof (the
Expiration Date), unless sooner terminated as provided herein.
3. Compensation and Benefits
(a) Base Salary. During the first year of the Term, the Executive shall receive an
annual base salary (Annual Base Salary) in the amount of $569,800.00 and in the second year of
the Term an Annual Base Salary in the amount of $800,000.00, payable in accordance with the
Companys normal payroll practices (but not less frequently than monthly). During the Term, the
Annual Base Salary shall be reviewed by the CEO (for purposes of increase only) at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. Notwithstanding anything contained herein to the contrary, in the event that the Company
shall implement a Company-wide reduction in executive base compensation, then, solely for such
purpose and only during the continuation of such Company-wide reduction, the Company shall have the
right to reduce the Annual Base Salary then payable hereunder in a manner that is consistent with
said Company-wide reduction.
(b) Bonuses; Stock Incentive Plans. Executive will be eligible to and shall
participate in the Companys bonus and stock incentive plans at the discretion of the Compensation
Committee of the Board. The amount and terms of, and the targets, conditions and restrictions
applicable to each bonus or other incentive award shall be subject to the provisions of any such
plan and of the applicable award letter duly executed and delivered by the Company.
(c) Incentive, Savings and Retirement Plans. During the Term, the Executive shall be
entitled to participate in all incentive, savings and retirement plans, practices, policies and
programs applicable generally to other Division Presidents of the Company and its affiliated
companies.
(d) Welfare Benefit Plans. During the Term, the Executive and/or the Executives
family, as the case may be, shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other Division Presidents of the Company and its affiliated
companies.
(e) Expenses. The Company will pay or reimburse Executive for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his duties under this
Agreement. Executive shall keep detailed and accurate records of expenses incurred in connection
with the performance of his duties hereunder and reimbursement therefore shall be in accordance
with policies and procedures to be established from time to time by the Board.
2
(f) Office and Support Staff. During the Term, the Executive shall be entitled to an
office or offices of a size and with furnishings and other appointments, and to secretarial and
other assistance, consistent with the Executives position and title.
(g) Vacation. During the Term, Executive shall be entitled to twenty (20) working
days of compensated vacation in each fiscal year, to be taken at times which do not unreasonably
interfere with the performance of Executives duties hereunder. Any unused vacation time from any
fiscal year shall be subject to accumulation or forfeiture in accordance with Company policy as in
effect from time to time.
(h) Company Automobile. Executive currently has use of a Company leased automobile.
He may continue use of such car until the Expiration Date, provided however, if during the Term he
so elects, he shall be provided with a Company leased automobile generally of the same type and
cost as other Division Presidents.
4. Termination of Employment.
(a) Death or Disability. The Executives employment shall terminate automatically upon
the Executives death during the Term. If the Disability of the Executive occurs during the Term
(pursuant to the definition of Disability set forth below), the Company may give to the Executive
written notice in accordance with Section 9(c) of this Agreement of its intention to terminate the
Executives employment. In such event, the Executives employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive (the Disability Effective
Date), provided that, within the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executives duties. For purposes of this Agreement, Disability
shall mean the absence of the Executive from the Executives duties with the Company on a full-time
basis for 120 consecutive business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executives legal representative.
(b) Cause. The Company may terminate the Executives employment for Cause. For
purposes of this Agreement, Cause shall mean:
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(i) |
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any act or failure to act by Executive done with the intent
to harm in any material respect the financial interests or reputation of the
Company or any affiliated companies; |
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(ii) |
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Executive being convicted of (or entering a plea of guilty or
nolo contendere to) a felony (other than a felony involving a motor vehicle); |
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(iii) |
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Executives dishonesty, misappropriation or fraud with
regard to the Company or any affiliated companies (other than good faith
expense account disputes); |
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(iv) |
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a grossly negligent act or failure to act by Executive which
has a material adverse affect on the Company or any affiliated companies; |
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(v) |
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the material breach by Executive of his agreements or
obligations under this Agreement which has a material adverse effect on the
Company, which breach, if curable, is not cured by Executive within fifteen
(15) days after written notice from the Company which specifically identifies
the material breach which the Company believes that Executive has committed;
or |
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(vi) |
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the continued refusal to follow the directives of the CEO or
the Board or their designees which are consistent with Executives duties and
responsibilities identified in Section 1 hereof; provided that the foregoing
refusal shall not be cause if Executive in good faith believes that such
direction is illegal, unethical or immoral and promptly so notifies the CEO or
Board, as the case may be, in writing. |
(c) Notice of Termination. Any termination by the Company for Cause shall be
communicated by Notice of Termination to the Executive given in accordance with Section 9(c) of
this Agreement. For purposes of this Agreement, a Notice of Termination means a written notice
which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executives employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty days after the giving of
such notice). The failure by the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Cause shall not waive any right of the Company
hereunder or preclude the Company from asserting such fact or circumstance in enforcing the
Companys rights hereunder.
(d) Date of Termination. Date of Termination means (i) if the Executives employment
is terminated by the Company for Cause, the date of receipt of the Notice of Termination or,
subject to applicable cure periods, any later date specified therein, as the case may be, (ii) if
the Executives employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the Executive of such
termination and (iii) if the Executives employment is terminated by reason of death or Disability,
the Date of Termination shall be the date of death of the Executive or the Disability Effective
Date, as the case may be.
5. Obligations of the Company upon Termination.
(a) Other Than for Cause. If, during the Term, the Company shall terminate the
Executives employment other than for Cause:
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(i) |
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the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts: (1) the Executives Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) any accrued but unpaid
annual bonus (Annual Bonus) respecting any completed fiscal year ending
prior to the Date of Termination, (3) the product of (x) the Average Annual
Bonus (hereinafter defined) and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (4) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), (3) and (4) shall be
hereinafter referred to as the Accrued Obligations). |
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The term Average Annual Bonus shall mean the arithmetic average of the
Executives bonuses (whether paid or deferred) under the Companys annual
incentive plans during the last three full fiscal years prior to the Date
of Termination or for such lesser period as the Executive has been
employed by the Company (annualized in the event that the Executive was
not employed by the Company for the whole of any such fiscal year).
Without limiting the generality of the foregoing definition, the |
4
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Average
Annual Bonus shall include the following components, if any, pursuant to
the Companys Amended and Restated VCIP Rules (or any successor incentive
plan, for so long as any of same shall exist): |
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(a) |
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Cash payouts from VC and
IVC awards and the Bank payout, subject to the Payout Cap,
all at full face value; |
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(b) |
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Any excess in the Bank
discounted at 75% of face value (which shall, for purposes
hereof, be deemed to be fully vested); |
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(c) |
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10% of the Bank contributed
to the Deferred Compensation Plan, at full face value (which
shall, for purposes hereof, be deemed to be fully vested);
and |
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(d) |
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Any deferred bonus under
the VCIP which is invested in stock under the Companys
Corporate Management Stock Purchase Program, at full face
value of said bonus (which shall, for purposes hereof, be
deemed to be fully vested); |
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(ii) |
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so long as the Executive is and remains in compliance in all
material respects with his obligations under Section 6 below, the Company
shall pay to the Executive an amount equal to the sum of (1) Executives
Annual Base Salary (at the rate in effect on the Date of Termination), and (2)
the Average Annual Bonus for a period of two years from the Date of
Termination, (the Severance Period), at the same time that payments of
Annual Base Salary and Annual Bonus would otherwise have become due and
payable during said period in the absence of such termination; |
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(iii) |
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so long as the Executive is and remains in compliance in all
material respects with his obligations under Section 6 below, during the
Severance Period, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executives family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 3(d) of this Agreement
if the Executives employment had not been terminated, provided, however, that
if the Executive becomes reemployed with another employer and receives medical
or other welfare benefits under another employer provided plan, the medical
and other welfare benefits described herein shall cease; and |
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(iv) |
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to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the Other Benefits). |
(b) Death. If the Executives employment is terminated by reason of the Executives
death, this Agreement shall terminate without further obligations to the Executives legal
representatives under this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executives estate
or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination.
5
(c) Disability. If the Executives employment is terminated by reason of the
Executives Disability, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive or the Executives legal
representative in a lump sum in cash within 30 days of the Date of Termination.
(d) Cause. If the Executives employment shall be terminated for Cause, this Agreement
shall terminate without further obligations to the Executive other than the obligation to pay to
the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the
extent theretofore unpaid. If the Executive voluntarily terminates employment during the Term, this
Agreement shall terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
(e) Payment of Deferred Compensation. Notwithstanding anything to the contrary
contained in this Section 5 and subject to Section 10 hereof, the timing of payments by the Company
of any deferred compensation which is part of the Accrued Obligations shall remain subject to the
terms and conditions of the applicable deferred compensation plan, and any payment election
previously made by the Executive.
6. Employment Covenants.
(a) Covenant Not to Compete. Executive recognizes and acknowledges that the Company is
placing its confidence and trust in Executive. Executive, therefore, covenants and agrees that
during the Applicable Non-Compete Period (as defined below) Executive shall not, either directly or
indirectly, without the prior written consent of the Board (which may be withheld in the sole and
absolute discretion of the Board):
(i) Engage in or carry on any business or in any way become associated with any
business in the Restricted Area (as hereinafter defined) which is similar to or is
in competition with the Business of the Company (as hereinafter defined). As used
in this Section 6(a), the term (1) Business of the Company shall mean and include
all business activities in which the Company and/or any affiliated companies have
engaged (or have prepared written plans to engage) at any time during the Term,
including but not limited to, the purchase of land (or options therefor) for
development and the construction of residential homes for resale to consumers, and
(2) Restricted Area shall mean and include anywhere in the United States of
America or in any foreign country in which the Company or any affiliated companies
then engage (or have within the preceding three years engaged) in business.
(ii) in connection with any business which is similar to or is in competition with
the Business of the Company in the Restricted Area, solicit the business of any
person or entity, on behalf of himself or any other person or entity, which is or
has been at any time during the Term a customer or supplier of the Company
including, but not limited to, former or present customers or suppliers with whom
Executive has had personal contact during, or by reason of, his relationship with
the Company;
(iii) Be or become an employee, agent, consultant, representative, director or
officer of, or be otherwise in any manner associated with, any person, firm,
corporation, association or other entity which is engaged in or is carrying on any
business which is similar to or in competition with the Business of the Company in
the Restricted Area;
6
(iv) Solicit for employment or employ any person employed by the Company at any
time during the twelve (12) month period immediately preceding such solicitation or
employment; or
(v) Be or become a shareholder, joint venturer, owner (in whole or in part), or
partner, or be or become associated with or have any proprietary or financial
interest in or of any firm, corporation, association or other entity which is
engaged in or is carrying on any business which is similar to or in competition
with the Business of the Company in the Restricted Area (a Competing Entity).
Notwithstanding the preceding sentence, (A) passive equity investments by Executive
of $100,000 or less in any Competing Entity, or (B) investments, in any amount, in
any publicly traded mutual fund, index fund or similar investment vehicle which
fund or investment vehicle owns any proprietary or financial interest in any
Competing Entity, shall not be deemed to violate this Section 6(a)(v).
Executive further warrants and represents that, because of his varied skill and abilities, he
does not need to compete with the Business of the Company and that this Agreement will not prevent
him from earning a livelihood and acknowledges that the restrictions contained in this Section 6
constitute reasonable protections for the Company.
As used in this Section 6, Applicable Non-Compete Period shall mean the following:
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(A) |
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at all times that the Executive is employed by the Company;
and |
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(B) |
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for a period of time after the Executives employment under
this Agreement is terminated for any reason equal to the greater of |
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(i) |
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180 days; or |
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(ii) |
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such longer period of time that the Executive is entitled to
receive payments under Sections 5(a)(ii) or (iii) above. |
(b) Confidential Information. Executive agrees that all Confidential Information shall
be the sole property of the Company, and Executive agrees that he shall not during the Term nor
thereafter, use for his benefit or the benefit of others or disclose at any time Confidential
Information or take with him upon termination of this Agreement any records, papers, reports,
lists, computer tapes or disks or any other materials of any nature that contain any Confidential
Information. Confidential Information shall mean all information other than General Knowledge
(defined below) relating to the Companys: (i) business or existing projects including all those in
various stages of research and development including all unpublished plans for new products or
services; (ii) financial information, internal business procedures and other information which
relate to the way the Company conducts its business and which are not publicly available; (iii)
data written by the Companys employees or others, including source codes, object codes, marketing
and development plans, budgets, forecasts, forecast assumptions and future plans and potential
strategies of the Company which have been or are being discussed; (iv) unpublished pricing data;
(v) identity, buying habits and practices of the Company, its suppliers and customers to the extent
not publicly available; (vi) information regarding the skills or compensation of employees of the
Company; (vii) the Intellectual Property of the Company and any information pertaining thereto;
(viii) materials and information supplied by customers or clients to the Company that contain data
regarding any research, products, procedures or the like; and (ix) any other information deemed
confidential by the Company by marking such information with the word Confidential or similar
word; by orally advising the Executive that the information is confidential or by treating the
information in such a manner that the Executive should reasonably believe it to be deemed
confidential by the Company. General Knowledge shall mean (i) general skills or experience
7
gained during Executives employment with, consultation for or work for the Company; and (ii)
information and data publicly available.
(c) Records. All files, records, memoranda and other documents regarding former,
existing or prospective customers of the Company or relating in any manner whatsoever to
Confidential Information or the Business of the Company (collectively, Records), whether prepared
by Executive or otherwise coming into his possession, shall be the exclusive property of the
Company. All Records shall be immediately placed in the physical possession of the Company upon the
termination of Executives employment with the Company, or at any other time specified by the
Board. The retention and use by Executive of duplicates in any form of Records is prohibited after
the termination of Executives employment with the Company.
(d) Breach. Executive hereby recognizes and acknowledges that irreparable injury or
damage shall result to the Company in the event of a breach or threatened breach by Executive of
any of the terms or provisions of this Section 6, and Executive therefore agrees that the Company
shall be entitled to an injunction restraining Executive from engaging in any activity constituting
such breach or threatened breach. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company at law or in equity for such
breach or threatened breach, including but not limited to, the recovery of damages from Executive
and, if Executive is an employee of the Company, the termination of his employment with the Company
in accordance with the terms and provisions of this Agreement.
(e) Survival. Notwithstanding the termination of the employment of Executive or the
termination of this Agreement, the provisions of this Section 6 shall survive and be binding upon
Executive unless a written agreement which specifically refers to the termination of the
obligations and covenants of this Section 6 is executed by the Company. Notwithstanding the
foregoing, this Section 6 shall not survive the termination of this Agreement as the result of the
Change Of Control Agreement (hereinafter defined) becoming effective.
(f) Blue-Penciling. Should any court or other legally constituted authority determine
that for any such agreement or covenant to be effective it must be modified to limit its duration
or scope, the parties hereto shall consider such agreement or covenant to be amended or modified
with respect to duration and/or scope so as to comply with the orders of any such court or other
legally constituted authority, and as to all other portions of such agreement or covenants they
shall remain in full force and effect as originally written.
7. No Mitigation. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonably incur as a result of any
contest by (i) the Company, provided that the Executive prevails in at least one material issue,
(ii) the Executive or (iii) others, of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including, without limitation,
as a result of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2) (A) of the Internal Revenue Code of 1986, as amended (the
Code).
8. Successors.
(a) This Agreement is personal to the Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executives
legal representatives.
8
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State
of Delaware, without reference to principles of conflict of laws. Any legal action, suit or
proceeding arising out of or relating to this Agreement shall be instituted in the state or federal
courts in the State of Delaware and the parties agree not to assert, in any action, suit or
proceeding by way of motion, as a defense or otherwise, any claim that either party is not
personally subject to the jurisdiction of such court, or that such action, suit or proceeding is
brought in an inconvenient forum, or that the venue is improper or that the subject matter hereof
cannot be enforced in such court. The parties hereby irrevocably submit to the jurisdiction of any
such court in any such action, suit or proceeding and agree that service of all process in any such
action, suit or proceeding in any such court may be made by registered or certified mail, return
receipt requested, to its address set forth in this Agreement, such service being hereby
acknowledged by such party to be sufficient for personal jurisdiction in any action against such
party in any such court and to be otherwise effective and binding service in every respect.
(b) The captions of this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party, by FedEx or other commercial overnight courier or by registered
or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
P.O. Box 422175, Atlanta, GA 30342
If to the Company:
1000 Abernathy Road
Suite 1200
Atlanta, Georgia 30328
Attention: Company Secretary
or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(e) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
(f) The Companys failure to insist upon strict compliance with any provision of this
Agreement or the failure to assert any right the Company may have hereunder shall not be deemed to
be a waiver of such provision or right or any other provision or right of this Agreement.
(g) This Agreement supersedes any and all other prior or contemporaneous agreements, either
oral or in writing, between the parties hereto with respect to the subject matter hereof including,
without limitation, the Existing Agreement, and this Agreement contains all of the
9
covenants and
agreements between the parties with respect to employment of Executive by the Company,
provided, however, that nothing contained herein shall impair Executives right to
(i) any salary, bonus or other payments accrued through the effective date hereof and owing to
Executive pursuant to the Existing Agreement or (ii) any award of restricted stock and grants of
options to acquire shares of the Companys common stock referred to in the Existing Agreement and
the award letters delivered by the Company to Executive in connection therewith.
Reference is hereby made to that certain Employment Agreement dated as of February 3, 2006, as
amended (the Change Of Control Agreement) by and between the Company and the Executive.
Notwithstanding anything contained herein to the contrary, (i) this Agreement shall not supersede
the Change of Control Agreement, and (ii) upon the Effective Date occurring under the Change of
Control Agreement, this Agreement shall be superseded by the Change of Control Agreement.
(h) This Agreement may be executed via facsimile transmission signature and in counterparts,
each of which shall be deemed to be an original but all of which together will constitute one and
the same instrument.
10. Special Provision Regarding Section 409A of the Internal Revenue Code.
This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986,
as amended (the Code) and will be interpreted in a manner intended to comply with Section 409A of
the Code. Notwithstanding anything herein to the contrary, in the event any payments or benefits
required to be provided hereunder are deemed to constitute payments of nonqualified deferred
compensation that is subject to the requirements of Section 409A of the Code, then the time and
manner in which such payment or benefit is provided shall be adjusted, to the extent reasonably
possible, so that payment or distribution is made at a time and in a manner that is consistent with
the requirements of such Section 409A (and applicable proposed or final Treasury regulations or
other guidance issued or to be issued by the Internal Revenue Service). This Section 10 may, for
example, require that certain payments to Executive following his termination of employment be
delayed until the date that is six (6) months after the date of his separation from service with
the Company (the Delay Period) if, at the time of Executives termination of employment with the
Company, Executive is a specified employee (as that term is used for purposes of Section
409A(2)(B)(i)). Upon the expiration of the Delay Period, all payments and benefits delayed
pursuant to this Section 10 (whether they would have otherwise been payable in a single sum or in
installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump
sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in
accordance with the normal payment dates specified for them herein.
To the extent any reimbursements or in-kind benefits due to Executive under this Agreement
constitutes deferred compensation under Section 409A of the Code, any such reimbursements or
in-kind benefits shall be paid to Executive in a manner consistent with Treas. Reg. Section
1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a separate
payment within the meaning of Section 409A of the Code. The Executive shall be deemed to have a
termination of employment under this Agreement for purposes of entitling him to any nonqualified
deferred compensation that is subject to the requirements of Section 409A only to the extent the
Executive has a separation from service, as that term is defined in Section 409A and the
applicable Treasury regulations applying all of the default rules thereunder. The Company shall
consult with Executive in good faith regarding the implementation of the provisions of this Section
10.
10
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND RESTATED EMPLOYMENT
AGREEMENT effective as of the date first written above.
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BEAZER HOMES USA, INC.
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By: |
/s/ Ian J. McCarthy
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Name: |
Ian J. McCarthy |
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Title: |
President and Chief Executive Officer |
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EXECUTIVE
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/s/ Michael H. Furlow
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MICHAEL H. FURLOW |
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11
exv10w4
Exhibit 10.4
SUPPLEMENTAL EMPLOYMENT AGREEMENT
AGREEMENT by and between Beazer Homes USA, Inc., a Delaware corporation (the Company) and
MICHAEL H. FURLOW (the Executive), dated as of the 6th day of August, 2009.
The Board of Directors of the Company (the Board), has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties and risks created
by a pending or threatened Change of Control and to encourage the Executives full attention and
dedication to the Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits arrangements upon a Change of
Control which ensure that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The Effective Date shall mean the first date during the Change of Control Period (as
defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the
Executives employment with the Company is terminated prior to the date on which the Change of
Control occurs, and if it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in anticipation of a
Change of Control, then for all purposes of this Agreement the Effective Date shall mean the date
immediately prior to the date of such termination of employment.
(b) The Change of Control Period shall mean the period commencing on the date hereof and
ending on the second anniversary of the date hereof.
2. Change of Control. For the purpose of this Agreement, a Change of Control shall
mean:
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (a Person)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
25% or more of either (i) the then outstanding shares of common stock of the Company (the
Outstanding Company Common Stock) or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of directors (the
Outstanding Company Voting Securities); provided, however, that for purposes of this subsection
(a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the Incumbent Board) cease
for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or nomination for
election by the Companys shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (a Business Combination), in each case,
unless, following such Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Companys assets either directly or
through one or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
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(d) |
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Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company. |
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(e) |
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Notwithstanding the foregoing, a Change of Control shall not be
deemed to have occurred unless it is also a change in control event as
described in Treasury Reg. Section 1.409A-3(i)(5) of the Internal Revenue
Code of 1986, as amended (the Code). |
3. Employment Period. The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company, subject to the
terms and conditions of this Agreement, for the period commencing on the Effective Date and ending
on the second anniversary of the date hereof (the Employment Period).
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executives position (including status,
offices, titles and reporting requirements), authority, duties and responsibilities
shall be at least commensurate in all material respects with the most significant
of those held, exercised and assigned from the date hereof to the Effective Date
and (B) the Executives services shall be performed at Charleston, South Carolina
or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
2
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executives
reasonable best efforts to perform faithfully such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the Executive
to (A) serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executives responsibilities as an employee
of the Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such activities (or
the conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance of
the Executives responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall receive
an annual base salary (Annual Base Salary), which shall be paid at a monthly
rate, at least equal to twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the twelve
month period immediately preceding the month in which the Effective Date occurs.
Annual Base Salary shall be payable in accordance with the Companys normal payroll
practices (but not less frequently than monthly). During the Employment Period, the
Annual Base Salary shall be reviewed (for purposes of increase only) no more than
12 months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual Base Salary
shall not serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term affiliated companies
shall include any company controlled by, controlling or under common control with
the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall
be awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the Annual Bonus) in cash at least equal to the arithmetic average of the
Executives bonuses (whether paid or deferred) under the Companys or its
predecessors annual incentive plans during the last three full fiscal years prior
to the Effective Date or for such lesser period as the Executive has been employed
by the Company or its predecessor (annualized in the event that the Executive was
not employed by the Company for the whole of any such fiscal year), (the Average
Annual Bonus). Each such Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus. Without limiting the generality of the foregoing definition, the
Average Annual Bonus shall include the following components, if any, pursuant to
the Companys Amended and Restated EVCIP Rules (or any successor incentive plan,
for so long as any of same shall exist):
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(a) |
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Cash payouts from VC and IVC awards and the
Bank payout, subject to the Payout Cap, all at full face value; |
3
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(b) |
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Any excess in the Bank discounted at 75% of
face value (which shall, for purposes hereof, be deemed to be fully
vested); |
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(c) |
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10% of the Bank contributed to the Deferred
Compensation Plan, at full face value (which shall, for purposes
hereof, be deemed to be fully vested); and |
(d) Any deferred bonus under the EVCIP which is invested in stock under
the Companys Corporate Management Stock Purchase Program, at full face
value of said bonus (which shall, for purposes hereof, be deemed to be
fully vested);
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other most senior executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those provided
by the Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time from the date hereof
until the Effective Date or if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executives family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other most
senior executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies and programs in effect for the Executive at any
time from the date hereof until the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for the Executive at any time
from the date hereof until the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an automobile
and payment of related expenses, in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time from the date hereof until the Effective Date
4
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time from the date hereof until the
Effective Date or, if more favorable to the Executive, as provided generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect for
the Executive at any time from the date hereof until the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executives employment shall terminate automatically upon
the Executives death during the Employment Period. If the Disability of the Executive occurs
during the Employment Period (pursuant to the definition of Disability set forth below), the
Company may give to the Executive written notice in accordance with Section 13(c) of this Agreement
of its intention to terminate the Executives employment. In such event, the Executives employment
with the Company shall terminate effective on the 30th day after receipt of such notice by the
Executive (the Disability Effective Date), provided that, within the 30 days after such receipt,
the Executive shall not have returned to full-time performance of the Executives duties. For
purposes of this Agreement, Disability shall mean the absence of the Executive from the
Executives duties with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable to the Executive or
the Executives legal representative.
(b) Cause. The Company may terminate the Executives employment for Cause. For
purposes of this Agreement, Cause shall mean:
(i) the willful and continued failure of the Executive to perform substantially the
Executives duties with the Company or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental illness), for more than
15 days after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executives duties,
or
(ii) the willful engaging by the Executive in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the Executive, shall be
considered willful unless it is done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executives action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the President and Chief Executive Officer of the
5
Company or based upon the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executives employment may be terminated by the Executive for
Good Reason. For purposes of this Agreement, Good Reason shall mean:
(i) the assignment to the Executive of any duties inconsistent in any respect with
the Executives position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Company within 15 days after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of Section
4(b) of this Agreement, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company within 15
days after receipt of notice thereof given by the Executive;
(iii) the Companys requiring the Executive to be based at any office or location
other than as provided in Section 4(a)(i)(B) hereof or the Companys requiring the
Executive to travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date, which is not remedied by the
Company within 15 days after receipt of notice thereof given by the Executive;
(iv) any purported termination by the Company of the Executives employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of this
Agreement, which is not remedied by the Company within 15 days after receipt of
notice thereof given by the Executive.
Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any
reason during the 30 day period immediately following the six (6) month anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all purposes of this
Agreement. A termination pursuant to the immediately preceding sentence is sometimes hereinafter
referred to as a Permitted Executive Termination.
(d) Notice of Termination. Any termination of the Executives employment by the
Company or by the Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 13(c) of this Agreement. For purposes of this Agreement, a
Notice of Termination means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of the Executives
employment under the provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date (which date
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shall be not more than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
(e) Date of Termination. Date of Termination means (i) if the Executives employment is
terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of
the Notice of Termination or, subject to applicable cure periods, any later date specified therein,
as the case may be, (ii) if the Executives employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executives employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause. If, during the Employment Period, the Company
shall terminate the Executives employment other than for Cause or the Executive shall terminate
employment for Good Reason (including, without limitation, a Permitted Executive Termination):
(i) the Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executives Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) any accrued but unpaid Annual
Bonus respecting any completed fiscal year ending prior to the Date of Termination,
(3) the product of (x) the Average Annual Bonus and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (4) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), (3) and (4)
shall be hereinafter referred to as the Accrued Obligations). Anything contained
herein to the contrary notwithstanding, the timing of payment by the Company of any
deferred compensation shall remain subject to the terms and conditions of the
applicable deferred compensation plan and any payment election previously made by
the Executive; provided, however, that, if at the time of
Termination, Executive is a specified employee within the meaning of Section 409A
of the Internal Revenue Code, as amended, then payments shall not be made before
the date which is six (6) months after the date of separation from service with the
Company (or, if earlier, the date of the Executives death); and
B. the amount equal to the product of (1) two (2), and (2) the sum of (x) the
Executives Annual Base Salary and (y) the Highest Annual Bonus (as hereinafter
defined); and
(ii) for two (2) years after the Executives Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program, practice
or policy, the Company shall continue benefits to the Executive and/or the
Executives family at least equal to those which would have been provided to them
in accordance with the plans, programs, practices and policies described in Section
4(b)(iv) of this Agreement if the Executives employment had not been
7
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until two (2)
years after the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the Executive
with outplacement services in accordance with the Companys policies with regard to
outplacement then in effect; and
(iv) to the extent not theretofore paid or provided, the Company shall timely pay
or provide to the Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter referred to as the
Other Benefits).
For purposes hereof, the term Highest Annual Bonus shall mean the highest of the Executives
bonuses (whether paid or deferred) under the Companys or its predecessors annual incentive plans
during the last three full fiscal years prior to the Effective Date or for such lesser period as
the Executive has been employed by the Company or its predecessor (annualized in the event that the
Executive was not employed by the Company for the whole of any such fiscal year).
(b) Death. If the Executives employment is terminated by reason of the Executives
death during the Employment Period, this Agreement shall terminate without further obligations to
the Executives legal representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executives estate or beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination. With respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executives
estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and such affiliated companies under such
plans, programs, practices and policies relating to death benefits, if any, as in effect with
respect to other most senior executives and their beneficiaries at any time from the date hereof
until the Effective Date or, if more favorable to the Executives estate and/or the Executives
beneficiaries, as in effect on the date of the Executives death with respect to other most senior
executives of the Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executives employment is terminated by reason of the
Executives Disability during the Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the Executive or the
Executives legal representative in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable of those generally
provided by the Company and its affiliated companies to disabled executives and/or their families
in
8
accordance with such plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any time from the date
hereof until the Effective Date or, if more favorable to the Executive and/or the Executives
family, as in effect at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executives employment shall be
terminated for Cause during the Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, (y) the amount of any compensation previously deferred by
the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case,
all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the
Executives continuing or future participation in any plan, program, policy or practice provided by
the Company or any of its affiliated companies and for which the Executive may qualify, nor,
subject to Section 13(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or agreement except
as explicitly modified by this Agreement.
8. Full Settlement. The Companys obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. Each and every payment made hereunder by the Company shall be
final, and the Company shall not seek to recover all or any part of such payment from the Executive
or from whomsoever may be entitled thereto, for any reasons whatsoever. In no event shall the
Executive be obligated to seek other employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest by (i) the Company, provided that the
Executive prevails in at least one material issue, (ii) the Executive or (iii) others, of the
validity or enforceability of, or liability under, any provision of this Agreement or any guarantee
of performance thereof (including, without limitation, as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section 7872(f) (2) (A) of the
Internal Revenue Code of 1986, as amended (the Code).
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a Payment) would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the Excise Tax), then the Executive shall be
9
entitled to receive an additional payment (a Gross-Up Payment) in an amount such that after
payment by the Executive of all taxes (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount (the Reduced Amount) that could be paid to the Executive such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required to be made under
this Section 9, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by such certified public accounting firm as may be designated by the Company (the Accounting
Firm) which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting the Change of
Control, the Company shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the
Company to the Executive within five days of the receipt of the Accounting Firms determination.
Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (Underpayment), consistent with the
calculations required to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company relating
to such claim,
(ii) take such action in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to contest such
claim, and
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(iv) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such representation and payment
of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the
Companys control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Companys complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
(e) Any Gross-Up Payment required under this Section 9 will be made by the end of the
Executives taxable year next following the Executives taxable year in which the Executive remits
the related taxes. In addition, any right to the reimbursement of expenses incurred due to a tax
audit or litigation addressing the existence or amount of a tax liability will be made by the end
of the Executives taxable year following the Executives taxable year in which the taxes that are
the subject of the audit or litigation are remitted to the taxing authority, or where as a result
of such audit or litigation no taxes are remitted, the end of the Executives taxable year
following the Executives taxable year in which the audit is completed or there is a final and
nonappealable settlement or other resolution of the litigation.
10. Confidential Information. The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executives employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After termination of the
Executives employment with the Company, the Executive shall not, without the prior
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written consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the provisions of this Section
10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executives
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, Company shall mean the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Covenant Not to Compete. In the event of a Permitted Executive Termination,
Executive covenants and agrees that during the Non-Compete Period (as defined below) Executive
shall not, either directly or indirectly, without the prior written consent of the Board (which may
be withheld in the sole and absolute discretion of the Board):
(i) Engage in or carry on any business or in any way become associated with any
business in the Restricted Area (as hereinafter defined) which is similar to or is
in competition with the Business of the Company (as hereinafter defined). As used
in this Section 12, the term (1) Business of the Company shall mean and include
all business activities in which the Company and/or any affiliated companies have
engaged (or have prepared written plans to engage) at any time during the Term,
including but not limited to, the purchase of land (or options therefor) for
development and the construction of residential homes for resale to consumers, and
(2) Restricted Area shall mean and include anywhere in the United States of
America or in any foreign country in which the Company or any affiliated companies
then engage (or have within the preceding three years engaged) in business;
(ii) in connection with any business which is similar to or is in competition with
the Business of the Company in the Restricted Area, solicit the business of any
person or entity, on behalf of himself or any other person or entity, which is or
has been at any time during the Term a customer or supplier of the Company
including, but not limited to, former or present customers or suppliers with whom
Executive has had personal contact during, or by reason of, his relationship with
the Company;
(iii) Be or become an employee, agent, consultant, representative, director or
officer of, or be otherwise in any manner associated with, any person, firm,
corporation, association or other entity which is engaged in or is carrying on any
business which is similar to or in competition with the Business of the Company in
the Restricted Area;
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(iv) Solicit for employment or employ any person employed by the Company at any
time during the twelve (12) month period immediately preceding such solicitation or
employment; or
(v) Be or become a shareholder, joint venturer, owner (in whole or in part), or
partner, or be or become associated with or have any proprietary or financial
interest in or of any firm, corporation, association or other entity which is
engaged in or is carrying on any business which is similar to or in competition
with the Business of the Company in the Restricted Area (a Competing Entity).
Notwithstanding the preceding sentence, (A) passive equity investments by Executive
of $100,000 or less in any Competing Entity, or (B) investments, in any amount, in
any publicly traded mutual fund, index fund or similar investment vehicle which
fund or investment vehicle owns any proprietary or financial interest in any
Competing Entity, shall not be deemed to violate this Section 12(v).
For purposes of identifying the Restricted Area, Executive hereby recognizes and acknowledges
that the existing Business of the Company currently extends throughout the States of Georgia,
Tennessee, South Carolina, North Carolina, California, Arizona, Nevada, Florida, New Jersey,
Delaware, Maryland, Virginia, West Virginia, Texas, New York, Colorado, Mississippi, Indiana,
Kentucky, Ohio, Pennsylvania, Washington, D.C. and New Mexico. Executive further warrants and
represents that, because of his varied skill and abilities, he does not need to compete with the
Business of the Company and that this Agreement will not prevent him from earning a livelihood and
acknowledges that the restrictions contained in this Section 12 constitute reasonable protections
for the Company.
As used in this Section 12, the Non-Compete Period shall mean for a period of one (1) year
after the date of the termination of Executives employment in connection with such Permitted
Executive Termination.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State
of Delaware, without reference to principles of conflict of laws. Any legal action, suit or
proceeding arising out of or relating to this Agreement shall be instituted in the state or federal
courts in the State of Delaware and the parties agree not to assert, in any action, suit or
proceeding by way of motion, as a defense or otherwise, any claim that either party is not
personally subject to the jurisdiction of such court, or that such action, suit or proceeding is
brought in an inconvenient forum, or that the venue is improper or that the subject matter hereof
cannot be enforced in such court. The parties hereby irrevocably submit to the jurisdiction of any
such court in any such action, suit or proceeding.
(b) The captions of this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and legal representatives.
(c) All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party, by FedEx or other commercial overnight courier or by registered
or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
P.O. Box 422175, Atlanta, GA 30342
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If to the Company:
1000 Abernathy Road
Suite 1200
Atlanta, Georgia 30328
Attention: Company Secretary
or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.
(d) The invalidity or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement.
(e) The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.
(f) The Executives or the Companys failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to terminate employment
for Good Reason pursuant to Section 5(c)(i) through (v) of this Agreement, shall not be deemed to
be a waiver of such provision or right or any other provision or right of this Agreement.
(g) Except as may otherwise be provided under any other written agreement between the
Executive and the Company, the Executive and the Company acknowledge that the employment of the
Executive by the Company is at will and, subject to Section 1 hereof, prior to the Effective
Date, the Executives employment and/or this Agreement may be terminated by either the Executive or
the Company at any time prior to the Effective Date, in which case the Executive shall have no
further rights under this Agreement. From and after the Effective Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject matter hereof and,
upon the Effective Date, any such other agreement shall be null, void and of no further force or
effect. Furthermore, from and after the date of this Agreement, this Agreement shall amend,
restate and supersede that certain Employment Agreement dated as of September 1, 2004 between the
Company and the Executive, which Employment Agreement shall be null, void and of no further force
or effect.
14. Compliance with Section 409A of the Code. This Agreement is intended to comply
with Section 409A of the Internal Revenue Code of 1986, as amended (the Code) and will be
interpreted in a manner intended to comply with Section 409A of the Code. Notwithstanding
anything herein to the contrary, in the event any payments or benefits required to be provided
hereunder are deemed to constitute payments of nonqualified deferred compensation that is subject
to the requirements of Section 409A of the Code, then the time and manner in which such payment or
benefit is provided shall be adjusted, to the extent reasonably possible, so that payment or
distribution is made at a time and in a manner that is consistent with the requirements of such
Section 409A (and applicable proposed or final Treasury regulations or other guidance issued or to
be issued by the Internal Revenue Service). This Section 14 may, for example, require that certain
payments to Executive following his termination of employment be delayed until the date that is six
(6) months after the date of his separation from service with the Company (the Delay Period) if,
at the time of Executives termination of employment with the Company, Executive is a specified
employee (as that term is used for purposes of Section 409A(2)(B)(i)). Upon the expiration of the
Delay Period, all payments and benefits delayed pursuant to this Section 14 (whether they would
have otherwise been payable in a single sum or in installments in the absence of such delay) shall
be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due
under this Agreement shall be paid or provided in accordance with the normal payment dates
specified for them herein.
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To the extent any reimbursements or in-kind benefits due to Executive under this Agreement
constitutes deferred compensation under Section 409A of the Code, any such reimbursements or
in-kind benefits shall be paid to Executive in a manner consistent with Treas. Reg. Section
1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a separate
payment within the meaning of Section 409A of the Code. The Executive shall be deemed to have a
termination of employment under this Agreement for purposes of entitling him to any nonqualified
deferred compensation that is subject to the requirements of Section 409A only to the extent the
Executive has a separation from service, as that term is defined in Section 409A and the
applicable Treasury regulations applying all of the default rules thereunder. The Company shall
consult with Executive in good faith regarding the implementation of the provisions of this Section
14.
IN WITNESS WHEREOF, the Executive has hereunto set the Executives hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above written.
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/s/ Michael H. Furlow
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MICHAEL H. FURLOW |
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BEAZER HOMES USA, INC. |
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By |
/s/ Ian J. McCarthy
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Ian J. McCarthy |
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President and Chief Executive Officer |
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exv31w1
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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I, Ian J. McCarthy, certify that: |
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I have reviewed this quarterly report on Form 10-Q of Beazer Homes USA, Inc.; |
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2. |
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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; |
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3. |
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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; |
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4. |
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The registrants other certifying officer 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: |
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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; |
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(b) |
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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; |
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(c) |
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evaluated the effectiveness of the registrants 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 |
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(d) |
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disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants third fiscal quarter of the
fiscal year ended September 30, 2009 that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting;
and |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
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(a) |
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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 registrants ability to record, process, summarize and report financial information;
and |
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(b) |
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any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: August 7, 2009
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Ian J. McCarthy |
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President and Chief Executive Officer |
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exv31w2
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Allan P. Merrill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Beazer Homes USA, Inc.;
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2. |
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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; |
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3. |
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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; |
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4. |
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The registrants other certifying officer 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: |
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(a) |
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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; |
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(b) |
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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; |
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(c) |
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evaluated the effectiveness of the registrants 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 |
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(d) |
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disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants third fiscal quarter of the
fiscal year ended September 30, 2009 that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting;
and |
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5. |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of the registrants board of directors (or persons performing the
equivalent functions): |
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(a) |
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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 registrants ability to record, process, summarize and report financial information;
and |
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(b) |
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any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
Date: August 7, 2009
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Allan P. Merrill |
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Executive Vice President and Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive
Officer of Beazer Homes USA, Inc. (the Company) hereby certifies that the Report on Form 10-Q of
the Company for the period ended June 30, 2009, 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.
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Date: August 7, 2009 |
/s/ Ian J. McCarthy
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Ian J. McCarthy |
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President and Chief Executive Officer |
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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.
exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial
Officer of Beazer Homes USA, Inc. (the Company) hereby certifies that the Report on Form 10-Q of
the Company for the period ended June 30, 2009, 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.
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Date: August 7, 2009 |
/s/ Allan P. Merrill
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Allan P. Merrill |
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Executive Vice President and Chief Financial Officer |
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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.