-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qz1UiWXIamBuj/LZZbGafeykwBGNWd6ccsH5rZJdbsIxuV5GUuNaDydk0Er3V6UC CnS0sujZeTrpdSlJvJ7M8w== 0000085974-96-000004.txt : 19960327 0000085974-96-000004.hdr.sgml : 19960327 ACCESSION NUMBER: 0000085974-96-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYLAND GROUP INC CENTRAL INDEX KEY: 0000085974 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 520849948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08029 FILM NUMBER: 96538648 BUSINESS ADDRESS: STREET 1: 11000 BROKEN LAND PARKWAY CITY: COLUMBIA STATE: MD ZIP: 21044 BUSINESS PHONE: 4107157000 FORMER COMPANY: FORMER CONFORMED NAME: RYAN JAMES P CO DATE OF NAME CHANGE: 19720414 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K --------- X Annual Report Pursuant to Section 13 or 15 (d) of the Securities --- Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 Transition Report Pursuant to Section 13 or 15 (d) of the Securities --- Exchange Act of 1934 [No Fee Required] Commission File Number 1-8029 THE RYLAND GROUP, INC. (Exact name of registrant as specified in its charter) Maryland 52-0849948 -------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 11000 Broken Land Parkway Columbia, Maryland 21044 (Address of principal executive offices) Registrant's telephone number, including area code: (410) 715-7000 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- --------------------- Common Stock, (Par Value $1.00) New York Stock Exchange Common Share Purchase Rights New York Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the Common Stock of The Ryland Group, Inc., held by non-affiliates of the registrant (15,537,166 shares) as of March 11, 1996, was $242,768,219. The number of shares of common stock of The Ryland Group, Inc., outstanding on March 11, 1996, was 15,767,954. DOCUMENTS INCORPORATED BY REFERENCE Name of Document Location in Report - ---------------- ------------------ Proxy Statement for 1996 Annual Meeting of Stockholders Parts I, III Annual Report to Shareholders for the year ended December 31, 1995 Parts II, IV Form 8 filed October 25, 1990 Part IV Form 8-K filed September 12, 1989 Part IV Form 10-K for the year ended December 31, 1989 Part IV Registration Statement on Form S-3, Registration 33-28692 Part IV Form 8-K filed December 31, 1990 Part IV Form 8-K filed August 6, 1992 Part IV Form 10-K for the year ended December 31, 1990 Part IV Form 10-Q for the quarter ended June 30, 1992 Part IV Registration Statement on Form S-3, Registration 33-48071 Part IV Form 10-Q for the quarter ended June 30, 1994 Part IV Form 10-K for the year ended December 31, 1994 Part IV Form 10-Q for the quarter ended September 30, 1995 Part IV Form 8-K filed December 19, 1995 Part IV THE RYLAND GROUP, INC. FORM 10-K INDEX Page PART I. Number ------ Item 1. Business 4 Item 2. Properties 10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II. Item 5. Market for the Company's Common Stock and Related Stockholder Matters 13 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8. Financial Statements and Supplementary Data 13 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III. Item 10. Directors and Executive Officers of the Registrant 14 Item 11. Executive Compensation 14 Item 12. Security Ownership of Certain Beneficial Owners and Management 14 Item 13. Certain Relationships and Related Transactions 14 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15 SIGNATURES 19 INDEX OF EXHIBITS 20 PART I Item 1. Business. The Ryland Group, Inc. (the "Company"), is a leading national homebuilder and mortgage-related financial services firm. Established in 1967, the Company builds homes and provides mortgage services in 26 markets in 19 states and is one of the largest single-family on-site homebuilders in the United States. The Company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing. The financial services segment provides various mortgage-related products and services for retail customers including loan origination, loan servicing, title and escrow services and also conducts investment activities. In June 1995, the Company completed the sale of its institutional mortgage- securities administration business which included master servicing, securities administration, investor information services and tax calculation and reporting. The sale of this business is consistent with the Company's long- term strategy to focus on its core homebuilding and retail mortgage-finance operations. Earnings for the financial services segment for the second half of 1995 were, and future results will continue to be, negatively impacted by the sale of this business. HOMEBUILDING - ------------ MARKETS - The homebuilding segment builds and sells homes that are constructed on-site in six regions which are comprised of the following areas at December 31, 1995: Region Major Markets Served ------ -------------------- Mid-Atlantic Baltimore, Delaware Valley/Philadelphia, Washington, D.C./Northern Virginia Midwest Chicago, Cincinnati, Columbus, Indianapolis, Minneapolis Southeast Atlanta, Charlotte, Columbia, Greenville, Orlando, Tampa Southwest Austin, Dallas, Houston, San Antonio West Denver, Phoenix, Portland, Salt Lake City California Los Angeles/Pacific Inland, Sacramento, San Diego, San Jose Bay Area Effective January 1996, the Company consolidated the West and California regions into a new West region. In addition, the Company recently announced that it will close its operations in Columbus, Ohio by the end of 1996. The homebuilding segment sells under the name of Larchmont Homes in Sacramento, California, Brock Homes in Southern California, Scott Felder Homes in certain Texas markets and Ryland Homes in all other areas. The Company's operations in each of its homebuilding markets may differ based on a number of market-specific factors. These factors include regional economic conditions and job growth, land availability and the local land development process, consumer tastes, competition from other builders of new homes and home resale activity. The Company considers each of these factors when entering into new markets or determining the extent of its operations in existing markets. During 1995, the Company expanded its geographic presence by entering the markets of Minneapolis, Minnesota; Tampa, Florida; San Jose, California; and Portland, Oregon. The Company also completed its first full year of operations in Greenville and Columbia, South Carolina and Salt Lake City, Utah. The Company offers a range of different home styles in each of its geographic regions which are tailored to the styles and consumer tastes of the particular region. The Company's homes vary in size and price range, but are generally marketed to customers purchasing their first home or their first or second time move-up home. The Company's average closing price was $164,000 in 1995. LAND PURCHASES - In the ordinary course of its homebuilding business, the Company acquires land for use in the sale and construction of homes. The Company purchases land in various stages of development; however, the Company generally does not purchase unentitled or unzoned land. The acquisition of land may be under purchase agreements or through the exercise of purchase options, depending on which vehicle is deemed more advantageous given the Company's profit objectives and capital constraints as well as local market conditions. The land acquisition process is controlled through a formal land approval committee to help ensure that transactions meet the Company's standards for financial performance and risk. As of December 31, 1995, the Company had deposits and letters of credit outstanding of $29.8 million in connection with option and land purchase contracts having a total purchase price of $334.5 million. These options and commitments expire at various dates through 2001. MATERIALS COSTS - Substantially all materials used in the construction of homes are available from a number of sources, but may fluctuate in price due to various factors. To increase purchasing efficiencies, the Company uses standardized building materials and products in its homes. Prior to 1995, the Company operated plants in four states that produced and shipped rough lumber packages and trim materials to building sites in many of its markets. During 1995, the Company sold its plants in Ohio, North Carolina and Texas which supplied materials to the Midwest, Southeast and Southwest regions, respectively. The Company decided to sell these plants in order to have greater flexibility in its method of home construction and to improve its responsiveness to consumer's desires for new home designs. The Company may still purchase rough lumber packages from outside suppliers in some of the markets previously served by the plants. The Company continues to operate its plant in Maryland which supplies the Baltimore, Maryland and Washington, D.C./Northern Virginia markets. SUPPLIERS AND SUBCONTRACTORS - Substantially all on-site construction work is performed by subcontractors monitored by the Company's production supervisors. The Company has, on occasion, experienced shortages of skilled labor in certain markets. If shortages were to occur in the future, such shortages could result in longer construction times and higher costs than those experienced in the past. MARKETING - Homes are sold by employees and independent real estate brokers. The Company reports a sale when a customer's sales contract is approved, and records revenue from a sale upon closing. The Company normally commences construction of homes when a customer has selected a lot and floor plan and has received preliminary mortgage approval. However, construction of homes may begin prior to a sale to satisfy market demand for completed homes and to facilitate construction scheduling. FINANCIAL SERVICES - ------------------ Through its financial services segment, the Company provides various mortgage- related products and services for retail customers and conducts investment activities. RETAIL OPERATIONS The retail operations provide mortgage loan origination, loan servicing and title and escrow services for retail customers. LOAN ORIGINATION - In 1995, the Company's mortgage origination operations consisted of retail and wholesale loan offices which processed the Company's builder, spot and wholesale loans. Builder loans are loans that the Company originates in connection with sales by its homebuilding segment. Spot loans are mortgage loans that are originated primarily by loan officers through contacts with realtors and homeowners and are not related to the financing of homes built by the Company. Wholesale loans are originated by outside brokers, but underwritten and closed by the Company. In February 1996, the Company entered into an agreement to sell its wholesale mortgage operations. The sale of this business, which was part of the retail operations of the financial services segment, will likely result in a decline in mortgage originations in 1996. However, the sale of this business is not expected to have a significant impact on the future operating results of the financial services segment. For the 12 months ended December 31, 1995, the Company originated 15,330 mortgage loans totaling $2.0 billion, of which 35 percent were for purchases of homes built by the Company and 65 percent were for purchases of homes not built by the Company or for the refinancing of existing mortgage loans. The Company arranges various types of mortgage financing including conventional, Federal Housing Administration (FHA) and Veterans Administration (VA) mortgages with various fixed- and adjustable-rate features. The Company's mortgage operations are approved by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA). The mortgage origination operation has loan production offices in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, Texas, Utah, and Virginia. LOAN SERVICING - The Company services loans that it originates as well as loans originated by others. As of December 31, 1995, the Company's loan servicing portfolio was $6.2 billion. The Company services loans originated in all 50 states, with the highest concentrations in Arizona, California, Florida, Maryland and Texas. TITLE AND ESCROW SERVICES - Cornerstone Title Company, a wholly owned subsidiary, provides title services primarily to the Company's customers. As of December 31, 1995, Cornerstone had offices in Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Texas and Virginia. The Company also operates an escrow Company in California that performs escrow and loan closing functions primarily on homes built by the Company. DISCONTINUED INSTITUTIONAL OPERATIONS - ------------------------------------- In the second quarter of 1995, the Company sold its institutional mortgage- securities administration business which included master servicing, securities administration, investor information services, and tax calculation and reporting. The current and prior period results for this business (formerly reported as institutional financial services), as well as the gain on the sale of the business, have been reported as discontinued operations in the consolidated statements of earnings. The Company's future earnings will no longer benefit from the results of these operations. INVESTMENT OPERATIONS The Company's investment operations hold certain assets, primarily mortgage- backed securities and notes receivable, which were obtained as a result of the exercise of redemption rights on various mortgage-backed bonds previously owned by the Company's limited-purpose subsidiaries. The Company earns a net interest spread on the investment portfolio from the difference between the interest rates on the mortgage-backed securities and notes receivable and the related borrowing rates. The Company may periodically realize gains from the sale of mortgage-backed securities from the portfolio. LIMITED-PURPOSE SUBSIDIARIES - ---------------------------- The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities. They do continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues of the limited-purpose subsidiaries consist primarily of interest on mortgage collateral subject to bond indebtedness. Expenses consist primarily of interest on the outstanding bonds and amortization of deferred costs. Revenues, expenses and portfolio balances for the limited-purpose subsidiaries continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled principal payments, prepayments and exercises of early redemption provisions. Revenues have approximated expenses for the last three years. The Ryland Group, Inc., and subsidiaries have not guaranteed the debt of the limited- purpose subsidiaries. ECONOMIC CONDITIONS - ------------------- The general economic conditions in the United States as well as the levels of interest rates and consumer confidence affect the Company's business. Higher interest rates may affect the ability of buyers to qualify for mortgage financing and decrease demand for new homes. As a result, the Company's home sales and mortgage originations generally will be negatively impacted by rising interest rates. Movements in interest rates may also affect the market value of the Company's investment portfolio. Prepayments, which are higher in a falling interest rate environment, reduce the value of loan servicing rights in the Company's loan servicing portfolio. The Company's business is also affected by local economic conditions, such as employment rates and housing demand in the markets in which it builds homes. COMPETITION - ----------- The homebuilding segment competes with other homebuilders in its markets. Competition ranges from local builders, who may build only a few homes each year, to other large national homebuilding companies. In addition, the Company competes with other housing alternatives including existing homes and rental housing. Principal competitive factors in homebuilding are home price, design, quality, reputation, relationship with developers, availability and location of lots and availability of customer financing. The financial-services segment competes with other mortgage bankers to arrange financing for home buyers and refinancing customers. Principal competitive factors include interest rates and other features of mortgage loan products available to the consumer. The loan servicing operation of the financial- services segment competes with other loan servicers for loan servicing rights. REGULATORY AND ENVIRONMENTAL MATTERS - ------------------------------------ The homebuilding segment is subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations which impose restrictive zoning and density requirements in order to limit the number of homes that can be built within the boundaries of a particular locality. The homebuilding segment may also be subject to periodic delays in homebuilding projects due to building moratoria in any of the states in which it operates. Generally, such moratoria relate to insufficient water or sewage facilities or inadequate roads or local services. The Company is also subject to various local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The homebuilding segment is subject to a variety of environmental conditions that can affect its business and its homebuilding projects. Environmental laws and conditions may result in delays, may cause the Company to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in certain environmentally sensitive areas. The Company's financial-services segment is subject to the rules and regulations of FHA, VA, FNMA, FHLMC, and GNMA ("regulatory agencies") with respect to originating, processing, selling and servicing mortgage loans. In addition, there are other federal and state statutes and regulations affecting such activities. These rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. Moreover, the Company is required to submit to the regulatory agencies audited financial statements annually, and each regulatory entity has its own financial requirements. The Company's affairs are also subject to examination by the regulatory agencies at all times to assure compliance with the applicable regulations, policies and procedures. Mortgage origination activities are subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and Real Estate Settlement Procedures Act and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to mortgagors concerning credit and settlement costs. EMPLOYEES - --------- At December 31, 1995, the Company employed 2,625 people. The Company considers its employee relations to be good. No employees are represented by a collective bargaining agreement. ITEM 2. PROPERTIES The Company leases office space for its corporate headquarters in Columbia, Maryland. In addition, the Company leases office space in the various markets in which it operates. The Company operates a building component plant in New Windsor, Maryland. ITEM 3. LEGAL PROCEEDINGS Contingent liabilities may arise from the obligations incurred in the ordinary course of business, or from the usual obligations of on-site housing producers for the completion of contracts. One current and two former officers of Ryland Mortgage Company ("RMC") have been notified that they are targets of a federal grand jury investigation concerning alleged misappropriation of funds from the Resolution Trust Corporation ("RTC"). The Company has been advised that the investigation relates to alleged overpayments to RMC of approximately $3 million under two mortgage-servicing contracts with the RTC. The Company is investigating this matter and, at this time, cannot predict how it will be resolved or whether the Company or RMC will incur any liability. The Company is also party to various legal proceedings generally incidental to its businesses. Based on evaluation of the above matters and discussions with counsel, management believes that liabilities to the Company arising from these matters will not have a material adverse effect on the financial condition of the Company. ITEM 4. SUBMISSION TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1995. SEPARATE ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position (date elected to position) Prior Business Experience - ------------------------------------------------------------------------------ R. Chad Dreier 48 Chairman of the Board of the Company (1994), President and Chief Executive Officer of the Company (1993). Executive Vice President and Chief Financial Officer of Kaufman and Broad Home Corporation and Chairman of Kaufman and Broad Mortgage Company (1986-1993). Michael C. Brown 38 President of Ryland Mortgage Company (1996). Chief Operating Officer of Ryland Mortgage Company (1995). Senior Vice President of Ryland Mortgage Company (1987). J. Sidney Davenport IV 54 Vice President of the Company(1984) and Executive Vice President of Ryland Mortgage Company (1993). Senior Vice President of Ryland Mortgage Company (1990). Timothy R. Doyle 45 Senior Vice President of the Company (1991) and President of Mid-Atlantic Region (1994). President of Midwest Region (1991). Vice President -Operations of the Maryland Region (1976). John M. Garrity 49 Senior Vice President of the Company and President of Southeast Region (1994). Division General Manager of Arvida Homes (1992-1994). Project General Manager, Weston Residential Projects (1991-1992). David Lesser 40 Executive Vice President, General Counsel and Secretary of the Company (1995). Executive Vice President and General Counsel of Riggs National Corporation (1987-1995). Michael D. Mangan 39 Executive Vice President and Chief Financial Officer of the Company (1994). Executive Vice President and Group Chief Financial Officer of GMAC Mortgage Corporation (1991-1994). William R. Rollo 37 Senior Vice President of the Company and President of Southwest Region (1994). Executive Vice President of Scott Felder L.P. (1990-1994). Frank J. Scardina 47 Senior Vice President of the Company (1994), President of West Region (1996) and President of California Region (1994). Vice President, Ryland Homes (1993). President of Birtcher Real Estate Ltd.(1991-1992). Kipling W. Scott 41 Senior Vice President of the Company and President of Midwest Region (1994). Midwest Region Director of Land Resources & Planning (1993). President of Development Management Services, Inc. (1989-1993). All officers are elected by the board of directors.
There are no family relationships, arrangements or understandings pursuant to which any of the officers listed were elected. For a description of employment and severance arrangements with certain executive officers of the Company, see page 12 of the Proxy Statement for the 1996 Annual Meeting of Stockholders. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The information required by this item is incorporated by reference from the section entitled "Common Stock Prices and Dividends" appearing on page 48 of the Annual Report to Shareholders for the year ended December 31, 1995. ITEM 6. SELECTED FINANCIAL DATA. The information required by this item is incorporated by reference from the section entitled "Selected Financial Data" appearing on page 21 of the Annual Report to Shareholders for the year ended December 31, 1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is incorporated by reference from the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" appearing on pages 22 through 28 of the Annual Report to Shareholders for the year ended December 31, 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is incorporated by reference from the information appearing on pages 29 through 46 and from the section entitled "Quarterly Financial Data and Common Stock Prices and Dividends" appearing on page 48 of the Annual Report to Shareholders for the year ended December 31, 1995. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. During the fiscal years ended December 31, 1995 and 1994, there were no disagreements between the Company and its accountants on any matter of accounting principle or financial statement disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information as to the Company's Directors is incorporated by reference from pages 3-4 and 7 of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders. Information as to the Company's executive officers is shown under Part I as a separate item. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from pages 7-13 of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from pages 5 and 6 of the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. There are no transactions, business relationships or indebtedness required to be reported by the Company pursuant to this Item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. The following consolidated financial statements of The Ryland Group, Inc., and Subsidiaries, included in the Annual Report to Shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8: Consolidated Statements of Earnings - years ended December 31, 1995, 1994, and 1993. Consolidated Balance Sheets - December 31, 1995 and 1994. Consolidated Statements of Stockholders' Equity - years ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows - years ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements. (a) 2. Financial Statement Schedules. (filed herewith) Page No. Schedule II - Valuation and Qualifying Accounts 18 Schedules not listed above have been omitted because they are either inapplicable or the required information has been given in the financial statements or notes thereto. (a) 3. Exhibits Exhibit No. 3.1 Charter of The Ryland Group, Inc., as amended. (Incorporated by reference from Form 10-K for the year ended December 31, 1989) 3.2 Bylaws of The Ryland Group, Inc., as amended. (Filed Herewith) 4.1 Rights Agreement dated as of December 17, 1986, between The Ryland Group, Inc., and Maryland National Bank as amended by The First Amendment of Rights Agreement dated as of October 17, 1990. (Incorporated by reference from Form 8 filed October 25, 1990) 4.2 Articles Supplementary dated as of August 31, 1989. (Incorporated by reference from Form 8-K filed September 12, 1989) 4.3 Indenture dated as of November 2, 1989 between The Ryland Group, Inc., and Manufacturers Hanover Trust Company, as Trustee. (Incorporated by reference from Exhibits to Registration Statement on Form S-3, Registration No. 33-28692) 4.4 First Supplemental Indenture dated as of December 28, 1990, between The Ryland Group, Inc., and Manufacturers Hanover Trust Company, as Trustee. (Incorporated by reference from Form 8-K filed December 31, 1990) 4.5 Indenture dated as of July 15, 1992, between The Ryland Group, Inc., and Security Trust Company, N.A., as Trustee. (Incorporated by reference from Form 8-K filed August 6, 1992) 4.6 Senior Subordinated Notes dated as of July 23, 1992. (Incorporated by reference from Form 8-K filed August 6, 1992) 4.7 Senior Subordinated Notes dated as of November 4, 1993. (Incorporated by reference from Registration Statement on Form S-3, Registration No. 33-48071) 10.1 Lease Agreement between Seventy Corporate Center Limited Partnership and The Ryland Group, Inc., dated April 17, 1990. (Incorporated by reference from Form 10-K for the year ended December 31, 1990) 10.2 (A) 1992 Equity Incentive Plan of The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1992) 10.3 (A) 1992 Non-Employee Director Equity Plan of The Ryland Group, Inc., as amended. (Incorporated by reference from Form 10-Q for the quarter ended June 30, 1994) (A) Executive Compensation Plan or Arrangement (a) 3. Exhibits, continued Exhibit No. 10.4 Restated Credit Agreement dated as of July 21, 1995, between The Ryland Group, Inc., and certain banks. (Filed Herewith) 10.5 Restated Loan and Security Agreement dated as of June 16, 1995, between Ryland Mortgage Company; Associates Mortgage Funding Corporation; BankOne, Texas, N.A.; and certain lenders. (Filed Herewith) 10.6 (A) Employment Agreement dated as of December 31, 1994, between R. Chad Dreier and The Ryland Group, Inc. (Incorporated by reference from Form 10-K for the year ended December 31, 1994) 10.7 (A) Employment Agreement dated as of September 18, 1995, between Michael D. Mangan and The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended September 30, 1995) 10.8 (A) Employment Agreement dated as of September 18, 1995, between David Lesser and The Ryland Group, Inc. (Incorporated by reference from Form 10-Q for the quarter ended September 30, 1995) 11 Statement Re Computation of Per Share Earnings. (Filed Herewith) 13 Annual Report to Shareholders for the year ended December 31, 1995. (Filed Herewith) 21 Subsidiaries of the Registrant. (Filed Herewith) 23 Consent of Ernst & Young LLP, Independent Auditors. (Filed Herewith) 24 Power of Attorney. (Filed Herewith) 27. Financial Data Schedule. (Filed Herewith) (A) Executive Compensation Plan or Arrangement (b) Reports on Form 8-K filed in the fourth quarter of 1995: Form 8-K was filed with the Securities and Exchange Commission on December 19, 1995. The Ryland Group, Inc., and Subsidiaries SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (dollar amounts in thousands)
Balance at Charged to Charged Deductions Balance at Beginning Costs and to Other and End of Description of Period Expenses Accounts Transfers(1) Period (2) - ------------------------------------------------------------------------------ Valuation allowance: Homebuilding inventories 1995 $ 31,853 $ 7,000 $ 0 $(30,550) $ 8,303 1994 53,333 0 0 (21,480) 31,853 1993 20,422 43,000 0 (10,089) 53,333 Valuation allowance: Investment in and advances to joint ventures 1995 $ 1,573 $ 7,000 $ 0 $ (640) $ 7,933 1994 1,669 0 0 (96) 1,573 1993 1,180 2,680 0 (2,191) 1,669 (1) In 1995, the Company adopted a new accounting standard, Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (FASB 121). As part of the implementation of FASB 121, the carrying basis of inventories to be held and used was written down by the remaining amount of valuation reserves provided under prior accounting rules. Deductions for homebuilding inventories, prior to the adoption of FASB 121, were generally due to normal inventory turnover resulting from home closings or land sales. (2) Balances as of December 31, 1995, represent valuation allowances for assets to be disposed of.
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE RYLAND GROUP, INC. By: /s/ Michael D. Mangan March 26, 1996 --------------------- Michael D. Mangan Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Principal Executive Officer: /s/ R. Chad Dreier March 26, 1996 - ------------------ R. Chad Dreier Chief Executive Officer Principal Financial Officer: /s/ Michael D. Mangan March 26, 1996 - --------------------- Michael D. Mangan Chief Financial Officer Principal Accounting Officer: /s/ Stephen B. Cook March 26, 1996 - ------------------- Stephen B. Cook Corporate Controller The Board of Directors: Andre W. Brewster; James A. Flick, Jr.; R. Chad Dreier; Robert J. Gaw; Leonard M. Harlan; L. C. Heist; William L. Jews; William G. Kagler; John H. Mullin, III; Charlotte St. Martin; John O. Wilson. By: /s/ R. Chad Dreier March 26, 1996 ------------------ R. Chad Dreier For Himself and as Attorney-in-Fact Page Of Sequentially Numbered Pages -------------- INDEX OF EXHIBITS 3.2 Bylaws of The Ryland Group, Inc., as amended 21-31 10.4 Restated Credit Agreement dated as of July 21, 1995, between The Ryland Group, Inc., and certain banks 32-116 10.5 Restated Loan and Security agreement dated as of June 16, 1995, between Ryland Mortgage Company; Associates Mortgage Funding Corporation; BankOne, Texas, N.A.; and certain lenders 117-184 11 Statement Re Computation of Per Share Earnings 185 13 Annual Report to Shareholders for the year ended December 31, 1995 186-212 21 Subsidiaries of the Registrant 213 23 Consent of Ernst & Young LLP, Independent Auditors 214 24 Power of Attorney 215 27 Financial Data Schedule 216 EX-3 2 EXHIBIT 3.2 THE RYLAND GROUP, INC. Bylaws ARTICLE I STOCKHOLDERS SECTION 1.01. Annual Meeting. The Corporation shall hold an annual meeting of its stockholders to elect directors and transact any other business within its powers, either at 10:00 a.m. on the third Wednesday of April in each year, if not a legal holiday, or at such other time on such other day falling on or before the 30th day thereafter as shall be set by the Board of Directors. Except as the Charter or statute provides otherwise, any business may be considered at an annual meeting without the purpose of the meeting having been specified in the notice. Failure to hold an annual meeting does not invalidate the Corporation's existence or affect any otherwise valid corporate acts. SECTION 1.02. Special Meeting. At any time in the interval between annual meetings, a special meeting of the stockholders may be called by the Chairman of the Board or the President or by a majority of the Board of Directors by vote at a meeting or in writing (addressed to the Secretary of the Corporation) with or without a meeting. SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held at such place in the United States as is set, from time to time, by the Board of Directors. SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than 10 nor more than 90 days before each stockholders' meeting, the Secretary shall give written notice of the meeting to each stockholder entitled to vote at the meeting and each other stockholder entitled to notice of the meeting. The notice shall state the time and place of the meeting and, if the meeting is a special meeting or notice of the purpose is required by statute, the purpose of the meeting. Notice is given to a stockholder when it is personally delivered to him, left at his residence or usual place of business, or mailed to him at his address as it appears on the records of the Corporation. Notwithstanding the foregoing provisions, each person who is entitled to notice waives notice if he, before or after the meeting, signs a waiver of the notice, which is filed with the records of stockholders' meetings, or is present at the meeting in person or by proxy. A meeting of stockholders convened on the date for which it was called may be adjourned, from time to time, without further notice to a date not more than 120 days after the original record date. SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides otherwise, at a meeting of stockholders the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum, and a majority of all the votes cast at a meeting at which a quorum is present is sufficient to approve any matter which properly comes before the meeting. In the absence of a quorum, the stockholders present, in person or by proxy, by majority vote and without notice other than by announcement, may adjourn the meeting, from time to time, until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. In the event that at any meeting a quorum exists for the transaction of some business but does not exist for the transaction of other business, the business as to which a quorum is present may be transacted by the holders of stock present in person or by proxy who are entitled to vote thereon. SECTION 1.06. General Right to Vote; Proxies. Unless the Charter provides for a greater or lesser number of votes per share or limits or denies voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders. In all elections for directors, each share of stock may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. A stockholder may vote the stock he owns of record either in person or by written proxy signed by the stockholder or by his duly authorized attorney in fact. Unless a proxy provides otherwise, it is not valid more than 11 months after its date. SECTION 1.07. List of Stockholders. At each meeting of stockholders, a full, true and complete list of all stockholders entitled to vote at such meeting, showing the number and class of shares held by each and certified by the transfer agent for such class or by the Secretary, shall be furnished by the Secretary. SECTION 1.08. Conduct of Voting. At all meetings of stockholders, unless the voting is conducted by judges, the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided, by the chairman of the meeting. If demanded by stockholders, present in person or by proxy, entitled to cast 10 percent of the number of votes entitle to be cast, or if ordered by the chairman, the vote upon any election or question shall be taken by ballot and, upon like demand or order, the voting shall be conducted by two inspectors, in which event the proxies and ballots shall be received, and all questions touching the qualification of voters and the validity of proxies and the acceptance or rejection of votes, shall be decided by the inspectors. Unless so demanded or ordered, no vote need be by ballot, and voting need not be conducted by inspectors. The stockholders at any meeting may choose an inspector or inspectors to act at such meeting and, in default of such election, the chairman of the meeting may appoint an inspector or inspectors. No candidate for election as a director at a meeting shall serve as an inspector thereat. SECTION 1.09. Informal Action by Stockholders. Any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if there is filed with the records of stockholders' meetings a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote at it. ARTICLE II BOARD OF DIRECTORS SECTION 2.01. Function of Directors. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors, except as conferred on or reserved to the stockholders by statute or by the Charter or Bylaws. SECTION 2.02. Number of Directors. The Corporation shall have at least three directors; provided that, if there is no stock outstanding, the number of directors may be less than three but not less than one; and, if there is stock outstanding and so long as there are less than three stockholders, the number of directors may be less than three but not less than the number of stockholders. The Corporation shall have the number of directors provided in the Charter until changed as herein provided. A majority of the entire Board of Directors may alter the number of directors set by the Charter to not exceeding 25 nor less than the minimum number then permitted herein, but the action may not affect the tenure of office of any director. SECTION 2.03. Election and Tenure of Directors. At each annual meeting, the stockholders shall elect directors to hold office until the next annual meeting and until their successors are elected and qualify. No director shall stand for election upon reaching the age of 70. SECTION 2.04. Removal of Director. The stockholders may remove any director, with or without cause, by the affirmative vote of a majority of all the votes entitled to be cast for the election of directors. SECTION 2.05. Vacancy on Board. The stockholders may elect a successor to fill a vacancy on the Board of Directors which results from the removal of a director. A majority of the remaining directors, whether or not sufficient to constitute a quorum, may fill a vacancy on the Board of Directors which results from any cause except an increase in the number of directors, and a majority of the entire Board of Directors may fill a vacancy which results from an increase in the number of directors. A director elected by the Board of Directors to fill a vacancy serves until the next annual meeting of stockholders and until his successor is elected and qualifies. A director elected by the stockholders to fill a vacancy which results form the removal of a director serves for the balance of the term of the removed director. SECTION 2.06. Regular Meetings. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business; and in the event that no other time is designated by the stockholders, the Board of Directors shall meet one hour after the time for such stockholders' meeting or immediately following the close of such meeting, whichever is later, on the day of such meeting. Such first regular meeting shall be held at any place as may be designated by the stockholders, or in default of such designation, at the place designated by the Board of Directors for such first regular meeting, or in default of such designation, at the place of the holding of the immediately preceding meeting of stockholders. No notice of such first meeting shall be necessary if held as hereinabove provided. Any other regular meeting of the Board of Directors shall be held on such date and at any place as may be designated, from time to time, by the Board of Directors. SECTION 2.07. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. A special meeting of the Board of Directors shall be held on such date and at any place in or out of the state of Maryland as may be designated, from time to time, by the Board of Directors. In the absence of designation, such meeting shall be held at such place as may be designated in the call. SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06, the Secretary shall give notice to each director of each regular and special meeting of the Board of Directors. The notice shall state the time and place of the meeting. Notice is given to a director when it is delivered personally to him, left at his residence or usual place of business, or sent by telegraph or telephone at least 24 hours before the time of the meeting or, in the alternative, by mail to his address as it shall appear on the records of the Corporation at least 72 hours before the time of the meeting. Unless the Bylaws or a resolution of the Board of Directors provides otherwise, the notice need not state the business to be transacted at or the purposes of any regular or special meeting of the Board of Directors. No notice of any meeting of the Board of Directors need be given to any director who attends or to any director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn, from time to time, to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.09. Action by Directors. Unless statute or the Charter or Bylaws require a greater proportion, the action of a majority of the directors present at a meeting at which a quorum is present is action of the Board of Directors. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business. In the absence of a quorum, the directors present, by majority vote and without notice other than by announcement, may adjourn the meeting, from time to time, until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting, if a unanimous written consent which sets forth the action is signed by each member of the Board and filed with the minutes of proceedings of the Board. SECTION 2.10. Meeting by Conference Telephone. Members of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means constitutes presence in person at a meeting. SECTION 2.11. Compensation. By resolution of the Board of Directors, a fixed sum and expenses, if any, for attendance at each regular or special meeting of the Board of Directors or of committees thereof, and other compensation for their services as such on committees of the Board of Directors, may be paid to directors. A director who serves the Corporation in any other capacity also may receive compensation for such other services, pursuant to a resolution of the directors. ARTICLE III COMMITTEES SECTION 3.01. Committees. The Board of Directors may appoint, from among its members, an Executive Committee and other committees composed of two or more directors and delegate to these committees any of the powers of the Board of Directors, except the power to declare dividends or other distributions on stock; elect directors; issue stock, other than as provided in the next sentence; recommend to the stockholders any action which requires stockholder approval; amend the Bylaws; or approve any merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of stock, a committee of the Board, in accordance with a general formula or method specified by the Board by resolution or by adoption of a stock option or other plan, may fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors. SECTION 3.02. Committee Procedure. Each committee may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at a meeting at which a quorum is present shall be the act of the committee. The members of a committee present at any meeting, whether or not they constitute a quorum, may appoint a director to act in the place of an absent member. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if a unanimous written consent, which sets forth the action, is signed by each member of the committee and filed with the minutes of the committee. The members of a committee may conduct any meeting thereof by conference telephone in accordance with the provisions of Section 2.10. SECTION 3.03. Emergency. In the event of a state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Corporation by its directors and officers, as contemplated by the Charter and the Bylaws, any two or more available members of the then incumbent Executive Committee shall constitute a quorum of that Committee for the full conduct and management of the affairs and business of the Corporation in accordance with the provisions of Section 3.01. In the event of the unavailability, at such time, of a minimum of two members of the then incumbent Executive Committee, the available directors shall elect an Executive Committee consisting of any two members of the Board of Directors, whether or not they be officers of the Corporation, which two members shall constitute the Executive Committee for the full conduct and management of the affairs of the Corporation in accordance with the aforegoing provisions of this Section. This Section shall be subject to implementation by resolution of the Board of Directors passed, from time to time, for that purpose; and any provisions of the Bylaws (other than this Section) and any resolutions which are contrary to the provisions of this Section or to the provisions of any such implementary resolutions shall be suspended until it shall be determined by any interim Executive Committee acting under this Section that it shall be to the advantage of the Corporation to resume the conduct and management of its affairs and business under all the other provisions of the Bylaws. ARTICLE IV OFFICERS SECTION 4.01. Executive Officers. The Board of Directors may choose a Chairman of the Board from among the directors. The Board of Directors shall choose a President, a Secretary and a Treasurer who need not be directors. The Board of Directors may choose one or more Senior Vice Presidents, Vice Presidents, and a Controller, none of whom need be a director. Any two or more of the above-mentioned offices, except those of President and Vice Presidents, may be held by the same person; but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by statute, by charter, by the Bylaws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. The Board of Directors may designate such persons as appointed officers as they deem necessary or desirable, from time to time. SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one be elected, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present. He shall have and may exercise such powers as are, from time to time, assigned to him by the Board of Directors. SECTION 4.03. President. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; and he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 4.04. Vice Presidents. The Corporation shall have four (4) classes of Vice President; namely, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and Operational Vice Presidents. Each class of Vice President shall have such powers and duties as, from time to time, may be assigned to them by the Board of Directors or the Chairman. Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall be executive officers of the Corporation. They shall have the power and authority, in the ordinary course of business of the Corporation, to acquire and dispose of real and personal property of the Corporation and interests therein and to execute and deliver all such documents as may be necessary or desirable in connection with any such acquisition or disposition. Operational Vice Presidents shall be deemed appointed officers of the Corporation. They shall have the power and authority, in the ordinary course of business of the Corporation, to make conveyances of real property developed by the Corporation and related personal property and to execute and deliver all such documents as may be necessary or desirable in connection with any such conveyance, and to execute land purchase agreements and related documents in connection with land acquisition transactions approved by a Senior Vice President of the Corporation. SECTION 4.05. Secretary. The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors and of any committees in books provided for this purpose; he shall see that all notices are duly given in accordance with the provisions of the Bylaws or as required by law; he shall be custodian of the records of the Corporation; he shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Corporation, under its seal, is duly authorized and when so affixed, may attest the same; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or the President. SECTION 4.06. Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, and receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of treasurer of a corporation and such other duties as may be assigned to him by the Board of Directors or the President. SECTION 4.07. Appointed Officers. Operational Vice Presidents, Controllers, Assistant Vice Presidents, Assistant Secretaries or Treasurers, and such additional officers as may be deemed necessary or desirable to management of the Corporation, shall be deemed appointed officers and shall not be considered executive officers of the Corporation. Appointed officers may be appointed by the Board of Directors or the President. SECTION 4.08. Compensation. The Board of Directors shall have the power to fix the compensation of all executive and appointed officers of the Corporation. The President shall have the power to fix the compensation of appointed officers in the absence of action thereon by the Board of Directors. SECTION 4.09. Removal. Any officer, employee or agent of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interests of the Corporation will be served thereby; but such removal shall be without prejudice to the contractual rights, if any, of the person removed. Any appointed officer, employee or agent of the Corporation may be removed by the President whenever, in his judgment, the best interests of the Corporation will be served thereby; but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. ARTICLE V STOCK SECTION 5.01. Certificates for Stock. Each stockholder is entitled to certificates which represent and certify the shares of stock he holds in the Corporation. Each stock certificate shall include on its face the name of the corporation that issues it, the name of the stockholder or other person to whom it is issued, and the class of stock and number of shares it represents. It shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors or any officer or officers designated for such purpose by resolution of the Board of Directors. Each stock certificate shall be signed by the Chairman of the Board, the President, or a Vice President and countersigned by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. Each certificate may be sealed with the actual corporate seal or a facsimile of it in any other form, and the signatures may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. SECTION 5.02. Transfers. The Board of Directors shall have the power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock; and may appoint transfer agents and registrars thereof. The duties of the transfer agent and registrar may be combined. SECTION 5.03. Record Date and Closing of Transfer Books. The Board of Directors may set a record date or direct that the stock transfer books be closed for a stated period for the purpose of making any proper determination with respect to stockholders, including which stockholders are entitled to notice of a meeting, vote at a meeting, receive a dividend, or be allotted other rights. The record date may not be more than 90 days before the date on which the action requiring the determination will be taken; the transfer books may not be closed for a period longer than 20 days; and, in the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least 10 days before the date of the meeting. SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger which contains the name and address of each stockholder and the number of shares of stock of each class which the stockholder holds. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or without the state of Maryland, or, if none, at the principal office or the principal executive offices of the Corporation in the state of Maryland. SECTION 5.05. Certification of Beneficial Owners. The Board of Directors may adopt by resolution a procedure by which a stockholder of the Corporation may certify in writing to the Corporation that any shares of stock registered in the name of the stock-holder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may certify; the purpose for which the certification may be made; the form of certification and the information to be contained in it; the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation, if the certification is with respect to a record date or closing of the stock transfer books; and any other provisions with respect to the procedure which the Board considers necessary or desirable. Upon receipt of a certification which complies with the procedure adopted by the Board in accordance with this Section, the person specified in the certification is, for the purpose set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification. SECTION 5.06. Lost Stock Certificates. The Board of Directors of the Corporation may determine the conditions for issuing a new stock certificate in place of one which is alleged to have been lost, stolen, or destroyed, or the Board of Directors may delegate such power to any officer or officers of the Corporation. In their discretion, the Board of Directors, or such officer or officers, may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. ARTICLE VI FINANCE SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the payment of money, notes and other evidences of indebtedness, issued in the name of the Corporation, shall, unless otherwise provided by resolution of the Board of Directors, be signed by the President, a Vice President or an Assistant Vice President and countersigned by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. SECTION 6.02. Annual Statement of Affairs. There shall be prepared annually a full and correct statement of the affairs of the Corporation, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within 20 days after the meeting, placed on file at the Corporation's principal office. SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be the 12-month period ending December 31 in each year, unless otherwise provided by the Board of Directors. ARTICLE VII SUNDRY PROVISIONS SECTION 7.01. Books and Records. The Corporation shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its stockholders, Board of Directors and of any executive or other committee when exercising any of the powers of the Board of Directors. The books and records of a Corporation may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. SECTION 7.02. Corporate Seal. The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in the charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof. SECTION 7.03. Bonds. The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. SECTIONS 7.04. Voting Upon Shares in Other Corporations. Stock of other corporation or associations, registered in the name of the Corporation, may be voted by the President, a Vice President or a proxy appointed by either of them. The Board of Directors, however, may by resolution appoint some other person to vote such shares, in which case such person shall be entitled to vote such shares upon the production of a certified copy of such resolution. SECTION 7.05. Mail. Any notice or other document which is required by these Bylaws to be mailed shall be deposited in the United States mails, postage prepaid. SECTION 7.06. Execution of Documents. A person who holds more than one office in the Corporation may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. SECTION 7.07. Amendments. Subject to the special provisions of Section 2.02, (a) any and all provisions of these Bylaws may be altered or repealed, and new bylaws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose; and (b) the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new bylaws or to amend, alter or repeal any of the Bylaws of the Corporation. EX-10 3 EXHIBIT 10.4 EXECUTION COPY AMENDED AND RESTATED CREDIT AGREEMENT among THE RYLAND GROUP, INC., CERTAIN LENDERS, CHEMICAL BANK, NATIONSBANK, N.A. (CAROLINAS), BANK OF AMERICA ILLINOIS AND THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as Co-Agents, CHEMICAL BANK as Syndication Agent and Documentation Agent and NATIONSBANK, N.A. (CAROLINAS) as Administrative Agent Dated as of July 21, 1995 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS 1 1.1 Defined Terms 1 1.2 Other Definitional Provisions 22 1.3 Accounting Principles 22 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 22 2.1 Revolving Credit Commitments. 22 2.2 Revolving Credit Notes 23 2.3 Procedure for Revolving Credit Borrowing 23 2.4 Short-Term Funding Line Commitments 24 2.5 Fees 26 2.6 Optional Termination and Reduction of Commitments 27 2.7 Optional Prepayments; Mandatory Prepayments 27 2.8 Conversion and Continuation Options 28 2.9 Minimum Amounts of Tranches 29 2.10 Interest Rates and Payment Dates 29 2.11 Repayment of Loans 30 2.12 Computation of Interest and Fees 30 2.13 Inability to Determine Interest Rate 31 2.14 Pro Rata Treatment and Payments 31 2.15 Illegality 32 2.16 Eurocurrency Reserve Costs; Requirements of Law 33 2.17 Taxes 35 2.18 Indemnity 37 SECTION 3. LETTERS OF CREDIT 37 3.1 L/C Commitment 37 3.2 Procedure for Issuance of Letters of Credit 38 3.3 Fees, Commissions and Other Charges 38 3.4 L/C Participations 39 3.5 Reimbursement Obligation of the Company 40 3.6 Obligations Absolute 41 3.7 Letter of Credit Payments 41 3.8 Application 41 SECTION 4. REPRESENTATIONS AND WARRANTIES 41 4.1 Financial Condition 42 4.2 No Change 42 4.3 Corporate Existence; Compliance with Law 42 4.4 Corporate Power; Authorization; Enforceable Obligations 43 4.5 No Legal Bar 43 4.6 No Material Litigation 43 4.7 No Default 44 4.8 Ownership of Property; Liens 44 4.9 Intellectual Property 44 4.10 Taxes 44 4.11 Federal Regulations 44 4.12 ERISA 45 4.13 Investment Company Act; Other Regulations 45 4.14 Subsidiaries 45 4.15 Accuracy and Completeness of Information 45 4.16 Environmental Matters 46 4.17 Status of the Notes 47 4.18 Purpose of Loans 47 SECTION 5. CONDITIONS PRECEDENT 47 5.1 Conditions to Initial Extensions of Credit 47 5.2 Conditions to Each Extension of Credit 49 SECTION 6. AFFIRMATIVE COVENANTS 50 6.1 Financial Statements 50 6.2 Certificates; Other Information 50 6.3 Payment of Obligations 52 6.4 Conduct of Business and Maintenance of Existence 52 6.5 Maintenance of Property; Insurance 52 6.6 Inspection of Property; Books and Records; Discussions 52 6.7 Notices 53 6.8 Environmental Laws 54 6.9 Guarantees from Future Subsidiaries 54 SECTION 7. NEGATIVE COVENANTS 54 7.1 Financial Condition Covenants 55 7.2 Limitation on Indebtedness 56 7.3 Limitation on Liens 58 7.4 Limitation on Guarantee Obligations 59 7.5 Limitations of Fundamental Changes 60 7.6 Limitation on Sale of Assets 61 7.7 Limitation on Dividends 62 7.8 Limitation on Investments 62 7.9 Limitation on Optional Payments and Modification of Debt Instruments 64 7.10 Transactions with Affiliates 64 7.11 Limitation on Inventory 65 7.12 Fiscal Year 65 7.13 Compliance with ERISA 65 7.14 Preferred Stock 65 7.15 Limitation on Indebtedness of New Subsidiaries. 65 SECTION 8. EVENTS OF DEFAULT 66 SECTION 9. THE AGENTS 69 9.1 Appointment 69 9.2 Delegation of Duties 69 9.3 Exculpatory Provisions 70 9.4 Reliance by Agents 70 9.5 Notice of Default 70 9.6 Non-Reliance on Agents and Other Lenders 71 9.7 Indemnification 71 9.8 Agents in Individual Capacity 72 9.9 Successor Administrative Agent 72 9.10 Successor Documentation Agent 72 9.11 The Co-Agents and the Syndication Agent. 73 SECTION 10. MISCELLANEOUS 73 10.1 Amendments and Waivers 73 10.2 Notices 73 10.3 No Waiver; Cumulative Remedies 74 10.4 Survival of Representations and Warranties 74 10.5 Payment of Expenses and Taxes 75 10.6 Successors and Assigns; Participations and Assignments 76 10.7 Adjustments; Set-off 78 10.8 Counterparts 79 10.9 Severability 79 10.10 Integration 79 10.11 GOVERNING LAW 79 10.12 Submission To Jurisdiction 79 10.13 WAIVER OF JURY TRIAL 80 10.14 Confidentiality 80 ANNEXES AND SCHEDULES Annex I Significant Homebuilding Subsidiaries Schedule 1.1 Lenders, Addresses and Commitments Schedule 3.1 Existing Letters of Credit Schedule 4.6 Litigation Schedule 4.14 List of Subsidiaries Schedule 6.2(g) Financial Information Schedule 7.2(f) Existing IRB Indebtedness EXHIBITS Exhibit A Form of Revolving Credit Note Exhibit B Form of Short-Term Funding Line Note Exhibit C Form of Borrowing Base Certificate Exhibit D Form of Guaranty Exhibit E-1 Form of Legal Opinion of Corporate Counsel to the Company Exhibit E-2 Form of Legal Opinion of Piper & Marbury L.L.P., counsel for the Company and the Guarantors Exhibit F Form of Assignment and Acceptance Exhibit G Form of Compliance Certificate AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 21, 1995, among THE RYLAND GROUP, INC., a Maryland corporation (the "Company"), the several lenders from time to time parties to this Agreement (the "Lenders"), CHEMICAL BANK, NATIONSBANK, N.A. (CAROLINAS), BANK OF AMERICA ILLINOIS, and THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as Co-Agents (in such capacity, the ("Co-Agents"), CHEMICAL BANK, a New York banking corporation ("Chemical"), as Documentation Agent and Syndication Agent (in such respective capacities, the "Documentation Agent" and the "Syndication Agent") and NATIONSBANK, N.A. (CAROLINAS), a national banking association ("NationsBank"), as Administrative Agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the Company and certain of the Lenders and Co-Agents are parties to the Existing Credit Agreement, and desire to amend and restate the Existing Credit Agreement; WHEREAS, the Company has requested the Lenders to make certain extensions of credit to it; and WHEREAS, the Lenders are willing to make such extensions of credit on the terms and conditions contained herein; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree that the Existing Credit Agreement is amended and restated in its entirety as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by NationsBank as its prime rate in effect at its principal office in Charlotte, North Carolina (the Prime Rate not being intended to be the lowest rate of interest charged by NationsBank in connection with extensions of credit to debtors); and "Federal Funds Effective Rate" shall mean, for any day, the rate set forth for such date opposite the caption "Federal Funds (Effective)" in the weekly statistical release designated "H.15 (510)", or any successor publication, published by the Board of Governors of the Federal Reserve System, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the ABR shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR Loans": Revolving Credit Loans the rate of interest applicable to which is based upon the ABR. "Adjusted Consolidated Net Income": with respect to a Person for any period, the Consolidated Net Income of such Person and its Subsidiaries for such period plus, to the extent reflected as a charge in the statement of such Consolidated Net Income, total income tax expense minus any extraordinary income or gains, determined in accordance with GAAP. "Adjusted Consolidated Tangible Net Worth": with respect to the Company at any date, Consolidated Net Worth of the Company as at such date, less, without duplication, (a) Consolidated Intangibles, (b) the amount of such Consolidated Net Worth attributable to the Ryland Financial Division and (c) the amount of such Consolidated Net Worth attributable to equity investments in and Advances to any unconsolidated joint venture the Indebtedness of which (excluding Advances from the Company or any Subsidiary to such joint venture) exceeds 25% of its total assets, determined in accordance with GAAP. "Advance": means any advance, loan or extension of credit to any Person or the purchase of any bonds, notes, debentures or other debt securities of any Person. "Affiliate": as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (i) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agents": the collective reference to the Documentation Agent, the Syndication Agent, the Co-Agents and the Administrative Agent; individually, an "Agent". "Aggregate Outstanding Revolving Extensions of Credit": on any date, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans and Short-Term Funding Loans then outstanding and (b) the L/C Obligations then outstanding. "Agreement": this Amended and Restated Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin": for each Type of Revolving Credit Loan, the rate per annum set forth under the relevant column heading below: Eurodollar C/D ABR Loans Loans Rate Loans --------- ----- ---------- 0% 1.375% 1.525% provided, that (i) on the effective date of any Rating Improvement occurring after the date of this Agreement, each of the Applicable Margins then in effect for Eurodollar Loans and C/D Rate Loans shall decrease by .125% (but not below 1.00% for Eurodollar Loans or 1.150% for C/D Rate Loans) and (ii) on the effective date of any Rating Reduction occurring after the date of this Agreement, each of the Applicable Margins then in effect for Eurodollar Loans and C/D Rate Loans shall increase by .125%. "Application": an application, in such form as the Issuing Bank may specify from time to time, requesting the Issuing Bank to open a Letter of Credit. "Assignee": as defined in subsection 10.6(c). "Associates Mortgage Funding Corporation": Associates Mortgage Funding Corporation, a Delaware corporation. "Available Commitments": on any date, the excess, if any, of (a) the amount of the aggregate Revolving Credit Commitments on such date over (b) (i) the Aggregate Outstanding Revolving Extensions of Credit on such date less (ii) for the purposes of calculating the commitment fee pursuant to subsection 2.5(a) for the Lenders other than the Short-Term Funding Lenders only, the aggregate principal amount of Short-Term Funding Loans outstanding on such day. "Borrowing Base": as of any date of determination, an amount equal to the sum of (i) 25% of Unsold Land Under Development, (ii) 70% of Unsold Housing Inventory, (iii) 90% of Sold Housing Inventory and (iv) Working Capital (if greater than zero). The Borrowing Base shall be determined as of the last Business Day of each calendar month and shall be certified pursuant to Borrowing Base Certificates delivered pursuant to subsection 6.2(f); the Borrowing Base set forth in any such Borrowing Base Certificate shall be in effect from the date of delivery of such Borrowing Base Certificate until the date of delivery of the Borrowing Base Certificate for the succeeding calendar month. "Borrowing Base Certificate": a certificate substantially in the form of Exhibit C, with such changes as the Documentation Agent may from time to time reasonably request for the purpose of monitoring the Borrowing Base. "Borrowing Date": any day specified in a notice pursuant to subsection 2.3 or 2.4 as a date on which the Company requests that Loans be made hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York, are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which commercial banks are not open for dealings in Dollar deposits in the London interbank market. "Cash Equivalents": (a) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than 90 days from the date of acquisition, (b) time deposits and certificates of deposit of any of the Lenders, or of any domestic or foreign commercial bank which has capital and surplus in excess of $500,000,000 or which has a commercial paper rating meeting the requirements specified in clause (d) below, having maturities of not more than 90 days from the date of acquisition, (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (a) and (b) entered into with any bank meeting the qualifications specified in clause (b) above and (d) commercial paper of any Person rated at least A-2 or the equivalent thereof by S&P or P-2 or the equivalent thereof by Moody's and in either case maturing within 90 days after the date of acquisition. "C/D Assessment Rate": for any day as applied to any C/D Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Sec. 327.3(d) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D Base Rate": with respect to each day during each Interest Period pertaining to a C/D Rate Loan, the rate of interest per annum determined by the Administrative Agent to be the arithmetic average (rounded upward to the nearest 1/100th of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the average rate bid at 10:00 A.M., Charlotte, North Carolina time, or as soon thereafter as practicable, on the first day of such Interest Period by a total of three certificate of deposit dealers of recognized standing selected by such Reference Lender for the purchase at face value from such Reference Lender of its certificates of deposit in an amount comparable to the C/D Rate Loan of such Reference Lender to which such Interest Period applies and having a maturity comparable to such Interest Period. "C/D Rate": with respect to each day during each Interest Period pertaining to a C/D Rate Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): C/D Base Rate + C/D Assessment Rate ------------------------------ 1.00 - C/D Reserve Percentage "C/D Rate Loans": Revolving Credit Loans the rate of interest applicable to which is based upon the C/D Rate. "C/D Reserve Percentage": for any day as applied to any C/D Rate Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) (the "Board"), for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity comparable to the Interest Period for such C/D Rate Loan. "Closing Date": the date on which the conditions specified in Section 5 are satisfied in full and the initial Loans are made hereunder. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Combined Net Income": with respect to a Person or segment for any period, the combined net income (or loss) of such Person and its Subsidiaries and Consolidated Joint Ventures or such segment for such period (taken as a cumulative whole), determined on a combined basis in accordance with GAAP. "Combined Total Liabilities": with respect to a Person or segment at a particular date, all amounts which would, in conformity with GAAP, be included under total liabilities on a combined balance sheet of such Person and its Subsidiaries and Consolidated Joint Ventures or such segment as at such date. "Commitment Fee Rate": (a) at any time when the Rating of Moody's is at least Baa3 or the Rating of S&P is at least BBB-, .15% and (b) at all other times, .375%. "Commitment Percentage": as to any Lender at any time, the percentage of the aggregate Revolving Credit Commitments then constituted by the sum of such Lender's Revolving Credit Commitment. "Commitment Period": the period from and including the date hereof to but not including the Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein. "Commitments": the Revolving Credit Commitments, the Short-Term Funding Line Commitments and the L/C Commitment. "Common Stock": the Company's Common Stock, par value $1.00 per share, as the same exists on the date hereof or any other class of stock of the Company the right of which to share in distributions of earnings or assets of the Company is without limit as to amount or percentage. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Consolidated Adjusted Net Worth": at a particular date, (a) Consolidated Net Worth of the Financial Services Segment at such date plus (b) the amount of long-term subordinated debt of the Financial Services Segment the maturity of which is no less than two years after December 31, 1994 plus (c) an amount equal to 1% of the Financial Services Segment's Servicing Portfolio, if any, minus (d) the amount of Servicing Rights that are capitalized on the combined balance sheets of the Financial Services Segment, minus (e) the book value of any other assets reflected on the then-most-current combined balance sheets of the Financial Services Segment that should be properly treated under GAAP as intangible assets, including, without limitation, goodwill, trademarks, trade names, service marks, copyrights, patents, licenses, rights with respect to the foregoing, and the excess of the purchase price over the net assets of businesses acquired by entities in the Financial Services Segment. "Consolidated Intangibles": with respect to any Person at any date, all amounts, determined in accordance with GAAP, included in the Consolidated Net Worth of such Person and attributable to (a) goodwill, including any amounts (however designated on the balance sheet) representing the cost of acquisitions of Subsidiaries in excess of underlying tangible assets or (b) patents, trademarks and copyrights. "Consolidated Joint Ventures": at any time, real estate joint ventures in which the Company or any of its Subsidiaries has an investment at such time and which are being consolidated in the Company's consolidated financial statements. "Consolidated Net Income": with respect to a Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries and Consolidated Joint Ventures for such period (taken as a cumulative whole), determined in accordance with GAAP. "Consolidated Net Worth": with respect to any Person at any date, all amounts which would, in conformity with GAAP, be included under shareholders' equity on a consolidated balance sheet of such Person and its consolidated Subsidiaries and Consolidated Joint Ventures at such date. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Current Market Price": with respect to shares of Common Stock or any other class of capital stock or other security of the Company or any other issuer, the last reported sales price, regular way, or, in the event that no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which such security is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, by NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the- counter market as reported by NASDAQ or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Company or a committee thereof, in each case, on each trading day during the applicable period. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Designated Event": the occurrence of any of the following: (i) whether or not approved by the Board of Directors of the Company, any person, entity or "group" within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act is or becomes the beneficial owner, directly or indirectly, of securities having 30% or more of the voting power of the Voting Stock; (ii) the Company shall engage in a Stock Repurchase or Stock Distribution where the sum of the aggregate Fair Market Value of such Stock Repurchase and Stock Distribution and all other such Stock Repurchases and Stock Distributions effected during the 12-month period ending on the date on which such Stock Repurchase or Stock Distribution is effected exceeds 20% of the Fair Market Value of the Common Stock of the Company as of the date such Stock Repurchase or Stock Distribution is effected; (iii) there shall occur any consolidation of the Company with, or merger of the Company into, any other entity, any merger of another entity into the Company, or any sale or transfer of all or substantially all of the assets of the Company (other than any such sale or transfer to one or more wholly-owned Subsidiaries of the Company), in one transaction or a series of related transactions, to one or more persons or entities (other than (w) a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company, or (x) a merger which is effected solely to change the jurisdiction of incorporation of the Company, or (y) the sale or transfer of any of the stock or assets of the Limited-Purpose Subsidiaries, or (z) a merger pursuant to which the holders of Voting Stock of the Company prior to the effective date of such merger hold immediately after such effective date 70% or more of the class of stock of the surviving entity or its parent corporation that is entitled to vote generally for the election of directors); or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the Company's Board of Directors (together with any new director whose election by the Company's Board of Directors or whose nomination for election by the Company's stockholders was approved by a vote of at least a majority of the directors then still in office who either were directors of the Company at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors of the Company then in office. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Dollar Loans": the collective reference to C/D Rate Loans and ABR Loans. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning pollution or protection of the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurodollar Loans": Revolving Credit Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which such Reference Lender is offered Dollar deposits at or about 10:00 A.M., Charlotte, North Carolina time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loan to be outstanding during such Interest Period. "Event of Default": any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Exchange Act": the Securities Exchange Act of 1934, as amended. "Existing Credit Agreement": the Credit Agreement, dated as of July 29, 1993, as amended, among the Company, the Lenders, Co-Agents and Co- Manager parties thereto, and Chemical Bank, as Administrative Agent. "Existing Letters of Credit": as defined in subsection 3.1(a). "Fair Market Value": with respect to shares of Common Stock or any other class of capital stock or securities of the Company which are publicly traded, the average of the Current Market Prices of such shares or securities for the five (5) consecutive trading days ending with the fifth (5th) Business Day preceding the date on which the Stock Repurchase or Stock Distribution is effected. Fair Market Value of any security not publicly traded or any other property constituting a part of a Stock Repurchase or Stock Distribution shall be the value thereof as determined in good faith by the Board of Directors of the Company or any designated committee of the Board of Directors of the Company after giving consideration to such market prices, opinions and valuations as such Board of Directors or committee may deem necessary or appropriate. "FHLMC Securities": participation certificates representing undivided interests in mortgage loans purchased by the Federal Home Loan Mortgage Corporation or its successor pursuant to the Emergency Home Finance Act of 1970, as amended. "Financial Services Segment": the business segment of the Company and its Subsidiaries engaged in the mortgage banking (including the title and escrow businesses), mortgage servicing, securities issuance, bond administration and management services and related activities, which segment on the date of this Agreement consists principally of the activities of Ryland Mortgage Company and its Subsidiaries but excludes the Limited-Purpose Subsidiaries. "Financial Services Segment Combined Total Liabilities": at any time, all amounts which would, in accordance with GAAP, be included as liabilities on a combined balance sheet of the Financial Services Segment as at such date; provided, that reverse repurchase agreements secured by FHLMC Securities, FNMA Securities GNMA Securities and other mortgage-backed securities, whether such securities are issued in certificated form or book entry form, arising from the call of bonds issued by Affiliates of Ryland Mortgage Company may be excluded from those liabilities so long as (a) the underlying collateral value is at least 100.5% of the obligations of Ryland Mortgage Company and/or Associates Mortgage Funding Corporation under those agreements or (b) the underlying collateral is subject to a hedging agreement. "Financing Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Fixed Charge Coverage": for any fiscal period of the Company, the ratio of (a) the sum for such fiscal period of the following items: (i) Combined Net Income of the Homebuilding Segment, plus (ii) income taxes, depreciation and amortization deducted from combined revenues in determining such Combined Net Income, plus (iii) interest expense deducted from combined revenues in determining such Combined Net Income, including, without duplication, previously capitalized interest expense which would be included in "Cost of Goods Sold" and deducted from combined revenues in determining such Combined Net Income on a combined balance sheet of the Homebuilding Segment determined in accordance with GAAP, plus (iv) the greater of (A) cash dividends received by the Company from the Financial Services Segment, determined in accordance with GAAP, and (B) 50% of Combined Net Income of the Financial Services Segment plus income tax expense deducted in determining such net income, determined in accordance with GAAP, plus (v) cash distributions received by the Company from all unconsolidated joint ventures in which the Company or any of its Subsidiaries within the Homebuilding Segment is a participant, less (vi) the amount of the Company's equity interest in the earnings of such joint ventures, determined in accordance with GAAP, to (b) the amount of cash interest expense deducted from combined revenues in determining such Combined Net Income, and including, without duplication, such cash interest expense constituting capitalized interest for such period determined in accordance with GAAP. "FNMA Securities": modified pass-through mortgage-backed certificates guaranteed by the Federal National Mortgage Association or its successor pursuant to the National Housing Act, as amended. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "GNMA Securities": modified pass-through mortgage-backed certificates guaranteed by the Government National Mortgage Association or its successor pursuant to Section 306(g) of the National Housing Act, as amended. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty": each Guaranty executed and delivered by one or more of the Guarantors, substantially in the form of Exhibit D, as the same may from time to time be amended or otherwise modified. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Guarantors": at any time, each of the Subsidiaries of the Company which (i) has assets with an aggregate book value equal to or greater than $1,000,000 and (ii) is included in the Homebuilding Segment, including, without limitation, the Subsidiaries listed on Annex I hereto. "Hazardous Materials": any hazardous materials, hazardous wastes, hazardous constituents, hazardous or toxic substances, petroleum products (including crude oil or any fraction thereof), defined or regulated as such in or under any Environmental Law. "Homebuilding Segment": the business segment of the Company and its Subsidiaries and Consolidated Joint Ventures engaged in the construction and sale of single family attached and unattached dwellings and related activities, which segment on the date of this Agreement consists principally of the activities of the Ryland Homes Division of the Company and M. J. Brock & Sons, Inc. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities and accrued expenses incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intercreditor Agreement": the Intercreditor Agreement, dated as of September 22, 1994, among the Company and the other parties thereto, as supplemented by joinder agreements executed by all Lenders not initially parties thereto and as amended or otherwise modified from time to time. "Interest Payment Date": (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any Eurodollar Loan having an Interest Period of three months or less and any C/D Rate Loan having an Interest Period of 90 days or less, the last day of such Interest Period, (c) as to any Eurodollar Loan or C/D Rate Loan having an Interest Period longer than three months or 90 days, respectively, each day which is three months or 90 days, respectively, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Short-Term Funding Loan, the date which is the last day of each calendar quarter. "Interest Period": (a) with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter (or such other period (not to exceed six months) agreed upon by the Administrative Agent and the Company), as selected by the Company in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter (or such other period (not to exceed six months) agreed upon by the Administrative Agent and the Company), as selected by the Company by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; and (b) with respect to any C/D Rate Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such C/D Rate Loan and ending 30, 60, 90 or 180 days thereafter (or such other period (not to exceed 180 days) agreed upon by the Administrative Agent and the Company), as selected by the Company in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such C/D Rate Loan and ending 30, 60, 90 or 180 days thereafter (or such other period (not to exceed 180 days) agreed upon by the Administrative Agent and the Company), as selected by the Company by irrevocable notice to the Administrative Agent not less than two Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (2) if any Interest Period pertaining to a C/D Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (3) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date; (4) any Interest Period pertaining to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (5) the Company shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan or C/D Rate Loan during an Interest Period for such Loan. "Investments": any Advance to, or any contribution to or purchase of stock or other equity securities of, or any purchase of assets constituting a business unit of, any Person, excluding investments in stock or other equity securities existing on the date of this Agreement and any investment representing any interest of the Company or any Subsidiary in the retained or undistributed earnings of any Person. "Issuing Bank": (i) with respect to the Existing Letters of Credit, Chemical Bank or the affiliate thereof which issued such Existing Letters of Credit, as set forth in Schedule 3.1, and (ii) with respect to any Letter of Credit issued after the Closing Date, NationsBank, or such other Lender as the Documentation Agent, the Company and such other Lender shall agree upon. "L/C Commitment": $50,000,000. "L/C Fee Payment Date": the last day of each March, June, September and December. "L/C Fee Rate": 1.25% per annum; provided, that (i) on the effective date of any Rating Improvement occurring after the date of this Agreement, the L/C Fee Rate then in effect shall decrease by .125% (but not below .875%) and (ii) on the effective date of any Rating Reduction occurring after the date of this Agreement, the L/C Fee Rate then in effect shall increase by .125%. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 3.5. "L/C Participants": in respect of any Letter of Credit, the collective reference to all the Lenders other than the Issuing Bank in respect of such Letter of Credit. "Letters of Credit": as defined in subsection 3.1(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement 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 in respect of any of the foregoing). "Limited-Purpose Subsidiaries": Subsidiaries included within the Limited-Purpose Subsidiaries Segment. "Limited-Purpose Subsidiaries Segment": the business segment of the Company and its Subsidiaries which facilitates, through special-purpose entities created or existing solely for such purpose, the financing of mortgage loans and mortgage backed securities and the securitization of mortgage loans and other related activities. "Loan": any loan made by any Lender pursuant to this Agreement. "Loan Documents": this Agreement, the Notes, the Applications, the Intercreditor Agreement and the Guaranty. "Material Adverse Effect": a material adverse effect on (a) the financial condition of the Company and its Restricted Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement or the Notes, or (c) the validity or enforceability of this Agreement or any of the Notes or the rights or remedies of the Agents or the Lenders hereunder or thereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Moody's": Moody's Investors Services, Inc. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "1992 Subordinated Debt Indenture": the Indenture, dated as of July 15, 1992, between the Company and Security Trust Company, N.A., or its successor, as Trustee, pursuant to which the Company's 10-1/2% Senior Subordinated Notes due July 15, 2002, and the Company's 9-5/8% Senior Subordinated Notes due June, 2004 were issued. "Non-Excluded Taxes": as defined in subsection 2.17. "Notes": the collective reference to the Revolving Credit Notes and the Short-Term Funding Line Notes. "Participants": as defined in subsection 10.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted IRB Letters of Credit": letters of credit and other credit enhancement instruments issued for the account of the Company or any of its Subsidiaries which at any time support industrial revenue bonds issued for the benefit of the Company or any of its Subsidiaries, which are outstanding on the date of this Agreement and are shown on Schedule 7.2(f). "Permitted Senior Indebtedness": at any date, the aggregate unpaid principal amount of Indebtedness outstanding on such date permitted under, without duplication, (i) subsection 7.2(c) (other than Indebtedness of unconsolidated joint ventures permitted thereunder), (e), (f), (h), (k) and (p), (ii) subsection 7.2(g), other than such Indebtedness permitted thereunder by reference to subsection 7.4(c), (iii) subsection 7.2(i), other than such Indebtedness permitted thereunder in connection with acquisitions or mergers by any Subsidiary in the Ryland Financial Division and (iv) subsection 7.2(j), but only such Indebtedness permitted thereunder relating to refinancings of Indebtedness included in this definition of Permitted Senior Indebtedness pursuant to clauses (i), (ii) and (iii) above. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Rating": each rating (actual or implied) by a Rating Agency of the Company's senior, long-term, unsecured, non credit-enhanced debt. "Rating Agency": each of Moody's and S&P. "Rating Improvement": each increase by either Rating Agency of the Rating of such Rating Agency by one incremental level (e.g. an increase by Moody's of its Rating from Ba1 to Baa3 or by S&P of its Rating from BB+ to BBB-). For purposes of this Agreement, the effective date of any Rating Improvement will be the date of announcement by the relevant Rating Agency of the increase in its Rating giving rise to such Rating Improvement. "Rating Reduction": each reduction by either Rating Agency of the Rating of such Rating Agency by one incremental level (e.g. a reduction by Moody's of its Rating from Baa3 to Ba1 or by S&P of its Rating from BBB- to BB+). For purposes of this Agreement, the effective date of any Rating Reduction will be the date of announcement by the relevant Rating Agency of the reduction in its Rating giving rise to such Rating Reduction. "Reference Lenders": Chemical and NationsBank. "Register": as defined in subsection 10.6(d). "Regulation U": Regulation U of the Board of Governors of the Federal Reserve System. "Reimbursement Obligation": the obligation of the Company to reimburse the Issuing Bank pursuant to subsection 3.5 for amounts drawn under Letters of Credit. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Sec. 2615. "Required Lenders": at any time, Lenders the Commitment Percentages of which aggregate at least 66-2/3%. "Requirement of Law": as to any Person, the Charter and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer and the president of the Company or, with respect to financial matters, the chief financial officer, the chief accounting officer or the treasurer of the Company. "Restricted Subsidiary": any Subsidiary of the Company other than the Limited-Purpose Subsidiaries and any Subsidiary that the Required Lenders agree in writing is not to be treated hereunder as a Restricted Subsidiary. "Revolving Credit Commitment": as to any Lender, the amount set forth opposite such Lender's name on Schedule 1.1 under the caption "Revolving Credit Commitments". "Revolving Credit Commitment Percentage": as to any Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the aggregate Revolving Credit Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Loans then outstanding constitutes of the aggregate principal amount of the Loans then outstanding). "Revolving Credit Loans": as defined in subsection 2.1. "Revolving Credit Note": as defined in subsection 2.2. "Ryland Financial Division": all subsidiaries and operations of the Company and its Subsidiaries other than the Homebuilding Segment. "Ryland Mortgage Company": Ryland Mortgage Company, an Ohio corporation. "Servicing Portfolio": for Ryland Mortgage Company, at any time, an amount equal to the aggregate unpaid principal amount of all loans with respect to which Ryland Mortgage Company or its Subsidiaries owns Servicing Rights, other than loans serviced on behalf of the Resolution Trust Corporation. "Servicing Rights": all of Ryland Mortgage Company's right, title and interest in agreements between Ryland Mortgage Company and Persons other than Ryland Mortgage Company and Associates Mortgage Funding Corporation pursuant to which Ryland Mortgage Company undertakes to service one-to- four family and multifamily dwelling mortgage loans and pools of one-to- four family and multifamily dwelling mortgage loans for such Persons. "Short-Term Funding Lenders": Initially, Chemical Bank, NationsBank, N.A. (Carolinas), Bank of America Illinois and The Industrial Bank of Japan Trust Company, and, in the event that any of such Lenders is no longer a Lender, such other Lender as shall be mutually agreed upon by such other Lender, the Company, the Documentation Agent and the Administrative Agent to replace such Short-Term Funding Lender. "Short-Term Funding Line Commitment": as to any Lender, the amount set forth opposite such Lender's name on Schedule 1.1 under the caption "Short-Term Funding Line Commitments." It is understood that each Lender's Short-Term Funding Line Commitment is included in, and not in addition to, such Lender's Revolving Credit Commitment. "Short-Term Funding Loan": as defined in subsection 2.4. "Short-Term Funding Line Margin": 1.375%; provided, that (i) on the effective date of any Rating Improvement occurring after the date of this Agreement, the Short-Term Funding Line Margin then in effect shall decrease by .125% (but not below 1%) and (ii) on the effective date of any Rating Reduction occurring after the date of this Agreement, the Short-Term Funding Line Margin then in effect shall increase by .125%. "Short-Term Funding Line Note": as defined in subsection 2.4. "Significant Subsidiary": a Subsidiary satisfying the requirements of Rule 1-02(v) of Regulation S-X as adopted by the Securities and Exchange Commission under the provisions of the Securities Act of 1933 and the Exchange Act as in force on the date of this Agreement. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Sold Housing Inventory": at any date, an amount equal to the aggregate capitalized cost, determined in accordance with GAAP consistently applied, with respect to homes and lots under construction for which final contracts of sale have been entered into on or prior to such date, and are still in effect on such date, but with respect to which settlement under such contracts has not occurred. "Specified Debt": the Company's Senior Debt Securities issued pursuant to the Company's Registration Statement on Form S-3 (Registration No. 33-28692) or any successor registration statement and outstanding on the Closing Date. "S&P": Standard & Poor's Ratings Group. "Stock Distribution": any dividend or other distribution to holders of Common Stock of cash, property or securities (excluding however any dividends or distributions of Common Stock or rights to purchase Common Stock). "Stock Repurchase": any purchase of shares of Common Stock by the Company or any Subsidiary, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other person or any other property (including shares of a Subsidiary of the Company), or any combination thereof. "Subordinated Debt": (i) Indebtedness of the Company outstanding on the date hereof issued pursuant to the 1992 Subordinated Debt Indenture and (ii) any other unsecured Indebtedness of the Company no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to December 31, 1998, and the payment of the principal of and interest on which and other obligations of the Company in respect thereof are subordinated to the prior payment in full of the principal of and interest (including post-petition interest) on the Notes and all other obligations and liabilities of the Company to the Agents and the Lenders hereunder on terms and conditions identical to such provisions under the 1992 Subordinated Debt Indenture except to the extent of any differences therefrom that are not substantive, provided that any different provisions thereof that are less favorable to the Lenders than the provisions under the 1992 Subordinated Debt Indenture, are adverse to the interests of the Lenders in any way or are otherwise substantive shall be subject to prior approval in writing by the Required Lenders. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company and shall exclude any real estate joint venture which the Company or any Subsidiary within the Homebuilding Segment either directly or indirectly participates in or controls. "Termination Date": July 30, 1998. "Total Housing Inventory": at any date, the amount which would be included under "Housing inventories" on a combined balance sheet of the Homebuilding Segment determined on a combined basis in accordance with GAAP as at such date. "Tranche": the collective reference to Eurodollar Loans or C/D Rate Loans the Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "Eurodollar Tranches" or "C/D Rate Tranches", as applicable. "Type": as to any Revolving Credit Loan, its nature as an ABR Loan, a Eurodollar Loan or a C/D Rate Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Unsold Housing Inventory": at any date, an amount equal to (i) the amount which would be included under "Housing inventories: Unsold" less (ii) the amounts which would be included under the definitions of "Unsold Land Held" and "Unsold Land Under Development" in this Agreement, determined on a combined basis in accordance with GAAP as at such date. "Unsold Land Held": at any date, the amount which would be included under "Housing inventories: Unsold: Land held for future development or resale" on a combined balance sheet of the Homebuilding Segment determined on a combined basis in accordance with GAAP as at such date. "Unsold Land Under Development": at any date, an amount equal to (i) the amount which would be included under "Housing inventories: Unsold: Homes and lots under construction" on a combined balance sheet of the Homebuilding Segment determined on a combined basis in accordance with GAAP as at such date less (ii) the portion of such amount attributable to lots on which construction of a foundation or slab has been commenced, determined on a combined basis in accordance with GAAP as at such date less. "Voting Stock": shares of stock of the Company entitling the holder thereof to vote generally for the election of directors of the Company. "Working Capital": at any date, an amount equal to (i) cash and Cash Equivalents plus (ii) accounts and notes receivable plus (iii) prepaid expenses and deposits (iv) less accounts payable less (v) accrued expenses less (vi) customer deposits, in each case as such amounts would be determined with respect to the Homebuilding Segment on a consolidated basis in accordance with GAAP as at such date. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 1.3 Accounting Principles. Unless otherwise defined or specified herein, all accounting terms used in this Agreement shall be construed herein, and all accounting determinations hereunder shall be made, in accordance with GAAP, applied on a basis consistent with the most recent audited consolidated financial statements of the Company and its Subsidiaries delivered to the Lenders; provided, however, that if there shall occur any change after the date hereof in GAAP and such change affects the method of calculating any of the factors that go into any component of the financial covenants and ratios set forth in this Agreement, the Required Lenders will, upon request of the Company, and the Company will, upon request of the Required Lenders, make adjustments to such covenants and ratios as reasonably required so that they are consistent with the financial covenants and ratios made as of the date hereof, notwithstanding such change. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Revolving Credit Commitments (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Company from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed such Lender's Revolving Credit Commitment; provided, that no Revolving Credit Loan may be made if, after giving effect thereto, the then Aggregate Outstanding Revolving Extensions of Credit would exceed the lesser of (i) the Revolving Credit Commitments then in effect and (ii) the excess of the Borrowing Base then in effect over Permitted Senior Indebtedness then outstanding. During the Commitment Period the Company may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans, (iii) C/D Rate Loans or (iv) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 2.3 and 2.8, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan or a C/D Rate Loan if the last day of any Interest Period in respect thereof would be after the Termination Date. 2.2 Revolving Credit Notes. The Revolving Credit Loans made by each Lender shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit A, with appropriate insertions as to payee, date and principal amount (a "Revolving Credit Note"), payable to the order of such Lender and in a principal amount equal to the lesser of (a) the amount of the Revolving Credit Commitment of such Lender and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by such Lender. Each Lender is hereby authorized to record the date, Type and amount of each Revolving Credit Loan made by such Lender, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of Eurodollar Loans and C/D Rate Loans, the length of each Interest Period with respect thereto, in its records in accordance with its usual practice, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Each Revolving Credit Note shall (x) be dated the date hereof, (y) be stated to mature on the Termination Date and (z) provide for the payment of interest in accordance with subsection 2.10. 2.3 Procedure for Revolving Credit Borrowing. The Company may borrow under the Revolving Credit Commitments during the Commitment Period on any Business Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:30 A.M., Charlotte, North Carolina time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans, (b) two Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially C/D Rate Loans, or (c) on the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans, C/D Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans or C/D Rate Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of ABR Loans, $10,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Available Commitments are less than $10,000,000, such lesser amount) and (y) in the case of Eurodollar Loans or C/D Rate Loans, $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 10.2 prior to 12:00 noon, Charlotte, North Carolina time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.4 Short-Term Funding Line Commitments. (a) Subject to the terms and conditions hereof, each Short-Term Funding Lender severally agrees to make short-term funding loans ("Short-Term Funding Loans") to the Company from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed such Lender's Short-Term Funding Line Commitment; provided, that no Short-Term Funding Loans may be made if, after giving effect thereto, the then Aggregate Outstanding Revolving Extensions of Credit would exceed the lesser of (i) the amount of the Revolving Credit Commitments then in effect and (ii) the excess of the Borrowing Base then in effect over Permitted Senior Indebtedness then outstanding. During the Commitment Period the Company may use the Short-Term Funding Line Commitments by borrowing, prepaying the Short-Term Funding Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Short-Term Funding Loans made by each Short-Term Funding Lender shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit B, with appropriate insertions as to payee, date and principal amount (a "Short-Term Funding Line Note"), payable to the order of such Lender and in a principal amount equal to the lesser of (a) the amount of the Short- Term Funding Line Commitment of such Short-Term Funding Lender and (b) the aggregate unpaid principal amount of all Short-Term Funding Loans made by such Short-Term Funding Lender. Each Lender is hereby authorized to record the date and amount of each Short-Term Funding Loan made by such Short-Term Funding Lender and the date and amount of each payment or prepayment of principal thereof, in its records in accordance with its usual practice, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Each Short-Term Funding Line Note shall (x) be dated the date hereof, (y) be stated to mature as to each Short-Term Funding Loan issued thereby on the date which is five Business Days after the Borrowing Date of such Short-Term Funding Loan, and in any event on the Termination Date and (z) provide for the payment of interest in accordance with subsection 2.10. (c) The Company may borrow under the Short-Term Funding Line Commitments during the Commitment Period on any Business Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 2:00 P.M., Charlotte, North Carolina time, on the requested Borrowing Date, specifying the amount to be borrowed. Each borrowing under the Short-Term Funding Line Commitments shall be in an amount equal to 500,000 or a whole multiple of $500,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Short-Term Funding Lender thereof. Each Short-Term Funding Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 10.2 prior to 4:30 P.M., Charlotte, North Carolina time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Short-Term Funding Lenders and in like funds as received by the Administrative Agent. (d) The Administrative Agent may at any time in its sole and absolute discretion, and, with respect to each Short-Term Funding Loan which has not been repaid by the Company in immediately available funds prior to 10:30 A.M. on the day which is the fifth Business Day after the Borrowing Date with respect to such Short-Term Funding Loan shall, on behalf of the Company (which hereby irrevocably directs the Short-Term Funding Lender to act on its behalf) request prior to 12:00 Noon (New York City time) each Lender on such fifth Business Day after the Borrowing Date with respect to such Short-Term Funding Loan to make a Revolving Credit Loan in an amount equal to such Lender's Revolving Credit Commitment Percentage of the amount of the Short-Term Funding Loan (the "Refunded Short-Term Funding Loans") outstanding on the date such notice is given. Unless any of the events described in paragraph (f) of Section 8 shall have occurred (in which event the procedures of paragraph (e) of this subsection 2.4 shall apply) each Lender shall make the proceeds of its Revolving Credit Loan available to the Administrative Agent for the account of the Short-Term Funding Lenders at the office of the Administrative Agent specified in subsection 10.2 prior to 2:00 P.M. (New York City time) in funds immediately available on the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the Refunded Short-Term Funding Loans. Each Revolving Credit Loan made pursuant to this subsection 2.4(d) shall be an ABR Loan. (e) If prior to the making of a Revolving Credit Loan pursuant to paragraph (d) of this subsection 2.4 one of the events described in paragraph (f) of Section 8 shall have occurred, each Lender will on the date such Revolving Credit Loan was to have been made, purchase an undivided participating interest in the Refunded Short-Term Funding Loan in an amount equal to its Revolving Credit Commitment Percentage of such Refunded Short- Term Funding Loan. Each Lender will immediately transfer to the Administrative Agent, in immediately available funds, the amount of its participation and upon receipt thereof (i) the Administrative Agent will make such funds available to each Short-Term Funding Lender based pro rata on their respective portion of such Short-Term Funding Loan and (ii) each such Short- Term Funding Lender deliver to the Administrative Agent, and the Administrative Agent will in turn promptly deliver to each such Lender, a Short-Term Funding Loan participation certificate dated the date of receipt of such funds and in such amount. (f) Whenever, at any time after the Administrative Agent has received from any Lender such Lender's participating interest in a Refunded Short-Term Funding Loan, the Administrative Agent receives any payment on account thereof, the Administrative Agent will distribute to such Lender its participating interest in such amount (appropriately adjusted in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Administrative Agent is required to be returned, such Lender will return to the Administrative Agent any portion thereof previously distributed by the Administrative Agent to it. (g) Each Lender's obligation to purchase participating interests pursuant to this subsection 2.4 shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or the Company may have against the Administrative Agent or any Short-Term Funding Lender, the Company or anyone else for any reason whatsoever; (ii) the occurrence or continuance of an Event of Default; (iii) any adverse change in the financial condition of the Company; (iv) any breach of this Agreement by the Company or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.5 Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a commitment fee for the period from and including the Closing Date to the Termination Date, computed at the Commitment Fee Rate on such Lender's Revolving Credit Commitment Percentage of the average daily amount of the Available Commitments during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date or such earlier date on which the Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the Closing Date. (b) The Company agrees to pay to the Administrative Agent on the Closing Date for the account of each Lender a facility fee equal to (i) in the case of any Lender having an initial commitment notified to the Syndication Agent during syndication of less than $25,000,000, .10% of such amount, (ii) in the case of any Lender having an initial commitment notified to the Syndication Agent during syndication of $25,000,000 or greater but less than $50,000,000, .15% of such amount and (iii) in the case of any Lender having an initial commitment notified to the Syndication Agent during syndication of at least $50,000,000, .25% of such Lender's Revolving Credit Commitment on the Closing Date. (c) The Company agrees to pay to the Administrative Agent and the Documentation Agent the fees in the amounts and on the dates agreed by the Company in writing with the Administrative Agent and the Documentation Agent, respectively. 2.6 Optional Termination and Reduction of Commitments. The Company shall have the right, upon not less than five Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments, provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments or repayments of the Revolving Credit Loans and the Short-Term Funding Loans made on the effective date thereof, the Aggregate Outstanding Revolving Extensions of Credit would exceed the Revolving Credit Commitments then in effect. Any such reduction shall be in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. The Revolving Credit Commitments may not be reduced to an amount less than the amount of the Short-Term Funding Line Commitments after giving effect to any simultaneous reduction of the Short-Term Funding Line Commitments. 2.7 Optional Prepayments; Mandatory Prepayments. (a) The Company may on the last day of any Interest Period with respect thereto, in the case of Eurodollar Loans or C/D Rate Loans, or at any time and from time to time, in the case of ABR Loans and Short-Term Funding Loans, prepay the Revolving Credit Loans and the Short-Term Funding Loans, in whole or in part, without premium or penalty, upon (i) at least three Business Days' irrevocable notice, which must be received prior to 10:30 A.M. on the day of such notice, to the Administrative Agent with respect to Eurodollar Loans or C/D Rate Loans, and (ii) upon irrevocable notice received prior to 10:30 A.M., in the case of ABR Loans, and 2:00 P.M., in the case of Short-Term Funding Loans, on the date of such prepayment with respect to ABR Loans, in each case specifying the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, C/D Rate Loans, ABR Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $10,000,000 in the case of the Revolving Credit Loans, or $1,000,000, in the case of the Short-Term Funding Loans, or, in each case, a whole multiple of $1,000,000 in excess thereof. (b) If on any date (including any date on which a Borrowing Base Certificate is delivered pursuant to Section 6.2(f)) (i) the sum of (A) the Aggregate Outstanding Revolving Extensions of Credit as of such date and (B) Permitted Senior Indebtedness as of such date exceeds the then applicable Borrowing Base or (ii) the Aggregate Outstanding Revolving Extensions of Credit exceeds the aggregate Revolving Credit Commitments then in effect, then, without notice or demand, the Company shall, on such date, prepay the Loans in an amount equal to such excess, together with interest on the amount paid or prepaid accrued to the date of such payment or prepayment and any amounts payable pursuant to subsection 2.8 in connection therewith; provided, that if the aggregate principal amount of Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Company shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders. The Company may, subject to the terms and conditions of this Agreement, reborrow the amount of any prepayment made under this subsection 2.7. 2.8 Conversion and Continuation Options. (a) The Company may elect from time to time to convert Eurodollar Loans or C/D Rate Loans to ABR Loans, and/or to convert Eurodollar Loans or ABR Loans to C/D Rate Loans, by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans or C/D Rate Loans may only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert ABR Loans or C/D Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election, provided that any such conversion of C/D Rate Loans may, subject to the third succeeding sentence, only be made on the last day of an Interest Period with respect thereto. Any such notice of conversion to Eurodollar Loans or C/D Rate Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If the last day of the then current Interest Period with respect to C/D Rate Loans that are to be converted to Eurodollar Loans is not a Business Day, such conversion shall be made on the next succeeding Business Day, and during the period from such last day to such succeeding Business Day such Loans shall bear interest as if they were ABR Loans. All or any part of outstanding Eurodollar Loans, ABR Loans and C/D Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan or a C/D Rate Loan when any Event of Default has occurred and is continuing and the Documentation Agent and the Administrative Agent have or the Required Lenders have determined that such a conversion is not appropriate and (ii) no Loan may be converted into a Eurodollar Loan or a C/D Rate Loan if the last day of any Interest Period in respect thereof would be after the Termination Date. (b) Any Eurodollar Loans or C/D Rate Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan or C/D Rate Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Agents have or the Required Lenders have determined that such a continuation is not appropriate or (ii) if the last day of any Interest Period in respect thereof would be after the Termination Date; and provided, further, that if the Company shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 2.9 Minimum Amounts of Tranches. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising (i) each Eurodollar Tranche shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof and (ii) each C/D Rate Tranche shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof. 2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin. (c) Each C/D Rate Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the C/D Rate determined for such day plus the Applicable Margin. (d) Each Short-Term Funding Loan made by a Short-Term Funding Lender shall bear interest for each day during which such Short-Term Funding Loan is outstanding at the rate per annum equal to the average determined by the Administrative Agent to be the arithmetic average (rounded upward to the nearest 1/100th of 1%) of the respective rates notified to the Administrative Agent by each of the Reference Lenders as the rate at which such Reference Lender is able to obtain funds for such day in the federal funds market in which such Lender customarily acquires federal funds, plus the Short-Term Funding Line Margin. The Administrative Agent shall, upon request, quote to the Company the interest rate in effect for Short-Term Funding Loans on the date of quotation. (e) If all or a portion of (i) the principal amount of any Revolving Credit Loan or Short-Term Funding Loan, (ii) any interest payable thereon or (iii) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is (x) in the case of overdue principal, 2% above the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection until the earlier of the date such amount is paid in full or the last day of the Interest Period applicable to such overdue amount, and then 2% above the rate described in paragraph (b) of this subsection or (y) in the case of overdue interest and any other amount payable hereunder, 2% above the rate described in paragraph (b) of this subsection, in each case from the date of such non-payment up to but not including the date of actual payment in full (as well after as before judgment). (f) Interest on Revolving Credit Loans and Short-Term Funding Loans shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (e) of this subsection shall be payable on demand. 2.11 Repayment of Loans. (a) On the Termination Date, the Company will pay to the Administrative Agent for the account of each Lender the unpaid principal amount of each Revolving Credit Loan made by such Lender. (b) The Company will pay to the Administrative Agent for the account of each Lender the unpaid principal amount of each Short-Term Funding Loan in accordance with subsection 2.4(b), and in any event not later than the Termination Date. 2.12 Computation of Interest and Fees. (a) Commitment fees and, whenever it is calculated on the basis of the Prime Rate, interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; and, otherwise, interest shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate or of a C/D Rate. Any change in the interest rate on a Loan resulting from a change in the ABR, the eurocurrency reserve costs (described in subsection 2.16), the C/D Assessment Rate or the C/D Reserve Percentage shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, deliver to the Company a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to this subsection 2.12. (c) If any Reference Lender shall for any reason no longer have a Revolving Credit Commitment or any Loans outstanding, such Reference Lender shall thereupon cease to be a Reference Lender, and if, as a result, there shall only be one Reference Lender remaining, the Documentation Agent and the Administrative Agent (after consultation with the Company and with the consent of the Required Lenders) shall, by notice to the Company and the Lenders, designate another Lender as a Reference Lender so that there shall at all times be at least two Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Lenders shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, the rate of interest shall, subject to the provisions of subsection 2.13, be determined on the basis of the quotations of the remaining Reference Lenders or Reference Lender. 2.13 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate or the C/D Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate or the C/D Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Company and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans or C/D Rate Loans, as the case may be, requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans or C/D Rate Loans, as the case may be, shall be converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans or C/D Rate Loans, as the case may be, shall be converted, on the first day following the last day of the then current Interest Period with respect thereto, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans or C/D Rate Loans, as the case may be, shall be made or continued as such, nor shall the Company have the right to convert Loans to Eurodollar Loans or C/D Rate Loans, as the case may be. 2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the Company from the Lenders hereunder, each payment by the Company on account of any commitment fee hereunder and any reduction of the Revolving Credit Commitments of the Lenders shall be made pro rata according to the respective Revolving Credit Commitment Percentages of the Lenders. Each payment (including each prepayment) by the Company on account of the principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal of the Revolving Credit Loans, respectively, then held by the Lenders. Notwithstanding any other provision of this Agreement that requires payments hereunder to be allocated to any particular category of obligations hereunder, if at any time (i) the Administrative Agent shall have received insufficient funds to pay all amounts then due and payable hereunder or (ii) the Documentation Agent shall have received written notice from the Company or any Lender than an Event of Default has occurred and is continuing, the amount of funds received shall be applied first to the payment of commitment fees and other amounts then due and payable hereunder other than fees in respect of Letters of Credit, principal and interest, and Reimbursement Obligations, pro rata in respect of all such amounts owing to each Lender, second to the payment of fees in respect of Letters of Credit and interest then due and payable hereunder, pro rata in respect of all such amounts owing to each Lender, and then to the payment of Reimbursement Obligations and all principal amounts then outstanding (whether of not due and payable) hereunder, pro rata in respect of all such amounts owing to each Lender. All payments (including prepayments) to be made by the Company hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 12:30 P.M., Charlotte, North Carolina time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in subsection 10.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its Commitment Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Company a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from the Company. Nothing contained in this subsection 2.14(b) shall relieve any Lender that has failed to make available its Commitment Percentage of any borrowing hereunder from its obligation to do so in accordance with the terms hereof. 2.15 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Domestic Dollar Loans to Eurodollar Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Company shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 2.18. 2.16 Eurocurrency Reserve Costs; Requirements of Law. (a) The Company agrees to pay to each Lender which requests compensation under this subsection 2.16(a) (by notice to the Company), on the last day of each Interest Period with respect to any Eurodollar Loan made by such Lender, so long as such Lender shall be required to maintain reserves against "Eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System (or, so long as such Lender may be required by such Board of Governors or by any other Governmental Authority to maintain reserves against any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Lender which includes any Eurodollar Loans), an additional amount (determined by such Lender and notified to the Company) representing such Lender's calculation or, if an accurate calculation is impracticable, reasonable estimate (using such reasonable means of allocation as such Lender shall determine) of the actual costs, if any, incurred by such Lender during such Interest Period as a result of the applicability of the foregoing reserves to such Eurodollar Loans, which amount in any event shall not exceed the product of the following for each day of such Interest Period: (i) the principal amount of the Eurodollar Loans made by such Lender to which such Interest Period relates outstanding on such day; and (ii) the difference between (x) a fraction the numerator of which is the Eurodollar Rate (expressed as a decimal) applicable to such Eurodollar Loan and the denominator of which is one minus the maximum rate (expressed as a decimal) at which such reserve requirements are imposed by such Board of Governors or other Governmental Authority on such date minus (y) such numerator; and (iii) a fraction the numerator of which is one and the denominator of which is 360. (b) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Application or any Eurodollar Loan or C/D Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by subsection 2.17 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of eurocurrency reserve costs pursuant to paragraph (a) above or the C/D Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender in good faith deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or C/D Rate Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Company shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Company, through the Documentation Agent, of the event by reason of which it has become so entitled. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (c) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender in good faith to be material, then from time to time, after submission by such Lender to the Company (with a copy to the Documentation Agent) of a written request therefore, the Company shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (d) A certificate of each Lender setting forth such amount or amounts as shall be necessary to compensate such Lender as specified in paragraph (a), (b) or (c) of this subsection 2.16, as the case may be, shall be delivered to the Company and shall, if submitted in good faith, be conclusive absent manifest error; provided that any certificate delivered by a Lender pursuant to this subsection 2.16(d) shall (i) in the case of a certificate in respect of amounts payable pursuant to paragraph (a) or (b) of this subsection 2.16, set forth in reasonable detail the basis for and the calculation of such amounts, and (ii) in the case of a certificate in respect of amounts payable pursuant to paragraph (c) of this subsection 2.16, (A) set forth at least the same amount of detail in respect of the calculation of such amount as such Lender provides in similar circumstances to other similarly situated borrowers from such Lender, and (B) include a statement by such Lender that it has allocated to its Revolving Credit Commitment or outstanding Loans no greater than a proportionately equal amount of any reduction of the rate of return on such Lender's capital due to the adoption or change in any Requirement of Law regarding capital adequacy as it has allocated to each of its other commitments to lend or other outstanding loans to similarly situated borrowers that are affected similarly by such adoption or change. 2.17 Taxes. (a) All payments made by the Company under this Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Notes). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under the Notes, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes, provided, however, that the Company shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if (i) such Lender fails to comply with the requirements of paragraph (b) of this subsection or (ii) either of the certifications made by such Lender as set forth in such paragraph is not true and correct with respect to such Lender. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter the Company shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Company and the Administrative Agent (with a copy to the Documentation Agent) (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Company and the Administrative Agent (with a copy to the Documentation Agent) two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Documentation Agent and the Administrative Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Company, the Administrative Agent and the Documentation Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Lender or a Participant pursuant to subsection 10.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Lender from which the related participation shall have been purchased. 2.18 Indemnity. The Company agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in making a borrowing of, conversion into or continuation of Eurodollar Loans or C/D Rate Loans after the Company has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Company in making any prepayment after the Company has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans or C/D Rate Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. (a) Prior to the Closing Date, Chemical or an affiliate thereof as specified on Schedule 3.1, as Issuing Bank, issued the letters of credit described in Schedule 3.1 (the "Existing Letters of Credit"). Subject to the terms and conditions hereof, NationsBank or an Affiliate, as Issuing Bank, agrees, and other Lenders designated by the Company with the consent of the Documentation Agent and the Administrative Agent may agree, in each case in reliance on the agreements of the other Lenders set forth in subsection 3.4(a), to issue letters of credit (together with the Existing Letters of Credit, "Letters of Credit") for the account of the Company on any Business Day during the Commitment Period in such form as may be approved from time to time by the Issuing Bank; provided that the Issuing Bank shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the Aggregate Outstanding Revolving Extensions of Credit would exceed the lesser of (A) the aggregate Revolving Credit Commitments then in effect and (B) the excess of the Borrowing Base then in effect over Permitted Senior Indebtedness. Each Letter of Credit shall (i) be denominated in Dollars and shall be either (x) a standby letter of credit issued to support obligations of the Company and its Subsidiaries, contingent or otherwise, arising in the ordinary course of business or (y) a documentary letter of credit in respect of the purchase of goods or services by the Company and its Subsidiaries in the ordinary course of business and (ii) expire no later than the Termination Date. (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Bank or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letters of Credit. The Company may from time to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank may reasonably request in accordance with its customary procedures (with a copy to the Administrative Agent). Upon receipt of any Application, the Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Bank be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the Company. The Issuing Bank shall furnish a copy of such Letter of Credit to the Company promptly following the issuance thereof. 3.3 Fees, Commissions and Other Charges. (a) The Company shall pay (i) to the Administrative Agent, for the account of the Issuing Bank and the L/C Participants in accordance with their respective Revolving Credit Commitment Percentages, a letter of credit commission with respect to each Letter of Credit, computed for the period from the Closing Date (in the case of the first such payment) or the date on which the last such payment was due (in all other cases) to the date upon which such payment is due hereunder at the L/C Fee Rate on the average daily aggregate amount available to be drawn under such Letter of Credit and (ii) to the Issuing Bank for its own account, a letter of credit commission with respect to each Letter of Credit, computed for the period from the Closing Date (in the case of the first such payment) or the date on which the last such payment was due (in all other cases) to the date upon which such payment is due hereunder at the rate of 1/8% per annum of the average daily aggregate amount available to be drawn under such Letter of Credit during the period for which such fee is calculated. Such commissions shall be payable in arrears on each L/C Fee Payment Date and shall be nonrefundable. (b) In addition to the foregoing fees and commissions, the Company shall pay or reimburse the Issuing Bank for such reasonable and customary costs and expenses as are incurred or charged by the Issuing Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Bank and the L/C Participants all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 3.4 L/C Participations. (a) The Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Commitment Percentage in the Issuing Bank's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit for which the Issuing Bank is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the Issuing Bank's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed; provided, that no L/C Participant shall be obligated to make such payment to the extent that, after giving effect to such payment, the sum of (i) such payment, (ii) such Lender's Commitment Percentage of the L/C Obligations on the date of such payment other than that with respect to which such payment would be made and (iii) such Lender's Commitment Percentage of the Aggregate Outstanding Revolving Extensions of Credit on such date other than the L/C Obligations exceeds such Lender's Revolving Credit Commitment. Each L/C Participant's obligation to purchase its participating interest in each Letter of Credit pursuant to this subsection 3.4(a) shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such L/C Participant may have against the Issuing Bank, the Company, any direct or indirect beneficiary of any Letter of Credit, the Administrative Agent or any other Person whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Company; (iv) any breach of this Agreement by the Company, the Administrative Agent or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; and such obligation shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any reimbursement obligation of the Company is rescinded or must otherwise be restored or returned by the Issuing Bank upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial part of its property, or otherwise, all as though such payment had not been made. (b) If any amount required to be paid by any L/C Participant to the Issuing Bank pursuant to subsection 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Bank under any Letter of Credit is paid to the Issuing Bank within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Bank on demand an amount equal to the product of (i) such amount, times (ii) the daily average federal funds rate, as quoted by the Issuing Bank, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360.If any such amount required to be paid by any L/C Participant pursuant to subsection 3.4(a) is not in fact made available to the Issuing Bank by such L/C Participant within three Business Days after the date such payment is due, the Issuing Bank shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans hereunder. A certificate of the Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 3.4(a), the Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion thereof previously distributed by the Issuing Bank to it. 3.5 Reimbursement Obligation of the Company. The Company agrees to reimburse the Issuing Bank on each date on which the Issuing Bank notifies the Company of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Bank for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Bank in connection with such payment, provided, that the failure of the Company to so reimburse the Issuing Bank on such date shall not be deemed to be an Event of Default if (i) the Company receives notice of such draft after 1:30 P.M. on such date and (ii) the Company makes such reimbursement in full no later than the first Business Day following such date. Each such payment shall be made to the Issuing Bank at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Company under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) to but not including the date of payment in full at the rate which would be payable on any outstanding ABR Loans which were then overdue. 3.6 Obligations Absolute. The Company's obligations under this SectionError! Reference source not found. 3 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Issuing Bank or any beneficiary of a Letter of Credit. The Company also agrees with the Issuing Bank that the Issuing Bank shall not be responsible for, and the Company's Reimbursement Obligations under subsection 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee, provided, that payment by the Issuing Bank under such Letters of Credit against presentation of such documents shall not have been determined by a final judgement of a court of competent jurisdiction to have constituted gross negligence or willful misconduct by the Issuing Bank. The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. The Company agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards or care specified in the Uniform Commercial Code of the State of New York and the Uniform Customs, shall be binding on the Company and shall not result in any liability of the Issuing Bank to the Company. 3.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the Issuing Bank shall promptly notify the Company of the date and amount thereof. The responsibility of the Issuing Bank to the Company in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment appear on their face to be in conformity with such Letter of Credit. 3.8 Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3Error! Reference source not found., the provisions of this Section 3 shall apply. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit the Company hereby represents and warrants to the Agents and each Lender that: 4.1 Financial Condition. The consolidated balance sheets of the Company and its consolidated Subsidiaries as at December 31, 1994 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Ernst & Young, copies of which have heretofore been furnished to each Lender, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and changes in cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at March 31, 1995 and the related unaudited consolidated statements of income and of cash flows for the three-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and changes in cash flows for the three-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein and except the quarterly statements are unaudited and do not include footnotes as would be required for audited financial statements). Neither the Company nor any of its Restricted Subsidiaries had, at the date of the most recent balance sheet referred to above, any Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto and which, in the aggregate, would be material to the Company and its Subsidiaries taken as a whole, except as set forth on Schedule 4.6. 4.2 No Change. Since December 31, 1994, no development or event has occurred which has had or could reasonably be expected to have a Material Adverse Effect except as otherwise disclosed in the Company's audited or unaudited financial statements including the periodic quarterly reports on Form 10-Q, in each case delivered to the Lenders prior to the Closing Date. Between December 31, 1994 and the Closing Date, no dividends or other distributions have been declared, paid or made upon the capital stock of the Company nor has any of the capital stock of the Company been redeemed, retired, purchased or otherwise acquired for value by the Company or any of its Subsidiaries, except for payment of regular quarterly dividends of not more than $0.17 per share per quarter, payment of the dividend on the Series A ESOP Convertible Preferred Stock and except as otherwise disclosed in the Company's audited or unaudited financial statements including the periodic quarterly reports on Form 10-Q delivered to the Lenders prior to the Closing Date. 4.3 Corporate Existence; Compliance with Law. Each of the Company and its Restricted Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law, except in the case of the foregoing clauses (c) and (d) to the extent that the failure to be so qualified or to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. The Company has the corporate power and authority, and the legal right, to make, deliver and perform this Agreement and the Notes and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes and to authorize the execution, delivery and performance of this Agreement and the Notes. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any other Loan Document. This Agreement has been, and, as of the Closing Date, the Notes will be, duly executed and delivered on behalf of the Company. This Agreement constitutes, and each other Loan Document when executed and delivered by the Company for value received will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of this Agreement and the Notes, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Company or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 4.6 No Material Litigation. Schedule 4.6 sets forth information with respect to certain litigation, investigations, or proceedings pending against the Company and its Subsidiaries. Subject to the matters set forth on such Schedule, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Restricted Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement or the Notes or any of the transactions contemplated hereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 4.7 No Default. Neither the Company nor any of its Restricted Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 Ownership of Property; Liens. Each of the Company and its Restricted Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to all its other property, except for defects in title that do not interfere in any material respect with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and none of such property is subject to any Lien except as permitted by subsection 7.3. 4.9 Intellectual Property. The Company and each of its Restricted Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, which could reasonably be expected to have a Material Adverse Effect nor does the Company know of any valid basis for any such claim. The use of such Intellectual Property by the Company and its Restricted Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 4.10 Taxes. Each of the Company and its Restricted Subsidiaries has filed or caused to be filed all tax returns which, to the knowledge of the Company, are required to be filed and which if not so filed could reasonably be expected to have a Material Adverse Effect, and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges of a material nature imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Company, no claim is being asserted, with respect to any such tax, fee or other charge which reasonably could be expected to have a Material Adverse Effect. 4.11 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. If requested by any Lender or the Documentation Agent, the Company will furnish to the Documentation Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 4.12 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits to an extent which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA in an amount which could reasonably be expected to have a Material Adverse Effect if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. To the knowledge of the Company or any Commonly Controlled Entity, no such Multiemployer Plan for which the Company or any Subsidiary could reasonably be expected to have a material liability is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Company and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of $5,000,000. 4.13 Investment Company Act; Other Regulations. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to regulation under any Federal or State statute or regulation which limits its ability to incur Indebtedness. 4.14 Subsidiaries. All the Subsidiaries of the Company at the date of this Agreement are listed on Schedule 4.14 and the Subsidiaries that, as of the date of this Agreement, are Significant Subsidiaries of the Company are designated as such on Schedule 4.14. 4.15 Accuracy and Completeness of Information. The written information, reports and other papers and data with respect to the Company (other than projections and estimates) furnished to the Agents or the Lenders in connection with this Agreement or the obtaining of the commitments of the Lenders hereunder was, at the time so furnished and when considered as a whole, complete and correct in all material respects, or has been subsequently supplemented by other information, reports or other papers or data, to the extent necessary to give in all material respects a true and accurate knowledge of the subject matter in all material respects. All projections and estimates with respect to the Company and its Subsidiaries so furnished by the Company were prepared and presented in good faith, it being recognized by the Documentation Agent and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that such differences may be material; except as set forth and required within this Agreement, the Company shall not be required to update such projections. 4.16 Environmental Matters. Except to the extent that all of the following, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) To the knowledge of the Company, the facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could reasonably be expected to give rise to liability under, any Environmental Law. (b) To the knowledge of the Company, the Properties and all operations at the Properties are in compliance, and, to the extent of the Company's and its Subsidiaries' involvement with the Properties, have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Company or any of its Subsidiaries (the "Business"). (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Company have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the knowledge of the Company, Materials of Environmental Concern have not been transported or disposed of from the Properties while owned or operated by the Company or any of its Subsidiaries in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business. (f) To the knowledge of the Company, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably give rise to liability under Environmental Laws. 4.17 Status of the Notes. All indebtedness of the Company under this Agreement, the Notes and the Applications (including, without limitation principal, interest (including interest accruing after the occurrence of any event described in Section 8(f), whether or not such interest constitutes an allowed claim in any proceeding referred to in Section 8(f)), fees, expenses and indemnities) constitutes, and the Company hereby expressly agrees that all such indebtedness shall constitute, "Senior Debt" as such term is used in the 1992 Subordinated Debt Indenture. 4.18 Purpose of Loans. The proceeds of the Loans shall be used by the Company for working capital purposes in the ordinary course of business and to make the purchases and investments permitted by Section 7. SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Initial Extensions of Credit. The agreement of each Lender to make the initial extensions of credit requested to be made by it is subject to the satisfaction, on or prior to the Closing Date, of the following conditions precedent: (a) Loan Documents. The Documentation Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Company and each Agent, with a counterpart for each Lender, (ii) for the account of each Lender, a Revolving Credit Note, conforming to the requirements hereof and executed by a duly authorized officer of the Company, (iii) for the account of each Short-Term Funding Lender, a Short-Term Funding Line Note conforming to the requirements hereof and executed by a duly authorized officer of the Company and (iv) the Guaranty, executed by a duly authorized officer of each Guarantor. (b) Intercreditor Agreement. A supplement to the Intercreditor Agreement, in form satisfactory to the Documentation Agent, shall have been executed and delivered by each Lender not already a party thereto. (c) Corporate Proceedings. The Documentation Agent shall have received, with a counterpart for each Lender, (i) a copy of the resolutions, in form and substance reasonably satisfactory to the Documentation Agent, of the Board of Directors of the Company and each Guarantor authorizing (x) in the case of the Company, the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which it is a party, and the borrowings contemplated hereunder, and (y) in the case of each Guarantor, the execution, delivery and performance of the Guaranty, in each case, certified by the Secretary or an Assistant Secretary of the Company or such Guarantor, as the case may be, as of the Closing Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and shall be in form and substance satisfactory to the Documentation Agent and (ii) an incumbency certificate of the Company and each Guarantor, satisfactory in form and substance to the Documentation Agent, with appropriate insertions and attachments. (d) Corporate Documents. The Documentation Agent shall have received, with a counterpart for each Lender, true and complete copies of the Charter and By-laws of the Company and each Guarantor, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Company or such Guarantor, as the case may be. (e) No Violation. The consummation of the transactions contemplated hereby shall not contravene, violate or conflict with, nor involve the Documentation Agent or any Lender in any violation of, any Requirement of Law. (f) Fees. The Syndication Agent, the Documentation Agent and the Administrative Agent shall have received the fees to be received on the Closing Date referred to in subsection 2.5. (g) Legal Opinions. The Documentation Agent shall have received, with a counterpart for each Lender, the executed legal opinions of (i) the Corporate Counsel to the Company, substantially in the form of Exhibit E-1 hereto, and (ii) Piper & Marbury L.L.P., counsel to the Company and the Guarantors, substantially in the form of Exhibit E-2. Such legal opinions shall cover such other matters incident to the transactions contemplated by this Agreement as the Documentation Agent may reasonably require. (h) Borrowing Base Certificate. The Documentation Agent shall have received a Borrowing Base Certificate, dated the Closing Date and setting forth a calculation of the Borrowing Base as of April 30, 1995, showing that the Aggregate Outstanding Revolving Extensions of Credit on the Closing Date (after giving effect to the extension of credit hereunder on the Closing Date), when added to the Permitted Senior Indebtedness on the Closing Date, shall not exceed the Borrowing Base as set forth therein. (i) Existing Credit Agreement. The Documentation Agent shall have received evidence satisfactory to it that, effective as of the Closing Date and after giving effect for the initial extensions of Credit hereunder all amounts outstanding under the Existing Credit Agreement will have been paid in full and the Commitments thereunder will have been replaced with the Commitments hereunder. 5.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Company or any Guarantor in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (c) Additional Documents. The Documentation Agent shall have received each additional document, instrument, legal opinion or item of information reasonably requested by it, including, without limitation, a copy of any debt instrument, security agreement or other material contract to which the Company may be a party. (d) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Documentation Agent, and the Documentation Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by and Letter of Credit issued on behalf of the Company hereunder shall constitute a representation and warranty by the Company as of the date of such Loan or such issuance that the conditions contained in subsection 5.2(a) and (b) have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS The Company hereby agrees as follows for so long as any of the Commitments remain in effect, any Note or any Letter of Credit remains outstanding and unpaid or any other amount is owing to any Lender or the Agents hereunder: 6.1 Financial Statements. The Company will furnish to each Lender: (a) as soon as available, but in any event within 100 days after the end of each fiscal year of the Company, copies of the consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and changes in cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit (other than qualifications related to the incorporation of reports by other independent certified public accountants), by Ernst & Young or other independent certified public accountants of nationally recognized standing not unacceptable to the Required Lenders; and (b) as soon as available, but in any event not later than 55 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and changes in cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial position of the Company and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements to be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 Certificates; Other Information. The Company will furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsection 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and 6.1(b), a compliance certificate of a Responsible Officer, substantially in the form of Exhibit G, stating that, to the best of such officer's knowledge, the Company during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and in the Notes to be observed, performed or satisfied by it (and containing calculations demonstrating compliance with subsections 7.1 and 7.11 and such other financial information as requested by the Documentation Agent), and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; (c) not later than 95 days after the end of each fiscal year of the Company, a copy of the projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that while such officer has no reason to believe such projections are incorrect or misleading in any material respect, such projections are based upon assumptions that may not materialize or may change adversely due to factors related to the Company's business or industry, and unanticipated events and circumstances may occur subsequent to the date of such projections, such that the actual results achieved may vary from such projections, and such variations may be material, and that the Company is under no obligation to update such projections; (d) promptly upon their becoming available, but in any event no later than ten days after the same are sent, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, or by any Restricted Subsidiary of the Company to its stockholders (other than the Company or any Subsidiary of the Company), of all regular and periodic reports and all registration statements (excluding exhibits thereto and Registration Statements on Form S-8) and prospectuses, if any, filed by the Company or any of its Restricted Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any successor or analogous Governmental Authority; and all of press releases and other statements made available generally by the Company or any of its Restricted Subsidiaries to the public concerning material developments in the business of the Company and any of its Restricted Subsidiaries; (e) promptly, such additional financial and other information as any Lender may from time to time reasonably request; (f) as soon as practicable, but in no event later than 25 days after the end of each month, a Borrowing Base Certificate certifying in reasonable detail the Borrowing Base as of the last day of such month, which certificate shall be complete and correct as of the date thereof; and (g) concurrently with the delivery of the financial statements referred to in subsections 6.1(a) and 6.1(b), the financial information set forth on Schedule 6.2(g) hereto. 6.3 Payment of Obligations. The Company and each Restricted Subsidiary will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all obligations of whatever nature which if not so paid could reasonably be expected to have a Material Adverse Effect, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 6.4 Conduct of Business and Maintenance of Existence. The Company and the Restricted Subsidiaries, taken as a whole, will at all times remain principally engaged in the business currently being conducted by the Company and the Restricted Subsidiaries, and in all respects material to the business of the Company and the Restricted Subsidiaries taken as a whole, the Company shall, and will cause each of the Restricted Subsidiaries to, preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises required for the normal conduct of such business, except (i) as otherwise permitted pursuant to subsection 7.5 and (ii) the Company shall not be required to preserve any such right, privilege or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any Subsidiary and that the loss thereof could not reasonably be expected to have a Material Adverse Effect. The Company shall, and will cause each Restricted Subsidiary to, comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. The Company and each Restricted Subsidiary will keep in all material respects all property useful and necessary in its business in good working order and condition (provided, however, that nothing in this subsection 6.5 shall prevent the Company from discontinuing the operation or maintenance, or both the operation and maintenance, of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and could not reasonably be expected to have a Material Adverse Effect); maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Lender, upon written request, reasonable information as to the insurance carried. 6.6 Inspection of Property; Books and Records; Discussions. The Company and each Restricted Subsidiary will keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Lender, at such Lender's expense, to visit and inspect as reasonably requested any of its properties and the properties of the real estate joint ventures in which the Company or any Subsidiary within the Homebuilding Segment participates or manages and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries and such real estate joint ventures in which the Company or any Subsidiary within the Homebuilding Segment participates or manages, as reasonably requested with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. 6.7 Notices. The Company will promptly give notice to the Documentation Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Restricted Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Restricted Subsidiaries and any Governmental Authority, which, in either case, reasonably could be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or any of its Restricted Subsidiaries (i) in which the amount involved and not covered by insurance is $10,000,000 or more or (ii) in which injunctive or similar relief is sought which reasonably could be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any change in the Rating by either Rating Agency; and (f) any event or occurrence which has a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 6.8 Environmental Laws. (a) The Company, each Restricted Subsidiary and each joint venture in which the Company or any Restricted Subsidiary participates or manages will comply with and insure compliance by all tenants and subtenants, if any, with all Environmental Laws and obtain and comply in all material respects with and maintain, and insure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except in each case to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) The Company, each Restricted Subsidiary and each such joint venture will conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect; and (c) The Company will defend, indemnify and hold harmless each Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws, or any orders, requirements or demand of Governmental Authorities related thereto, including without limitation reasonable attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements contained in this paragraph (c) shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. 6.9 Guarantees from Future Subsidiaries. The Company will promptly secure the execution and delivery of the Guaranty to the Documentation Agent on behalf of the Lenders from each Subsidiary, whether now existing or formed and organized after the Closing Date, if such Subsidiary (i) has assets with an aggregate book value equal to or greater than $1,000,000 and (ii) is included in the Homebuilding Segment. Each such Subsidiary which hereafter meets the criteria set forth in the preceding sentence shall execute and deliver the Guaranty within 30 days after it meets such criteria. Concurrently with the execution and delivery by such a Subsidiary of a Guaranty, the Company will deliver to the Documentation Agent such legal opinions and evidence of corporate action and authority in respect thereof as shall be reasonably requested by the Documentation Agent. SECTION 7. NEGATIVE COVENANTS The Company hereby agrees as follows for so long as any of the Commitments remain in effect, any Note or any Letter of Credit remains outstanding and unpaid or any other amount is owing to any Lender or any Agent hereunder: 7.1 Financial Condition Covenants. The Company shall not: (a) Maintenance of Consolidated Net Worth of the Company. Permit the Consolidated Net Worth of the Company (i) on March 31, 1995, to be less than $287,000,000 or (ii) on the last day of any fiscal quarter ending after March 31, 1995, to be less than $287,000,000 plus the sum of (A) 50% of Consolidated Net Income of the Company for each fiscal quarter for which such Consolidated Net Income is positive during the period from April 1, 1995 through such date plus (B) the aggregate amount of net proceeds received by the Company from all registered public offerings of securities of the Company characterized as capital stock in accordance with GAAP after April 1, 1995 through such date. (b) Maintenance of Total Liabilities in Relation to Adjusted Consolidated Tangible Net Worth. Permit Combined Total Liabilities of the Homebuilding Segment on the last day of any fiscal quarter of the Company to be greater than the sum of (i) 2.75 multiplied by that portion of Adjusted Consolidated Tangible Net Worth on such day which is less than or equal to $218,000,000 plus (ii) 2.0 multiplied by that portion of Adjusted Consolidated Tangible Net Worth on such day which is greater than $218,000,000; provided, that in the event that Fixed Charge Coverage is less than 1.75 for any two consecutive fiscal quarters of the Company, the multipliers specified in clauses (i) and (ii) of this subsection (i.e. 2.75 and 2.0) shall each be reduced by 0.25, effective as of the last day of the fiscal quarter immediately following the second of such two consecutive fiscal quarters of the Company, and such multipliers shall be further reduced by 0.1 on and as of the last day of each subsequent fiscal quarter of the Company unless Fixed Charge Coverage for such subsequent fiscal quarter is equal to or greater than 1.75, in which case such multipliers shall be as set forth in clauses (i) and (ii) of this subsection effective as of such day. For purposes of this subsection 7.1(b), Combined Total Liabilities of the Homebuilding Segment shall exclude accounts payable and accrued expenses. (c) Maintenance of Fixed Charge Coverage. Permit Fixed Charge Coverage to be less than 1.50 for any three consecutive fiscal quarters of the Company. (d) Maintenance of Net Worth Ratio of the Financial Services Segment. Permit the ratio of Financial Services Segment Combined Total Liabilities to the Consolidated Adjusted Net Worth of the Financial Services Segment to be greater than 8.0 to 1.0 as of the end of any quarter in Ryland Mortgage Company's fiscal year. 7.2 Limitation on Indebtedness. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness in respect of the Loans, the Notes, and the other obligations of the Company under this Agreement; (b) Indebtedness of the Company to any Subsidiary and of any Subsidiary to the Company or any other Subsidiary; provided, in each case, that such Indebtedness be permitted as an Investment pursuant to subsection 7.8; (c) Indebtedness of the Company or any of its Subsidiaries in respect of purchase money mortgage financing for real estate inventory, provided, that the holder of such Indebtedness shall have no recourse against the Company or any Subsidiary in respect of such Indebtedness, such recourse being limited solely to the assets financed with the proceeds of such Indebtedness, and provided, further, that (i) at least 50% of the aggregate capitalized cost of the assets so acquired with such purchase money mortgage financing by the Company, its Subsidiaries and the Company's consolidated joint ventures shall have been financed with such purchase money mortgage financing and (ii) the aggregate capitalized cost of all assets pledged in respect of or otherwise securing all such non-recourse purchase money mortgage financing of the Company, its Subsidiaries and its consolidated and unconsolidated joint ventures shall not at any time exceed $100,000,000; (d) Subordinated Debt; (e) Specified Debt; (f) Indebtedness in respect of industrial revenue bonds outstanding on the Closing Date and listed on Schedule 7.2(f) hereto; (g) Indebtedness constituting, or constituting the primary obligations guaranteed by, the Guarantee Obligations permitted pursuant to subsection 7.4(a), (b) or (c); (h) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of letters of credit issued for the account of the Company or such other entity other than Letters of Credit issued hereunder and other than Permitted IRB Letters of Credit, provided, that such Indebtedness shall not include any letters of credit supporting obligations under any Indebtedness having a final maturity of more than one year from the date of incurrence of such Indebtedness; (i) Indebtedness of a corporation which becomes a Subsidiary or which is merged into the Company or any Subsidiary after the date hereof, provided that (i) such Indebtedness existed at the time such corporation became a Subsidiary or was so merged and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Company no Default or Event of Default shall have occurred and be continuing; (j) refinancing of existing Indebtedness of the Company or any Restricted Subsidiary or other Indebtedness permitted under this subsection 7.2 (a), (b), (c), (d), (e), (f), (g), (h), (i), (k), (l), (m), (n), (o) and (p) on terms no less favorable to the Company and not resulting in an Event of Default or Default hereunder, provided, that the provisions of the applicable clause (other than this clause (j)) of this subsection 7.2 under which such Indebtedness is permitted are satisfied after giving effect thereto; (k) subject to subsection 7.15 hereof, additional Indebtedness of the Company or any of its Subsidiaries in the Homebuilding Segment (other than the Indebtedness described in the paragraphs of this subsection 7.2 other than this paragraph) (i) having restrictive covenants no more restrictive or less favorable to the Company than the terms and provisions hereof, (ii) having a final maturity of greater than one year from the date of incurrence of such Indebtedness and (iii) having no revolving credit or other provisions for short-term repayment and reborrowing, provided, that no more than an aggregate of $20,000,000 in principal of such Indebtedness matures prior to the Termination Date; (l) Indebtedness of any entity within the Ryland Financial Division so long as there is no recourse in respect thereof to the Company or any entity in the Homebuilding Segment or so long as any such recourse to the Company or any entity within the Homebuilding Segment is permitted pursuant to subsection 7.4; (m) Indebtedness of the Company and any of its Subsidiaries incurred to finance the acquisition of fixed or capital assets (whether pursuant to a loan, a Financing Lease or otherwise) in an aggregate amount at any time outstanding not to exceed $15,000,000; provided, that such Indebtedness shall be secured solely by the assets financed with the proceeds of such Indebtedness; (n) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of completion bonds issued for the account of the Company or such other entity in the ordinary course of business of the Homebuilding Segment in respect of construction projects undertaken by it; (o) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of letters of credit issued for the account of the Company or such other entity for the benefit of employee benefit or employee insurance programs of the Company or any of its Subsidiaries; and (p) Indebtedness of the Company or any of its Subsidiaries in the Homebuilding Segment to any Lender, the proceeds of which are used to finance acquisition, development or construction projects, the financing of which projects by such Lender pursuant to this clause (p), in the determination of such Lender, furthers the purposes applicable to it under the Community Reinvestment Act of 1977, as amended, and the regulations issued thereunder, provided that (i) the aggregate principal amount of all such Indebtedness shall not exceed $15,000,000 at any time outstanding and (ii) such Indebtedness, if secured by assets of the Company or any Subsidiary, shall be secured solely by such assets financed with the proceeds of such Indebtedness. 7.3 Limitation on Liens. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; (f) Liens in existence on the Closing Date securing Indebtedness permitted by subsection 7.2(f), a refinancing thereof pursuant to subsection 7.2(j) or any extensions, renewals or replacements thereof, provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Company and its Subsidiaries permitted by subsection 7.2(c) or 7.2(m) incurred to finance the acquisition of real estate inventory or fixed or capital assets or a refinancing thereof pursuant to subsection 7.2(j), provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such real estate inventory or fixed or capital assets (or, in the case of a refinancing pursuant to subsection 7.2(j), such Liens shall be renewals or replacements of Liens created substantially simultaneously with the acquisition of such real estate inventory or fixed or capital assets), (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) if applicable, the percentage of such acquisition financed with proceeds of Indebtedness shall satisfy the requirements set forth in clause (ii) to the last proviso to subsection 7.2(c); (h) Liens on the property or assets of a corporation which becomes a Subsidiary or which is merged into the Company or a Subsidiary after the date hereof securing Indebtedness permitted by subsection 7.2(i) (or subsection 7.2(j) in respect of such Indebtedness), provided that (i) such Liens existed at the time such corporation became a Subsidiary or was so merged and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any additional property or assets of such corporation after the time such corporation becomes a Subsidiary or is so merged, and (iii) the amount of Indebtedness secured thereby is not increased; (i) Liens on assets of the Financial Services Segment securing Indebtedness of the Financial Services Segment permitted by subsection 7.2(g) or 7.2(l); (j) judgment and other similar Liens arising in connection with court proceedings; provided (i) the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings and (ii) no Default or Event of Default shall have occurred and be continuing and (k) Liens securing Indebtedness permitted under subsection 7.2(p), provided that such Liens cover only such assets financed with the proceeds of such Indebtedness. 7.4 Limitation on Guarantee Obligations. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Guarantee Obligation except: (a) the Company and other entities within the Homebuilding Segment may incur Guarantee Obligations for the benefit of the Ryland Financial Division if the aggregate amount of such Guarantee Obligations, plus the net amount of Investments by the Homebuilding Segment in the Financial Services Segment, does not exceed the sum of (i) $50,000,000, and (ii) an amount, if a positive number, equal to (A) the aggregate value of all cash dividends received by the Company from the Financial Services Segment, determined in accordance with GAAP, during the period from April 1, 1995 to and including such date less (B) an amount equal to the excess of (1) the aggregate amount of cash dividends paid by the Company on its common stock during such period over (2) 50% of the Consolidated Net Income of the Homebuilding Segment for such period; (b) subject to subsection 7.15 hereof, the Company may incur Guarantee Obligations other than those described in paragraphs (a) and (e) of this subsection 7.4 in an aggregate amount at any time outstanding not exceeding 25% of Adjusted Consolidated Tangible Net Worth at such time, provided, that Guarantee Obligations of the Company for the benefit of unconsolidated joint ventures permitted under subsection 7.8(e) hereof shall not at any time exceed an aggregate amount equal to 15% of Adjusted Consolidated Tangible Net Worth at such time; (c) the Company and its Restricted Subsidiaries may incur Guarantee Obligations in respect of Permitted IRB Letters of Credit; (d) the entities within the Financial Services Segment may incur other Guarantee Obligations; (e) the Company and other entities within the Homebuilding Segment may incur Guarantee Obligations in respect of letters of credit and completion bonds permitted pursuant to subsection 7.2(h), (n) or (o); and (f) Subsidiaries of the Company may incur Guarantee Obligations in respect of the Specified Debt, provided that simultaneously with the execution and delivery of any guaranty in respect thereof by any Subsidiary, such Subsidiary shall execute and deliver a substantially identical guaranty in respect of all obligations of the Company under this Agreement and the other Loan Documents. 7.5 Limitations of Fundamental Changes. Neither the Company nor any Restricted Subsidiary will enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets except: (a) any Restricted Subsidiary of the Company may be merged or consolidated with or into the Company provided that the Company shall be the continuing or surviving corporation, or with or into any one or more wholly owned Restricted Subsidiaries of the Company provided that the wholly owned Restricted Subsidiary or Subsidiaries shall be the continuing or surviving corporation; (b) any wholly owned Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly owned Restricted Subsidiary of the Company; (c) the Company or any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets to the Company or any Restricted Subsidiary of the Company, whether existing on or created after the date of this Agreement; provided, that if the transferor is the Company or a Guarantor, the transferee shall be the Company or a Guarantor; and (d) sales, conveyances, leases, assignments, transfers or other dispositions of property, business or assets permitted under subsection 7.6. 7.6 Limitation on Sale of Assets. Neither the Company nor any Restricted Subsidiary will convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, stock of Subsidiaries, receivables and leasehold interests and, with respect to the Financial Services Segment, its loan servicing portfolios), whether now owned or hereafter acquired, except: (a) obsolete or worn out property disposed of in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) the sale or discount of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) the sale or discount without recourse of mortgage loan receivables; (e) the sale by the Financial Services Segment in the ordinary course of its business of its rights under loan servicing portfolios owned on the Closing Date; (f) as permitted by subsection 7.5 (other than pursuant to subsection 7.5(d)); (g) the sale of mortgages and mortgage-backed or other securities by the Financial Services Segment in the ordinary course of business; (h) the sale, transfer or other disposition of any stock, property or assets of the Limited-Purpose Subsidiaries; (i) the sale, transfer or other disposition of Cash Equivalents; and (j) any other sale or disposition of property or assets (including stock or assets of Subsidiaries), provided that the aggregate book value of all assets so sold or disposed of in any period of twelve consecutive months shall not exceed 10% of the book value of the consolidated total assets of the Company (excluding the assets of the Limited Purpose Subsidiaries) as at the beginning of such twelve-month period. 7.7 Limitation on Dividends. The Company will not declare or pay any dividend (other than dividends payable solely in common stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of stock of the Company or any warrants or options to purchase any such stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "Restricted Payments"), except that (i) the Company may make any Restricted Payment so long as, after giving effect thereto, no Default or Event of Default will be in existence and (ii) the Company may in any event pay dividends in respect of the Company's Series A ESOP Convertible Preferred Stock for any period in any amount not exceeding the amount of principal and interest payable to the Company for such period by the recipient of such dividends. 7.8 Limitation on Investments. Neither the Company nor any Restricted Subsidiary will make any Investments, except: (a) extensions of trade credit and other payables in the ordinary course of business; (b) Investments in Cash Equivalents; (c) acquisitions by the Company or any of its Restricted Subsidiaries within the Homebuilding Segment of assets constituting a business unit or the capital stock of any Person; provided, that such business unit or Person is engaged in the same general type of business as conducted by the Company or one of its Restricted Subsidiaries; provided, further, that the aggregate amount of consideration paid by the Company and its Restricted Subsidiaries for all such acquisitions of assets or capital stock (including as a part of such consideration any Indebtedness assumed as a part thereof) does not exceed (i) in any fiscal year, an amount equal to 25% of Adjusted Consolidated Tangible Net Worth as at the end of the immediately prior fiscal year of the Company or (ii) since the Closing Date, an aggregate amount equal to $100,000,000; and provided, finally, that after giving effect thereto, no Default or Event of Default shall be in existence; (d) acquisitions by the Company or any of its Restricted Subsidiaries other than acquisitions permitted under subsection 7.8(c) or (h) of, or investments in, assets constituting a business unit or the capital stock of any Person; provided, that the aggregate amount of consideration paid by the Company and its Restricted Subsidiaries for all such acquisitions of assets or capital stock (including as a part of such consideration any Indebtedness assumed as a part thereof) does not exceed an aggregate amount equal to $25,000,000; and provided, further, that after giving effect thereto, no Default or Event of Default shall be in existence; (e) (i) Investments by the Company or any of its Subsidiaries within the Homebuilding Segment in joint ventures, other than Consolidated Joint Ventures, in an aggregate amount for all such Investments not exceeding at any date the sum of (A) $41,500,000, (B) an amount equal to the aggregate value of all cash distributions attributable to such Investments received by the Company from all joint ventures in which the Company or any of its Subsidiaries within the Homebuilding Segment is a participant, determined in accordance with GAAP, during the period from April 1, 1995 to and including such date and (C) 15% of cumulative Adjusted Consolidated Net Income of the Company for the period from and including April 1, 1995 to and including the last day of the fiscal quarter of the Company ending immediately prior to such date; (f) Investments by the Company in any Subsidiary within the Homebuilding Segment or in any Consolidated Joint Venture or by any Subsidiary within the Homebuilding Segment in the Company, in any other Subsidiary within the Homebuilding Segment or in any Consolidated Joint Venture; (g) Investments by the Company or any other entity within the Homebuilding Segment in the Financial Services Segment if the aggregate amount of such Investments outstanding on any date, plus the aggregate amount of all Guarantee Obligations incurred by the Homebuilding Segment for the benefit of the Ryland Financial Division outstanding on such date, does not at any time exceed the sum of (i) $50,000,000 and (ii) an amount, if a positive number, equal to (A) the aggregate value of all cash dividends received by the Company from the Financial Services Segment, determined in accordance with GAAP, during the period from April 1, 1995 to and including such date less (B) an amount equal to the excess of (1) the aggregate amount of cash dividends paid by the Company on its common stock during such period over (2) 50% of the Consolidated Net Income of the Homebuilding Segment for such period; (h) Investments by entities within the Financial Services Segment in any Person and acquisitions of assets constituting a business unit or the capital stock of any Person by entities within the Financial Services Segment; (i) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; and (j) other loans and advances to employees of the Company in connection with incentive or stock purchase plans or arrangements in an aggregate amount not to exceed $3,000,000 at any time outstanding. 7.9 Limitation on Optional Payments and Modification of Debt Instruments. (a) Neither the Company nor any Restricted Subsidiary will (i) make any optional payment or prepayment on or redemption of any Subordinated Debt or (ii) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms (including, without limitation, the subordination terms) of any Subordinated Debt (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon or would otherwise make the terms of the Subordinated Debt more favorable to the Company and no less favorable to the holders of the senior debt to which such Subordinated Debt is subordinated); provided that so long as no Default is in existence or would result therefrom, the Company may prepay Subordinated Debt to the extent that the aggregate face amount of the Subordinated Debt so prepayed after the Closing Date does not exceed $25,000,000. (b) No Restricted Subsidiary within the Financial Services Segment will amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any debt instrument to which it is a party the effect of which would be to (i) impose restrictions on the payment of dividends, directly or indirectly, to or for the benefit of the Company which would limit such dividends to an aggregate amount for all Restricted Subsidiaries in the Financial Services Segment in any fiscal year which is less than the Combined Net Income of the Financial Services Segment for the current fiscal year or (ii) impose restrictions on the making by such Restricted Subsidiaries of Advances, directly or indirectly, to or for the benefit of the Company which would limit such Advances to an aggregate amount for all Restricted Subsidiaries in the Financial Services Segment which is less than $25,000,000 at any time outstanding, provided, that provisions which by their terms would impose such restrictions only in the event of a default under such debt instrument and solely as a result of such default shall not be deemed to be included in the restrictions described in the foregoing clauses (i) or (ii). 7.10 Transactions with Affiliates. Neither the Company nor any Restricted Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is otherwise permitted under this Agreement, or is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. 7.11 Limitation on Inventory. The Company will not permit (a) Unsold Land Held at the end of any month to exceed 20% of Adjusted Consolidated Tangible Net Worth of the Company at such date, or (b) Unsold Land Under Development to exceed an amount equal to 150% of Adjusted Consolidated Tangible Net Worth or (c) the ratio of (i) the sum of (A) the average Unsold Land Held on the last day of each month during the six-month period ending on such date plus (B) the average Unsold Land Under Development on the last day of each month during the six-month period ending on such date plus (C) the average Unsold Housing Inventory on the last day of each month during the six- month period ending on such date to (ii) the average Total Housing Inventory on the last day of each month during the six-month period ending on such date to exceed .75 to 1. Notwithstanding any of the foregoing to the contrary, in the event that Fixed Charge Coverage is less than 1.20 for any two consecutive fiscal quarters of the Company, then for each fiscal quarter of the Company subsequent to the second such consecutive fiscal quarter, the aggregate amount of purchases of land which, immediately after such purchase, would be included under the definition herein of "Unsold Land Held" during such subsequent quarter shall be limited to an amount equal to 50% of the average quarterly amount attributable to the purchase cost of land which would be included in "Cost of Goods Sold" on a combined balance sheet of the Homebuilding Segment determined in accordance with GAAP for the four fiscal quarters of the Company immediately prior to such subsequent quarter, effective until the fiscal quarter of the Company immediately following the first subsequent fiscal quarter of the Company for which Fixed Charge Coverage is 1.20 or greater. 7.12 Fiscal Year . The Company will not permit the fiscal year of the Company to end on a day other than December 31. 7.13 Compliance with ERISA . Neither the Company nor any Restricted Subsidiary will (a) terminate any Plan so as to result in any material liability to PBGC, (b) engage in any "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) involving any Plan which would result in a material liability for an excise tax or civil penalty in connection therewith, (c) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (d) allow or suffer to exist any event or condition which presents a material risk of incurring a material liability to PBGC by reason of termination of any such Plan. 7.14 Preferred Stock . The Company will not permit any Restricted Subsidiary within the Homebuilding Segment to issue preferred stock to any Person other than the Company. 7.15 Limitation on Indebtedness of New Subsidiaries. Notwithstanding anything to the contrary in subsection 7.2 or subsection 7.4 hereof, the Company shall not permit any Subsidiary of the Company in the Homebuilding Segment created or acquired after the Closing Date to create, incur, assume or suffer to exist any Indebtedness which otherwise would be permitted under subsection 7.2(k) or subsection 7.4(b) hereof. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Company shall fail to pay any principal of any Note or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Company shall fail to pay any interest on any Note, or any other amount payable hereunder, within 2 days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Company or any Guarantor herein or in any other Loan Document or which is contained in any certificate or document furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement contained in Section 7 (other than subsection 7.11); or (d) The Company shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section 8), and such default shall continue unremedied (i) for a period of 90 days, in the case of subsection 7.11, or (ii) for a period of 30 days, in the case of any other such provision; or (e) The Company or any of its Restricted Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness having a principal balance of $10,000,000 or more (other than the Notes) or in the payment of any Guarantee Obligation of $10,000,000 or more, beyond the period of grace (not to exceed 15 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; provided that the failure by Ryland Mortgage Company or any of its Subsidiaries to pay any such Indebtedness or Guarantee Obligation in the form of reimbursement obligations in respect of letters of credit issued for the account of Ryland Mortgage Company or any of its Subsidiaries backing obligations under master servicing agreements shall not constitute an Event of Default under this paragraph (e) until the date which is 90 days after the date on which such reimbursement obligations become due and payable; or (f) (i) The Company or any of its Restricted Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Restricted Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Restricted Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Restricted Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Restricted Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Restricted Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Company or any of its Restricted Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $10,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) If a Designated Event shall occur; (j) The Company shall cease to own, directly or indirectly and free and clear of any Lien, 100% of the issued and outstanding capital stock of M.J. Brock & Sons, Inc. and Ryland Mortgage Company; or (k) The Guaranty shall cease, for any reason, to be in full force and effect, or the Company or any Guarantor shall so assert in writing; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Documentation Agent may, or upon the request of the Required Lenders, the Documentation Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Documentation Agent may, or upon the request of the Required Lenders, the Documentation Agent shall, by notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account opened by the Documentation Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Documentation Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. THE AGENTS 9.1 Appointment . (a) Each Lender hereby irrevocably designates and appoints Chemical as the Documentation Agent of such Lender under this Agreement and the other Loan Documents, and each Lender irrevocably authorizes Chemical, as the Documentation Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Documentation Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Documentation Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Documentation Agent (b) Each Lender hereby irrevocably designates and appoints NationsBank as the Administrative Agent of such Lender under this Agreement and the other Loan Documents, and each Lender irrevocably authorizes NationsBank, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.2 Delegation of Duties . Any Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions . Neither any Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of the Company to perform its obligations hereunder or thereunder. No Agent shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company. 9.4 Reliance by Agents . Any Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by such Agent. Each Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with such Agent. Any Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 9.5 Notice of Default . No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Documentation Agent receives such a notice, the Documentation Agent shall give notice thereof to the Lenders. The Documentation Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Documentation Agent shall have received such directions, the Documentation Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Agents and Other Lenders . Each Lender expressly acknowledges that neither any Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by such Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any 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 analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agents hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification . The Lenders agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this subsection (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against any Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable to any Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 9.8 Agents in Individual Capacity . Any Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company as though such Agent were not an Agent hereunder and under the other Loan Documents. With respect to its Loans made or renewed by it and any Note issued to it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 9.9 Successor Administrative Agent . The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Company, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 9.10 Successor Documentation Agent . The Documentation Agent may resign as Documentation Agent upon 30 days' notice to the Lenders. If the Documentation Agent shall resign as Documentation Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Company, whereupon such successor agent shall succeed to the rights, powers and duties of the Documentation Agent, and the term "Documentation Agent" shall mean such successor agent effective upon such appointment and approval, and the former Documentation Agent's rights, powers and duties as Documentation Agent shall be terminated, without any other or further act or deed on the part of such former Documentation Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Documentation Agent's resignation as Documentation Agent, the provisions of this subsection shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Documentation Agent under this Agreement and the other Loan Documents. 9.11 The Co-Agents and the Syndication Agent. Neither the Co- Agents nor the Syndication Agent, in such capacities, shall have any duties, responsibilities, obligations, liabilities or functions under this Agreement or the other Loan Documents. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers . Neither this Agreement, any Note, any other Loan Document, nor any terms hereof of thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Required Lenders, the Documentation Agent and the Company may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes and the other Loan Documents for the purpose of adding any provisions to this Agreement or the Notes or the other Loan Documents or changing in any manner the rights of the Lenders or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Documentation Agent may specify in such instrument, any of the requirements of this Agreement or the Notes or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) reduce the amount or extend the maturity of any Note or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to any Lender hereunder, in each case without the consent of the Lender affected thereby, (b) change the amount of any Lender's Revolving Credit Commitment without the consent of the Lender affected thereby and each Issuing Bank, (c) change the amount of any Lender's Short-Term Funding Line Commitment without the consent of the Lender affected thereby, (d) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Required Lenders, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement and the other Loan Documents, in each case without the written consent of all the Lenders, (e) amend, modify or waive any provision of Section 9 without the written consent of the then Administrative Agent, Documentation Agent and Co-Agents, (f) amend, modify or waive any provision of subsection 2.4 without the written consent of the Administrative Agent, (g) amend, modify or waive any provision of Section 3 without the written consent of each Issuing Bank affected thereby or (h) release the obligation of any Guarantor under the Guaranty without the written consent of all the Lenders. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Company, the Lenders, the Agents and all future holders of the Notes. In the case of any waiver, the Company, the Lenders and the Agents shall be restored to their former position and rights hereunder and under the outstanding Notes and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices . All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telegraph or telex), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or 5 days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answerback received, addressed as follows in the case of the Company, the Administrative Agent and the Documentation Agent, and as set forth in Schedule 1.1 in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company: The Ryland Group, Inc. 11000 Broken Land Parkway Columbia, Maryland 21044-3562 Attention: Chief Financial Officer Telecopy: 410-715-7909 The Documentation Agent: Chemical Bank 270 Park Avenue New York, New York 10017 Attention: Telecopy: The Administrative Agent: NationsBank, N.A. (Carolinas) 6610 Rockledge Drive Bethesda, MD 20817-1876 Attention: Robert Gillison Telecopy: 301-571-0719 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.3A, 2.3B, 2.4, 2.6, 2.7 or 2.8 shall not be effective until received. 10.3 No Waiver; Cumulative Remedies . No failure to exercise and no delay in exercising, on the part of the Documentation Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties . All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 10.5 Payment of Expenses and Taxes . The Company agrees (a) to pay or reimburse the Documentation Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Documentation Agent, (b) to pay or reimburse each Lender and each Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to such Agent and to the several Lenders, and (c) to pay, indemnify, and hold each Lender and each Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and each Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes, the other Loan Documents or the use of the proceeds of the Loans (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Company shall have no obligation hereunder to any Agent or any Lender with respect to indemnified liabilities arising from (i) the gross negligence or willful misconduct of such Agent or any such Lender, (ii) legal proceedings commenced against any Agent or any such Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor in its capacity as such, or (iii) legal proceedings commenced against any Agent or any such Lender by any other Lender or by any Transferee (as defined in subsection 10.6). Any person which may seek indemnification under this subsection 10.5 will promptly notify the Company of any claim, litigation, investigation or proceeding of which it shall receive notice which may give rise to any liability subject to indemnification under this subsection 10.5 and shall permit the Company to participate, at the Company's expense, in the defense of such claim, litigation, investigation or proceeding unless such person seeking indemnification shall have determined, in its sole discretion, that such participation by the Company would be disadvantageous to such person; provided, however, that the failure so to notify the Company will not relieve it of its indemnification obligations under this subsection 10.5, except to the extent of any damages directly suffered by the Company as a result of such failure to notify. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations and Assignments . (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, each Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other financial institutions ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement and the other Loan Documents, such Lender shall retain the sole right to enforce against the Company the Obligations of the Company relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or changing the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans), and the Company and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. The Company agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement or any Note, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 10.7(a) as fully as if it were a Lender hereunder. The Company also agrees that each Participant shall be entitled to the benefits of subsections 2.16, 2.17, 2.18 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it were a Lender; provided that, in the case of subsection 2.18, such Participant shall have complied with the requirements of said subsection and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate thereof or, with the consent of the Company, the Documentation Agent and the Administrative Agent, to an additional bank or financial institution ("an Assignee") all or any part of its rights and obligations under this Agreement and the Notes pursuant to an Assignment and Acceptance, substantially in the form of Exhibit F, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Documentation Agent, the Administrative Agent and the Company) and delivered to the Documentation Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto) and (z) after giving effect to each such assignment, each of the assigning Lender (unless such assigning Lender shall have assigned its entire Commitment pursuant to such assignment) and each assignee shall have a Commitment in an amount not less than $5,000,000. (d) The Documentation Agent shall maintain at its address referred to in subsection 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Documentation Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Company and the Documentation Agent) together with payment to the Documentation Agent of a registration and processing fee of $2,500, the Documentation Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. On or prior to such effective date, the Company, at its own expense, shall execute and deliver to the Documentation Agent (in exchange for the Revolving Credit Note of the assigning Lender, which such Note shall be returned to the Company marked "Cancelled") a new Revolving Credit Note to the order of such Assignee in an amount equal to the Revolving Credit Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order of the assigning Lender in an amount equal to the Revolving Credit Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Note replaced thereby. (f) The Company authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company and its Affiliates prior to becoming a party to this Agreement, provided that, prior to any such disclosure of nonpublic information, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree to be bound by the provisions contained in Section 10.14 hereof. (g) Nothing herein shall prohibit any Lender from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. 10.7 Adjustments; Set-off . (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans or Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), other than in respect of Short-Term Funding Loans pursuant to the provisions of this Agreement, in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or the Reimbursements Obligations owing to it, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Loan or the Reimbursement Obligations owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Lender so purchasing a portion of another Lender's Loan may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) If an Event of Default shall occur and be continuing, in addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, to set-off and appropriate and apply against any amount becoming due and payable by the Company hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise)any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender to or for the credit or the account of the Company. Each Lender agrees promptly to notify the Company and the Documentation Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.8 Counterparts . This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Documentation Agent. 10.9 Severability . Any provision of this Agreement 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 hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.10 Integration . This Agreement represents the agreement of the Company, the Agents and the Lenders with respect to the subject matter hereof, and there are no promises or representations by any Agent or any Lender relative to subject matter hereof not reflected herein. 10.12 Submission To Jurisdiction The Company hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in subsection 9.2 or at such other address of which the Documentation Agent shall have been notified pursuant thereto; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. 10.14 Confidentiality Each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of non-public information provided to it by the Company or any Subsidiary in connection with this Agreement or any other Loan Document; provided, however, that any Lender may disclose such information (a) at the request of any regulatory authority or in connection with an examination of such Lender by any such authority, (b) pursuant to subpoena or other court process, (c) when required to do so in accordance with the provisions of any applicable law, (d) at the direction of any other Governmental Authority, (e) to such Lender's independent auditors and other professional advisors, (f) to any Transferee or potential Transferee or (g) to the extent such information is public when received by such Lender or becomes public thereafter due to the act or omission of any person other than such Lender or its advisors, agents, employees or representatives; provided that such Transferee agrees to comply with the provisions of this subsection 10.14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. THE RYLAND GROUP, INC. By:/s/ Michael D. Mangan -------------------------- Title: Executive Vice President and Chief Financial Officer (..continued) EX-10 4 EXHIBIT 10.5 CONFORMED RESTATED LOAN AND SECURITY AGREEMENT between ASSOCIATES MORTGAGE FUNDING CORPORATION, as a borrower RYLAND MORTGAGE COMPANY, as a borrower and a guarantor BANK ONE, TEXAS, N.A., as Agent, and CERTAIN LENDERS, as Lenders Initially $365,000,000 June 16, 1995 TABLE OF CONTENTS SECTION 1. DEFINITIONS AND REFERENCES 2 1.1 Definitions 2 1.2 Time References 18 1.3 Other References 18 1.4 Accounting Principles 18 SECTION 2. BORROWINGS AND LCS 18 2.1 Commitments and Borrowing Base 18 2.2 Borrowing Procedures Generally 19 2.3 Wet-Borrowing Procedures 21 2.4 LC Procedures 21 2.5 Increases and Terminations 23 SECTION 3. PAYMENT TERMS 24 3.1 Notes 24 3.2 Payment Procedures 24 3.3 Scheduled Principal and Interest 25 3.4 Prepayments 25 3.5 Order of Application 26 3.6 Sharing 28 3.7 Interest Rates 28 3.8 Interest Calculations 29 3.9 Maximum Rate 29 3.10 Interest Periods 29 3.11 Conversions 30 3.12 Booking Borrowings 30 3.13 Basis Unavailable or Inadequate for LIBOR Rate 30 3.14 Additional Costs 30 3.15 Change in Laws 31 3.16 Funding Loss 31 3.17 Foreign Lenders, Participants, and Purchasers 31 3.18 Fees 32 SECTION 4. SECURITY 33 4.1 Guaranty 33 4.2 Collateral 35 4.3 Collateral Procedures 37 4.4 Borrowing-Base Reports 38 4.5 Borrowing Base 38 4.6 Agent for Appraisals 38 4.7 Power of Attorney 38 4.8 Redemption of Mortgage Collateral 39 4.9 Correction of Notes 40 4.10 Release of Servicing Rights 40 SECTION 5. CONDITIONS PRECEDENT 41 5.1 Initial Borrowing or LC 41 5.2 Each Borrowing or LC 41 5.3 General 41 SECTION 6. REPRESENTATIONS AND WARRANTIES 41 6.1 Purpose of Credit 41 6.2 Corporate Existence, Good Standing, Authority and Compliance 41 6.3 Subsidiaries 42 6.4 Authorization and Contravention 42 6.5 Binding Effect 42 6.6 Fiscal Year and Financial Information 42 6.7 Litigation 42 6.8 Taxes 42 6.9 Environmental Matters 42 6.10 Employee Plans 43 6.11 Government Regulations 43 6.12 Transactions with Affiliates 43 6.13 Debt 43 6.14 No Liens 43 6.15 Perfection and Priority of Lender Liens 43 6.16 Principal Office, Etc 43 6.17 Trade Names 43 6.18 Government Approvals 43 6.19 Appraisals 44 6.20 Solvency 44 6.21 Full Disclosure 44 SECTION 7. AFFIRMATIVE COVENANTS 44 7.1 Reporting Requirements 44 7.2 Use of Proceeds 45 7.3 Books and Records 45 7.4 Inspections 45 7.5 Taxes 45 7.6 Expenses 46 7.7 Maintenance of Existence, Assets, and Business 46 7.8 Insurance 46 7.9 Further Assurances 46 7.10 Take-Out Commitments and Servicing Contracts 47 7.11 Compliance with Material Agreements 47 7.12 Appraisals 47 7.13 INDEMNIFICATION 47 SECTION 8. NEGATIVE COVENANTS 47 8.1 Debt 47 8.2 Liens 48 8.3 Loans, Advances, and Investments 48 8.4 Distributions 48 8.5 Merger or Consolidation 48 8.6 Liquidations and Dispositions of Assets 48 8.7 Use of Proceeds 48 8.8 Collateral Matters 48 8.9 Transactions with Affiliates. 49 8.10 Employee Plans 49 8.11 Compliance with Laws and Documents 49 8.12 Government Regulations 49 8.13 Fiscal Year Accounting 49 8.14 New Businesses 49 8.15 Assignment 49 SECTION 9. FINANCIAL COVENANTS 49 9.1 Net Worth Covenants 49 9.2 Leverage Ratio 50 9.3 Net Income 50 9.4 Cash Flow 50 9.5 Servicing Portfolio 50 SECTION 10. DEFAULTS AND REMEDIES 50 10.1 Default 50 10.2 Remedies 52 10.3 Right of Offset 53 10.4 Private Sales 53 10.5 Waivers 54 10.6 Performance by Agent 54 10.7 No Responsibility 54 10.8 No Waiver 54 10.9 Cumulative Rights 54 10.10 Proceeds 55 10.11 Rights of Individual Lenders 55 10.12 Notice to Agent 55 10.13 Costs 55 SECTION 11. AGENT 55 11.1 Authorization and Action 55 11.2 Agent's Reliance, Etc 56 11.3 Agent and Affiliates 56 11.4 Lender Credit Decision 57 11.5 Indemnification 57 11.6 Successor Agent 57 11.7 Agent as Custodian 58 SECTION 12. MISCELLANEOUS 58 12.1 Nonbusiness Days 58 12.2 Communications 58 12.3 Form and Number of Documents 59 12.4 Exceptions to Covenants 59 12.5 Survival 59 12.6 Governing Law 59 12.7 Invalid Provisions 59 12.8 Conflicts Between Loan Papers 59 12.9 Venue and Service of Process 59 12.10 Discharge and Certain Reinstatement 60 12.11 Amendments, Consents, Conflicts, and Waivers 60 12.12 Multiple Counterparts 61 12.13 Parties 61 12.14 Participations 62 12.15 Transfers 62 12.16 Existing-Loan Agreement and Entireties 63 SCHEDULES AND EXHIBITS Schedule 1.1(a) - Lenders and Commitments Schedule 1.1(b) - Wiring Instructions Schedule 1.1(c) - Conditions for Eligibility Schedule 1.1(d) - Borrowing-Base Calculations Schedule 4.3 - Collateral Procedures Schedule 5.1 - Closing Conditions Schedule 6.3 - Ryland's Subsidiaries Schedule 8.1 - Permitted Debt Schedule 8.2 - Permitted Liens Schedule 8.3 - Permitted Loans/Investments Exhibit A-1 - Associates Note Exhibit A-2 - Interim Note Exhibit A-3 - Ryland Note Exhibit A-4 - Intercompany Note Exhibit B-1 - Credit Request for Warehouse Borrowing Exhibit B-2 - Credit Request for Receivables Borrowing Exhibit B-3 - Credit Request for Working-Capital Credit Exhibit B-4 - Conversion Request Exhibit B-5 - Payment Direction Exhibit C-1 - Collateral-Delivery Notice Exhibit C-2 - Collateral-Conversion Notice Exhibit C-3 - Borrowing-Base Report for Mortgage Collateral Exhibit C-4 - Borrowing-Base Report for Receivables Exhibit C-5 - Borrowing-Base Report for Working Capital Exhibit C-6 - Compliance Certificate Exhibit D-1 - Bailee Letter for Investors Exhibit D-2 - Bailee Letter for Pool Custodians Exhibit D-3 - Trust Receipt and Agreement Exhibit D-4 - Request for Release Exhibit E - Opinion of General Counsel Exhibit F-1 - Amendment Exhibit F-2 - Assignment RESTATED LOAN AND SECURITY AGREEMENT THIS AGREEMENT is entered into as of June 16, 1995, between ASSOCIATES MORTGAGE FUNDING CORPORATION, a Delaware corporation as a borrower ("Associates"), RYLAND MORTGAGE COMPANY, an Ohio corporation as a borrower and a guarantor ("Ryland"), the Lenders described below, and BANK ONE, TEXAS, N.A., as agent for itself and the other Lenders ("Agent"). Associates and Ryland have requested Lenders and Agent to -- and, upon the terms below, they have agreed to -- enter into this agreement to extend, renew and entirely amend and restate the Existing-Loan Agreement. (See Section 1.1 for defined terms.) A. Ryland originates, acquires, markets, sells, and services Mortgage Loans for one- to four-family owner-occupied dwellings. B. Associates is Ryland's direct-wholly-owned Subsidiary and has borrowed certain amounts under the Existing-Loan Agreement and advanced those amounts to Ryland under the Intercompany Note for financing Ryland's originating and acquiring Mortgage Loans until sold in the secondary market. (1) Associates has requested from Lenders Warehouse Borrowings under this agreement on a revolving basis, initially in an amount necessary to renew the outstanding borrowings for those purposes under the Existing-Loan Agreement and additionally in amounts to be advanced by Associates to Ryland under the Intercompany Note for Ryland's originating and acquiring additional Mortgage Loans until sold in the secondary market. (2) Under the Existing-Loan Agreement, among other things, Associates granted a Lien on the Intercompany Note to secure -- and Ryland unconditionally guaranteed -- the Existing Obligation related to those borrowings. Under Section 4 of this agreement, among other things, Associates and Ryland (the "Companies") renew, extend, and ratify that Lien as a Lender Lien under this agreement and guaranty in respect of the Obligation in respect of Warehouse Borrowings under this agreement. (3) Each Company will derive substantial direct and indirect benefits from Warehouse Borrowings under this agreement. C. Under the Existing-Loan Agreement, Ryland also borrowed certain amounts for purposes similar to those described below in this recital. Ryland has requested from Lenders revolving extensions of credit -- which may be through a combination of Borrowings and LCs -- under this agreement, initially in an amount necessary to renew those extensions of credit under the Existing- Loan Agreement and additionally for the following purposes: (1) Financing -- through Receivables Borrowings -- of certain of Ryland's Foreclosure Payments, P&I Payments, and T&I Payments. (2) LCs -- as Working-Capital Credits -- to support Ryland's sales of Servicing Rights if permitted under this agreement and other purposes approved by Agent. (3) Operating capital -- through Working-Capital Borrowings -- in Ryland's ordinary course of business. D. Under the Existing-Loan Agreement, among other things, Ryland granted Liens, securing the Existing Obligation, in all of the Mortgage Loans and Mortgage Securities identified under the Existing-Loan Agreement as Collateral and all of its present and future Servicing Receivables and other Servicing Rights arising under the Guides. Under Section 4 of this agreement, among other things, Ryland renews and extends those Liens as Lender Liens under this agreement in respect of the Obligation under this agreement. E. The Companies hereby fully terminate the commitment of all Terminated Lenders under the Existing-Loan Agreement, as of the date of this agreement, and hereby invite and accept other lenders to become Lenders under this agreement. F. Each Lender has severally agreed upon the terms of this agreement to extend Warehouse Borrowings on a non-ratable basis, and all other Borrowings on a ratable basis up to the total of its commitments in this agreement so long as, among other things, a Borrowing Excess never exists by any of the limitations in Section 2.1 or Schedule 1.1(d) being exceeded. ACCORDINGLY, for adequate and sufficient consideration, the Companies, Agent, and Lenders renew, extend, and entirely amend and restate the Existing- Loan Agreement as follows: SECTION 1 DEFINITIONS AND REFERENCES . Unless stated otherwise, the following provisions apply to each Loan Paper and annexes, exhibits, and schedules to them and certificates, reports, and other writings delivered under them. 1.1 Definitions . Acknowledgment Agreement means, at any time and as applicable, the form of Acknowledgment Agreement then required by (a) FHLMC to be executed as a condition to the creation of a security interest in Servicing Rights for Mortgage Pools serviced for FHLMC, completed and executed by Ryland, Agent, (if necessary) each Lender, and FHLMC, and otherwise in form acceptable to Agent, together with every supplement to and replacements for that agreement in accordance with the FHLMC Guide, or (b) FNMA to be executed as a condition to the creation of a security interest in Servicing Rights for Mortgage Pools serviced for FNMA, completed and executed by Ryland, Agent, (if necessary) each Lender, and FNMA, and otherwise in form acceptable to Agent, together with every supplement to and replacements for that agreement in accordance with the FNMA Guide. Adjusted-Net Worth means -- for Ryland, on a consolidated basis, and at any time -- the sum of Ryland's stockholders' equity reflected on its balance sheet minus certain loans and advances by Ryland to Ryland Group required to be deducted for purposes of this definition by Item 13 on Schedule 8.3. Adjusted-Tangible-Net Worth means -- for Ryland, on a consolidated basis, at any time, and without duplication -- the sum of (a) Ryland's Adjusted-Net Worth plus (b) Ryland's long-term Debt if its maturity is no earlier than June 30, 1998, and its payment is subordinated to payment of the Senior Obligations in form and substance acceptable to Determining Lenders, plus (c) 1% of the principal balance of Mortgage Loans in Ryland's Eligible- Servicing Portfolio, minus (d) purchased and originated Servicing Rights as shown on Ryland's balance sheet, minus (e) Ryland's goodwill, including, without limitation, any amounts representing the excess of the purchase price paid for acquired assets, stock, or interests over the book value assigned to them, minus (f) Ryland's patents, trademarks, service marks, trade names, and copyrights, minus (g) Ryland's other intangible assets. Affiliate of a Person means any other individual or entity that -- directly or indirectly through ownership, voting securities, contract, or otherwise -- controls, is controlled by, or under common control with that Person. For purposes of this definition (a) "control" or similar terms mean the power to direct or cause the direction of management or policies of that Person or ownership or voting control of 10% or more of the Voting Shares of that Person, and (b) the Companies are "Affiliates" of each other. Agent means, at any time, Bank One, Texas, N.A. -- or its successor appointed under Section 11 -- acting as agent for Lenders under the Loan Papers. References to Agent in respect of LCs mean that institution in its individual capacity. Applicable Margin means the following interest margin over a base rate (i.e., either the Fed-Funds Rate or LIBOR) as applicable under this agreement:
Borrowing Base Rate Applicable Margin - -------------------------------------------------------------------------- Warehouse Borrowings (except Gestation Borrowings) Fed-Funds Rate 0.875% LIBOR 0.750% Gestation Borrowings Fed-Funds Rate 0.625% LIBOR 0.500% Receivables Borrowings Fed-Funds Rate 1.000% LIBOR Not applicable Working-Capital Borrowings Fed-Funds Rate 1.250% LIBOR 1.125%
Appraisal means, for any Mortgage Loan, a written statement of the market value of the real property securing it. Appraisal Law means any Law that is applicable to appraisals of mortgaged- residential property in connection with transactions involving that property, including, without limitation, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, 12 C.F.R. Chapter I, Part 34, Subpart C, 12 C.F.R. Chapter II, Subchapter A, Part 225, Subpart G, and 12 C.F.R. Chapter III, Subchapter B, Part 323. Appraised Value means -- at any time for the Servicing Portfolio -- the appraised value determined in the March 8, 1994, appraisal prepared by Countrywide Servicing Exchange until superseded by the then-most recent appraisal prepared in a manner and by an appraiser satisfactory to Agent that was obtained by Ryland (or, whenever a Default exists, requested by Agent or Determining Lenders). Approved B-Paper Investor means (a) FHLMC, FNMA, and GNMA and (b) any other Person from time to time named on a list agreed to by Agent and the Companies -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (i) by the Companies and Agent to remove or add other names as Agent and the Companies may agree, (ii) by either Agent or Determining Lenders to remove any such other Person after Agent has or Determining Lenders have given to the Companies notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (iii) automatically -- without signing by any party -- to remove any such Person who then (A) is not Solvent, (B) fails to pay its debts generally as they become due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of either Company, Agent, or any Lender in connection with the transactions contemplated in the Loan Papers. Approved Investor means (a) FHLMC, FNMA, and GNMA and (b) any other Person from time to time named on a list agreed to by Agent and the Companies -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (i) by the Companies and Agent to remove or add other names as Agent and the Companies may agree, (ii) by either Agent or Determining Lenders to remove any such other Person after Agent has or Determining Lenders have given to the Companies notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (iii) automatically -- without signing by any party -- to remove any such Person who then (A) is not Solvent, (B) fails to pay its debts generally as they become due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of either Company, Agent, or any Lender in connection with the transactions contemplated in the Loan Papers. Approved-Jumbo Investor means (a) FHLMC, FNMA, and GNMA and (b) any other Person from time to time named on a list agreed to by Agent and the Companies -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (i) by the Companies and Agent to remove or add other names as Agent and the Companies may agree, (ii) by either Agent or Determining Lenders to remove any such other Person after Agent has or Determining Lenders have given to the Companies notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (iii) automatically -- without signing by any party -- to remove any such Person who then (A) is not Solvent, (B) fails to pay its debts generally as they become due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of either Company, Agent, or any Lender in connection with the transactions contemplated in the Loan Papers. Approved PMI means any private-mortgage insurance company from time to time named on a list agreed to by Agent and the Companies -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (a) by the Companies and Agent to remove or add other names as Agent and the Companies may agree, (b) by either Agent or Determining Lenders to remove any Person on the list after Agent has or Determining Lenders have given to the Companies notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (c) automatically -- without signing by any party - -- to remove any such Person who then (i) is not Solvent, (ii) fails to pay its debts generally as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of either Company, Agent, or any Lender in connection with the transactions contemplated in the Loan Papers. ARM Loan means an adjustable-rate Mortgage Loan -- including, without limitation all of the "products" listed at the end of Schedule 4.3 -- that is a (a) Conventional Loan that complies with all applicable requirements for purchase under either the FNMA or FHLMC standard form of conventional- mortgage-purchase contract, (b) Jumbo Loan, or (c) FHA Loan. Assignment means an Assignment and Assumption Agreement executed by a selling Lender and a Purchaser under Section 12.15 and delivered to Agent in substantially the form of Exhibit F-2. Associates is defined in the preamble of this agreement, and, for purposes of Section 4.1, includes, without limitation, Associates as a debtor-in- possession and any party appointed in the future as a trustee or receiver for Associates or all or substantially all of its assets under any Debtor Law. Associates Note means a promissory note executed and delivered by Associates, payable to a Lender's order, in the stated principal amount of its Commitment Percentage of the Warehouse Sublimit, and substantially in the form of Exhibit A-1, as renewed, extended, amended, or replaced. Average-Adjusted-Fed-Funds Rate means -- for any period -- an annual interest rate equal to the quotient of (a) the sum of the Fed-Funds Rate plus the Applicable Margin for each calendar day during that period divided by (b) the number of days during that period. Average-Depositary Balances means -- for any period and for any Depositary -- the quotient of (a) the sum of the deposits that have been allocated under the Balance-Carry-Forward Agreement with that Depositary for alternative calculations of interest under Section 3.7 on the Principal Debt of Non-LIBOR Borrowings owed to that Depositary -- and those deposits for any day that is not a Business Day are those deposits for the preceding Business Day -- during that period, divided by (b) the number of days during that period. Average-Fed-Funds Rate means -- for any period -- an annual interest rate equal to the quotient of (a) the sum of the Fed-Funds Rate for each calendar day during that period divided by (b) the number of days during that period. Average-Principal Debt means -- for any period, for any Lender, and for Non-LIBOR Borrowings of any Borrowing Category -- the quotient of (a) the sum of the Principal Debt of Borrowings in that Borrowing Category owed to that Lender as of the close of business for each calendar day -- and that Principal Debt for a day that is not a Business Day is the Principal Debt as of the close of business for the preceding Business Day -- divided by (b) the number of days during that period. B-Paper Loan means a Mortgage Loan that is originated to an Approved B- Paper Investor but may not be funded without prior approval from that investor. B-Paper Sublimit means, at any time,$20,000,000, but never more than 10% of the Warehouse Sublimit. Balance-Carry-Forward Agreement means any agreement that (a) is entered into between a Depositary and the Companies, (b) carries forward credits for excess account balances on at least a three-month basis, (c) never provides for a different interest rate than that which is payable on the Principal Debt under this agreement, (d) does not change the date interest payments are due under this agreement, (e) does not alter the relative Rights among Agent and Lenders under the Loan Papers, and (f) in no way obligates, binds, or inures to Agent or any Lender except that Depositary. Bond-Authority Loan means a Mortgage Loan originated under a state, local, county, city, or community development authority program. Borrowing means any amount disbursed (a) by one or more Lenders to or on behalf of Associates or Ryland under the Loan Papers, either as an original disbursement of funds, the continuation of an amount outstanding, or payment under a LC or (b) by Agent or any Lender in accordance with -- and to satisfy a Company's obligations under -- any Loan Paper. Borrowing Base means, at any time, the sum of the Borrowing Base for Mortgage Collateral (which includes the Borrowing Base for Gestation Collateral), the Borrowing Base for Receivables, and the Borrowing Base for Working Capital, as those terms are defined in Schedule 1.1(d), which definitions are incorporated in this agreement verbatim. Borrowing-Base Report means a report executed by Agent and delivered to the Companies and Lenders in substantially the form of Exhibit C-3 or executed by Ryland and delivered to Agent in substantially the form of Exhibit C-4 or C-5, as applicable. Borrowing Category means any category of Borrowing determined with respect to its purpose, e.g., a (a) Warehouse Borrowing, which may be a Gestation Borrowing, Dry Borrowing, or Wet Borrowing, (b) Receivables Borrowing, which may be a Foreclosure Borrowing, P&I Borrowing, or T&I Borrowing, or (c) or Working-Capital Borrowing. Borrowing Date means, for any Borrowing, the date it is disbursed. Borrowing Excess means, at any time, the amount by which any of the Borrowing limitations of Section 2.1 or Schedule 1.1(d) are exceeded. Borrowing Type means any type of Borrowing determined with respect to the applicable interest option, e.g., a Fed-Funds Borrowing or LIBOR Borrowing. Business Day means (a) for all purposes, any day other than Saturday, Sunday, and any other day that commercial banks are authorized or obligated by Law to be closed in Texas, and (b) for purposes of any LIBOR Borrowing, a day when commercial banks are open for international business in London. Calendar Month means that portion of a calendar month that occurs at any time from the date of this agreement to the Termination Date. Calendar Quarter means that portion of any calendar quarter that occurs at any time from the date of this agreement to the Termination Date. Closing Date means the date of the initial Borrowing or LC under this agreement, which must be by June 16, 1995. Code means the Internal Revenue Code of 1986. Collateral is defined in Section 4.2. Collateral Conversion Notice means a notice executed by Ryland and delivered to Agent in substantially the form of Exhibit C-2. Collateral-Delivery Notice means a notice executed by Ryland and delivered to Agent in substantially the form of Exhibit C-1. Collateral Documents means the documents required to be delivered in connection with various types of Collateral as described in Schedules 4.3 and 5.1. Commitment means, for any Lender, the amount stated beside its name and so designated on Schedule 1.1(a) (as it may be amended under this agreement), as that amount may be cancelled or terminated in accordance with this agreement. Commitment Percentage means, at any time for any Lender, the proportion -- stated as a percentage -- that its Commitment bears to the total Commitments. Commitment Usage means, at any time, the sum of the Principal Debt plus the LC Exposure. Companies is defined in the recitals of this agreement. Compliance Certificate means a certificate executed by a Responsible Officer of Associates and Responsible Officer of Ryland and delivered to Agent in substantially the form of Exhibit C-6. Conventional Loan means a Mortgage Loan that is not a FHA Loan or VA Loan. Conversion Date is defined in Section 3.11. Conversion Request means a notice executed by Associates or Ryland, as applicable, and delivered to Agent in substantially the form of Exhibit B-4. Credit Request means a request executed by Associates or Ryland, as applicable, and delivered to Agent in substantially the form of Exhibit B-1, B-2, or B-3, as appropriate. Debt means -- for any Person, at anytime, and without duplication -- the sum of (a) all debt for borrowed money, for the deferred purchase price of property or services, or which is evidenced by a bond, debenture, note, or other instrument, (b) all obligations under capitalized leases, (c) all obligations in respect of letters of credit, acceptances, or similar obligations issued or created for that Person's account, (d) all direct and indirect guaranties of Debt of others, (e) every obligation secured -- or for which the holder of the obligation is contingently or otherwise entitled to be secured -- by any Lien on that Person's property whether that Person is personally liable or assumes that obligation, and (f) all liabilities for unfunded vested benefits under any Employee Plan. Debtor Laws means all applicable liquidation, conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization, or similar Laws from time to time in effect and generally affecting creditors' Rights. Default is defined in Section 10.1. Default Rate means, for any day, an annual interest rate equal to the lesser of either (a) the Fed-Funds Rate plus 2.5% or (b) the Maximum Rate. Depositary means any Lender with whom either Company maintains non- interest bearing demand deposit accounts in its name, and who has entered into a Balance-Carry-Forward Agreement with the Companies. Determining Lenders means, at any time, any combination of Lenders whose (a) Termination Percentages total at least 66 % at any time when a Default exists, or (b) Commitment Percentages total at least 66 % at all other times. Distribution -- with respect to any shares of any capital stock or other equity securities issued by a Person -- means (a) the retirement, redemption, purchase, or other acquisition for value of those securities, (b) the declaration or payment of any dividend with respect to those securities, (c) any loan or advance by that Person to, or other investment by that Person in, the holder of any of those securities, and (d) any other payment by that Person with respect to those securities. Dry Borrowing means a Warehouse Borrowing that is (a) not a Gestation Borrowing or Wet Borrowing, (b) supported by the Borrowing Base for Mortgage Collateral, and (c) to be advanced by Associates to Ryland under the Intercompany Note. Eligible-Foreclosure Receivable means, at any time, any claim by Ryland in respect of a Foreclosure Payment for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Eligible-Gestation Collateral means, at any time, all Collateral that would otherwise be Eligible-Mortgage Collateral and for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Eligible-Mortgage Collateral means, at any time, all Eligible-Mortgage Loans and all Eligible-Mortgage Securities. Eligible-Mortgage Loan means, at any time, a Mortgage Loan for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied other than Eligible-Gestation Collateral. Eligible-Mortgage Security means, at any time, a Mortgage Security for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Eligible-P&I Receivable means, at any time, any claim by Ryland in respect of a P&I Payment for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Eligible-Servicing Portfolio means, at any time, the Servicing Portfolio for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Eligible-T&I Receivable means, at any time, any claim by Ryland in respect of a T&I Payment for which the applicable conditions for eligibility described in Schedule 1.1(c) are satisfied. Employee Plan means an employee-pension-benefit plan covered by Title IV of ERISA and established or maintained by either Company. Environmental Law means any Law that relates to the pollution or protection of the environment or to Hazardous Substances. ERISA means the Employee Retirement Income Security Act of 1974. ERISA Affiliates means the Companies and every trade or business -- whether or not incorporated -- that, together with either Company, would be treated as a single-employer under Sec. 4001 of ERISA. Existing-Loan Agreement means the Loan and Security Agreement (as renewed, extended, and amended through the date of this agreement) dated as of May 27, 1994, between Associates, Ryland, Bank One, Texas, N.A., as Agent, and certain lenders. Existing Obligation means the Obligation as defined in and arising under the Existing-Loan Agreement. Fed-Funds Borrowing means a Borrowing bearing interest at the Average- Adjusted-Fed-Funds Rate. Fed-Funds Rate means, for any day, the annual interest rate -- rounded upwards, if necessary, to the nearest 0.01% -- determined by Agent to be either (a) the weighted average of the rates on overnight-federal-funds transactions with member banks of the Federal Reserve System arranged by federal-funds brokers for that day -- or, if not a Business Day on the preceding Business Day -- as published by the Federal Reserve Bank of New York, or (b) if not so published for any day, the average of the quotations for that day on those transactions received by Agent from three federal-funds brokers of recognized standing it may select. FHA means the Federal Housing Administration within the United States Department of Housing and Urban Development. FHA Loan means a Mortgage Loan -- other than loans for mobile homes -- either (a) full or partial payment of which is insured by FHA under the National Housing Act or Title V of the Housing Act of 1949, (b) for which FHA has issued a current, binding, and enforceable commitment for that insurance, or (c) which is eligible for direct endorsement under the FHA Direct Endorsement Program. FHLMC means the Federal Home Loan Mortgage Corporation. Financials means balance sheets, profit and loss statements, statements of cash flow and any other financial statements, reports, or information specified by any Lender. FNMA means the Federal National Mortgage Association. Foreclosure Account means a non-interest bearing deposit account established by Ryland with Agent -- styled and numbered "RMC Foreclosure Loan Advance Account," Account No. 1885162436 -- for deposit of Foreclosure Borrowings and payments of the Obligation related to Foreclosure Borrowings. Foreclosure Borrowing means a Receivables Borrowing that is advanced by Lenders to Ryland in accordance with their Commitment Percentages under Section 2.2, supported by the Borrowing Base for Receivables, and to be used by Ryland to reimburse itself for a Foreclosure Payment it has made. Foreclosure Payment means the unreimbursed purchase price paid by Ryland to repurchase a defaulted Mortgage Loan out of a Mortgage Pool in accordance with Ryland's obligations under the applicable Servicing Contract. Funding Loss means any reasonable, out-of-pocket loss or expense that any Lender incurs because either Company (a) fails or refuses -- for any reason other than a default by the Lender claiming that loss or expense -- to take any LIBOR Borrowing that it has requested under this agreement, or (b) prepays or pays any LIBOR Borrowing or converts any LIBOR Borrowing to another Borrowing Type at any time other than the last day of the applicable Interest Period. GAAP means generally accepted accounting principles of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable from time to time. Gestation Borrowing means a Warehouse Borrowing that is (a) advanced to Associates under the Gestation Sublimit and supported by the Borrowing Base for Gestation Collateral, and (b) to be advanced by Associates to Ryland under the Intercompany Note. Gestation Sublimit means $100,000,000. GNMA means the Government National Mortgage Association. Guide means the following, as applicable under the circumstances, for (a) FHLMC, the Freddie Mac Sellers' & Servicers' Guide dated September 17, 1984, (b) FNMA, the Fannie Mae Servicing Guide dated June 30, 1990, and (c) GNMA, as applicable, either (i) the GNMA I Mortgage Securities Guide, Handbook GNMA 5500.1REV-6, or (ii) the GNMA II Mortgage Securities Guide, Handbook GNMA 5500.2. Hazardous Substance means any substance (a) the presence of which requires removal, remediation, or investigation under any Environmental Law, or (b) that is defined or classified as a hazardous waste, hazardous material, pollutant, contaminant, or toxic or hazardous substance under any Environmental Law. Intercompany Note means the promissory note executed by Ryland, payable to Associates' order, and endorsed to Agent's order, substantially in the form of Exhibit A-4, as renewed, extended, amended, and replaced. Interest Period is determined in accordance with Section 3.10. Interim Note means a promissory note executed and delivered by Associates, payable to the order of a Lender whose Commitment is increasing under Section 2.5(a), in the stated amount of that increase, and in substantially the form of Exhibit A-2, as renewed, extended, amended, or replaced. Investment Facilities means any credit facility (as any of those facilities may be renewed, extended, amended, or restated) now or in the future entered into -- between either Company and (a) any Lender or (b) any commercial or savings bank organized under the Laws of the United States of America with a combined capital and unimpaired surplus of at least $250,000,000, and a rating of C or better by Thompson Bank Watch, Inc., or an IDC Financial Publishing rating of at least 75 -- to enable that Company to make investments having a maximum maturity of 31 days in (i) commercial paper given the highest rating (at least A-1 or P-1 or the equivalent) by a nationally recognized credit rating agency, (ii) United States governmental obligations, or (iii) certificates of deposit, bankers acceptances, and repurchase agreements -- issued by the commercial bank providing the "Investment Facility" meeting the requirements above -- in connection with which there exists mutual Rights of offset. Investment-Mortgage Loan means a Mortgage Loan that is otherwise an Eligible-Mortgage Loan but for which there is no applicable Take-Out Commitment. Jumbo Loan means a Mortgage Loan that (a) is not a FHA Loan or VA Loan and (b) complies with all applicable requirements for purchase (i) under the FNMA or FHLMC standard form of conventional-mortgage-purchase contract except that its amount exceeds the maximum-loan amount under those requirements, or (ii) by an Approved-Jumbo Investor. Laws means all applicable statutes, laws, treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees, judgments, opinions, and interpretations of any Tribunal. LC means a letter of credit that (a) is issued by Agent for Ryland's account under Section 2.4 and an LC Agreement, (b) is subject to each of the LC Sublimit, Working-Capital Sublimit, and Receivables/Working-Capital Sublimit, (c) is supported by the Borrowing Base for Working Capital, (d) supports Ryland's sales of Servicing Rights if permitted under this agreement, (e) expires before the Stated-Termination Date, and (f) otherwise is in form first approved by Agent in its sole discretion. LC Agreement means, at any time, a letter of credit application and agreement -- in substantially the standard form customarily used by Agent at that time -- executed and delivered by Ryland for the issuance of an LC for Ryland's account. LC Exposure means -- at any time and without duplication -- the sum of (a) the total undrawn- and uncancelled-face amount of all LCs plus (b) the LC Obligation. LC Obligation means, at any time, Ryland's total-unpaid-reimbursement obligations to Agent for drafts or drawings paid under any LC. LC Sublimit means $10,000,000. Lender Lien means any present or future first-priority Lien securing the Obligation and assigned, conveyed, and granted to or created in favor of Agent for the benefit of Lenders under this agreement. Lenders means (a) the financial institutions named on the attached Schedule 1.1(a) or on the most recently amended Schedule 1.1(a), if any, prepared by Agent under this agreement, and (b) subject to this agreement, their respective successors and permitted assigns, but (c) not any Participant who is not otherwise a party to this agreement. LIBOR means, for a LIBOR Borrowing, the annual interest rate -- rounded upwards, if necessary, to the nearest 0.01% -- equal to the annual interest rate -- rounded upwards, if necessary to the nearest 0.01% -- that is (a) the rate determined by Agent -- at approximately 9:30 a.m. on the second Business Day before the applicable Interest Period -- as the rate reported by Telerate Mortgage Services for deposits in United States dollars in the London interbank market that are comparable in amount and maturity of that Borrowing, or (b) if Agent cannot determine that rate, then the rate that deposits in United States dollars are offered to Agent in the amount of that LIBOR Borrowing in the London interbank market -- at approximately 10:30 a.m., London, England, time on the third Business Day before the applicable Interest Period -- for deposits comparable in amount and maturity of that Borrowing. LIBOR Borrowing means a Borrowing -- which may be a Warehouse Borrowing or a Working-Capital Borrowing -- that bears interest at the LIBOR Rate. LIBOR Rate means -- for any Interest Period -- the sum of LIBOR for that Interest Period plus the Applicable Margin. Lien means any lien, mortgage, security interest, pledge, assignment, charge, title retention agreement, or encumbrance of any kind and any other arrangement for a creditor's claim to be satisfied from assets or proceeds prior to the claims of other creditors or the owners. Litigation means any action by or before any Tribunal. Loan Papers means (a) this agreement, certificates and reports delivered under this agreement, and exhibits and schedules to this agreement, (b) all agreements, documents, and instruments in favor of Agent or Lenders (or Agent on behalf of Lenders) ever delivered under this agreement or otherwise delivered in connection with any of the Obligation, including, without limitation, all Notes, Security Documents, LCs, LC Agreements, and Balance- Carry-Forward Agreements, and (c) all renewals, extensions, and restatements of, and amendments and supplements to, any of the foregoing. Market Value means, at any time, a value determined for a Mortgage Loan or a Mortgage Security in accordance with the following applicable procedures. If Agent or Determining Lenders, as the case may be, are unable to obtain any yield, price, or factor from the source or alternative source(s) stated below, then Agent or Determining Lenders, as the case may be, shall make a good-faith determination of that yield, price, or factor. That value is: (a) For a Mortgage Loan, either (i) the weighted-average-commitment prices of all Take-Out Commitments relating to that Mortgage Loan or (ii) at the sole election of either Agent or Determining Lenders (whose election supersedes Agent's), the market value of that Mortgage Loan determined upon the then-most recent posted-net-yield (A) that is furnished by FNMA and published by Telerate Mortgage Services, or (B) if not so published by Telerate Mortgage Services, that is furnished by FNMA as determined by Agent or Determining Lenders, as the case may be, or (C) for a Mortgage Loan not eligible for FNMA purchase, that is reasonably established by Agent or Determining Lenders, as the case may be. (b) For a Mortgage Security, the product of (i) that Mortgage Security's face amount times (ii) either: (A) for a Mortgage Security not arising out of the pooling of other Collateral, either (1) the most-recent percentage published by Telerate Mortgage Services as the bid price for mandatory delivery within 30 days for securities of the same type and bearing the same interest rate as that Mortgage Security, or (2) if that bid price is not published by Telerate Mortgage Services, the average of the percentages obtained from three brokerage firms selected in good faith by either Agent or Determining Lenders (whose selection supersedes Agent's) as the bid price for mandatory delivery within 30 days for securities of the same type and bearing the same interest rate as that Mortgage Security, or (B) for a Mortgage Security arising out of the pooling of other Collateral, the factor representing the percentage of that Mortgage Security's outstanding-principal balance obtained either from Telerate Mortgage Service or, if not available from Telerate Mortgage Services, by Agent from FHLMC, FNMA, or GNMA, as appropriate. Material Agreement means, for any Person, any agreement to which that Person is a party, by which that Person is bound, or to which any assets of that Person may be subject, and that is not cancelable by that Person upon less than 30-days notice without liability for further payment other than nominal penalty, and the default under which or cancellation or forfeiture of which would be a Material-Adverse Event. Material-Adverse Event means, at any time, any circumstance or event that, individually or collectively, is reasonably expected to result in a (a) material-adverse impairment of Agent's or any Lender's ability to enforce any of the Companies' collective obligations or any of Agent's or any Lender's respective Rights under the Loan Papers, (b) material-adverse effect on the financial condition of the Companies taken as a whole, or (c) Default. Maximum Amount and Maximum Rate respectively mean -- for any day and for any Lender -- the maximum non-usurious amount and the maximum non-usurious rate of interest that, under applicable Law, the Lender is permitted to contract for, charge, take, reserve, or receive on its portion of the Obligation. Mortgage Collateral means all Mortgage Loans, Mortgage Securities, and related Collateral Documents offered as Collateral under this agreement. Mortgage Loan means a loan that is (a) not a construction or commercial loan, (b) evidenced by a valid promissory note with a maturity within 30 years of origination, and (c) secured by a mortgage, deed of trust, or trust deed that (i) complies with all applicable requirements for purchase under either the FNMA or FHLMC standard form of conventional-mortgage-purchase contract (except, in the case of a mortgage or deed of trust securing a Jumbo Loan), (ii) is otherwise in form and substance satisfactory to Agent, and (iii) grants either a perfected first-priority Lien on the residential-real property or is a Permitted-Second Mortgage. Mortgage Pool means a (a) "group" or "grouping" of Mortgage Loans assembled in accordance with -- and as that term is used in -- the FHLMC Guide, (b) "pool" of Mortgage Loans assembled in accordance with -- and as that term is used in -- the FNMA Guide or the GNMA I Guide, (c) "pool" of Mortgage Loans or a "loan package" consisting of Mortgage Loans assembled in accordance with -- and as those terms are used in -- the GNMA II Guide, or (d) any other pool of Mortgage Loans assembled by an Approved Investor securing -- and providing for pass-through payments of principal and interest on -- its Mortgage Securities. Mortgage Securities -- sometimes called mortgage-backed securities and whether in certificated or book-entry form -- means (a) participation certificates representing undivided interests in Mortgage Loans purchased by FHLMC under the Emergency Home Finance Act of 1970, (b) modified pass-through mortgage-backed certificates guaranteed by FNMA under the National Housing Act, (c) modified pass-through mortgage-backed certificates guaranteed by GNMA under Sec. 306(g) of the National Housing Act, or (d) any other security issued by an Approved Investor that is based on or backed by a Mortgage Pool providing for pass-through payments of principal and interest. Multiemployer Plan means a multiemployer plan as defined in Sec. 3(37) or 4001(a)(3) of ERISA or Sec. 414(f) of the Code to which any ERISA Affiliate is making, or has made, or is accruing, or has accrued, an obligation to make contributions. Non-LIBOR Borrowing means a Borrowing -- which may be a Warehouse Borrowing, Receivables Borrowing, or Working-Capital Borrowing -- that does not bear interest at the LIBOR Rate. Notes means the Associates Notes, Interim Notes, and Ryland Notes. Obligation means all (a) of the Existing Obligation that is renewed under this agreement and the Loan Papers, and (b) present and future indebtedness, obligations, and liabilities of either Company to Agent or any Lender and related to any Loan Paper -- whether principal, interest, fees, costs, attorneys' fees, or otherwise, (c) amounts that would become due but for operation of 11 U.S.C. Sec. 502 and 503 or any other provision of Title 11 of the United States Code, (d) pre- and post-maturity interest on any of the foregoing -- including, without limitation, all post-petition interest if either Company voluntarily or involuntarily files for protection under any Debtor Law, and (e) all renewals, extensions, and modifications of any of the foregoing. Participant is defined in Section 12.14. PBGC means the Pension Benefit Guaranty Corporation. Permitted Debt means Debt described on Schedule 8.1. Permitted Liens means Liens described on Schedule 8.2. Permitted Loans/Investments means loans and investments described on Schedule 8.3. Permitted-Second Mortgage means a second-priority mortgage, deed of trust, or trust deed for which Ryland holds a valid and enforceable Take-Out Commitment from an Approved Investor for the related Mortgage Loan. Person means any individual, entity, or Tribunal. P&I Account means a non-interest bearing deposit account established by Ryland with Agent -- styled and numbered "RMC P&I Loan Advance Account," Account No. 1885162410 -- for deposit of P&I Borrowings and payments of the Obligation related to P&I Borrowings. P&I Borrowing means a Receivables Borrowing that is advanced by Lenders to Ryland in accordance with their Commitment Percentages under Section 2.2, supported by the Borrowing Base for Receivables, and to be used by Ryland to make a P&I Payment. P&I Payment means an unreimbursed advance or payment by Ryland to effect the timely payment of scheduled principal and interest on Mortgage Securities that are backed by a Mortgage Pool serviced by Ryland in accordance with Ryland's obligations under the applicable Servicing Contract to cover a short- fall between the principal and interest collected from mortgagors in respect of that Mortgage Pool and the principal and interest due on those Mortgage Securities. Potential Default means the occurrence of any event or existence of any circumstance that would -- upon notice, time lapse, or both -- become a Default. Principal Debt means, at any time, the outstanding principal balance of all Borrowings. Purchaser is defined in Section 12.15. RAMCO means RMC Asset Management Company, a Virginia corporation. Receivables Borrowing means (a) a Borrowing (that may be a Foreclosure Borrowing, a P&I Borrowing, or a T&I Borrowing), (b) that is advanced by Lenders to Ryland in accordance with their Commitment Percentages under Section 2.2, and (c) that is subject to the Receivables Sublimit and the Receivables/Working-Capital Sublimit. Receivables Sublimit means $40,000,000. Receivables/Working-Capital Sublimit means $40,000,000. Regulation Q means Regulation Q promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 17. Regulation U means Regulation U promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221. Regulation X means Regulation X promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 224. Representatives means representatives, officers, directors, employees, attorneys, and agents. Repurchase Agreement means any agreement, present or future, under which Ryland or any of its Affiliates sells Mortgage Securities with an obligation to repurchase them. Responsible Officer means the chairman, president, chief executive officer, chief financial officer, treasurer, or any assistant treasurer. Rights means rights, remedies, powers, privileges, and benefits. RTC means Resolution Trust Corporation. Ryland is defined in the preamble of this agreement. Ryland Group means The Ryland Group, Inc., a Maryland corporation and Ryland's parent corporation. Ryland Note means a promissory note executed and delivered by Ryland, payable to a Lender's order, in the stated principal amount of its Commitment Percentage of the Receivables/Working-Capital Sublimit, and substantially in the form of Exhibit A-3, as renewed, extended, amended, or replaced. Second-Mortgage Sublimit means, at any time, $25,000,000, but never more than 12.5% of the Warehouse Sublimit. Security Documents means all documents now or in the future executed and delivered by either Company or any other Person to create a Lender Lien or otherwise assure or secure payment or performance of any of the Obligation -- including, without limitation, the documents described on Schedules 4.3 or 5.1 - -- as those documents may be renewed, extended, amended, restated, or substituted. Senior Obligations means the Obligation and all present and future Debt of the Companies under the Investment Facilities. A "servicer" means variously a "seller," "servicer," "issuer," or "lender," as defined or used in the applicable Guide in respect of a Person having Servicing Rights. Servicing Contract means, at any time, a Guide or any other present or future written agreement between an investor and Ryland acting as a servicer - -- or master servicer in the case of a sub-servicing arrangement -- providing for Ryland to service mortgage loans or mortgage pools, as that Guide or agreement may be supplemented by applicable manuals, guides, and Laws. Servicing Portfolio means -- for Ryland and at any time -- the total unpaid-principal balance of all mortgage loans for which Ryland owns the Servicing Rights. Servicing Receivables means, at any time, all Eligible-Foreclosure Receivables, Eligible-P&I Receivables, and Eligible-T&I Receivables. Servicing Rights means -- for Ryland and at any time -- all present and future Rights as servicer or master servicer under Servicing Contracts, including, but not limited to, all Rights to receive Servicing Receivables and all other compensation, payments, reimbursements, termination and other fees, and proceeds of any disposition of those Rights. Servicing Subsidiary is defined in Section 9.5(a). Settlement Account means a non-interest bearing deposit account established by Ryland with Agent -- styled and numbered "RMC Warehouse Settlement Account," Account No. 0100073055 -- for deposit of payments from investors and the settlement of collections from Mortgage Securities in connection with Mortgage Collateral. Solvent means, for any Person, that (a) the fair-market value of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it to pay its debts as they mature, and (c) it does not have unreasonably small capital to conduct its businesses. Stated-Termination Date means May 30, 1997. Subordinated Debt means all present and future debt, liabilities, and obligations of Associates to Ryland -- whether direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several, joint and several, due now or in the future, created directly or acquired by assignment or otherwise, or evidenced in writing or not. Subsidiary mean -- for any Person and at any time -- any corporation, more than 50% of the Voting Shares of which is directly or indirectly owned by that Person. Take-Out Commitment means a written and binding commitment (a) from an Approved Investor to purchase Mortgage Securities or -- within a period of 12 months from the date originated -- Mortgage Loans, and (b) for which there is no condition that cannot be reasonably anticipated to be satisfied or complied with before its expiration. Taxes means, for any Person, taxes, assessments, or other governmental charges or levies imposed upon it, its income, or any of its properties, franchises, or assets. Terminated Lender means any Lender under the Existing-Loan Agreement whose commitment to extend credit under that agreement has been terminated and who is not a Lender under this agreement. Termination Date means the earlier of either (a) the Stated-Termination Date or (b) the date all commitments or obligations of all Lenders to extend any credit under this agreement have terminated or been cancelled. Termination Percentage means, at any time for any Lender, the proportion - -- stated as a percentage -- that the portion of the Commitment Usage directly or indirectly owed to that Lender bears to the total Commitment Usage directly or indirectly owed to all Lenders. T&I Account means a non-interest bearing deposit account established by Ryland with Agent -- styled and numbered "RMC T&I Loan Advance Account," Account No. 1885162428 -- used for deposit of T&I Borrowings and payments of the Obligation related to T&I Borrowings. T&I Borrowing means a Receivables Borrowing that is advanced by Lenders to Ryland in accordance with their Commitment Percentages under Section 2.2, supported by the Borrowing Base for Receivables, and to be used by Ryland to make a T&I Payment. T&I Payment means an unreimbursed advance or payment by Ryland to cover tax- and insurance-escrow payments not paid when required by a mortgagor under a Mortgage Loan in accordance with Ryland's obligations under the applicable Servicing Contract. Total Liabilities means -- for Ryland, on a consolidated basis, and at any time -- all amounts that should be reflected as a liability on Ryland's balance sheet. The consolidated-repurchase and consolidated-reverse- repurchase obligations of Ryland and its Affiliates under Repurchase Agreements in connection with the sale of -- and secured by -- Mortgage Securities may be excluded from Total Liabilities to the extent that (a) the fair-market value of those Mortgage Securities is at least 100.5% of those repurchase obligations or (b) Agent is furnished evidence satisfactory to it that those Mortgage Securities are the subject of one or more hedging agreements acceptable to Agent. Tribunal means any (a) local, state, or federal judicial, executive, or legislative instrumentality, (b) private arbitration board or panel, or (c) central bank. UCC means the Uniform Commercial Code or similar Laws enacted in applicable jurisdiction. VA means the Veteran's Administration. VA Loan means a Mortgage Loan either (a) full or partial payment of which is guaranteed by VA under the Servicemen's Readjustment Act of 1944 or Chapter 37 of Title 38 of the United States Code, (b) for which VA has issued a current binding and enforceable commitment for such a guaranty, or (c) which is subject to automatic guarantee by VA -- which in each case, the applicable guaranty, commitment to guarantee, or automatic guaranty is for the maximum amount permitted by Law. Voting Shares means, for any corporation, shares of any class or classes (however designated) having ordinary voting power for the election of at least a majority of the board of directors (or other governing body) of that corporation, other than shares having that power only by reason of the happening of a contingency. Warehouse Account means a non-interest bearing deposit account established by Associates with Agent -- styled and numbered "AMFC Warehouse Borrowing Account," Account No. 1885162402 -- for deposit of Warehouse Borrowings, funding of advances to Ryland under the Intercompany Note, deposit of payments on the Intercompany Note, and deposit of payments of the Obligation related to Warehouse Borrowings. Warehouse Borrowing means (a) a Borrowing (that may be a Gestation Borrowing, Wet Borrowing, or Dry Borrowing) that is advanced by one or more Lenders, not necessarily in accordance with their Commitment Percentages may never exceed the Warehouse Sublimit, and is supported by the Borrowing Base for Mortgage Collateral, (b) that is advanced to Associates under this agreement, and (c) that is to be advanced to Ryland under the Intercompany Note by the next Business Day for Ryland to originate or acquire Mortgage Loans until they are sold in the secondary market. Warehouse Obligation is defined in Section 4.1(a). Warehouse Sublimit means $325,000,000. Wet Borrowing means a Warehouse Borrowing that is (a) advanced to Associates under the Wet Sublimit under Section 2.3 and supported by the Borrowing Base for Mortgage Collateral, and (b) to be advanced by Associates to Ryland under the Intercompany Note. Wet Sublimit means 30% of the total Commitments. Wire Instructions means -- for any party to this agreement --the information regarding wire transfers of funds to it described for it on Schedule 1.1(b). Working-Capital Account means a non-interest bearing deposit account established by Ryland with Agent -- styled and numbered "RMC Working Capital Account," Account No. 1885162394 -- for deposit of Working-Capital Borrowings and payments of the Obligation related to Working-Capital Credits. Working-Capital Borrowing means a Borrowing that is (a) advanced by Lenders to Ryland in accordance with their Commitment Percentage under Section 2.2, (b) subject to each of the Working-Capital Sublimit and the Receivables/Working Capital Sublimit, (c) supported by the Borrowing Base for Working-Capital, and (d) to be used as operating capital in Ryland's ordinary course of business. Working-Capital Credit means an LC or Working-Capital Borrowing. Working-Capital Sublimit means $25,000,000. 1.2 Time References . Time references (e.g., 9:30 a.m.) are to time in Dallas, Texas. In calculating a period from one date to another, the word "from" means "from and including" and the word "to" or "until" means "to but excluding." 1.3 Other References . Where appropriate, the singular includes the plural and vice versa, and words of any gender include each other gender. Heading and caption references may not be construed in interpreting provisions. Monetary references are to currency of the United States of America. Section, paragraph, annex, schedule, exhibit, and similar references are to the particular Loan Paper in which they are used. References to "telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy transmissions. References to any Person include that Person's heirs, personal representatives, successors, trustees, receivers, and permitted assigns. References to any Law include every amendment or supplement to it, rule and regulation adopted under it, and successor or replacement for it. References to any Loan Paper or other document include every renewal and extension of it, amendment and supplement to it, and replacement or substitution for it. References to payment on demand mean by the next Business Day after the applicable demand is given under Section 12.2. 1.4 Accounting Principles . GAAP determines all accounting and financial terms and compliance with financial reporting covenants. GAAP in effect on the date of this agreement determines compliance with financial covenants. Otherwise, all accounting principles applied in a current period must be comparable in all material respects to those applied during the preceding comparable period other than changes concurred in by the Companies' independent public accountants. SECTION 2. BORROWINGS AND LCS . 2.1 Commitments and Borrowing Base . Schedule 1.1(a), as it may be amended under this agreement, lists each Lender's Commitment. Subject to the limitations below and other provisions of the Loan Papers and on Business Days before the Termination Date, each Lender severally and not jointly commits -- directly or indirectly through participations under Section 2.4 -- to extend credit to Associates and to Ryland on a revolving basis, which credit may be Borrowings under Section 2.2, Wet Borrowings under Section 2.3 or LCs under Section 2.4. The following limitations must be read together and are not mutually exclusive. (a) The total Commitment Usage may never exceed the lesser of either (i) the total Commitments or (ii) the total Borrowing Base. (b) The Principal Debt of all Warehouse Borrowings may never exceed the lesser of either (i) the Warehouse Sublimit or (ii) the Borrowing Base for Mortgage Collateral. (c) The Principal Debt of all Gestation Borrowings may never exceed the lesser of either (i) the Gestation Sublimit or (ii) the Borrowing Base for Gestation Collateral. (d) The Principal Debt of all Wet Borrowings may never exceed the Wet Sublimit. (e) The sum of the Principal Debt of all Receivables Borrowings plus the Commitment Usage of all Working-Capital Credits may never exceed the Receivables/Working-Capital Sublimit. (f) The Principal Debt of all Receivables Borrowings may never exceed the lesser of either (i) the Receivables Sublimit or (ii) the Borrowing Base for Receivables, and: - No Foreclosure Borrowing may exceed 80% of the Foreclosure Payments for which it is borrowed. - A P&I Borrowing may only be made between the 10th day and 20th day of a Calendar Month (in which event it is part of Tranche A for P&I Borrowings) or the 21st day and last day of a Calendar Month (in which event it is part of Tranche B for P&I Borrowings). - No more than five borrowings may ever be outstanding as part of each of Tranche A for P&I Borrowings or Tranche B for P&I Borrowings. - - No P&I Borrowing (1) may exceed 90% of the P&I Payments for which it is borrowed, (2) may be made during the ten-day period applicable under Section 3.4, or (3) may be made while any other P&I Borrowing for a P&I Payment to the same investor remains unpaid. - No T&I Borrowing may exceed 80% of the T&I Payments for which it is borrowed. (g) The Commitment Usage for all Working-Capital Credits may never exceed the lesser of either (i) the Working-Capital Sublimit or (ii) the Borrowing Base for Working-Capital. (h) The LC Exposure may never exceed the LC Sublimit. (i) No Lender's direct or indirect portion of the Commitment Usage may ever exceed its Commitment. (j) No Lender's direct or indirect portion of the Commitment Usage for credit extensions under clauses (f), (g), (h), or (i) above may ever exceed its Commitment Percentage of the applicable limitations in those clauses. (k) Each LC must be a minimum of $500,000, each Borrowing must be a minimum of $500,000, and each LIBOR Borrowing must also be an integral multiple of $100,000. 2.2 Borrowing Procedures Generally . The following conditions and procedures apply to all Warehouse Borrowings -- subject to the conditions and provisions for Wet Borrowings in Section 2.3 -- and all Receivables Borrowings and Working-Capital Borrowings: (a) Wire Instructions. Until changed by a notice to each other party to this agreement, each party's Wire Instructions are described on Schedule 1.1(b), as that schedule may be unilaterally amended by Agent (following consultation with the applicable one or more Lenders) and distributed to the parties to this agreement in order to reflect changes in accordance with each notice given under this clause. (b) Credit Request. Associates or Ryland, as applicable, may only request a Borrowing by delivering to Agent -- and, in the case of a Warehouse Borrowing, to the Lender from whom it is being requested -- a related Credit Request before 1:00 p.m. on either the date on which the Borrowing is requested to be made (the "Borrowing Date") for a Fed-Funds Borrowing or the third-Business Day before the Borrowing Date for a LIBOR Borrowing. (i) A Credit Request must, among other things, indicate whether Associates or Ryland is obtaining the Borrowing, indicate the Borrowing Category and Borrowing Type -- and a Receivables Borrowing may not be a LIBOR Borrowing -- for the requested Borrowing, and indicate the Lender therefor if for a Warehouse Borrowing, and irrevocably binds the Companies when it is delivered to Agent. (ii) Agent shall use its best efforts to promptly -- but at least by 2:00 p.m. on the day it timely receives a Credit Request for either a Receivables Borrowing or a Working-Capital Borrowing -- fax a copy of it to each Lender and confirm it by telephone. (iii) For any Warehouse Borrowing requested under a Credit Request, Ryland must cause the delivery to Agent of (A) a related Collateral-Delivery Notice before 10:30 a.m. on the date that the Credit Request must be delivered and (B) except as permitted for Wet Borrowings, all of the Collateral Documents required by Schedules 4.3 and 5.1 for any new Collateral offered in that Collateral-Delivery Notice. (c) Remittance by Lenders. Subject to compliance with Section 4.4, each Lender shall -- as the case may be -- remit either the amount of the Warehouse Borrowing requested from it or its Commitment Percentage of any Receivables Borrowing or Working-Capital Borrowing requested in a Credit Request to Agent's principal office in Dallas, Texas, by wire transfer according to Agent's Wiring Instructions on Schedule 1.1(b), in funds that are available for immediate use by Agent by 3:30 p.m. on the applicable Borrowing Date. (d) Funding by Agent. Subject to receipt of those funds, Agent shall -- unless to its actual knowledge any of the applicable conditions precedent have not been satisfied by the Companies or waived by Lenders -- make those funds available to or for the account of Associates or Ryland, as the case may be, by 4:00 p.m. on the Borrowing Date: - For any Warehouse Borrowing, by depositing those funds into the Warehouse Account. - For any Receivables Borrowing, by depositing those funds into the Foreclosure Account, P&I Account, or T&I Account, as the case may be. - For any Working-Capital Borrowing, by depositing those funds into the Working-Capital Account. (e) Non-remittance Under Credit Request. Absent contrary written notice from a Lender received by Agent by 4:00 p.m. on the applicable Borrowing Date, Agent may assume that each Lender has remitted its portion of a Borrowing, as required by Section 2.2(c), under a Credit Request available to Agent on the applicable Borrowing Date and may -- but is not obligated to -- make available to Associates or Ryland, as the case may be, a corresponding amount. If a Lender fails to remit its portion of that Borrowing available to Agent on that Borrowing Date as so required -- whether because of that Lender's default, because that Lender is not open for business on that Business Day, or otherwise -- then Agent may recover that amount on demand (i) from that Lender, together with interest at the Fed-Funds Rate, during the period from the Borrowing Date to the date Agent recovers that amount from that Lender -- which payment is then deemed to be that Lender's required remittance of that Borrowing -- or (ii) if that Lender fails to pay that amount upon demand, then from Associates or Ryland, as the case may be, together with interest at an annual interest rate equal to the rate applicable to the requested Borrowing during the period from the Borrowing Date to the date Agent recovers that amount from Associates or Ryland, as the case may be. Notwithstanding these provisions, each Lender remains obligated to lend its portion of that Borrowing as required by Section 2.2(c), assumes the credit risk for that amount when the Borrowing is made available to or for Associates or Ryland, as the case may be, and -- after Agent has recovered the amount of interest provided for in clause (i) above -- is entitled to interest on that amount from the applicable Borrowing Date. (f) Other Lender's Responsibility. Although no Lender is responsible for the failure of any other Lender to remit its required portion of any Borrowing, the failure of any Lender to remit its required portion of any Borrowing does not excuse any other Lender from remitting its required portion of that Borrowing. 2.3 Wet-Borrowing Procedures . The conditions and procedures of Section 2.2 apply to Wet Borrowings except as follows: (a) Collateral Documents. A Wet Borrowing may be funded before delivery to Agent of all of the required Collateral Documents for the Eligible-Mortgage Loans supporting that Wet Borrowing. The Collateral- Delivery Notice delivered to Agent for a Wet Borrowing may be sent to Agent by fax but must identify and describe each Mortgage Loan that supports that Wet Borrowing and the amount of the Borrowing Base for Eligible-Mortgage Loans applicable to it. By delivering the Collateral-Delivery Notice, Ryland confirms its grant under this agreement of Lender Liens -- from the Borrowing Date for each Wet Borrowing -- on each Collateral Document offered as Collateral in that Collateral-Delivery Notice that is perfected subject to the delivery of the related promissory notes for those Mortgage Loans to Agent or its bailee. (b) Funding by Agent. Agent shall make the funds available to Associates by 4:00 p.m. on the Borrowing Date by depositing these funds into the Warehouse Account. 2.4 LC Procedures . The following conditions and procedures apply to LCs: (a) Credit Request and LC Agreement. Ryland may only request a LC by delivering to Agent a related Credit Request and LC Agreement before 11:30 a.m. on the second-Business Day before the LC is to be issued. (b) Participations. Immediately upon Agent's issuance of any LC, Agent is deemed to have sold and transferred to each other Lender -- and each other Lender is deemed irrevocably and unconditionally to have purchased and received from Agent -- without recourse or warranty, an undivided interest and participation in the LC and Agent's obligations under it to the extent of that Lender's Commitment Percentage of the face amount of that LC, which participation must be paid for on Agent's demand if there is ever any LC Obligation outstanding in connection with it. Agent shall provide a copy of each LC to each other Lender promptly after issuance. (c) Reimbursement Obligation. To induce Agent to issue and maintain LCs and Lenders to participate in issued LCs, Ryland agrees to reimburse Agent (i) on demand, on or after the date when any draft or draw request is presented under any LC, the amount paid by Agent and (ii) promptly, upon demand, the amount of any additional fees Agent customarily charges for the application and issuance of a letter of credit, amending letter of credit applications and agreements, honoring drafts and draw requests, and taking similar action in connection with letters of credit. Until repaid by Ryland by a payment or a Borrowing under Section 2.2, the LC Obligation is a demand obligation and bears interest at the Default Rate while outstanding. Ryland's obligations in respect of the LC Obligation are absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment that Ryland may have at any time against Agent or any other Person. (d) Payments Under LCs. Agent shall promptly notify Ryland of the date and amount of any draft or draw request presented for honor under any LC. Agent's failure to give that notice will not affect Ryland's obligations under this agreement. Agent shall pay the requested amount upon presentment of a draft or draw request unless presentment on its face does not comply with the terms of the applicable LC. When making payment, Agent may disregard (i) any default or potential default that exists under any other agreement and (ii) obligations under any other agreement that have or have not been performed by the beneficiary or any other Person. Agent is not liable for any of those obligations. (e) Absolute Obligations. Ryland's reimbursement obligations to Agent and Lenders, and each Lender's obligations to Agent, under this Section 2.4 are absolute and unconditional irrespective of -- and Agent is not responsible for -- (i) the validity, enforceability, sufficiency, accuracy, or genuineness of documents or endorsements (even if they are in any respect invalid, unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii) any dispute by Ryland with -- or any claims, setoffs, defenses, counterclaims, or other Rights by Ryland against -- Agent, any Lender, or any other Person, or (iii) the occurrence of any Potential Default or Default. However, nothing in this agreement constitutes a waiver of Ryland's or any Lender's Rights to assert any claim or defense based upon the gross negligence or willful misconduct of Agent. (f) Issuance and Cancellation. Each LC is deemed issued upon delivery to the beneficiary or Ryland. If Ryland requests any LC be delivered to Ryland rather than the beneficiary and later cancels that LC, then Ryland shall return it to Agent together with Ryland's written certification that it has never been delivered to the beneficiary. If any LC is delivered to the beneficiary under Ryland's instructions, Ryland's cancellation is ineffective without Agent's receipt of the beneficiary's written consent and the LC. RYLAND SHALL INDEMNIFY AGENT AND EACH LENDER FOR ALL LOSSES, COSTS, DAMAGES, EXPENSES, AND REASONABLE ATTORNEYS' FEES SUFFERED OR INCURRED BY AGENT OR ANY LENDER RESULTING FROM ANY DISPUTE CONCERNING RYLAND'S CANCELLATION OF ANY LC. (g) Agent's Responsibilities. Agent shall exercise and give the same care and attention to each LC as it gives to its other letters of credit. In paying any draft or draw under any LC, Agent has no responsibility to obtain any document (other than any documents expressly required by the respective LC) or to ascertain or inquire as to any document's validity, enforceability, sufficiency, accuracy, or genuineness or the authority of any Person delivering it. Neither Agent nor its Representatives will be liable to any Lender or either Company for any LC's use or for any beneficiary's acts or omissions. Any action, inaction, error, delay, or omission taken or suffered by Agent or any of its Representatives in connection with any LC, applicable draws, drafts, or documents, or the transmission, dispatch, or delivery of any related message or advice, if in good faith and in conformity with applicable Laws and in accordance with the standards of care specified in the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 is binding upon the Companies and Lenders and does not place Agent or any of its Representatives under any resulting liability to either Company or any Lender. Agent is not liable to either Company or any Lender for any action taken or omitted, in the absence of gross negligence or willful misconduct, by Agent or its Representative in connection with any LC. (h) Cash Collateral. On the Termination Date, during the continuance of any Default under Section 10.1(d), or upon any demand by Agent while any other Default exists, Ryland shall provide to Agent, for the benefit of Lenders, cash collateral in an amount equal to the then-existing LC Exposure or other collateral acceptable to Agent in its sole discretion. (i) INDEMNIFICATION. RYLAND SHALL PROTECT, INDEMNIFY, PAY, AND SAVE AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF AGENT TO HONOR A DRAFT OR DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE TRIBUNAL. HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (j) Other Agreements. Although referenced in any LC, terms of any particular agreement or other obligation to the beneficiary are not incorporated into this agreement in any manner. (k) Governing Provisions. The fees and other amounts payable with respect to each LC are as provided in this agreement, drafts and draws under each LC are part of the Obligation, and the terms of this agreement control any conflict between the terms of this agreement and any LC Agreement. 2.5 Increases and Terminations . (a) Annual Increases. Associates may request any one or more Lenders to increase their respective share of the Warehouse Sublimit so that the total Warehouse Sublimit may be increased to no more than $375,000,000 for a 120-consecutive-day period during each calendar year. That increase must be effected by an amendment to this agreement under Section 12.11 that is executed by the Companies, Agent, and the one or more Lenders selected by Ryland and Agent who have agreed to increase their Commitments for that period and by Associates' execution and delivery of an Interim Note to each of those Lenders in the amount of the increase to its Commitment. (b) Increases by Lenders. No Lender is obligated to increase its Commitment under any circumstances, and no Lender's Commitment may be increased except by its execution of an amendment to this agreement under Section 12.11. (c) Other Increases. The total Commitments may not otherwise be increased except by an amendment executed by the Companies, Agent, and all Lenders under Section 12.11. (d) Terminations. After giving written and irrevocable notice to Agent and each Lender at least three Business Days before the effective date of any termination, Associates may fully terminate any one or more Lenders' Commitments before the Stated-Termination Date except in the event of Default. A Lender may agree to a partial termination of its Commitment before the Stated-Termination Date by executing an amendment under Section 12.11. A full or partial termination under this clause (d) may only happen if (i) no Default exists unless otherwise consented to by Lenders (other than the terminating Lender), whose Termination Percentages total at least 51%, and (ii) requires (A) no full or partial termination of any other Lender's Commitment, (B) a mandatory prepayment under Section 3.4(d) on the effective date of the termination, (C) payment of any related Funding Loss, and (D) no other premium or penalty. (e) Stated-Termination Date. The total Commitments automatically terminate on the Stated-Termination Date. (f) Reinstatement. Once terminated, no part of any Commitment may be reinstated except by an amendment to this agreement under Section 12.11. SECTION 3. PAYMENT TERMS . 3.1 Notes . The Principal Debt of Warehouse Borrowings and interest on it are evidenced by the Associates Notes. The Principal Debt of Receivables Borrowings and Working-Capital Borrowings, the LC Obligation, and interest on the foregoing are evidenced by the Ryland Notes. Notwithstanding any sale of participating interests under Section 12.14 or related-contrary notice, the Companies and Agent may deem and treat each Lender as the absolute owner of its respective one or more Notes for all purposes. 3.2 Payment Procedures . (a) Payments by Companies. Associates (in respect of any of the Obligation related to Warehouse Borrowings) or Ryland (in respect of any of the Obligation related to Receivables Borrowings and Working- Capital Credits) shall make each payment and prepayment on the Obligation to Agent, on behalf of Lenders, in accordance with Agent's Wiring Instructions on Schedule 1.1(b) and in funds that are available for immediate use by Agent. Payments that are received by 1:00 p.m. on a Business Day are deemed received on that Business Day. Payments that are received after 1:00 p.m. on a Business Day are deemed received on the next Business Day. Subject to Section 3.9, applicable interest continues to accrue through the calendar day immediately before the Business Day on which the payment is deemed received. Each day, Agent will provide each Lender with the LIBOR rate in effect for that day. Each Lender must directly invoice Ryland for interest under this agreement for the Warehouse Sublimit only. Agent will provide the interest invoices for interest under the Receivables/Working Capital Sublimit. Ryland or Associates, after reviewing such invoice, shall forward the invoice to Agent for distribution of funds to each Lender in accordance with such invoice. All interest invoices received by Agent from Ryland are deemed correct. Any dispute in interest amount must be resolved between Ryland and such Lender directly. (b) Distributions by Agent. When received under clause (a) above, Agent shall distribute each payment by wire transfer to each appropriate Lender, in accordance with each Lender's share under Section 3.5, reasonably promptly after receipt but by no later than 2:30 p.m. on the Business Day the payment is deemed to be received by Agent under clause (a) above. If Agent fails to distribute any payment to any Lender as required by this clause, then Agent shall pay to that Lender on demand interest on that payment, from the date due under this clause until paid, at an annual interest rate equal from day to day to the Fed-Funds Rate. 3.3 Scheduled Principal and Interest . Associates (in respect of any of the Obligation related to Warehouse Borrowings) or Ryland (in respect of any of the Obligation related to Receivables Borrowings and Working-Capital Credits) shall make scheduled payments of the Principal Debt and interest on it as provided in this section. Each interest payment may be deferred until the later of either the due date or the date that is three Business Days after the appropriate Company is given written notice of the amount of it. Unless otherwise provided in this agreement: (a) LIBOR-Borrowing Interest. For each LIBOR Borrowing, Associates (in respect of Warehouse Borrowings) or Ryland (in respect of Working- Capital Borrowings) shall pay interest as it accrues on its Interest Period's last day and -- if the Interest Period is longer than three months -- 90 days after its Interest Period's first day and each 90 days after that. (b) Non-LIBOR-Borrowing Interest. For each Non-LIBOR Borrowing, Associates (in respect of Warehouse Borrowings) or Ryland (in respect of Receivables Borrowings and Working-Capital Borrowings) shall pay interest as it accrues (i) through the last day of the Calendar Month preceding the payment date, on the 15th day of each Calendar Month beginning July 15, 1995, and (ii) on the Termination Date. (c) Default-Rate Interest. Associates (in respect of Warehouse Borrowings) or Ryland (in respect of Receivables Borrowings and Working-Capital Credits) shall pay interest at the Default Rate on demand as it accrues. (d) LC Obligation. Ryland shall pay the LC Obligation on demand. (e) Interim Notes. Associates shall pay the full Obligation evidenced by any Interim Note on its stated maturity date. (f) Obligation. Associates (in respect of any of the Obligation related to Warehouse Borrowings) or Ryland (in respect of any of the Obligation related to Receivables Borrowings and Working-Capital Credits) shall pay the full unpaid Principal Debt and all other remaining Obligation on the Termination Date. (g) Existing Obligation. In respect of the Existing Obligation, the Companies shall (i) on the Closing Date, pay to each Terminated Lender all Existing Obligation owed to that Terminated Lender, (ii) on the Closing Date, pay to each Lender the amount of principal owed to that Lender under the Existing-Loan Agreement that would exceed any of the Borrowing limitations applicable to that Lender under Section 2.1, and (iii) on the dates that such interest and fees would otherwise be payable under this agreement, pay to each Lender all unpaid interest and fees accrued to that Lender's benefit as of the Closing Date under the Existing-Loan Agreement. 3.4 Prepayments . (a) P&I Borrowings. For at least 10-consecutive days during each 30-consecutive-day period, Ryland shall pay all -- and not owe any -- Principal Debt of Tranche A for P&I Borrowings and of Tranche B for P&I Borrowings -- as those terms are described in Section 2.1(f) -- which 10-day period may be different for that Tranche A and Tranche B. (b) T&I Borrowing. Ryland shall pay the Principal Debt of each T&I Borrowing on or before the earlier of either 180 days after its Borrowing Date or the Termination Date. (c) Foreclosure Borrowing. Ryland shall pay the Principal Debt of each Foreclosure Borrowing on or before the earlier of either 270 days after its Borrowing Date or the Termination Date. (d) Commitment Termination. Associates (in respect of any of the Obligation related to Warehouse Borrowings) or Ryland (in respect of any of the Obligation related to Receivables Borrowings and Working- Capital Credits) shall -- on the date that full or partial termination of a Lender's Commitment becomes effective under Section 2.5 -- pay to that Lender the full Obligation owed to it in the case of a full termination or the Principal Debt owed to it that exceeds its reduced Commitment, as the case may be. (e) Borrowing Excess. If at any time any Borrowing Excess exists, then -- before the close of business on the third-Business Day after the Companies receive written notice from Agent of the amount and nature of the Borrowing Excess -- Associates (in respect of Warehouse Borrowings) or Ryland (in respect of Receivables Borrowings and Working-Capital Credits) shall take the following applicable action that eliminates that Borrowing Excess: (i) For a Borrowing Excess that is not capable of elimination by delivery of additional Collateral or an increase in the total or any applicable Borrowing Base -- e.g., an excess under Sections 2.1(a)(i) -- or when a Default exists, prepay to Agent for distribution to the appropriate one or more Lenders Principal Debt of the appropriate one or more Borrowing Categories (together with any related Funding Loss). (ii) For any other Borrowing Excess and only when no Default exists, either (A) deliver to Agent, in accordance with this agreement, additional Collateral that causes the total or the applicable Borrowing Base, as the case may be, to increase, (B) prepay to Agent for distribution to the appropriate one or more Lenders Principal Debt of the appropriate one or more Borrowing Categories (together with any related Funding Loss), or (C) any combination of the actions under clauses (A) or (B) above. (f) Voluntary Prepayments. Associates or Ryland may voluntarily prepay all or any of the Obligation at any time without premium or penalty, but with any applicable Funding Loss. 3.5 Order of Application . All payments and proceeds -- whether voluntary, involuntary, through the exercise of any Right of set-off or other Right, realization against any Collateral, or otherwise and whether a Default exists or not -- shall be applied in the following order: (a) No Default. While no Default exists, in the order and manner as Associates or Ryland, as the case may be, directs, except that principal payments must always be applied in the following order and manner: (i) LC Obligation -- payable solely to Agent -- which Agent shall distribute in accordance with the participation interests in that LC Obligation that any one or more Lenders have purchased and paid for under Section 2.4(b). (ii) Principal Debt in the order below (except as the order may be rearranged by Agent to the extent possible to avoid the application of any Funding Loss for LIBOR Borrowings) -- payable to Lenders as provided in clause (iii) below. Principal Debt shall be applied (A) to the Borrowing Category to the extent the collections or proceeds are from or arose in respect of the Collateral in its Borrowing Base and (B) then in the following order: - Working-Capital Borrowings - P&I Borrowings - T&I Borrowings - Foreclosure Borrowings - Wet Borrowings - Dry Borrowings - Gestation Borrowings (iii) Payments under clause (ii) above shall be applied (A) in respect of Working-Capital Borrowings, P&I Borrowings, T&I Borrowings, and Foreclosure Borrowings, ratably to each Lender in accordance with its Commitment Percentage, and (B) in respect of each other Borrowing, to the Lender that extended the Borrowing as selected among the same Borrowing Category by the Companies. (b) Default or No Direction. While a Default exists or if the appropriate Company fails to give any direction, in the following order and manner: (i) All costs and expenses incurred by Agent in connection with its duties under the Loan Papers -- including, without limitation, fees and expenses paid by Agent to any servicing companies retained by Agent to assist it in servicing any Collateral required to be serviced, to any attorneys, or to any agents -- that have not been reimbursed by Lenders, together with interest at the Default Rate, payable solely to Agent. (ii) All costs and expenses incurred by any Lender in connection with the Loan Papers that are reimbursable to it under the Loan Papers and all amounts paid by that Lender to Agent as a reimbursement to it of costs and expenses incurred by Agent in connection with its duties under the Loan Papers, together with interest at the Default Rate -- payable ratably to Lenders in the proportion that each Lender's share of those costs and expenses bears to the total of those costs and expenses for all Lenders. (iii) Accrued and unpaid interest on the Obligation -- payable ratably to Lenders in the proportion that the amount of interest owed to each Lender bears to the total of all interest owed to all Lenders. (iv) LC Obligation -- payable solely to Agent, which Agent shall distribute in accordance with the participation interests in that LC Obligation that any one or more Lenders have purchased and paid for under Section 2.4(b). (v) Principal Debt in the order below -- payable ratably to each Lender in accordance with its Termination Percentage -- except as the order may be rearranged by Agent to the extent possible to avoid the application of any Funding Loss for LIBOR Borrowings. Principal Debt shall be applied (A) to the Borrowing Category to the extent the collections or proceeds are from or arose in respect of the Collateral in its Borrowing Base and (B) then any excess will be applied in the following order: - Working-Capital Borrowings - P&I Borrowings - T&I Borrowings - Foreclosure Borrowings - Wet Borrowings - Dry Borrowings - Gestation Borrowings (vi) All other portions of the Obligation -- payable ratably to Lenders in the proportion that each Lender's share of those amounts bears to the total of those amounts for all Lenders. (vii) Either (A) to Ryland or to its successors or assigns on behalf of the Companies, to be divided between them as they may agree, or (B) as a court of competent jurisdiction may direct. 3.6 Sharing . If any Lender obtains any amount -- whether voluntary, involuntary, or otherwise, including, without limitation, as a result of exercising its Rights under Section 10.3 -- that exceeds the portion of that amount it is otherwise entitled under the Loan Papers to receive, then that Lender shall purchase from the other Lenders participations that result in the purchasing Lender's sharing the excess amount ratably with each Lender in accordance with the portion it is entitled to receive under the Loan Papers. If all or any of that excess amount is subsequently recovered from that purchasing Lender, then the purchase of participations in it is automatically rescinded and the purchase price restored to that purchasing Lender to the extent of the recovery. Any Lender purchasing a participation from another Lender under this section may, to the extent lawful, exercise all of its Rights of payment (including the Right of offset) with respect to that participation as fully as if that Lender were the direct creditor of either Company in the amount of that participation. 3.7 Interest Rates . Unless otherwise provided in this agreement, the Principal Debt and any past-due interest owed to each Lender bears interest at an annual interest rate equal to the lesser of either the Maximum Rate or: (a) LIBOR Borrowings. For the Principal Debt of a LIBOR Borrowing: The LIBOR Rate applicable to its Interest Period. (b) Non-LIBOR Borrowings. (i) For the Average-Principal Debt for all Non-LIBOR Borrowings owed to a Depositary during any Calendar Month that does not exceed that Depositary's Average-Depositary Balances for that Calendar Month: The Applicable Margin for the Fed-Funds Rate. (ii) For the Average-Principal Debt for all Non-LIBOR Borrowings owed to any Lender during any Calendar Month and not bearing interest under clause (i) above: The Average-Adjusted-Fed-Funds Rate for that Calendar Month. (c) Default Rate. For all past-due Principal Debt and past-due interest on the Principal Debt: (i) For the Average-Principal Debt for all Non-LIBOR Borrowings and all past-due accrued interest on those Borrowings owed to a Depositary during any Calendar Month that does not collectively exceed that Depositary's Average- Depositary Balances for that Calendar Month: 2.5%. (ii) For the Average-Principal Debt for all Non-LIBOR Borrowings and all past-due accrued interest on those Borrowings owed to any Lender during any Calendar Month and not bearing interest under clause (i) above and for the Principal Debt of all LIBOR Borrowings and all past-due accrued interest on those Borrowings: The Default Rate. 3.8 Interest Calculations . (a) Interest is calculated on the basis of actual days (including the first but excluding the last) elapsed over a year of 360 days (or, if that calculation would result in interest greater than the Maximum Amount, 365 or 366 days, as the case may be). (b) The provisions of this agreement relating to calculation of the Average Fed-Funds Rate and the LIBOR Rate are included only for the purpose of determining the rate of interest or other amounts to be paid under this agreement that are based upon those rates. Each Lender may fund and maintain its funding of all or any part of each Borrowing as it selects. 3.9 Maximum Rate . Regardless of any Loan-Paper provision, no Lender is entitled to contract for, charge, take, reserve, receive, or apply, as interest on all or any of the Obligation any amount in excess of the Maximum Rate. If a Lender ever does so, then any excess is treated as a partial prepayment of principal, and any remaining excess shall be refunded to Associates or Ryland, as the case may be. In determining if the interest paid or payable exceeds the Maximum Rate, the Companies and Lenders shall, to the extent lawful (a) treat all Borrowings as but a single extension of credit, (b) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (c) exclude voluntary prepayments and their effects, and (d) amortize, prorate, allocate, and spread the total amount of interest throughout the full-contemplated term of the Obligation. However, if the Obligation is paid in full before the end of that full-contemplated term and the interest received for the Obligation's actual period of existence exceeds the Maximum Amount, then Lenders shall refund any excess without being subject to any penalties provided by any Laws. If Texas Laws are applicable for purposes of determining the "Maximum Rate" or the "Maximum Amount," then those terms mean the "indicated rate ceiling" from time to time in effect under Article 1.04, Title 79, Texas Revised Civil Statutes, as amended. Chapter 15, Subtitle 79, Texas Revised Civil Statutes, 1925 (which regulates certain revolving credit loan accounts and revolving triparty accounts), does not apply to the Obligation. 3.10 Interest Periods . When either Company requests any LIBOR Borrowing, it may elect the applicable interest period (each an "Interest Period") -- which may be either one, two, three, or six months at its option or such other period as it and Agent may agree (after first obtaining Determining Lender approval if for more than six months) -- subject to the following conditions: (a) The initial Interest Period commences on the applicable Borrowing Date or Conversion Date, and each subsequent applicable Interest Period commences on the day when the next preceding applicable Interest Period expires; (b) if any Interest Period begins on a day for which no numerically corresponding Business Day in the calendar month at the end of the Interest Period exists, then the Interest Period ends on the last Business Day of that calendar month; (c) if an Interest Period would otherwise not end on a Business Day, it shall end on the immediately preceding Business Day; (d) no Interest Period for any portion of the Obligation may extend beyond the scheduled repayment date for that portion of the Obligation; and (e) no more than five Interest Periods may be in effect at any time. 3.11 Conversions . Associates or Ryland, as the case may be, may (a) convert a LIBOR Borrowing on the last day of the applicable Interest Period to another Borrowing Type, (b) convert another Borrowing Type (subject to Section 3.16) at any time to a LIBOR Borrowing, and (c) elect a new Interest Period for a LIBOR Borrowing, by giving a Conversion Request to Agent and each Lender no later than 9:30 a.m. on the day (the "Conversion Date") that is the third Business Day before the last day of the applicable Interest Period. However, a Borrowing may not be converted to or continued as a LIBOR Borrowing if a Default exists, and, absent the applicable Company's timely Conversion Request, a LIBOR Borrowing is deemed converted to a Fed-Funds Borrowing effective when the applicable Interest Period expires. 3.12 Booking Borrowings . To the extent lawful, any Lender may make, carry, or transfer the Principal Debt owed to it at, to, or for the account of any of its branch offices or the office of any of its Affiliates. However, no Affiliate of any Lender is entitled to receive any greater payment under Section 3.14 than the transferor Lender would have been entitled to receive with respect to that Principal Debt, and no Lender is entitled to receive any greater payment under Section 3.14 on account of a transfer of that Principal Debt to or for the account of a branch office -- other than the one specified on Schedule 1.1(a) -- than it would have been entitled to receive with respect to that Principal Debt if that transfer had not been made. Each Lender shall use its reasonable efforts (consistent with its internal policies and applicable Law) to make, carry, maintain, or transfer its part of any Principal Debt with its Affiliates or branch offices in an effort to eliminate or reduce to the extent possible the total amounts due to it under Sections 3.14 and 3.15 if, in its reasonable judgment, those efforts will not be disadvantageous to it. 3.13 Basis Unavailable or Inadequate for LIBOR Rate . If, on or before any date when a LIBOR Rate is to be determined for a Borrowing, Agent or any Lender (upon notice to Agent) determines that the basis for determining the applicable rate is not available or that the resulting rate does not accurately reflect the cost to Lenders of making or converting Borrowings at that rate for the applicable Interest Period, then Agent shall promptly notify the Companies of that determination (which is conclusive and binding on the Companies, absent manifest error) and that Borrowing shall be a Fed-Funds Borrowing. Until Agent notifies the Companies that it or the notifying Lender (upon notice to Agent) has determined that those circumstances no longer exist -- which it shall promptly do -- Lenders' commitments under this agreement to make or convert to LIBOR Borrowings are suspended. 3.14 Additional Costs . This section survives the full satisfaction of the Obligation and termination of the Loan Papers, and release of Lender Liens. (a) For any LIBOR Borrowing, if (i) (A) any change after the date of this agreement in any present Law -- and for purposes of this Section 3.14, Law includes interpretations and guidelines of any Tribunal whether or not having the force of Law -- or any future Law imposes, modifies, or deems applicable (or if compliance by any Lender with any requirement of any Tribunal results in) any requirement that any reserves (including, without limitation, any marginal, emergency, supplemental, or special reserves) be maintained, (B) those reserves reduce any sums receivable by that Lender under this agreement or increase the costs incurred by that Lender in advancing or maintaining any portion of any LIBOR Borrowing, and (C) that Lender determines that the reduction or increase is material (and it may, in determining the material nature of the reduction or increase, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (ii) that Lender (through Agent) shall deliver to the Companies a certificate stating in reasonable detail the calculation of the amount necessary to compensate it for its reduction or increase (which certificate is conclusive and binding absent manifest error), and Associates or Ryland, as the case may be, shall pay that amount to that Lender within ten days after demand. (b) For any Borrowing, if (i) (A) any change after the date of this agreement in any present Law or any future Law regarding capital adequacy or compliance by any Lender with any request, directive, or requirement now or in the future imposed by any Tribunal regarding capital adequacy or any change in the risk category of this transaction reduces the rate of return on its capital as a consequence of its obligations under this agreement to a level below that which it otherwise could have achieved (taking into consideration its policies with respect to capital adequacy) by an amount deemed by it to be material (and it may, in determining the amount, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (ii) that Lender (through Agent) shall notify the Companies and deliver to the Companies a certificate stating in reasonable detail the calculation of the amount necessary to compensate it (which certificate is presumed correct), and Associates or Ryland, as the case may be, shall pay that amount to Lender within ten days after demand. (c) Any Taxes payable by Agent or any Lender or ruled (by a Tribunal) payable by Agent or any Lender in respect of any Loan Paper shall -- if permitted by Law and if deemed material by Agent or that Lender (who may, in determining the material nature of the amount payable, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method) -- be paid by Ryland, together with interest and penalties, if any (except for Taxes payable on the overall net income of Agent or that Lender and except for interest and penalties incurred as a result of the gross negligence or willful misconduct of Agent or any Lender). Agent or that Lender (through Agent) shall notify Ryland and deliver to Ryland a certificate stating in reasonable detail the calculation of the amount of payable Taxes, which certificate is conclusive and binding (absent manifest error), and Ryland shall pay that amount to Agent for the account of Agent or that Lender, as the case may be, within ten days after demand. If Agent or that Lender subsequently receives a refund of the Taxes paid to it by Ryland, then the recipient shall promptly pay the refund to Ryland. 3.15 Change in Laws . If any change, after the date of this agreement, in any present Law or any future Law makes it unlawful for any Lender to make or maintain LIBOR Borrowings, then that Lender shall promptly notify Agent, who shall promptly notify the Companies and (a) as to undisbursed funds, any requested Borrowing shall be made as a Fed-Funds Borrowing, (b) as to any outstanding Borrowing (i) if maintaining the Borrowing until the last day of the applicable Interest Period is unlawful, the Borrowing shall be converted to a Fed-Funds Borrowing as of the date of notice, but neither Company is obligated to pay any related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be converted to an Fed- Funds Borrowing as of the last day of the applicable Interest Period, or (iii) if any conversion will not resolve the unlawfulness, Associates or Ryland, as the case may be, shall promptly prepay the Borrowing, without penalty, and without payment of any related Funding Loss. No Conversion Request is required to be delivered in connection with any conversion under this Section 3.15. 3.16 Funding Loss . Subject to Section 3.15, THE COMPANIES JOINTLY AND SEVERALLY AGREE (IN RESPECT OF WAREHOUSE BORROWINGS) AND RYLAND AGREES (IN RESPECT OF OTHER BORROWINGS) TO INDEMNIFY EACH LENDER AGAINST -- AND PAY TO IT UPON DEMAND -- ANY FUNDING LOSS OF THAT LENDER. When any Lender demands that a Company pay any Funding Loss, that Lender shall deliver to Agent who shall promptly deliver to the Companies a certificate stating in reasonable detail the basis for imposing Funding Loss and the calculation of the amount, which calculation shall be presumed correct. This Section 3.16 survives the satisfaction and payment of the Obligation and termination of the Loan Papers. 3.17 Foreign Lenders, Participants, and Purchasers . Each Lender, Participant (by accepting a participation interest under this agreement), and Purchaser (by executing an Assignment) that is not organized under the Laws of the United States of America or one of its states (a) represents to Agent and the Companies that (i) no Taxes are required to be withheld by Agent or either Company with respect to any payments to be made to it in respect of the Obligation and (ii) it has furnished to Agent and the Companies two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent that entitles it to exemption from U.S. federal withholding Tax on all interest payments under the Loan Papers, and (b) covenants to (i) provide Agent and the Companies a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration or obsolescence of any previously delivered form according to Law, duly executed and completed by it, and (ii) comply from time to time with all Laws with regard to the withholding Tax exemption. If any of the foregoing is not true or the applicable forms are not provided, then the Companies and Agent (without duplication) may deduct and withhold from interest payments under the Loan Papers United States federal income Tax at the full rate applicable under the Code. 3.18 Fees . The following are not compensation for the use, detention, or forbearance of money, are in addition to and not in lieu of interest and expenses otherwise described in the Loan Papers, are non- refundable, to the extent lawful, bear interest if not paid when due at the Default Rate, and are calculated on the basis of actual days (including the first but excluding the last) elapsed over a year of 360 days (or 365 or 366 days, as the case may be, if the calculation would otherwise result in exceeding the Maximum Amount and the payment were deemed to be interest notwithstanding the above provisions to the contrary): (a) Agent's Fees. The Companies shall pay to Agent -- for its sole account -- an annual administrative fee and a custodial fee in an amount and on such payment terms as may be agreed upon by the Companies and Agent in writing. (b) Commitment Fees. Ryland shall pay to Agent for each Lender two commitment fees -- one based on that Lender's Commitment and another based on that Lender's Commitment Percentage of the Working-Capital Sublimit. (i) Those commitment fees are payable in advance on (A) the Closing Date for the Calendar Quarter in which it occurs and (B) on the first day of each Calendar Quarter after the Closing Date. (ii) The amount of those commitment fees are a percentage per annum -- calculated on the basis of 15 basis points of the Commitment Percentage of the Warehouse Sublimit, and 33 basis points of the Commitment Percentage of the Receivables/Working- Capital Sublimit (c) LC Fees. As a condition to the issuance or extension of a LC, Ryland shall pay to Agent a fee equal to the product of (i) 1.0% of the face amount of the LC times (ii) a fraction, the numerator of which is the number of months from the issuance date to the expiry date (and rounded up to the nearest whole month) and the denominator of which is 12. Agent will keep, for its own account, 25% of each such fee paid and will divide among all Lenders, including Agent, ratably according to their LC participation amounts, the remaining 75%. Ryland shall also pay on demand and solely for Agent's account any and all additional customary LC fees charged by Agent, including those relating to confirming, negotiating, or amending LCs. Agent shall refund to Ryland any unearned LC fee that Ryland has paid to Agent in respect of the undrawn portion of any LC that is cancelled before its expiration date. SECTION 4. SECURITY . 4.1 Guaranty . (a) Guaranty. To induce Agent and Lenders to enter into this agreement and extend credit to Associates and for other good and valuable consideration -- including, without limitation, the facts stated in the recitals to this agreement -- but not as a condition to Lenders' agreements to extend credit to Ryland under this agreement, Ryland unconditionally and irrevocably guarantees to Agent and each Lender (i) the prompt payment of the Obligation related in any way to Warehouse Borrowings (the "Warehouse Obligation") at maturity -- by acceleration or otherwise -- and at all times after maturity in accordance with the Loan Papers and (ii) the prompt performance of and compliance with every term, covenant, and condition of the Loan Papers when due. Ryland acknowledges and agrees that this agreement expressly refers to each of the Loan Papers, including, without limitation, the Notes. (b) Nature of Liability. "This guaranty" refers to this Section 4.1, which is an absolute, irrevocable, and continuing guaranty, and Ryland's liability for any future Warehouse Obligation is not released or reduced by the payment and performance of the Warehouse Obligation in full from time to time and constitutes a renewal and extension of Ryland's guaranty under Section 4.1 of the Existing-Loan Agreement. (c) Payment and Performance by Ryland. If Associates fails to pay or perform any Warehouse Obligation when due, Ryland shall pay or perform that Warehouse Obligation on demand and without notice of acceptance of this guaranty, creation of any Warehouse Obligation, any Default, or Potential Default, presentment and demand for payment, protest, nonpayment, dishonor, notice of the intent to accelerate, and notice of acceleration, all of which Ryland waives. (d) No Requirement to Pursue Other Rights. In order to enforce payment and performance by Ryland, it is not necessary for Agent or any Lender first or concurrently to institute suit or exhaust Rights against Associates or any other Person or enforce Rights against any present or future Collateral or other security. (e) Effect of Certain Default. If a Default occurs under Section 10.1(d) in respect of Ryland, then the Obligation is, as between Ryland, Lenders, and Agent, a fully matured, due, and payable obligation of Ryland to Agent and Lenders -- without regard to whether a Default or Potential Default then exists or whether any of the Warehouse Obligation is then due and payable to Agent or any Lender -- payable in full by Ryland to Agent and Lenders. (f) Other Debts. If Ryland becomes liable -- by endorsement or otherwise -- for any debt of Associates to Agent or any Lender that is not part of the Warehouse Obligation, then that liability is not in any manner impaired or affected by this guaranty. (g) Subordinated Debt. All Subordinated Debt is expressly subordinated to the full payment and performance of the Warehouse Obligation. Ryland may not receive or accept any payment from Associates for any Subordinated Debt at any time when any Warehouse Obligation is outstanding. If Ryland receives any payment of any Subordinated Debt in violation of this section, Ryland shall hold that payment in trust for Agent on behalf of Lenders and immediately turn it over to Agent -- in the form received but with any necessary endorsements -- to be applied to the Warehouse Obligation. (h) Independent Analysis. Ryland may not rely upon Agent or any Lender about -- and each expressly assumes all responsibilities to remain informed about -- Associates' financial condition and any circumstances affecting Associates' ability to pay or perform the Warehouse Obligation. (i) Waiver of Certain Rights Against Others. Ryland may not assert, enforce, or otherwise exercise -- and Ryland irrevocably waives -- until payment in full of the Obligation (a) any Right of subrogation to any of Agent's or any Lender's present or future Rights or Collateral with respect to any Warehouse Obligation, (b) any Right of recourse, reimbursement, contribution, indemnification, or similar Right against any Person with respect to the payment or performance of any Warehouse Obligation, and (c) any Right to participate in any security or assurances for any Warehouse Obligation. (j) Waiver of Certain Procedural Rights. Ryland waives all Rights by which it might be entitled to require suit on an accrued Right of action in respect of any Warehouse Obligation or require suit against Associates or any other Person -- whether arising under (i) Sec. 34.02 of the Texas Business and Commerce Code, which is about certain Rights to require suit on accrued Rights of action following written notice, (ii) Sec. 17.001 of the Texas Civil Practice and Remedies Code, which allows suit against certain guarantors without suit against certain principal obligors but precludes entry of judgment against certain guarantors before entry of judgment against certain principal obligors, (iii) Rule 31 of the Texas Rules of Civil Procedure, which requires joinder of certain principal obligors in suits against certain guarantors unless judgment has been entered against those principal obligors, or (iv) otherwise. (k) Non-impairment. The occurrence or existence of any one or more of the following -- with or without notice to or consent by Ryland -- does not release or reduce Ryland's liability under this guaranty: (i) Agent or any Lender taking or accepting any other security or assurance for any Warehouse Obligation; (ii) any release, surrender, exchange, subordination, impairment, or loss of any security or assurance for any Warehouse Obligation; (iii) any partial or full release of any other Person's liability for any Warehouse Obligation; (iv) the insolvency, bankruptcy, or lack of corporate, partnership, trust, or other power or authority of any Person; (v) any renewal, extension, or rearrangement of the payment or performance of -- or any assignment of -- any Warehouse Obligation; (vi) any new agreement with -- or adjustment, indulgence, forbearance, compromise, or release ever granted to any other Person; (vii) any neglect, delay, omission, failure, or refusal by Agent or any Lender to take or prosecute any action for the collection of any Warehouse Obligation or to foreclose, take, or prosecute any action under any document evidencing or securing any Warehouse Obligation; (viii) the unenforceability of any Warehouse Obligation against any Person because it exceeds the amount permitted by Law, the act of creating it is ultra vires, or any individual creating it exceeded his authority or violated his fiduciary duties in connection with it; (ix) Agent or any Lender becomes required to refund any payment or make payment to any other Person because any payment to Agent or that Lender by any Person for any Warehouse Obligation is held to constitute a preference under any Debtor Law or otherwise; or (x) any existing or future offset, claim, or defense (except for the defense of full payment and performance of the Warehouse Obligation after the running of any preference period after that payment and performance) of any other Person against Agent or any Lender or against payment or performance of any Warehouse Obligation -- whether that offset, claim, or defense arises in connection with the Warehouse Obligation or otherwise -- and such claims and defenses include, without limitation, failure of consideration, breach of warranty, fraud, statute of frauds, bankruptcy, infancy, statute of limitations, lender liability, accord and satisfaction, and usury. 4.2 Collateral . (a) From Associates. To secure the full payment and performance of the Warehouse Obligation, Associates assigns, conveys, and grants to -- and creates in favor of -- Agent a Lender Lien in: - The Intercompany Note. - The Warehouse Account and all amounts deposited in it or represented by it. - Cash and noncash proceeds of any Collateral otherwise described in this clause (a). (b) From Ryland. To secure the full payment and performance of the full Obligation and the guaranty in Section 4.1, Ryland assigns, conveys, and grants to -- and creates in favor of -- Agent Lender Liens in all of the following items and types of property -- collectively, together with the collateral described in clause (a) above and any other present and future security for any of the Obligation, the "Collateral" -- without transferring to Agent or any Lender any of Ryland's obligations in respect of any of the following: (i) In respect of Mortgage Collateral, all present and future: - Mortgage Loans -- including, without limitation, all promissory notes evidencing and all mortgages, deeds of trust, or trust deeds securing those Mortgage Loans -- which from time to time are either (A) deposited with or held by or for Agent under this agreement or (B) identified by Ryland as support for a Wet Borrowing. - Mortgage Securities -- the Mortgage Pools for which consists of Mortgage Loans that were Mortgage Loans constituting part of the Collateral -- deposited with or held by or for Agent under this agreement or registered by book-entry in Agent's name under this agreement. - Private-mortgage insurance (including, without limitation, all commitments to issue any such insurance) covering -- and all commitments issued by FHA to insure or issued by VA or GNMA to guarantee -- any Mortgage Loans included in the Collateral. - Guaranties related to Mortgage Securities included in the Collateral. - Take-Out Commitments held by Ryland covering any Mortgage Collateral and all proceeds resulting from the sale of Mortgage Collateral to investors under Take-Out Commitments. - Security of any kind pledged by a mortgagor for any Mortgage Collateral. - Casualty insurance assigned to Ryland in connection with any Mortgage Loan. (ii) In respect of the Servicing Portfolio, all present and future: - Servicing Rights pertaining in any way to Ryland's Servicing Contracts with FHLMC, FNMA, or GNMA, together with all present and future sums paid or payable to Ryland on account of, or as a result of the performance of, those Servicing Rights, whether as compensation for the performance by Ryland, damages related to any of the foregoing, amounts payable upon cancellation or termination hereof, or otherwise. - Servicing Receivables. (iii) The Foreclosure Account, P&I Account, Settlement Account, T&I Account, Working-Capital Account and all amounts deposited in them or represented by them. (iv) In respect of all of the Collateral otherwise described in this clause (b), all present and future: - Personal property, contract Rights, accounts, and general intangibles of any kind whatsoever relating to any of the Collateral otherwise described in this clause (b). - All files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records, and other information and data of Ryland relating to any Collateral otherwise described in this clause (b) -- including, without limitation, all information, data, programs, tapes, discs, and cards necessary to administer and service any Mortgage Loans with respect to which Ryland has Servicing Rights in respect of the Servicing Portfolio. - Cash and noncash proceeds of any of the Collateral otherwise described in this clause (b). (c) Renewal of Lender Liens. The Lender Liens under this Section 4.2 are renewals and extensions of the Lender Liens arising under the Existing-Loan Agreement, including, without limitation, those evidenced or perfected by the following financing statements, each executed by the appropriate Company (including Ryland's three trade-names) as debtor and Agent as secured party, and filed with the following jurisdictions, and otherwise described as follows:
Name Jurisdiction Number Date - ---------------------------------------------------------------------------- Associates Sec. of State, DE 9408671 06/28/94 Sec. of State, MD 41788224; Liber 3617, Folio 1928 06/27/94 Howard Co., MD 015451; Liber 0146, Folio 530 06/23/94
Name Jurisdiction Number Date - ---------------------------------------------------------------------------- Sec. of State, TX 120435 06/20/94 Ryland Sec. of State, MD 4174887 and 41748193; Liber 3617, Folio 1545 06/23/94 Howard Co., MD 015482; Liber 0146, Folio 673 06/30/94 Sec. of State, OH 06159409102 06/15/94 Sec. of State, TX 115336 06/14/94 Ryland Funding Group Sec. of State, MD 141747383; Liber 3617, Folio 1549 06/23/94 Howard Co., MD 015483; Liber 0146, Folio 677 06/30/94 Sec. of State, OH 06159409103 06/15/94 Sec. of State, TX 115337 06/14/94 Rylco Funding Group Sec. of State, MD 14747384; Liber 3617, Folio 1553 06/23/94 Howard Co., MD 015484; Liber 0146, Folio 681 06/30/94 Sec. of State, OH 06159409104 06/15/94 Sec. of State, TX 115338 06/14/94 RMC Mortgage Corp. Sec. of State, MD 141747385; Liber 3617, Folio 1557 06/23/94 Howard Co., MD 015485; Liber 0146, Folio 685 06/30/94 Sec. of State, OH 06159409101 06/15/94 Sec. of State, TX 115339 06/14/94
Therefore, the Companies (i) ratify and confirm that all of those Lender Liens are not released, reduced, or otherwise adversely affected by this agreement and continue to secure full payment and performance of the present and future Obligation, and (ii) agree to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents, and certificates as Agent may request in order to create, perfect, preserve, and protect those Lender Liens. 4.3 Collateral Procedures . (a) Compliance With Schedule 4.3. Ryland must deliver the Collateral Documents and otherwise comply with all the required procedures in Schedule 4.3 for Collateral offered in connection with this agreement by no later than 10:30 a.m. on (i) the Borrowing Date for Collateral supporting any Borrowing other than a Wet Borrowing and (ii) seventh Business Day after the Borrowing Date of any Wet Borrowing for Collateral supporting that Borrowing. (b) Ryland as Bailee. Ryland shall (i) hold in trust for Agent (A) the original recorded copy of the mortgage, deed of trust, or trust deed securing each Mortgage Loan, (B) a mortgagee policy of title insurance (or binding unexpired and unconditional commitment to issue such insurance if the policy has not yet been delivered to Ryland) insuring Ryland's perfected, first priority Lien created by that mortgage, deed of trust, or trust deed, (C) the original insurance policies referred to in Section 7.8, and (D) all other original documents, including any undelivered Take-Out Commitments, promissory notes, and Mortgage Securities, (ii) specifically identify such items in the appropriate Collateral-Delivery Notice, (iii) deliver to Agent any of the foregoing items as soon as reasonably practicable upon Agent's request, and (iv) for purposes of clause (a) above, be an approved bailee for Agent to the extent that Ryland holds Collateral that constitutes an Eligible-Mortgage Loan subject to the conditions of Part A.1(a) on Schedule 1.1(c). (c) Gestation Collateral. By 10:30 a.m. on the day that Associates is converting any Dry Borrowing to a Gestation Borrowing, Associates shall execute and deliver to Agent a Collateral-Conversion Notice. 4.4 Borrowing-Base Reports . By 11:00 a.m. on the date of any Borrowing, any payment of Principal Debt, or removal of any Collateral, Agent (for Borrowing-Base Reports for Mortgage Collateral) shall deliver to the Companies and Lenders -- or Ryland (for other Borrowing-Base Reports) shall deliver to Agent for Agent to deliver to each Lender -- the applicable Borrowing-Base Report depending upon the Borrowing Category of the Borrowing or payment or Borrowing Base in which that Collateral is included. 4.5 Borrowing Base . If at any time any item of Collateral ceases to meet the applicable requirements of eligibility on Schedule 1.1(c), then (a) that item is automatically excluded from all calculations of the applicable Borrowing Base, and (b) Agent shall so notify the Companies and Lenders. 4.6 Agent for Appraisals . Agent and Lenders appoint the Companies as their special agents for the sole and limited purpose of obtaining and maintaining Appraisals for Mortgage Loans as required by the Loan Papers. 4.7 Power of Attorney . Each Company irrevocably appoints Agent -- acting on behalf of Lenders -- as that Company's attorney-in-fact (with full power of substitution) for, on behalf, and in the name of that Company to (a) endorse and deliver to any Person any check, instrument, or other document received by Agent or any Lender that represents payment in respect of any Collateral, (b) prepare, complete, execute, deliver, and record any assignment of any mortgage, deed of trust, or trust deed securing any Mortgage Loan or Mortgage Security, (c) endorse and deliver or otherwise transfer any promissory note evidencing any Mortgage Loan or Mortgage Security and do every other thing necessary or desirable to effect transfer of all or any Collateral, (d) take all necessary and appropriate action with respect to any Obligation or any Collateral, (e) commence, prosecute, settle, discontinue, defend, or otherwise dispose of any claim relating to any Collateral, and (f) sign that Company's name wherever appropriate to effect the performance of this agreement. This section shall be liberally, not restrictively, construed so to give the greatest latitude to Agent's power as the Companies' attorney- in-fact to collect, sell, and deliver any Collateral and all other documents relating to it. The powers and authorities conferred on Agent in this section (w) are discretionary and not obligatory on the part of Agent, (x) may be exercised by Agent through any Person who, at the time of the execution of a particular document, is an officer of Agent, (y) may not be exercised by Agent unless a Default exists, and (z) is granted for a valuable consideration, coupled with an interest, and irrevocable until -- and all Persons dealing with Agent, any of its officers acting under this section, or any substitute is fully protected in treating the powers and authorities conferred by this section as existing and continuing in full force and effect until advised by Agent that -- all commitments by Lenders to extend credit under this agreement have been terminated or cancelled and the Obligation is fully paid and performed. 4.8 Redemption of Mortgage Collateral . (a) Generally. So long as no Default or Potential Default exists, either Company may -- at any time and from time to time -- obtain the release of Lender Liens in any or all Mortgage Collateral by paying to Agent, for application to the Obligation in accordance with this agreement, the Borrowing Base for the Eligible-Mortgage Collateral -- determined as of the date that such Eligible-Mortgage Collateral was first delivered to Agent -- to be released. (b) Redemption for Sale. Either Company may -- at any time and from time to time -- request that Agent permit the sale of Mortgage Loans. Upon the receipt by Agent of that request, if no Default or Potential Default exists, and subject to the provisions of clause (e) below, Agent shall deliver to the investor, under Agent's bailee letter -- in substantially the form of Exhibit D-1 or D-2, as applicable -- the Collateral Documents for the Mortgage Loans being sold and that are held by Agent. Unless otherwise provided in clause (c) below regarding Bond-Authority Loans, release of the Lender Liens in that Collateral is conditioned upon delivery to Agent -- within 45 days after delivery by Agent of those Collateral Documents -- by that investor of either: (i) An amount equal to the Borrowing Base of the Eligible- Mortgage Loans so sold to be applied to the Obligation in accordance with this agreement; or (ii) In the case of Mortgage Loans being sold or exchanged for Mortgage Securities, Eligible-Mortgage Securities, the Borrowing Base for which equals the Borrowing Base for the Eligible-Mortgage Loans so sold, which new Eligible-Mortgage Securities are Collateral under this agreement for all purposes. For purposes of this clause (b), the Borrowing Base for any Collateral is determined as of the date that Collateral is first delivered to Agent under this agreement. The delivery of Mortgage Securities and all payments made in relation to them by investors shall be made directly to Agent, and the Companies shall, as agent for Agent and only upon the express prior written request of Agent, deliver to that investor the items held by either Company under Section 4.3(b). Unless otherwise provided in clause (c) below regarding Bond-Authority Loans, items of Mortgage Collateral delivered by Agent to any investor under this section automatically cease to be Eligible-Mortgage Collateral upon the earlier to occur of either (A) the delivery to Agent by that investor of either the payment or the Mortgage Securities under clause (i) or (ii) above or (B) 45 days after delivery by Agent of those Collateral Documents in respect of Eligible-Mortgage Loans or 60 days after delivery by Agent of those Collateral Documents in respect of Eligible-Mortgage Securities. Unless otherwise provided in clause (c) below regarding Bond-Authority Loans, no more than $25,000,000 of Mortgage Collateral (i.e., face amount of the promissory notes evidencing Mortgage Loans or Mortgage Securities) may be delivered to an investor (other than FHLMC, FNMA, GNMA, or any other investor approved by Agent for that purpose) for which either payment or delivery of Eligible-Mortgage Securities under clause (i) or (ii) has not been completed. (c) Redemption of Bond-Authority Loans for Sale. Notwithstanding the requirements in clause (b) above, up to $10,000,000 of Mortgage Collateral originated as Bond-Authority Loans may remain in the Borrowing Base for Mortgage Collateral for up to 150 days. Release of the Lender Liens in that Collateral is conditioned upon delivery to Agent -- within 150 days after delivery by Agent of those Collateral Documents -- by that investor of either payment or delivery of Eligible-Mortgage Securities as set forth in clause (b)(i) and (b)(ii) above. Items of Mortgage Collateral relating to Bond-Authority Loans delivered by Agent to any investor automatically cease to be Eligible-Mortgage Collateral upon the earlier to occur of either (A) the delivery to Agent by that investor of either the payment or the Mortgage Securities under clause (b)(i) or (b)(ii) above or (B) 150 days after delivery by Agent of those Collateral Documents in respect of Eligible-Mortgage Loans or 60 days after delivery by Agent of those Collateral Documents in respect of Eligible-Mortgage Securities. Notwithstanding the above, Bond-Authority Loans may never remain in the Borrowing Base for Mortgage Collateral for more than 180 days. (d) Continuation of Lender Lien and Application of Proceeds. The Lender Liens in all Mortgage Collateral transmitted to any investor under clause (b) and (c) above continue in effect until Agent receives the payment or Mortgage Securities as provided in clauses (b)(i) or (b)(ii) above. (e) Certain Credits. No Lender is obligated at any time to credit Associates for any amounts due from any investor for the purchase of any Mortgage Collateral contemplated under this agreement until Agent has actually received immediately available funds for that Mortgage Collateral in the amount required under this agreement, and neither Agent nor any Lender is obligated at any time to collect any amounts or otherwise enforce any obligations due from any investor in respect of any such purchase. 4.9 Correction of Notes . (a) Delivery of Notes. Either Company may -- from time to time and at any time -- request that Agent deliver a promissory note related to any Mortgage Collateral so that the note may be replaced by a corrected note. Upon receipt by Agent of that request, if no Default or Potential Default exists, and subject to clause (b) below, Agent shall deliver to that Company -- under Agent's Trust Receipt and Agreement in substantially the form of Exhibit D-3 -- the note to be corrected, upon the express condition of receipt by Agent of a corrected note that conforms to the requirements of this agreement. (b) Limitations. Notwithstanding clause (a) above (i) no more than $2,000,000 of notes (that amount being the aggregate outstanding principal balances of the notes) may ever be so delivered and not have been replaced with corrected notes under this agreement, (ii) the corrected note must be delivered to Agent endorsed in blank (without restriction or limitation) within 21 days of the release by Agent of the note to be corrected, and (iii) until the corrected note has been delivered to Agent, the Borrowing Base for the related Eligible- Mortgage Loan is the lesser of either (A) the Borrowing Base for the Eligible-Mortgage Loan, the note for which is to be corrected, without giving effect to this clause (b) or (B) 98% of the principal balance of the corrected note. 4.10 Release of Servicing Rights . In connection with any sale of Servicing Rights permitted by the Loan Papers, the Companies shall execute and deliver to Agent a Request for Release and the appropriate Financing Statement Changes in substantially the form of Exhibit D-4 for execution and delivery by Agent, which Agent shall execute and return to the Companies within seven days. SECTION 5. CONDITIONS PRECEDENT . 5.1 Initial Borrowing or LC . No Lender is obligated to fund its part of any Borrowing and Agent is not obligated to issue any LC unless Agent has received all of the documents and items described on -- except as specifically otherwise noted on -- Schedule 5.1. 5.2 Each Borrowing or LC . In addition, no Lender is obligated to fund (as opposed to continue or correct) its part of any Borrowing and Agent is not obligated to issue any LC unless on the applicable Borrowing Date or issue date (and after giving effect to the requested Borrowing or LC), as the case may be: (a) Agent has timely received a Credit Request (together with any applicable LC Agreement); (b) Agent has received any applicable LC fee; (c) all of the representations and warranties of the Companies in the Loan Papers are true and correct in all material respects (unless they speak to a specific date or are based on facts which have changed by transactions contemplated or permitted by this agreement); (d) no Default or Potential Default exists; (e) the funding of the Borrowing or issuance of the LC, as the case may be, is permitted by Law and does not cause a Borrowing Excess; and (f) if reasonably requested by Agent, it has received evidence substantiating any of the matters in the Loan Papers that are necessary to enable Associates or Ryland, as the case may be, to qualify for the borrowing or LC, as the case may be. 5.3 General . Each condition precedent in this agreement (including, without limitation, those on the attached Schedule 5.1) is material to the transactions contemplated by this agreement, and time is of the essence with respect to each condition precedent. Subject to first obtaining the approval of Lenders, Lenders may fund any Borrowing and Agent may issue any LC without all conditions being satisfied. However, to the extent lawful, that funding or issuance is not a waiver of the requirement that each condition precedent be satisfied as a prerequisite for any subsequent funding or issuance, unless Lenders specifically waive an item in writing. SECTION 6. REPRESENTATIONS AND WARRANTIES . The Companies jointly and severally represent and warrant to Agent and Lenders as follows: 6.1 Purpose of Credit . Borrowings are to be used as stated in the recitals of this agreement. No Company is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U. No part of the proceeds of any Borrowing or LC draft or drawing is to be knowingly used, directly or indirectly, for a purpose that violates any Law, including without limitation, the provisions of Regulation U. 6.2 Corporate Existence, Good Standing, Authority and Compliance . Each Company is duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated as stated in the preamble of this agreement. Except where failure is not a Material- Adverse Event, each Company (a) is duly qualified to transact business and is in good standing as a foreign corporation or other entity in each jurisdiction where the nature and extent of its business and properties require due qualification and good standing, (b) possesses all requisite authority, permits, and power to conduct its business as is now being -- or is contemplated by this agreement to be -- conducted, and (c) is in compliance with all applicable Laws. 6.3 Subsidiaries . As of the date of this agreement (a) Associates has no Subsidiaries, and (b) Ryland's only Subsidiaries are listed on Schedule 6.3. 6.4 Authorization and Contravention . The execution and delivery by each Company of each Loan Paper or related document to which it is a party and the performance by it of its obligations under that Loan Paper (a) are within its corporate power and authority, (b) have been duly authorized by all necessary corporate action, (c) require no action by or filing with any Tribunal other than any action or filing that has been taken or made on or before the date of this agreement, (d) do not violate any provision of its charter or bylaws, (e) do not violate any provision of Law or order of any Tribunal applicable to it other than violations that individually or collectively are not a Material-Adverse Event, (f) do not violate any Material Agreements to which it is a party, and (g) do not result in the creation or imposition of any Lien on any asset of either Company other than Lender Liens. 6.5 Binding Effect . Upon execution and delivery by all parties to it, each Loan Paper constitutes a legal and binding obligation of each Company party to it, enforceable against it in accordance with its terms except as enforceability may be limited by applicable Debtor Laws and general principles of equity. 6.6 Fiscal Year and Financial Information . The fiscal year of each Company ends on December 31. Each Company has delivered to Agent and Lenders copies of its balance sheet as of December 31, 1994, and the related statements of income and cash flows for the period ended on that date. Those Financials are complete and correct in all material respects, fairly present each Company's financial condition as of -- and its results of operations for the period ended on -- that date, and were prepared in accordance with GAAP. As of the date of those Financials, there were no indebtedness, obligations, or liabilities -- including, without limitation, any material contingent or indirect liabilities and obligations or unusual forward or long-term commitments -- of either Company that are not reflected in those Financials, which are required to be so reflected based upon GAAP. No change that is a Material-Adverse Event has occurred since the date of those Financials. Each Company has also delivered to Lenders a management report for the month ended March 31, 1995, which fairly and accurately in all material respects presents that Company's commitment position, pipeline position, mortgage servicing and production, balance sheet, and income statement as of the end of that month. 6.7 Litigation . There is no Litigation that is reasonably likely to be determined adversely to either Company or, if so adversely determined, is a Material-Adverse Event and that is pending or -- as of the date of this agreement -- threatened against either Company or its assets. As of the date of this agreement, no outstanding and unpaid judgments against either Company exist that is a Material-Adverse Event. 6.8 Taxes . All Tax returns of each Company required to be filed have been filed (or extensions have been granted) before delinquency -- except for returns for which the failure to file is not a Material-Adverse Event -- and all Taxes imposed upon each Company that are due and payable have been paid before delinquency other than Taxes for which the criteria for Permitted Liens have been satisfied or for which nonpayment is not a Material- Adverse Event. 6.9 Environmental Matters . Except to the extent not a Material-Adverse Event, neither Company (a) knows of any environmental condition or circumstance adversely affecting either Company's properties or operations or any material portion of the properties subject to Mortgage Loans, (b) has received any report of either Company's violation of any Environmental Law, or (c) knows that either Company is under any obligation to remedy any violation of any Environmental Law. Each Company has taken prudent steps to determine that its properties and operations and that substantially all of the properties subject to Mortgage Loans do not violate any Environmental Law other than violations that are not individually or collectively a Material-Adverse Event. 6.10 Employee Plans . As of the date of this agreement and except where occurrence or existence is not a Material Adverse Event (a) no Employee Plan has incurred an "accumulated funding deficiency," as defined in Sec. 302 of ERISA or Sec. 412 of the Code, (b) neither Company has incurred liability under ERISA to the PBGC in connection with any Employee Plan, (c) no ERISA Affiliate has fully or partially withdrawn from participation in a Multiemployer Plan, (d) no "prohibited transaction," as defined in Sec. 406 of ERISA or Sec. 4975 of the Code, has occurred in respect of any Employee Plan, and(e) no "reportable event," as defined in Sec. 4043 of ERISA, has occurred in respect of any Employee Plan, other than events for which the notice requirement is waived under applicable PBGC regulations. 6.11 Government Regulations . Neither Company is subject to regulation under the Investment Company Act of 1940. 6.12 Transactions with Affiliates . Neither Company is a party to a material transaction with any of its Affiliates (excluding the other Company) other than transactions in the ordinary course of business and upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate. 6.13 Debt . Neither Company is an obligor on any Debt other than Permitted Debt. 6.14 No Liens . Each Company has good and indefeasible title to the Collateral in which it has created Lender Liens under this agreement, and all Collateral is free and clear of all Liens and other adverse claims of any nature other than the Permitted Liens. 6.15 Perfection and Priority of Lender Liens . Lender Liens shall be created and perfected upon (a) each Mortgage Note that is delivered to Agent, (b) each Mortgage Security in certificated form that is delivered to Agent or its bailee, (c) each Mortgage Security in book-entry form when notice of the Lender Lien is given to the financial institution in whose favor that security has been issued and that institution confirms that notice, (d) each Mortgage Note and related Take-Out Commitment for 21-days after the Borrowing Date of each related Wet Borrowing, (e) all Mortgage-Collateral transmitted to any investor under Section 4.8(b) and Section 4.8(c) (which shall continue until Agent receives payments or Mortgage Securities under that section), and (f) all Servicing Receivables and other Servicing Rights upon delivery of the documents described on Schedule 5.1 and, in the case of Financing Statements, filing as indicated on that schedule. 6.16 Principal Office, Etc . The principal office, chief executive office, and principal place of business of Associates is at 1201 Market Street, Wilmington, Delaware 19801, and of Ryland is at 11000 Broken Land Parkway, Columbia, Maryland 21044. 6.17 Trade Names . No Company has used or transacted business under any other corporate or trade name in the five-year period preceding the Closing Date except that Ryland has and continues to do business from time to time under the trade names Ryland Funding Group, Rylco Funding Group, and RMC Mortgage Corp. 6.18 Government Approvals . Ryland -- and each Servicing Subsidiary to the extent that its servicing rights are included to meet the minimum requirements of Section 9.5(a) and solely to the extent that any of the following matters relate to the Mortgage Loans or Mortgage Securities that are part of those servicing rights -- is approved and qualified and in good standing as an issuer, mortgagee, or seller/servicer, as stated below, and meets all requirements applicable to its status as such: (a) GNMA approved issuer of Mortgage Securities guaranteed by GNMA; (b) FNMA approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell, and service Mortgage Loans to be sold to FNMA; (c) FHLMC approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell, and service Mortgage Loans to be sold to FHLMC; (d) FHA approved mortgagee, eligible to originate, purchase, hold, sell, and service FHA Loans; and (e) VA approved mortgagee, eligible to originate, purchase, hold, sell, and service VA Loans. 6.19 Appraisals . With respect to the property the subject of any Mortgage Loan, Ryland has obtained Appraisals in material compliance with all Appraisal Laws. 6.20 Solvency . On each Borrowing Date or LC issue date, as the case may be, each Company is, and after giving effect to the requested Borrowing or LC will be, Solvent. 6.21 Full Disclosure . There is no material fact that either Company has not disclosed to Lenders that is a Material-Adverse Event except that no Company makes any warranty regarding general economic conditions. To the best of each Company's knowledge, neither the Financials referred to in Section 6.6 or delivered after the Closing Date under Section 7.1 nor any Credit Request, Collateral-Delivery Notice, Collateral-Conversion Notice, Borrowing-Base Report, Compliance Certificate, officer's certificate, or written statement (other than any financial projections) authored by either Company and delivered by either Company to Agent or any Lender in connection with this agreement contains any untrue statement of material fact. SECTION 7. AFFIRMATIVE COVENANTS . Until all commitments by Lenders to extend credit under this agreement have been cancelled or terminated and the Obligation is fully paid and performed, the Companies jointly and severally covenant and agree with Agent and Lenders as follows: 7.1 Reporting Requirements . The Companies shall furnish to Lenders the following, all in form and detail reasonably satisfactory to Lenders: (a) Annual Financials. Promptly when available but at least within 92 days after each fiscal-year end of Ryland Group, consolidated Financials of Ryland Group and of Ryland (including consolidation with - -- and consolidating at least as to -- Associates) as of that year end, each reflecting the corresponding figures for the preceding fiscal year in comparative form, accompanied by the related report prepared by independent certified public accountants acceptable to Agent and stating that the consolidated portion of those statements were prepared in accordance with GAAP applied on a basis consistent with prior periods except for such changes in GAAP concurred in by the Companies' independent public accountants. (b) Quarterly Financials. Promptly when available but at least within 47 days after each fiscal quarter of Ryland, consolidated Financials of Ryland (including consolidation with -- and consolidating at least as to -- Associates) as of that quarter end, accompanied in each case by a Compliance Certificate. (c) Monthly Report. Promptly when available but at least within 47 days after the last day of each Calendar Month, Ryland's customary management report regarding its financial services segment analysis, consolidated balance sheets, monthly report about, among other things, its retail branch summary, limited partnership summary, wholesale branch summary, marketing summary, warehouse interest detail and summary, loan servicing report, loan servicing portfolio, acquired servicing, title company report, escrow company report, key business measurements, and new business summary and which may be at least as comprehensive as the monthly management report currently being delivered by Ryland under the Existing-Loan Agreement. (d) Notices. Notice, promptly after either Company knows or has reason to know, of (i) the existence and status of any Litigation that, if determined adversely to either Company, would be a Material-Adverse Event, (ii) any change in any material fact or circumstance represented or warranted by either Company in any Loan Paper that constitutes a Material-Adverse Event, (iii) the receipt by either Company of notice of any violation or alleged violation of ERISA or any Environmental Law or other Law if that violation individually or collectively with other violations or allegations is a Material-Adverse Event, or (iv) a Default or Potential Default -- other than under Section 10.1(a) -- specifying the nature thereof and what action the Companies have taken, are taking, or propose to take with respect to it. (e) Other Debt. Notice, promptly after either Company knows or has reason to know, of any notice from, or the taking of any other action by, the holder of any Debt of either Company -- only if that Debt is in the amount specified in Section 10.1(e) -- with respect to a claimed default, together with a detailed statement by a Responsible Officer of that Company specifying the notice given or other action taken, the nature of the claimed default, and what action the Companies are taking or propose to take with respect to it. (f) Other Information. Promptly upon reasonable request by Agent or Determining Lenders (through Agent), information (not otherwise required to be furnished under the Loan Papers) respecting the business affairs, assets, and liabilities of the Companies and opinions, certifications, and documents in addition to those mentioned in this agreement. 7.2 Use of Proceeds . The Companies shall use the proceeds of Borrowings and LC drafts or drawings only for the purposes represented in this agreement. 7.3 Books and Records . Each Company shall maintain books, records, and accounts necessary to prepare Financials in accordance with GAAP. 7.4 Inspections . Upon reasonable request, each Company shall allow Agent, any Lender, or their respective Representatives to inspect any of its properties, to review reports, files, and other records and to make and take away copies, to conduct tests or investigations, and to discuss any of its affairs, conditions, and finances with its directors, officers, employees, or representatives from time to time during reasonable business hours. 7.5 Taxes . Each Company shall promptly pay when due any and all Taxes other than Taxes of which the failure to pay is not a Material- Adverse Event or which are being contested in good faith by lawful proceedings diligently conducted, against which reserve or other provision required by GAAP has been made, and in respect of which levy and execution of any Lien have been and continue to be stayed. 7.6 Expenses . The Companies jointly and severally agree to pay (a) all reasonable legal fees and expenses incurred by Agent and all reasonable legal fees and expenses in an amount not exceeding $1,000 for each other Lender in connection with the preparation, negotiation, and execution of the Loan Papers, (b) all reasonable legal fees and expenses incurred by Agent in connection with each separate future amendment, consent, waiver, or approval executed in connection with any Loan Paper, (c) all fees, charges, or Taxes for the recording or filing of the Security Documents, (d) all other reasonable out-of-pocket expenses of Agent or any Lender in connection with the preparation, negotiation, execution, or administration of the Loan Papers -- including, without limitation, courier expenses incurred in connection with the Mortgage Collateral, (e) all amounts expended, advanced, or incurred by Agent or any Lender to satisfy any obligation of either Company under any Loan Paper, to collect the Obligation, or to enforce the Rights of Agent or any Lender under any Loan Paper -- including, without limitation, all court costs, attorneys' fees (whether for trial, appeal, other proceedings, or otherwise), fees of auditors and accountants, and investigation expenses reasonably incurred by Agent or any Lender in connection with any such matters, (f) interest at an annual interest rate equal to the Default Rate each item specified in clauses (a) through (e) above from 30 days after the date of written demand or request for reimbursement to the date of reimbursement, and (g) any and all stamp and other Taxes payable or determined to be payable in connection with the execution, delivery, or recordation of any Loan Paper -- IN CONNECTION WITH WHICH EACH COMPANY SHALL INDEMNIFY AND SAVE AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES WITH RESPECT TO OR RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO PAY THOSE TAXES TO THE EXTENT THOSE LIABILITIES ARISE SOLELY BECAUSE THE COMPANIES FAIL TO PAY THE TAXES UPON DEMAND BY A LENDER, WHICH INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN PAPERS. 7.7 Maintenance of Existence, Assets, and Business . Each Company shall (a) except as permitted by Section 8.5, maintain its corporate existence and good standing in its state of incorporation and its authority to transact business in all other states where failure to maintain its authority to transact business is a Material-Adverse Event, and (b) maintain all licenses, permits, and franchises necessary for its business where failure to do so is a Material-Adverse Event -- including, without limitation, Ryland's eligibility as lender, seller/servicer, and issuer as described in Section 6.18. 7.8 Insurance . Each Company shall (a) maintain with financially sound and reputable insurers, insurance with respect to its assets and business against such liabilities, casualties, risks, and contingencies and in such types and amounts -- including, without limitation, a fidelity bond or bonds in form and with coverage, with a company, and with respect to such individuals or groups of individuals -- as satisfy prevailing FNMA, FHLMC, and GNMA requirements applicable to a qualified mortgage institution and otherwise as is customary in the case of Persons engaged in the same or similar businesses and similarly situated, and (b) upon Agent's request, furnish to Agent from time to time (i) a summary of its insurance coverage, in form and substance satisfactory to Agent, and (ii) originals or copies of the applicable policies. 7.9 Further Assurances . Each Company shall (a) promptly, and in any event within three Business Days after Agent's request -- or such longer period as permitted under Section 4.9 -- cure any defects in the execution and delivery of any Loan Paper and (b) at its expense, promptly execute and deliver to Agent upon request all such other and further documents to (i) comply with or accomplish either Company's agreements in any Loan Paper, (ii) further evidence and more fully describe the Collateral intended as security for the Obligation, (iii) correct any omissions in any Loan Paper, (iv) more fully to state the security obligations in any Loan Paper, (v) perfect, protect, or preserve (continue to do so) any Lender Lien created (or intended to be created) under any Loan Paper, or (vi) make any recording, file any notices, or obtain any consents. 7.10 Take-Out Commitments and Servicing Contracts . Each Company shall perform and observe in all material respects each of the provisions of each Take-Out Commitment and Servicing Contract on its part to be performed or observed and cause all things to be done that are necessary to have each item of Mortgage Collateral and the Collateral Documents covered by a Take-Out Commitment comply with its requirements. 7.11 Compliance with Material Agreements . Each Company shall comply with all of its Material Agreements if failure to do so is a Material- Adverse Event. 7.12 Appraisals . Each Company shall promptly (a) permit Agent's and any Lender's authorized Representatives to discuss with either Company's officers or with the appraisers furnishing Appraisals the procedures for preparation, review, and retention of -- and to review and obtain copies of -- all Appraisals pertaining to any Mortgage Collateral, and (b) upon any Lender's request, cooperate with it to ascertain that the Appraisals comply with all Appraisal Laws. 7.13 INDEMNIFICATION . IN CONSIDERATION OF THE COMMITMENTS BY AGENT AND LENDERS UNDER THE LOAN PAPERS, THE COMPANIES JOINTLY AND SEVERALLY AGREE TO INDEMNIFY AND DEFEND EACH AGENT, LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS -- AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES -- INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES -- INCURRED BY ANY OFTHEM ARISING FROM OR BECAUSE OF (A) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN CONNECTION WITH ANY LOAN PAPER OR THE TRANSACTIONS CONTEMPLATED BY THE LOAN PAPERS, INCLUDING, WITHOUT LIMITATION, ANY USE BY EITHER COMPANY OF THE PROCEEDS OF BORROWINGS OR LC DRAFTS OR DRAWINGS, (B) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION OF ANY MORTGAGE COLLATERAL OR ANY FAILURE OF ANY INVESTOR TO PAY THE ENTIRE PURCHASE PRICE OF ANY MORTGAGE COLLATERAL UNDER ANY TAKE-OUT COMMITMENT, (C) ANY ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW RELATING TO USURY IN CONNECTION WITH ANY MORTGAGE COLLATERAL, AND (D) ANY REPRESENTATION MADE BY EITHER COMPANY UNDER ANY LOAN PAPER. ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD. THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN PAPERS. SECTION 8. NEGATIVE COVENANTS . Until all commitments by Lenders to extend credit under this agreement have been cancelled or terminated and the Obligation is fully paid and performed, the Companies jointly and severally covenant and agree with Agent and Lenders as follows: 8.1 Debt . Neither Company may directly or indirectly create, incur, or suffer to exist any Debt except Permitted Debt. 8.2 Liens . Neither Company may directly or indirectly (a) create, incur, or suffer to exist any Lien on any of its assets except Permitted Liens or (b) enter into or permit to exist any arrangement or agreement that directly or indirectly prohibits either Company or RAMCO from creating or incurring any Lien on any of its assets other than the Loan Papers. 8.3 Loans, Advances, and Investments . Except as permitted by Sections 8.4 or 8.5, no Company may make any loan, advance, extension of credit, or capital contribution to, make any investment in, or purchase or commit to purchase any stock or other securities or evidences of Debt of, or interests in, any other Person other than Permitted Loans/Investments. 8.4 Distributions . Ryland may not directly or indirectly pay or declare any Distribution during any fiscal year if a Default or Potential Default exists or if, immediately after giving effect to it, a Default or Potential Default would then exist. 8.5 Merger or Consolidation . Neither Company may directly or indirectly merge or consolidate with or into any other Person except (a) any merger solely for the purpose of accomplishing a re-incorporation in another jurisdiction, (b) either Company may merge into the other, and (iii) any Subsidiary of either Company may merge into either Company. 8.6 Liquidations and Dispositions of Assets . Except as set forth in Section 8.4 or below, neither Company may directly or indirectly dissolve or liquidate or sell, transfer, lease, or otherwise dispose of any material portion of its assets or business except sales or other dispositions by Ryland in the ordinary course of its business, of (a) subject to Section 9.5, part of its Servicing Portfolio, or (b) subject to Section 4.8(b) and Section 4.8(c), Mortgage Loans or Mortgage Securities that are Collateral, or (c) Mortgage Loans or Mortgage Securities that are not Collateral, or (d) sales by Ryland of Servicing Rights to its Subsidiaries upon 30 days advance written notice to Agent and compliance with any requirements Agent may reasonably make to ensure that the Lender Liens continue to cover all of those Servicing Rights to the extent previously covered. Notwithstanding the preceding sentence, Ryland may sell all or any part of the stock or the assets of RAMCO, as well as all or any part of Ryland's master servicing rights and bond administration and securities issuance businesses, free and clear of any Lien created by this agreement. 8.7 Use of Proceeds . Neither Company may directly or indirectly use the proceeds of Borrowings or of LC drafts or drawings (a) for any purpose other than as represented in this agreement, (b) for the funding or acquisition of construction or commercial first mortgage loans, (c) for wages of employees, unless a timely payment to or deposit with the United States of America of all amounts of Tax required to be deducted and withheld with respect to such wages is also made, or (d) in violation of Regulation U, Regulation X, or Sec. 7 of the Securities Exchange Act of 1934 . 8.8 Collateral Matters . Neither Company may directly or indirectly: (a) Relocate its principal office, chief executive office, or principal place of business or change its corporate name or name under which its is doing business without first (i) giving Agent 30 days prior written notice of the proposed relocation or change and (ii) executing and delivering all additional documents and performing all additional acts as Agent, in its sole discretion, may request in order to continue or maintain the existence and priority of the Lender Liens intended to be created under the Loan Papers. (b) Compromise, extend, release, or adjust payments on any Mortgage Collateral, accept a conveyance of mortgaged property in full or partial satisfaction of any Mortgage Collateral, or release any mortgage, deed of trust, or trust deed securing or underlying any Mortgage Collateral. (c) Agree to the amendment or termination of any Take-Out Commitment in which Agent has a Lien or to the substitution of a Take- Out Commitment for a Take-Out Commitment in which Agent has a Lien if that amendment, termination, or substitution is a Material-Adverse Event. (d) Transfer, sell, assign, or deliver any Mortgage Collateral pledged to Agent to any Person other than Agent, except pursuant to Section 4.8. 8.9 Transactions with Affiliates. Neither Company may directly or indirectly enter into any material transaction with any of its Affiliates (except with another Company) other than transactions in the ordinary course of business or upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate. 8.10 Employee Plans . Except where a Material-Adverse Event would not result, neither Company may directly or indirectly permit any of the events or circumstances described in Section 6.10 to exist or occur. 8.11 Compliance with Laws and Documents . Neither Company may directly or indirectly (a) violate the provisions of any Laws applicable to it or of any Material Agreement to which it is a party if that violation alone or with all other violations is a Material-Adverse Event or (b) violate the provisions of its charter or bylaws or repeal, replace or amend any provision of its charter or bylaws if any such action is a Material-Adverse Event. 8.12 Government Regulations . Neither Company may directly or indirectly conduct its business in a way that it becomes regulated under the Investment Company Act of 1940. 8.13 Fiscal Year Accounting . Neither Company may directly or indirectly change its fiscal year nor use any accounting method other than GAAP. 8.14 New Businesses . Neither Company may directly or indirectly engage in any business except the businesses in which it or any of its Affiliates is presently engaged and any other reasonably-related business. 8.15 Assignment . Except as permitted in Section 8.5, neither Company may directly or indirectly assign or transfer any of its Rights, duties, or obligations under any of the Loan Papers. SECTION 9. FINANCIAL COVENANTS . Until all commitments by Lenders to extend credit under this agreement have been cancelled or terminated and the Obligation is fully paid and performed, the Companies jointly and severally covenant and agree with Agent and Lenders as follows: 9.1 Net Worth Covenants . (a) Associates' stockholders' equity reflected on its balance sheet may not be less than $1,000,000 at the end of any quarter in Associates' fiscal year. (b) Ryland's Adjusted-Net Worth may not be less than $40,000,000 at the end of any quarter in Ryland's fiscal year. (c) Ryland's Adjusted-Tangible-Net Worth may not be less than $55,000,000 at the end of any quarter in Ryland's fiscal year. 9.2 Leverage Ratio . The ratio of Ryland's Total Liabilities to Ryland's Adjusted-Tangible-Net Worth may not exceed 8.0 to 1.0 at the end of any quarter in Ryland's fiscal year. 9.3 Net Income . Associates' net income may never be less than $1.00 for any of Associates' fiscal years at the time of or after the Closing Date. 9.4 Cash Flow . The sum of Ryland's net income or loss plus (to the extent deducted in calculating that net income or loss) amortization, depreciation, and other noncash charges -- on a consolidated basis -- may never be less than $1.00 at the end of any of Ryland's fiscal quarters for the four-fiscal-quarter periods then ended. 9.5 Servicing Portfolio . (a) The sum of the Servicing Portfolio plus the total unpaid-principal balance of all mortgage loans for which the servicing rights are owned by any wholly-owned Subsidiary of Ryland (a "Servicing Subsidiary") may never be less than $5,000,000,000, and (b) the total Eligible-Servicing Portfolio may never be less than $1,500,000,000. SECTION 10. DEFAULTS AND REMEDIES . 10.1 Default . The term "Default" means the existence or occurrence of any one or more of the following: (a) Obligation. Either Company fails to pay (i) any Principal Debt or LC Obligation it owes within one Business Day after it is due under this agreement or (ii) any other part of the Obligation it owes within three Business Days after it is due under any Loan Paper. (b) Covenants. Either Company fails to punctually and properly perform, observe, and comply with any covenant or agreement in any Loan Paper -- other than the covenants to pay the Obligation -- and that failure continues for 15 days after either Company knows of that failure or Agent or any Lender notifies either Company of it. (c) Misrepresentation. Any material statement, warranty, or representation by or on behalf of either Company or Ryland Group in any Loan Paper or any Credit Request, Collateral-Delivery Notice, Compliance Certificate, management report, or other writing (except financial projections) authored by either Company or Ryland Group and furnished in connection with this agreement, proves to have been incorrect or misleading in any material respect as of the date made or deemed made. (d) Debtor Law. Either Company (i) is not Solvent, (ii) fails to pay its Debts generally as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of Agent or any Lender granted in the Loan Papers unless, if the proceeding is involuntary, the applicable petition is dismissed within 60 days after its filing. (e) Other Debt. (i) Either (A) either Company or Ryland Group fails to make within any applicable grace period any payment on any other Debt that is not nonrecourse to it and that has unpaid principal balance of over $500,000 for Associates, $1,000,000 for Ryland, or $20,000,000 for Ryland Group, and -- only if that Debt arises with respect to a letter of credit issued for either Company's account -- that failure continues for 90 days after the date that payment is due, (B) any event, condition, material breach, or default occurs under any document evidencing, governing, securing, or relating to any such Debt if, as a result of that occurrence, it becomes due before its scheduled installments or stated maturity, or (C) any of the foregoing occurs with respect to any such Debt of either Company or Ryland Group with unpaid principal balances exceeding, in the aggregate, $2,500,000 in the case of Associates, $5,000,000 in the case of Ryland, or $20,000,000 in the case of Ryland Group; and (ii) That default or nonpayment is not remedied or and effectively waived by the one or more holders of that Debt. (f) Judgments, Etc. Either Company or Ryland Group fails within 30 days to appeal, pay, bond, or otherwise discharge any final judgments or orders for payment of money which -- after subtracting from the amount of such judgment or order the amount of any relevant insurance coverage from Solvent insurers -- exceed $1,000,000 per case for either Company, $5,000,000 per case for Ryland Group, or $5,000,000 total for the Companies, or $15,000,000 total for Ryland Group. (g) Levy, Seizure, Etc.. Any Person levies on, seizes, or attaches all or any material assets of either Company or Ryland Group, and that levy, seizure, and attachment is not dissolved and possession returned to that Company or Ryland Group, as the case may be, within 30 days. (h) Unenforceability. Any material provision of any Loan Paper for any reason ceases to be in full force and effect or is fully or partially declared null and void or unenforceable or the validity or enforceability of any Loan Paper is challenged or denied by either Company. (i) Change of Control. Any change in the ownership of either Company with the result that Associates ceases to be directly or indirectly wholly and beneficially owned by Ryland or Ryland ceases to be directly or indirectly wholly and beneficially owned by Ryland Group; (j) Agency Qualifications. (i) Ryland or any Servicing Subsidiary fails to meet any GNMA seller or servicing standard or requirement that is a Material-Adverse Event, (ii) GNMA revokes or terminates Ryland's or any Servicing Subsidiary's Right to service for GNMA, (iii) GNMA issues a letter of extinguishment under any GNMA guaranty agreement, (iv) Ryland or any Servicing Subsidiary ceases to be an eligible issuer or servicer under either the FNMA or FHLMC Guide, (v) FNMA or FHLMC impose any sanctions upon Ryland or any Servicing Subsidiary resulting in a Material-Adverse Event, (vi) FNMA or FHLMC terminate or revoke Ryland's or any Servicing Subsidiary's Right to service for FNMA or FHLMC, or (vi) FNMA or FHLMC initiate any transfer of servicing from Ryland or any Servicing Subsidiary to another Person other than in the ordinary course of business. A Servicing Subsidiary is included in this Section 10.1(j) solely to the extent that its servicing rights are being included to meet the minimum requirements of Section 9.5(a) and solely as any of the foregoing provisions relate to the Mortgage Loans or Mortgage Securities that are part of those servicing rights. (k) LCs. Agent is served with, or becomes subject to, a court order, injunction, or other process or decree restraining or seeking to restrain it from paying any amount under any LC, and either (i) a drawing has occurred under the LC, and Ryland refuses to reimburse Agent for the LC Obligation or (ii) the LC's expiration date has occurred but the beneficiary's Right to draw under it has been extended past the expiration date in connection with the pendency of the related court action or proceeding, and Ryland fails to deposit with Agent cash collateral in an amount equal to the LC Exposure under it. 10.2 Remedies . (a) Debtor Law. Upon the occurrence of a Default under Section 10.1(d), the commitments of Lenders to extend credit under this agreement automatically terminate and the full Obligation is automatically due and payable, without presentment, demand, notice of default, notice of the intent to accelerate, notice of acceleration, or other requirements of any kind, all of which are expressly waived by the Companies. (b) Other Defaults. While a Default exists -- other than those described in clause (a) above -- Agent may and, upon the direction of Determining Lenders, shall declare the Obligation to be immediately due and payable, whereupon it shall be due and payable, whereupon the commitments of Lenders to extend credit under this agreement are then automatically terminated. (c) Other Remedies. Following the termination of the commitments of Lenders to extend credit under this agreement and the acceleration of the Obligation, Agent may, and at the direction of Determining Lenders shall, do any one or more of the following: (i) Reduce any claim to judgment; (ii) Foreclose upon or otherwise enforce any Lender Liens; (iii) Notify all obligors of Collateral serviced by either Company and all servicers of other Collateral that the Collateral has been assigned to Agent and that all payments thereon are to be made directly to Agent or any other party as may be designated by Agent; settle, compromise, or release, in whole or in part, any amounts owing on the Collateral by any obligor, servicer or any investor of any portion of the Collateral, on terms acceptable to Agent; enforce payment and prosecute any action or proceeding with respect to any and all Collateral and where any such Collateral is in default, foreclose on and enforce liens in such Collateral by any available judicial procedure or without judicial process and sell property acquired as a result of any such foreclosure; (iv) Act, or contract with a third party to act, as servicer of each item of Collateral serviced by either Company and perform all obligations required in connection with Take- Out Commitments; (v) Exercise all Rights of a secured creditor under the UCC, including without limitation selling the Collateral at public or private sale, including sale pursuant to any applicable Take- (vi) Out Commitment. To the extent that applicable law requires that either Company receive notice of or prior to any such sale (or any other disposition of Collateral) the Companies agree that 10 days notice shall be reasonable notice. At any sale or other disposition, the Collateral may be sold or disposed of as an entirety or in separate parts, as Agent may determine. Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and that sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by Agent until the selling price is paid by the purchaser thereof, but Agent shall not incur any liability in case of the failure of that purchaser to take up and pay for the Collateral so sold and, in case of any such failure, that Collateral may again be sold upon like notice. Agent may, however, instead of exercising the power of sale herein conferred upon it, proceed by a suit or suits at law or in equity to collect all amounts due upon the Collateral or to foreclose on and sell the Collateral or any portion of the Collateral under a judgment or decree of a court or courts of competent jurisdiction, or both; and (vii) Exercise any other Rights in the Loan Papers, at Law, in equity, or otherwise that Determining Lenders may direct. Should any Default continue that, in Agent's opinion, materially and adversely affects the Collateral or the interests of the Lenders under this agreement, Agent may, in a notice to the Lenders of that Default set forth one or more actions that Agent, in its opinion, believes should be taken. Unless otherwise directed by Determining Lenders (excluding the Lender serving as agent hereunder) within ten days following the date of the notice setting forth the proposed action or actions, Agent may, but shall not be obligated to, take the action or actions set forth in that notice. 10.3 Right of Offset . The Companies hereby grant to Agent and to each Lender a right of offset, to secure the repayment of the Obligation, upon any and all monies, securities, or other property of the Companies, and the proceeds therefrom now or hereafter held or received by or in transit to Agent or such Lender from or for the account of the Companies, whether for safekeeping, custody, pledge, transmission, collection, or otherwise, and also upon any and all deposits (general or special, time or demand, provisional, or final) and credits of the Companies, and any and all claims of the Companies against Agent or such Lender, at any time existing. Upon the occurrence of any Default, Agent and each Lender is hereby authorized at any time and from time to time, without notice to either Company, to offset, appropriate, and apply any and all of those items against the Obligation, subject to Section 3.6. Notwithstanding anything in this section or elsewhere in this agreement to the contrary, neither Agent nor any other Lender shall have any right to offset, appropriate, or apply any accounts of the Companies which consist of escrowed funds (except and to the extent of any beneficial interest which the Companies have in such escrowed funds) which have been so identified by either Company in writing at the time of deposit thereof. 10.4 Private Sales . Agent shall incur no liability as a result of the sale of the Collateral, or any part of the Collateral, at any private sale made in a commercially reasonable manner. The Companies hereby waive any claims either of them may have against Agent arising because the price at which the Collateral may have been sold at that private sale was less than the price which might have been obtained at a public sale or was less than the Obligation. 10.5 Waivers . The Companies waive any right to require Agent to (a) proceed against any Person, (b) proceed against or exhaust any of the Collateral or pursue its Rights and remedies as against the Collateral in any particular order, or (c) pursue any other remedy in its power. Agent shall not be required to take any steps necessary to preserve any Rights of either Company against any Person from which either Company purchased any Mortgage Loans or to preserve Rights against prior parties. The Companies and each surety, endorser, guarantor, pledgor, and other party ever liable or whose property is ever liable for payment of any of the Obligation jointly and severally waive presentment and demand for payment, protest, notice of intention to accelerate, notice of acceleration, and notice of protest and nonpayment, and agree that their or their property's liability with respect to the Obligation, or any part thereof, shall not be affected by any renewal or extension in the time of payment of the Obligation, by any indulgence, or by any release or change in any security for the payment of the Obligation, and hereby consent to any and all renewals, extensions, indulgences, releases, or changes, regardless of the number thereof. 10.6 Performance by Agent . Should any covenant, duty, or agreement of either Company fail to be performed in accordance with the terms of this agreement or of any document delivered under this agreement, Agent may, at its option, after notice to Associates or Ryland, as the case may be, perform, or attempt to perform, such covenant, duty, or agreement on behalf of that Company and shall notify each Lender that it has done so. In such event, the Companies shall jointly and severally, at the request of Agent, promptly pay any amount expended by Agent in such performance or attempted performance to Agent at its principal place of business, together with interest thereon at the Maximum Rate from the date of such expenditure by Agent until paid. Notwithstanding the foregoing, it is expressly understood that Agent does not assume and shall never have, except by express written consent of Agent, any liability or responsibility for the performance of any duties of either Company under this agreement or under any other document delivered under this agreement. 10.7 No Responsibility . Except in the case of fraud, gross negligence, or willful misconduct, neither Agent nor any of its officers, directors, employees, or attorneys shall assume -- or ever have any liability or responsibility for -- any diminution in the value of the Collateral or any part of the Collateral. 10.8 No Waiver . The acceptance by Agent or any Lender at any time and from time to time of partial payment or performance by either Company of any of their respective obligations under this agreement or under any Loan Paper shall not be deemed to be a waiver of any Default then existing. No waiver by Agent or any Lender shall be deemed to be a waiver of any other then existing or subsequent Default. No delay or omission by Agent or any Lender in exercising any right under this agreement or under any other document required to be executed under or in connection with this agreement shall impair such right or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof, or the exercise of any other right under this agreement or otherwise. 10.9 Cumulative Rights . All Rights available to Agent and the Lenders under this agreement or under any other document delivered under this agreement shall be cumulative of and in addition to all other Rights granted to Agent and the Lenders at Law or in equity, whether or not the Notes be due and payable and whether or not Agent shall have instituted any suit for collection, foreclosure, or other action in connection with this agreement or any other document delivered under this agreement. 10.10 Proceeds . If the proceeds of any sale or exercise of any Rights are insufficient to satisfy the full Obligation, then the Companies shall remain liable jointly and severally for any deficiency. 10.11 Rights of Individual Lenders . No Lender shall have any right by virtue, or by availing itself, of any provision of this agreement to institute any action or proceedings at Law or in equity or otherwise (excluding any actions in bankruptcy), upon or under or with respect to this agreement, or for the appointment of a receiver, or for any other remedy under this agreement, unless the Determining Lenders previously shall have given to Agent written notice of a Default and of the continuance thereof and made written request upon Agent to institute such action or proceedings in its own name as Agent and shall have offered to Agent reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and Agent, for 10 Business Days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action or proceeding and no direction inconsistent with such written request shall have been given to Agent by Determining Lenders; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and Agent, that no one or more holders of Notes shall have any right in any manner whatever by virtue, or by availing itself, of any provision of this agreement to affect, disturb or prejudice the Rights of any other Lenders, or to obtain or seek to obtain priority over or preference to any other such Lender, or to enforce any right under this agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Lenders. For the protection and enforcement of the provisions of this Section 10.11, each and every Lender and Agent shall be entitled to such relief as can be given either at law or in equity. 10.12 Notice to Agent . Should any Default or Potential Default occur and be continuing, any Lender having actual knowledge thereof shall notify Agent and the Companies of the existence thereof, but the failure of any Lender to provide that notice shall not prejudice that Lender's Rights under this agreement. 10.13 Costs . All court costs, reasonable attorneys' fees, other costs of collection, and other sums spent by Agent or any Lender in the exercise of any Right provided in any Loan Paper is payable to Agent or that Lender, as the case may be, on demand, is part of the Obligation, and bears interest at the Default Rate from the date paid by Agent or any Lender to the date repaid by either Company. SECTION 11. AGENT . 11.1 Authorization and Action . Each Lender hereby appoints Bank One, Texas, N.A., as Agent, in its name and on its behalf, to (a) receive all documents and items to be furnished to it under this agreement; (b) act as Agent for and on its behalf in and under all of the Loan Papers; (c) arrange the means of distributing the funds to be provided to the Companies and to each Lender; (d) distribute to Lenders information, requests, payments, prepayments, documents, and items received from Associates, Ryland and others under this agreement; and (e) deliver to the Companies and others (as is appropriate) requests, demands, approvals, and consents received from each Lender. Each Lender recognizes and understands that, if Agent exercises the remedies provided under Section 10 and Agent does not have adequate facilities (and Agent shall have no obligation to develop adequate facilities) to service any Collateral required to be serviced, it will be necessary for Agent to contract with a third party to service such Collateral, and the fees paid for such services will be a prior charge against the Collateral pursuant to Section 3.5. As to any matter not expressly provided for by this agreement (including, without limitation, enforcement or collection of the Notes), Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Determining Lenders or, in respect of the matters covered by Section 12.11(d), all Lenders. However, Agent shall not be required to take any action which exposes Agent to liability or which is contrary to this agreement or applicable law. Agent agrees to give to each Lender prompt notice of each notice given to it by either Company under this agreement. 11.2 Agent's Reliance, Etc . Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this agreement, except for its or their own gross negligence or willful misconduct, except as otherwise set forth in Section 11.7 when acting in its capacity as custodian. Without limitation of the generality of the foregoing, Agent (a) may consult with legal counsel, 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; (b) 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; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this agreement on the part of the Companies or to inspect the property (including the books and records) of the Companies (except as specifically set forth in Section 11.7); (d) shall not be responsible to any Lender for the due execution (by any party hereto other than Agent), legality, validity, enforceability, genuineness, sufficiency or value of this agreement or any other instrument or document furnished pursuant hereto (except as specifically set forth in Section 11.7); and (e) shall incur no liability under or in respect of this agreement by acting in accordance with this agreement upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. Agent shall not be compelled to do any act or to take any action toward the execution or enforcement of the powers hereby created, or to prosecute or defend any suit in respect hereof, unless indemnified to its satisfaction against any and all loss, cost, liability, and expense it may incur. Subject to the foregoing limitations and to any direction of the Determining Lenders to take action in accordance with Section 10, Agent shall perform the duties imposed upon it under this agreement with respect to the Collateral with the same amount of diligence and using the same amount of judgment and discretion as if Agent were acting solely for its own account, and, in connection therewith, Agent is hereby authorized (a) to settle, compromise, and release claims against the makers of, and any Person obligated with respect to, any Collateral, (b) to foreclose on, and enforce security interests in, any Collateral or property secured thereby, (c) to sell Collateral and property acquired as the result of foreclosure under this agreement and the Security Documents, and (d) to do all other acts and things as Agent, in its sole discretion, may deem necessary or appropriate to protect the Rights and interests of itself and the Lenders and to realize the benefits of the Collateral. 11.3 Agent and Affiliates . With respect to its Commitment, Borrowings extended by it and the Notes issued to it, Bank One, Texas, N.A., shall have the same Rights under this agreement as any other Lender and may exercise the same as though it were not Agent; and the term "Lender" or "Lenders," unless otherwise expressly indicated, include Bank One, Texas, N.A., in its individual capacity. Bank One, Texas, N.A., and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Companies or any of their respective Subsidiaries and any Person who may do business with or own securities of either Company or any such Subsidiary, all as if Bank One, Texas, N.A., were not Agent and without any duty to account therefor to Lenders. Each Lender and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Companies or any of their respective Subsidiaries and any Person who may do business with or own securities of either Company or any such Subsidiary, all as if each Lender were not a Lender under this agreement and without any duty to account therefor to any other Lender. 11.4 Lender Credit Decision . Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on the Financials referred to in Section 6.6 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this agreement. Each Lender also acknowledges that it will, independently and without reliance upon 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. 11.5 Indemnification . LENDERS AGREE TO INDEMNIFY AGENT SEVERALLY AND NOT JOINTLY (TO THE EXTENT NOT REIMBURSED BY THE COMPANIES), RATABLY ACCORDING TO THEIR TERMINATION PERCENTAGES (OR IF NO OBLIGATION IS AT THE TIME OUTSTANDING, RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT PERCENTAGE), FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (OR, WITH RESPECT TO AGENT'S DUTIES AS CUSTODIAN, SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM CUSTODIAN'S NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE COMPANIES. AFTER SUCH AMOUNTS HAVE BEEN IMPOSED UPON OR INCURRED BY ANY LENDER, SUCH AMOUNTS SHALL BE PAYABLE BY THE COMPANIES UPON DEMAND AND SHALL BEAR INTEREST, FROM THE DATE OF DEMAND UNTIL PAID, AT A FLUCTUATING INTEREST RATE PER ANNUM EQUAL FOR EACH DAY DURING SUCH PERIOD TO THE DEFAULT RATE. IF ANY OR ALL OF THE INDEMNIFIED FUNDS PAID BY LENDERS TO AGENT ARE SUBSEQUENTLY RECOVERED BY AGENT FROM SOME SOURCE OTHER THAN LENDERS, THEN AGENT SHALL DISTRIBUTE THE RECOVERED FUNDS TO EACH LENDER IN ACCORDANCE WITH THE PROPORTION THAT ALL SUCH PAYMENTS BY IT TO AGENT BEAR TO ALL SUCH PAYMENTS BY ALL LENDERS TO AGENT. 11.6 Successor Agent . Agent may resign at any time by giving written notice to Lenders and the Companies and may be removed at any time with or without cause by Determining Lenders other than Agent. Any resignation of Agent will become effective upon the appointment of a successor. Upon any such resignation or removal, Determining Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by Lenders, and shall have accepted that appointment, within 30 days after the retiring Agent's giving of notice of resignation or Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a commercial or savings bank organized under the laws of the United States of America or of any of its states and having a combined capital and surplus of at least $250,000,000. No resignation or removal of Agent shall become effective until a successor Agent is appointed pursuant to the provisions of, and has accepted the appointment as provided in, this Section 11.6. Any successor Agent appointed as provided in this Section 11.6 shall execute and deliver to the Companies and their predecessor Agent an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Agent shall become effective and that successor Agent, without any further act, deed or conveyance, shall become vested with all the Rights and obligations of its predecessor under this agreement, with like effect as if originally named as Agent; but, nevertheless, on the written request of either Company or of the successor Agent, the Agent ceasing to act shall execute and deliver an instrument transferring to that successor Agent all the Rights of Agent so ceasing to act and shall execute and deliver to that successor Agent such instruments as are necessary (including assignments of all Collateral and Security Documents) to transfer the Collateral to that successor Agent. Upon request of any successor Agent, the Companies shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to that successor Agent all such Rights. No successor Agent shall accept appointment as provided in this section unless at the time of such acceptance that successor Agent shall be eligible under the provisions of this Section 11.6. Any Person into which Agent may be merged or converted or with which it may be consolidated, or any Person surviving or resulting from any merger, conversion, or consolidation to which Agent shall be a party, or any Person succeeding to the corporate trust business of Agent, shall be the successor Agent under this agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. After any retiring Agent's resignation or removal as Agent, the provisions of this Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this agreement. 11.7 Agent as Custodian . Each Lender hereby appoints Agent to act as custodian to take such action as custodian on its behalf and to exercise such powers under this agreement as are delegated to the custodian by the terms hereof, together with such powers as are reasonably incidental thereto. Custodian's duties hereunder shall include (a) review of the Collateral delivered to custodian and verification that such Collateral meets the definitional requirements for such Collateral set forth in this agreement and that such Collateral meets the requirements of Schedules 1.1(c) and 1.1(d), (b) storage of such Collateral in an area standard in the industry or other area as requested Lenders, (c) determination of the Market Value of such Collateral on a daily basis, (d) preparation of periodic reports whenever required by any Lender regarding the status of such Collateral, (e) release of such Collateral in accordance with the terms of Section 4.8 or Section 4.9, and (f) such other duties as may be imposed upon Agent under this agreement. Neither Agent acting in its capacity as custodian nor any of its Representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with this agreement, except for its or their own negligence or willful misconduct. Custodian shall incur no liability under or in respect of this agreement by acting in accordance with this agreement upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 12. MISCELLANEOUS . 12.1 Nonbusiness Days . Any action that is due under any Loan Paper on a non-Business Day may be delayed until the next Business Day. However, interest accrues on any payment until it is made. 12.2 Communications . Unless otherwise stated, a communication under any Loan Paper to a party to this agreement must be written to be effective and is deemed given: - For Credit Requests, Conversion Requests, and Collateral Delivery- Notices, only when actually received by Agent. - Otherwise, if by fax, when transmitted to the appropriate fax number -- but, without affecting the date deemed given, the fax must be promptly confirmed by telephone. - Otherwise, if by mail, on the third Business Day after enclosed in a properly addressed, stamped, and sealed envelope deposited in the appropriate official postal service. - Otherwise, when actually delivered. Until changed by notice, the address and fax number are stated for (a) the Companies and Agent, beside their names on the signature pages below, and (b) each Lender, beside its name on Schedule 1.1(a). 12.3 Form and Number of Documents . The form, substance, and number of counterparts of each writing to be furnished under the Loan Papers must be satisfactory to Agent and its counsel. 12.4 Exceptions to Covenants . An exception to any Loan-Paper covenant does not permit violation of any other Loan-Paper covenant. 12.5 Survival . All Loan-Paper provisions survive all closings and are not affected by any investigation made by any party. 12.6 Governing Law . Unless otherwise stated, each Loan Paper must be construed -- and its performance enforced -- under the Laws of the State of Texas and the United States of America. 12.7 Invalid Provisions . If any provision of a Loan Paper is judicially determined to be unenforceable, all other provisions of it remain enforceable. If the provision determined to be unenforceable is a material part of that Loan Paper, then, to the extent lawful, it shall be replaced by a judicially-construed provision that is enforceable but otherwise as similar in substance and content to the original provision as the context of it reasonably allows. 12.8 Conflicts Between Loan Papers . The provisions of this agreement control if in conflict (i.e., the provisions contradict each other as opposed to a Loan Paper containing additional provisions not in conflict) with the provisions of any other Loan Paper. 12.9 Venue and Service of Process . Each Company (A) Irrevocably Submits To The Nonexclusive Jurisdiction Of Texas State And Federal Courts, (B) Irrevocably Waives -- To The Fullest Extent Permitted By Law -- Any Objection That It May Now Or In The Future Have To The Laying Of Venue Of Any Litigation Brought In Connection With Any Loan Paper Or The Obligation Brought In District Courts Of Dallas County, Texas, Or In The United States District Court For The Northern District Of Texas, Dallas Division, (C) Irrevocably Waives Any Claims That Any Litigation Brought In Any Of Those Courts Has Been Brought In An Inconvenient Forum, (D) Irrevocably Consents To The Service Of Process Out Of Any Of Those Courts In Any Litiga- tion By The Mailing Of Copies Thereof By Certified Mail, Return Receipt Requested, Postage Prepaid, By Hand-Delivery, Or By Delivery By A Nationally Recognized Courier Service, And Service Is Deemed Complete Upon Delivery Of The Legal Process At Its Address In This Agreement, And (E) Irrevocably Agrees That Any Legal Proceeding Against Any Party To Any Loan Paper Arising Out Of Or In Connection With The Loan Papers Or The Obligation May Be Brought In One Of Those Courts. The scope of each of these waivers is intended to be all- encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction -- including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. These waivers are a material inducement to the agreement by Agent and each Lender to enter into this agreement, and they have each relied -- and may continue to rely -- on these waivers in its dealings with the Companies. Each Company represents and warrants that it has reviewed these waivers with its legal counsel, and that it knowingly and voluntarily agrees to each waiver following consultation with legal counsel. These waivers are irrevocable, may not be modified either orally or in writing, and apply to any renewals, extensions, amendments, and replacements of any Loan Paper. 12.10 Discharge and Certain Reinstatement . The Companies' obligations under the Loan Papers remain in full force and effect until no Lender has any commitment to extend credit under the Loan Papers and the Obligation is fully paid (except for provisions under the Loan Papers which by their terms expressly survive payment of the Obligation and termination of the Loan Papers). If any payment under any Loan Paper is ever rescinded or must be restored or returned for any reason, then all Rights and obligations under the Loan Papers in respect of that payment are automatically reinstated as though the payment had not been made when due. 12.11 Amendments, Consents, Conflicts, and Waivers . An amendment of -- or an approval, consent, or waiver by Agent or by one or more Lenders under -- any Loan Paper must be in writing and must be: (a) Executed by the Companies and Agent if it purports to (i) remove as a party to this agreement any Lender whose Commitment has been fully terminated under Section 2.5 or (ii) reduce or increase any fees payable to Agent by the Companies. (b) Executed by the Companies and the particular Depositary if it purports to change -- subject to the terms of this agreement -- the terms of that Depositary's Balance-Carry-Forward Agreement. (c) Executed by the Companies, Agent, and the particular Lender if it purports to partially terminate or -- subject to Section 2.5 -- increase that Lender's Commitment under Section 2.5 and is accompanied, as applicable, by the prepayment to that Lender due because of that partial termination and by either an Interim Note payable to that Lender in the amount of that Lender's Commitment increase under Section 2.5(a) or a replacement Associates Note payable to that Lender in the amount of its reduced or increased Commitment. (d) Executed by the Companies and Agent and executed or approved in writing by all Lenders if action of all Lenders is specifically provided in any Loan Paper or if it purports to (i) except as otherwise stated in this Section 12.11, extend the due date or decrease the scheduled amount of any payment under -- or reduce the rate or amount of interest, fees, or other amounts payable to Agent or any Lender under -- any Loan Paper, (ii) change the definition of Borrowing Base (or any component of it), Commitment Percentage, Determining Lenders, Eligible-Foreclosure Receivable, Eligible-Gestation Collateral, Eligible-Mortgage Collateral, Eligible-P&I Receivable, Eligible-T&I Receivable, Market Value, Stated-Termination Date, or Termination Percentage, (iii) partially or fully release any guaranty or any Collateral except releases of Collateral contemplated in this agreement, or (iv) change or waive compliance with Sections 3.2, 3.5, 3.6, 4.5, 4.8, 4.9, 5, 9, 10.1, 10.2, 10.9, 10.10, 12.1,or 12.11. (e) Otherwise (i) for this agreement, executed by the Companies, Agent, and Determining Lenders, or (ii) for other Loan Papers, approved in writing by Determining Lenders and executed by the Companies, Agent, and any other party to that Loan Paper. Amendments under clauses (a)(i) and (c) above shall be in substantially the form of Exhibit F-1 and under clause (d) above shall be in the form acceptable to the Companies and Agent. Upon any amendment or change under clauses (a)(i) or (c) that results in the change of Lenders under this agreement or any of their Commitments, Schedule 1.1(a) is deemed automatically to be amended to reflect those changes, and Agent shall circulate to the parties to this agreement an amended Schedule 1.1(a) reflecting those changes. No course of dealing or any failure or delay by Agent, any Lender, or any of their respective Representatives with respect to exercising any Right of Agent or any Lender under the Loan Papers operates as a waiver of that Right. An approval, consent, or waiver is only effective for the specific instance and purpose for which it is given. The Loan Papers may only be supplemented by agreements, documents, and instruments delivered according to their respective express terms. 12.12 Multiple Counterparts . Any Loan Paper may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document. This agreement is effective when counterparts of it have been executed and delivered to Agent by each Lender, Agent, and the Companies, or, in the case only of those Lenders, when Agent has received faxed or other evidence satisfactory to it that each Lender has executed and is delivering to Agent a counterpart of it. 12.13 Parties . This agreement binds and inures to the Companies, each Lender, Agent, and their respective successors and permitted assigns. Only those Persons may rely upon or raise any defense about this agreement. (a) Assignment by Companies. No Company may assign any Rights or obligations under any Loan Paper without first obtaining the written consent of Agent and all Lenders. (b) Assignment by Lender. Any Lender may assign, pledge, and otherwise transfer all or any of its Rights and obligations under the Loan Papers either (i) to a Federal Reserve Bank without the consent of any party to this agreement so long as that Lender is not released from its obligations under the Loan Papers, or (ii) otherwise in the ordinary course of its lending business, in accordance with all Laws, and in accordance with Sections 12.14 and 12.15 so long as (A) at least 51% of each Lender's original Commitment remains collectively held by it or its Affiliates not subject to any participating interests or assigned interests, (B) except for assignments, pledges, and other transfers by a Lender to its Affiliates, the written consent of the Companies and Agent, which may not be unreasonably withheld, must be first obtained, (C) the assignment or transfer (other than a pledge) does not involve a purchase price that directly or indirectly reflects a discount from face value unless that Lender first offered that assignment or transfer to the other Lenders on ratable basis according to their Commitment Percentages, (D) neither the Companies nor Agent are required to incur any cost or expense incident to any assignment, pledge, or other transfer by any Lender, all of which are for the account of the assigning, pledging, or transferring Lender and its assignee, pledgee, or transferee as they may agree, and (E) if the Participant or Purchaser is organized under the Laws of any jurisdiction other than the United States of America or any of its states, it complies with Section 3.17. (c) Otherwise Void. Any purported assignment, pledge, or other transfer in violation of this section is void from beginning and not effective. 12.14 Participations . Subject to Section 12.13(b) and this section, a Lender may at any time sell to one or more Persons (each a "Participant") participating interests in its Commitment and its share of the Obligation. (a) Additional Conditions. For each participation (i) the selling Lender must remain -- and the Participant may not become -- a "Lender" under this agreement, (ii) the selling Lender's obligations under the Loan Papers must remain unchanged, (iii) the selling Lender must remain solely responsible for the performance of those obligations, (iv) the selling Lender must remain the holder of its one or more Notes and its share of the Obligation for all purposes under the Loan Papers, and (v) the Companies and Agent may continue to deal solely and directly with the selling Lender in connection with those Rights and obligations. (b) Participant Rights. The selling Lender may obtain for each of its Participants the benefits of the Loan Papers related to participations in its share of the Obligation, but Associates is never obligated to pay any greater amount that would be due to the selling Lender under the Loan Papers calculated as though no participation had been made. Otherwise, Participants have no Rights under the Loan Papers except certain permitted voting Rights described below. (c) Participation Agreements. An agreement for a participating interest (i) may only provide to a Participant voting Rights in respect of any amendment of or approval, consent, or waiver under any Loan Paper related to the matters in Section 12.11(d)(i) and (iii) if it also provides for a voting mechanism that a majority of that Lender's Commitment Percentage or Termination Percentage, as the case may be (whether directly held by that Lender or participated) controls the vote for that Lender, and (ii) may not permit a Participant to assign, pledge, or otherwise transfer its participating interest in the Obligation to any Person except any Lender or its Affiliates. 12.15 Transfers . Subject to Section 12.13(b) and this section and only if no Default exists, a Lender may at any time sell to one or more financial institutions (each a "Purchaser") up to 49% of its Rights and obligations under the Loan Papers. (a) Additional Conditions. The sale (i) may not occur if a Default exists, (ii) may not involve less than $15,000,000 of a Lender's Commitment, (iii) must be accomplished by the selling Lender and Purchaser executing and delivering to Agent and the Companies an Assignment, and (iv) may not occur until the selling Lender pays to Agent an administrative-transfer fee of $2,500. (b) Procedures. Upon satisfaction of the foregoing conditions and as of the Effective Date in the Assignment, which may not be before delivery of the Assignment to Agent and the Companies, then (i) a Purchaser is for all purposes a Lender party to -- with all the Rights and obligations of a Lender under -- this agreement, with a Commitment as stated in the Assignment, (ii) the selling Lender is released from its obligations under the Loan Papers to a corresponding extent, (iii) Schedule 1.1(b) is automatically deemed to reflect the name, address, and Commitment of the Purchaser and the reduced Commitment of the selling Lender, and Agent shall deliver to the Companies and Lenders an amended Schedule 1.1(b) reflecting those changes, (iv) the Companies shall execute and deliver to each of the selling Lender and the Purchaser a Lender Note, Ryland Note, and, if applicable, an Interim Note, each based upon their respective Commitments or Commitment Percentages of the Receivable/Working-Capital Sublimit, as the case may be, following the transfer, (v) upon delivery of the one or more Notes under clause (iv) above, the selling Lender shall return to the appropriate Company all Notes previously delivered to it under this agreement, and (vi) the Purchaser is subject to all the provisions in the Loan Papers, the same as if it were a Lender that executed this agreement on its original date. 12.16 Existing-Loan Agreement and Entireties . (a) Existing-Loan Agreement. The Companies, Agent, and each Lender that is party to it agree that, effective as of the Closing Date, the Existing-Loan Agreement is terminated and no lender under it has any further commitment to extend any credit under it. However, any commitment or other fees paid to those lenders for periods through June 16, 1995, are earned and are not reimbursable to either Company. (b) Entire Agreement. THE LOAN PAPERS AND INTERCOMPANY NOTE REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EX-11 5 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
December 31, December 31, December 31, PRIMARY: 1995 1994 1993 --------------------------------------------- Net (loss) earnings from continuing operations $(25,474) $16,417 $(9,567) Discontinued operations 22,856 5,974 6,911 -------------------------------------------- Net (loss) earnings before cumulative effect of a change in accounting principle (2,618) 22,391 (2,656) Cumulative effect of a change in accounting principle 0 2,076 0 ------------------------------------------- Net (loss) earnings (2,618) 24,467 (2,656) Adjustment for dividends on convertible preferred shares (2,193) (2,441) (2,589) -------------------------------------------- Adjusted net (loss) earnings $ (4,811) $22,026 $(5,245) ============================================ Weighted average common shares outstanding 15,585,254 15,404,994 15,326,748 Common stock equivalents (1): Stock Options 0 39,313 0 Employee incentive plans 0 116,739 0 --------------------------------------------- Total 15,585,254 15,561,046 15,326,748 ============================================= Net (loss) earnings per share from continuing operations $ (1.78) $ 0.90 $ (0.79) Discontinued operations 1.47 0.39 0.45 -------------------------------------------- Net (loss) earnings per share before cumulative effect of a change in accounting principle (0.31) 1.29 (0.34) Cumulative effect of a change in accounting principle 0.00 0.13 0.00 -------------------------------------------- Net (loss) earnings per share $ (0.31) $ 1.42 $ (0.34) ============================================= FULLY DILUTED: Net (loss) earnings from continuing operations $(25,474) $16,417 $(9,567) Discontinued operations 22,856 5,974 6,911 -------------------------------------------- Net (loss) earnings before cumulative effect of a change in accounting principle (2,618) 22,391 (2,656) Cumulative effect of a change in accounting principle 0 2,076 0 ------------------------------------------- Net (loss) earnings (2,618) 24,467 (2,656) Adjustment for dividends on convertible preferred shares (2) (2,193) 0 (2,589) Adjustment for incremental dividends on convertible preferred shares 0 (1,076) 0 --------------------------------------------- Adjusted net (loss) earnings $ (4,811) $23,391 $(5,245) ============================================ Weighted average common shares outstanding 15,585,254 15,404,994 15,326,748 Common stock equivalents (1): Stock options 0 39,313 0 Compensation unit plan 0 116,739 0 Convertible preferred stock 0 1,114,757 0 --------------------------------------------- Total 15,585,254 16,675,803 15,326,748 ============================================= Net (loss) earnings per share from continuing operations $ (1.78) $ 0.92 $ (0.79) Discontinued operations 1.47 0.36 0.45 --------------------------------------------- Net (loss) earnings per share before cumulative effect of a change in accounting principle (0.31) 1.28 (0.34) Cumulative effect of a change in accounting principle 0.00 0.12 0.00 --------------------------------------------- Net (loss) earnings per share $ (0.31) $ 1.40 $ (0.34) ============================================= (1) For 1995 and 1993, average shares outstanding have not been increased by the common stock equivalents relating to the employee stock option and employee incentive plans as the effect would be anti-dilutive. (2) For 1995 and 1993, the net loss was adjusted for dividends on convertible preferred shares as the adjustment for incremental dividends on convertible preferred shares would be anti-dilutive.
EX-13 6 The Ryland Group, Inc. and Subsidiaries SELECTED FINANCIAL DATA (dollar amounts in millions, except unit and per share data) unaudited
1995 1994 1993 1992 1991 ----- ----- ------ ----- ----- Annual Results: Revenues Homebuilding $1,458 $1,443 $1,204 $1,077 $ 859 Financial services and limited-purpose subsidiaries 127 176 247 347 334 ------ ----- ----- ------ ----- Total 1,585 1,619 1,451 1,424 1,193 Cost of sales-homebuilding 1,280 1,262 1,059 940 744 Interest expense 91 105 162 249 302 Selling, general and administrative expenses 211 225 201 200 126 Impairment of inventories and joint venture investments(1) 45 0 45 0 13 ------- ----- ------ ------ ----- (Loss) earnings from continuing operations before taxes (42) 27 (16) 35 8 Tax (benefit) expense (17) 11 (6) 12 3 ------- ------ ------ ----- ----- Net (loss) earnings from continuing operations (25) 16 (10) 23 5 Discontinued operations, net of taxes(2) Earnings from discontinued operations 3 6 7 5 4 Gain on sale of discontinued operations 19 0 0 0 0 ------- ------ ------ ------ ----- Net (loss) earnings before cumulative effect of accounting change (3) 22 (3) 28 9 Cumulative effect of accounting change, net of taxes(3) 0 2 0 0 0 ------ ------ ------ ------- ------- Net (loss) earnings $ (3) $ 24 $ (3) $ 28 $ 9 ====== ====== ====== ====== ====== Year-End Position: Assets Housing inventories $ 538 $ 600 $ 492 $ 485 $ 355 Mortgage loans held for sale 285 215 536 393 178 Mortgage-backed securities and notes receivable 113 171 192 241 174 Collateral for bonds payable of limited-purpose subsidiaries 375 459 798 1,560 2,674 Other assets 270 259 298 218 178 ------ ------ ------ ------ ------ Total assets $1,581 $1,704 $2,316 $2,897 $3,559 ====== ====== ====== ====== ====== Liabilities Long-term debt $ 397 $ 409 $ 381 $ 318 $ 219 Short-term notes payable 367 378 717 588 348 Bonds payable of limited-purpose subsidiaries 365 447 778 1,533 2,617 Other liabilities 151 158 147 152 156 ------ ------ ------ ------ ------ Total liabilities $1,280 $1,392 $2,023 $2,591 $3,340 ====== ====== ====== ====== ====== Stockholders' equity $ 301 $ 312 $ 293 $ 306 $ 219 ====== ====== ====== ====== ====== Per Common Share Data: Primary net (loss) earnings from continuing operations $(1.78) $ 0.90 $(0.79) $ 1.36 $ 0.18 Primary net (loss) earnings before cumulative effect of accounting change $(0.31) $ 1.29 $(0.34) $ 1.66 $ 0.53 Primary net (loss) earnings $(0.31) $ 1.42 $(0.34) $ 1.66 $ 0.53 Dividends declared $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60 Stockholders' equity $18.69 $19.56 $18.61 $19.43 $17.34 (1) 1995 and 1993 reflect $45 million pretax charges related to homebuilding inventories and investments in unconsolidated joint ventures, and 1991 reflects a $13 million pretax charge related to investments in unconsolidated joint ventures. (2) The Company sold its institutional mortgage-securities administration business in the second quarter of 1995. (3) The Company adopted Statement of Financial Accounting Standards No. 115- "Accounting for Certain Investments in Debt and Equity Securities" in 1994.
THE COMPANY Operations of The Ryland Group, Inc. and subsidiaries (the "Company") consist of two business segments: homebuilding and financial services. The Company's homebuilding segment constructs and sells single-family attached and detached homes in 26 markets in 19 states throughout the United States. The financial services segment provides various mortgage-related products and services for retail customers and conducts investment activities. RESULTS OF OPERATIONS CONSOLIDATED The Company reported a consolidated net loss of $2.6 million, or $.31 per share, for 1995, compared with consolidated net earnings of $24.5 million, or $1.42 per share, for 1994, and a consolidated net loss of $2.7 million, or $.34 per share, for 1993. The Company's results for 1995 include an after-tax impairment charge of $27 million (pretax $45 million), primarily related to the Company's early adoption of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FASB 121") that resulted in reducing the carrying value of certain inventories and joint venture investments to fair value. In 1993, the Company had a pretax impairment charge of $45 million caused by a decline in economic and market conditions that resulted in reducing the carrying value of certain inventories and joint venture investments to net realizable value based on accounting rules in effect prior to the adoption of FASB 121. The 1994 results include $2.1 million, or $.13 per share, for the cumulative impact of an accounting change to adopt Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. The Company's 1995 results also include a net after-tax gain of $19.5 million related to the second-quarter sale of the Company's institutional mortgage- securities administration business. The sale of this business is consistent with the Company's long-term strategy to focus on its core homebuilding and retail mortgage-finance operations. Earnings for the financial services segment for the second half of 1995 were, and future results will continue to be, negatively impacted by the sale of this business. For financial reporting purposes, net operating earnings of the institutional mortgage-securities administration business, amounting to $3.3 million for the six months ended June 30, 1995 (when the sale closed), $6.0 million for 1994 and $6.9 million for 1993, as well as the $19.5 million gain on the sale, have been reported as discontinued operations. The Company's continuing operations, which exclude the gain on the sale and the results of the institutional mortgage-securities administration business, reported a consolidated net loss of $25.5 million, or $1.78 per share, for 1995 compared with consolidated net earnings of $16.4 million, or $.90 per share, for 1994 and a consolidated net loss of $9.6 million, or $.79 per share, for 1993. The homebuilding segment recorded a pretax loss of $47.5 million for 1995 compared with pretax earnings of $10.9 million for 1994 and a pretax loss of $45.9 million for 1993. Homebuilding results in 1995, excluding the impairment charge, declined from 1994 primarily due to lower closing volume and gross profit margins. The financial services segment reported pretax earnings of $17.9 million in 1995, compared with pretax earnings of $33.5 million for 1994. The decline from 1994 is primarily attributable to lower gains from sales of mortgages and mortgage servicing rights and a lower level of investment earnings. Corporate expenses represent the costs of corporate functions which support the business segments. Corporate expenses totaling $12.9 million for 1995 were down $4.3 million from 1994 primarily as a result of staff reductions which occurred in the latter part of 1994 and lower payouts under the company's performance-based incentive plans. Consolidated net earnings for 1994 reflected improved performance compared with 1993, when the Company recorded the aforementioned pretax impairment charge of $45 million. Homebuilding operations recorded pretax earnings of $10.9 million for 1994 compared with a pretax loss of $45.9 million for 1993. Homebuilding results for 1994, as compared with 1993 excluding the impairment charge, improved primarily due to higher closing volume and improved gross profit margins. The financial services segment reported pretax earnings of $33.5 million for 1994, a decrease of 23.4 percent from the $43.8 million reported a year earlier. The impact of a 40 percent decline in loan originations and lower gains from the sale of mortgage-backed securities were partially offset by higher gains from the sale of mortgage servicing rights. Corporate expenses totaling $17.2 million for 1994 were up $2.9 million from 1993 primarily as a result of increases in systems costs and higher employee-related costs associated with severance agreements and performance-based incentive plans. The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities. They do continue to hold collateral for previously issued mortgage-backed bonds in which the Company maintains a residual interest. Revenues of the limited-purpose subsidiaries consist primarily of interest on mortgage collateral subject to bond indebtedness. Expenses consist primarily of interest on the outstanding bonds and amortization of deferred costs. Revenues, expenses, and portfolio balances for the limited-purpose subsidiaries continue to decline as the mortgage collateral pledged to secure the bonds decreases due to scheduled principal payments, prepayments and exercises of early redemption provisions. Revenues have approximated expenses for the last three years. The Ryland Group, Inc. has not guaranteed the debt of the limited-purpose subsidiaries. HOMEBUILDING SEGMENT Results of operations for the homebuilding segment are summarized as follows (amounts in thousands except average closing price):
1995 1994 1993 ------ ------ ------ Revenues $1,458,174 $1,443,212 $1,203,563 Gross profit 178,428 181,391 144,734 Impairment of inventories and joint venture investments 45,000 0 45,000 Selling, general and administrative expenses 151,087 142,254 119,546 Interest expense 29,807 28,209 26,118 --------- ---------- ---------- Homebuilding pretax (loss) earnings $ (47,466) $ 10,928 $ (45,930) ========== ========== ========== Average closing price $ 164,000 $ 160,000 $ 148,000 ========== ========== ==========
The Company's homebuilding segment reported a pretax loss of $47.5 million in 1995 compared with pretax earnings of $10.9 million in 1994 and a pretax loss of $45.9 million in 1993. The 1995 and 1993 losses were primarily related to pretax impairment charges of $45 million taken in each of the respective periods. The 1995 impairment charge was primarily related to the Company's early adoption of FASB 121, which affected its valuation of homebuilding inventories and investments in joint ventures. Of the $45 million pretax impairment charge taken in 1995, $31 million related to California inventories, and $14 million related to assets to be disposed of, including certain joint venture investments and subdivision lots. FASB 121 provides that when events or changes in circumstances indicate that the carrying amount of assets might not be recoverable, companies should evaluate the need for an impairment writedown. In the fourth quarter of 1995, in response to competitive market pressures in California, the Company determined that some product repositioning, increased homebuyer incentives and reduced selling prices would be necessary in certain of its California subdivisions. The land inventory in most of these subdivisions was acquired in 1988 and 1989 and had a cost basis substantially in excess of current market values. Accordingly, the Company evaluated the affected California subdivisions and determined that certain subdivision inventories were impaired. Under FASB 121, a writedown of $31 million was required to state the impaired inventories at their fair value. Fair value was based upon an evaluation of comparable market prices, discounted cash flow analysis and expected returns for comparable properties. In addition, the Company decided in the fourth quarter of 1995 to dispose of certain joint venture investments and certain other subdivision inventories because the Company believes that it can achieve higher returns on alternative uses of capital. As a result, the Company recorded a reserve of $14 million in the fourth quarter of 1995 to reduce the carrying value of these assets to their fair value less cost to sell. Of the total reserve, $7 million pertained to joint venture investments in the Washington, D.C. metropolitan area which the Company plans to dispose of in 1996. The remaining $7 million reserve primarily pertained to certain subdivision lots that the Company plans to dispose of during 1996, including lots in the Columbus, Dallas, and Washington, D.C. metropolitan areas. The 1993 pretax impairment charge of $45 million was caused by a decline in economic and market conditions in California and the Mid-Atlantic and resulted in the reduction of the carrying value of certain inventories and joint venture investments to net realizable value. Of the total charge taken in 1993, $40 million related to properties in California and $5 million primarily related to inventories and joint venture investments in the Washington, D.C. metropolitan area. Excluding the pretax impairment charges of $45 million in 1995 and 1993, the Company's homebuilding segment reported a pretax loss of $2.5 million for 1995 as compared with pretax earnings of $10.9 million for 1994 and a pretax loss of $.9 million for 1993. The decline in 1995 earnings was due to lower closing volume and gross profit margins, and the improvement in 1994, as compared with 1993, was due to an increase in closings and higher gross profit margins. Homebuilding revenues increased 1.0 percent in 1995 compared with 1994 primarily due to a $4,000 increase in average closing price. The positive impact of the increase in closing price was partially offset by a .9 percent decline in wholly owned closings. Closing volume was down in 1995, primarily due to slower sales earlier in the year, particularly in the Mid-Atlantic region. Homebuilding revenues increased 19.9 percent in 1994 compared with 1993, due to a 11.7 percent increase in wholly owned closings and a $12,000 increase in average closing price. The increased volume in 1994 was in large part due to growth in new markets and higher sales in California. Also contributing to the increase was the impact of a full-year's sales from Scott Felder Homes in Texas, which was acquired in March 1993. Gross profit margins, excluding the impairment charge, decreased to 12.2 percent for the year 1995, down from 12.6 percent for 1994. However, for the fourth quarter of 1995, gross margins improved to 13.1 percent compared with 12.2 percent for the fourth quarter of 1994. The sale of older inventories in the California and Mid-Atlantic regions and the Company's focus on reducing unsold homes under construction negatively impacted gross margins during 1995, particularly in the first half of the year. Gross profit margins increased to 12.6 percent in 1994 from 12.0 percent in 1993, excluding the 1993 impairment charge. The improvement in gross profit margins during 1994 was primarily attributable to a greater volume of closings from new, higher-margin communities, which more than offset the impact of higher closings from low- margin California communities. The Company's gross profit margins during 1995 and 1994 were negatively impacted by the build-out of inventory in California that was affected by a decline in economic and market conditions. In conjunction with the implementation of FASB 121 and the resultant impairment charge taken in 1995, the affected California lots are now carried at fair value. As a result, the Company does not anticipate that gross profit margins for 1996 and beyond will be negatively impacted by the build-out and sale of homes on these lots. In the Mid-Atlantic region, since the latter part of 1994 and throughout the first nine months of 1995, the Company had taken actions to close-out older communities with high-cost land positions. Closings on homes from these Mid- Atlantic close-out communities negatively affected margins through the first nine months of 1995. As of December 31, 1995, there were no remaining homes to be sold from these close-out communities. Selling, general and administrative expenses, as a percent of revenues, were 10.4 percent for 1995 and 9.9 percent for 1994 and 1993. Included in selling, general, and administrative expenses for 1995 were $2.2 million of reorganization costs associated with the Company's initiatives to restructure its Mid-Atlantic and Southwest divisional operations. General and administrative expenses, excluding selling expenses and the reorganization costs, as a percentage of revenue, were unchanged for 1995 as compared with 1994. General and administrative expenses as a percentage of revenue, declined in 1994, as compared with 1993, due to the higher revenue base. Selling expenses as a percentage of revenues increased in 1995 and 1994 primarily due to costs associated with expansion into new markets and higher costs associated with the Company's new marketing and merchandising programs initiated in 1994. Interest expense increased in 1995 and 1994 due to increases in the average homebuilding debt outstanding required to fund higher average inventories and increases in the average cost of funds. Increases in interest expense were mitigated by an increase in the amount of interest capitalized due to an increase in land under development. HOMEBUILDING OPERATIONAL DATA
Three months ended December 31, -------------------------------------------- New Orders % Closings % (Units) Change (Units) Change ---------- ------ -------- ------ 1995 Mid-Atlantic 337 (28) 542 (25) Midwest 256 64 359 24 Southeast 286 28 374 28 Southwest 440 31 455 (4) West 214 10 347 (4) California 227 17 389 12 ----- --- ----- ---- Total wholly-owned 1,760 12 2,466 (1) Unconsolidated joint ventures 2 (91) 5 (67) ----- --- ----- ---- Total 1,762 11 2,471 (2) ===== === ===== ===== Year ended December 31, -------------------------------------------- New Orders % Closings % (Units) Change (Units) Change ---------- ------ -------- ------ 1995 Mid-Atlantic 1,994 (19) 2,363 (6) Midwest 1,307 31 1,112 6 Southeast 1,399 21 1,260 3 Southwest 1,923 5 1,794 1 West 1,255 6 1,195 (1) California 1,244 5 1,182 (2) ----- --- ----- ---- Total wholly-owned 9,122 3 8,906 (1) Unconsolidated joint ventures 19 (84) 44 (67) ----- ----- Total 9,141 2 8,950 (2) ===== ==== ===== ==== Outstanding Contracts December 31, -------------------------------------------- % Dollars in Average Units Change Millions Price ----- ------ ---------- ------- 1995 Mid-Atlantic 645 (36) $ 125 $ 193,660 Midwest 494 65 79 159,917 Southeast 449 45 74 164,209 Southwest 562 30 92 163,308 West 355 20 63 176,194 California 238 35 45 189,227 ----- --- ------ --------- Total wholly-owned 2,743 9 477 173,899 Unconsolidated joint ventures 1 (96) 0.4 356,000 ----- ---- ------ --------- Total 2,744 7 $ 477 $ 173,965 ===== ==== ====== =========
Three months ended Year ended December 31, December 31, ------------------------ ------------------------- New Orders Closings New Orders Closings (Units) (Units) (Units) (Units) --------- -------- ---------- -------- 1994 Mid-Atlantic 466 719 2,472 2,520 Midwest 156 290 1,001 1,054 Southeast 223 293 1,161 1,221 Southwest 336 474 1,829 1,776 West 194 362 1,186 1,212 California 194 348 1,190 1,206 ----- ----- ----- ----- Total wholly-owned 1,569 2,486 8,839 8,989 Unconsolidated joint ventures 22 15 116 132 ----- ----- ----- ----- Total 1,591 2,501 8,955 9,121 ===== ===== ===== ===== Outstanding Contracts December 31, --------------------------------------- Dollars in Average Units Millions Price ----- ---------- ------- 1994 Mid-Atlantic 1,014 $ 171 $ 168,691 Midwest 299 46 153,288 Southeast 310 48 156,345 Southwest 433 66 151,284 West 295 50 170,784 California 176 33 184,710 ----- ----- --------- Total wholly-owned 2,527 414 163,732 Unconsolidated joint ventures 26 11 412,077 ----- ------ --------- Total 2,553 $ 425 $ 166,261 ===== ====== =========
During 1995 sales increased 2 percent compared with 1994, with increases in all regions except the Mid-Atlantic. The Company experienced particularly strong growth during 1995 in the Midwest and Southeast regions in both new and existing markets. In the Midwest, the increase was driven by the new markets of Chicago and Minneapolis combined with increases in the existing markets of Cincinnati and Indianapolis. In the Southeast region, more than half the growth was attributable to new markets as the Company increased its presence in Greenville, South Carolina and entered Tampa, Florida. Sales growth in Charlotte and Atlanta also contributed to the increase. Due to economic uncertainties and competitive pressures in the Mid-Atlantic, earlier this year the Company began redistributing capital to other regions where the Company believes it can achieve higher returns. Except for the Mid-Atlantic region, all regions reported increases in sales for the fourth quarter, reflecting the Company's entry into several new markets as well as growth in many existing markets. The increase in sales in existing markets during the fourth quarter is attributable to a relatively favorable interest rate environment and the opening of new communities. As of December 31, 1995, the Company had outstanding contracts for 2,744 units, up 7 percent from year-end 1994. Outstanding contracts represent the Company's backlog of sold but not closed homes, which generally are built and closed, subject to cancellation, over the next two quarters. The $477 million value of outstanding contracts increased 13 percent from year-end 1994. The Company has recently consolidated the West and California regions into a new West region. In addition, the Company recently announced that it will close its operations in Columbus, Ohio, by the end of 1996. FINANCIAL SERVICES SEGMENT The Company's financial services segment, which excludes the results of the discontinued institutional mortgage-securities administration business, recorded pretax earnings of $17.9 million in 1995, compared with $33.5 million in 1994 and $43.8 million in 1993. Pretax earnings by line of business were as follows:
1995 1994 1993 ------ ------- ------ Retail $ 9,672 $ 21,484 $ 20,642 Investments 8,198 12,042 23,109 -------- -------- -------- Total $ 17,870 $ 33,526 $ 43,751 ======== ======== ========
The decline in pretax earnings in 1995 was primarily related to lower gains from sales of mortgages and mortgage servicing rights and a lower level of investment earnings. The decline in investment earnings will likely continue as the Company's investment portfolio declines. In 1994, the financial services segment recorded lower earnings as compared with 1993 primarily due to the decline in earnings from investment operations. Results of investment operations in 1993 included a nonrecurring gain of $5.3 million from the sale of the Company's remaining interest in a real estate investment trust and higher gains from sales of mortgage-backed securities. The Company's retail operations were adversely affected by rising interest rates in 1994, as loan originations declined by 40 percent. The impact of this decline was offset by higher gains from the sale of mortgage servicing rights. Revenues and expenses for the financial services segment were as follows:
1995 1994 1993 ------ ------ ------ Retail revenues: Interest and net origination fees $ 16,727 $ 19,468 $ 28,335 Gains on sales of mortgages and servicing rights 17,362 37,191 28,308 Loan servicing 32,650 37,578 43,635 Title/escrow 5,246 4,597 3,610 ------ ------ ------- Total retail revenues 71,985 98,834 103,888 Revenues from investment operations 17,626 24,797 32,641 ------ ------- ------ Total revenues 89,611 123,631 136,529 Expenses: Interest 23,750 26,694 30,631 General and administrative 47,991 63,411 62,147 ------ ------ ------ Total expenses 71,741 90,105 92,778 ------ ------ ------ Pretax earnings $ 17,870 $ 33,526 $ 43,751 ====== ====== ======
Revenues for the financial services segment decreased 27.5 percent in 1995 primarily due to lower gains from sales of mortgages and servicing rights and lower revenues from investment operations due to a decline in the investment portfolio. Revenues for the financial services segment decreased 9.4 percent in 1994 as compared with 1993 in large part due to an industry-wide decline in mortgage originations resulting from rising interest rates. During 1993, interest rates were at historically low levels, resulting in a high level of refinancing activity. In addition, investment revenues declined in 1994 primarily due to a nonrecurring 1993 gain on the sale of the Company's interest in a real estate investment trust. Retail loan servicing revenue declined in both 1995 and 1994 due to reductions in the Company's loan servicing portfolio. Declines in interest expense for 1995, 1994, and 1993 were directly related to the level of borrowings required to fund mortgage loan originations and investment portfolio balances in those periods. General and administrative expenses for the financial services segment declined 24 percent in 1995 as a result of cost reduction measures in retail operations initiated in the latter part of 1994. General and administrative expenses for the financial services segment increased slightly in 1994, as the cost reduction measures implemented in response to the decline in loan origination activity during the year were offset by the costs of downsizing. In February 1996, the Company announced the sale of its wholesale mortgage operations. The sale of this business, which was part of the retail operations of the financial services segment, could result in a decline in mortgage originations in 1996. However, the sale of this business is not expected to have a significant impact on the future operating results of the financial services segment. RETAIL OPERATIONS Retail operations include mortgage origination, loan servicing and title/escrow services for retail customers. A summary of mortgage origination activities is as follows:
1995 1994 1993 ------- ------ ------ Dollar volume of mortgages originated (in millions) $ 1,952 $ 2,055 $ 3,596 Number of mortgages originated 15,330 16,740 27,872 Percentage Ryland home settlements 35% 28% 20% Other settlements 65% 72% 80% ---- ---- ---- Total settlements 100% 100% 100% ==== ==== ====
Mortgage origination volume in 1995 was down as compared with 1994, although declines early in the year were offset by increases later in the year. The more favorable interest rate environment in the latter part of 1995 resulted in a 34 percent increase in originations in the fourth quarter as compared with the fourth quarter of 1994. The 40 percent decline in mortgage origination volume in 1994 as compared with 1993 was due to an industry-wide decline in mortgage originations caused by rising interest rates. The Company earns interest on mortgages held for sale and pays interest on borrowings secured by mortgages. significant data related to these activities are as follows:
1995 1994 1993 ------ ------- ------ Net interest earned (in thousands) $ 5,766 $ 9,598 $ 12,159 Average balance of mortgages held for sale (in millions) $ 211 $ 293 $ 418 Net interest spread 2.7% 3.3% 2.9%
Net interest earned decreased in 1995 due to a lower average balance of mortgages held for sale combined with a lower net interest spread. Net interest earned decreased in 1994 primarily due to the lower average balance of mortgages held for sale. The Company services loans that it originates, as well as loans originated by others. Loan servicing portfolio balances were as follows at December 31 (amounts in billions):
1995 1994 1993 ------ ------ ----- Originated $ 2.4 $ 2.8 $ 4.0 Acquired 3.5 4.0 4.6 Subserviced .3 .1 1.2 ----- ----- ---- Total serviced $ 6.2 $ 6.9 $9.8 ===== ===== ====
The decrease in the portfolio balance in 1995 as compared with 1994 was primarily attributable to normal mortgage prepayment activity. The decrease in the portfolio balance in 1994 is primarily attributable to the decline in origination volume combined with higher sales of servicing rights. INVESTMENT OPERATIONS The Company's investment operations hold certain assets, primarily mortgage- backed securities and notes receivable, which were obtained as a result of the exercise of redemption rights on various mortgage-backed bonds previously owned by the Company's limited-purpose subsidiaries. Pretax earnings were comprised of the following (amounts in thousands):
1995 1994 1993 ------ ------- ------- Sale of interest in real estate investment trust $ 0 $ 0 $ 5,322 Sale of mortgage-backed securities 4,839 2,349 5,635 Net interest earned and other 3,359 9,693 12,152 ------- -------- -------- Pretax earnings $ 8,198 $ 12,042 $ 23,109 ======= ======== ========
Pretax earnings for 1995 decreased as compared with 1994 due to decreases in the net interest earned on mortgage-backed securities and notes receivable. These decreases are attributable to lower average investment balances along with lower net interest spread. Partially offsetting the lower net interest earned in 1995 were higher gains from sales of mortgage-backed securities. Pretax earnings in 1994 declined substantially as compared with 1993 primarily due to lower gains on the sale of mortgage-backed securities and the nonrecurring gains on the 1993 sale of the Company's remaining interest in a real estate investment trust. Significant data from investment operations are as follows:
1995 1994 1993 ----- ------ ----- Net interest earned (in thousands) $ 4,433 $ 12,989 $ 13,413 Average balance outstanding (in millions) $ 122 $ 205 $ 207 Net interest spread 3.6% 6.3% 6.5%
The Company earns a net interest spread on the investment portfolio from the difference between the interest rates on the mortgage-backed securities and notes receivable and the related borrowing rates. The 1995 decrease in the net interest earned is primarily due to a decline in the average investment portfolio balance outstanding combined with a lower net interest spread resulting from an increase in borrowing rates. The decrease in the net interest earned in 1994 as compared with 1993 primarily reflects the lower net interest spread. DISCONTINUED INSTITUTIONAL OPERATIONS In the second quarter of 1995, the Company sold its institutional mortgage- securities administration business, which included master servicing, securities administration, investor information services, and tax calculation and reporting. The current and prior period results for this business (formerly reported as institutional financial services), as well as the gain on the sale of the business, have been reported as discontinued operations in the accompanying consolidated statements of earnings. Revenues from operations of the discontinued business were $11.4 million, $23.6 million, and $24.0 million for 1995, 1994, and 1993, respectively. Net earnings from operations of the discontinued business were $3.3 million (net of taxes of $2.2 million) for 1995, $6.0 million (net of taxes of $4.0 million) for 1994, and $6.9 million (net of taxes of $4.6 million) for 1993. The Company reported a net gain from the sale of the institutional mortgage- securities administration business of $19.5 million in the second quarter of 1995. Proceeds from the sale were used to repay long-term debt of the homebuilding segment and short-term notes payable of the Financial services segment. The Company's future earnings will no longer benefit from the results of these operations. FINANCIAL CONDITION AND LIQUIDITY The Company generally provides for the cash requirements of the homebuilding and financial services businesses from outside borrowings and internally generated funds. Proceeds from the sale of the Company's institutional mortgage-securities administration business on June 30, 1995, were used to repay long-term debt of the homebuilding segment and short-term notes payable of the financial services segment. The Company believes that its current sources of cash are sufficient to finance its current requirements. The homebuilding segment borrowings include an unsecured revolving credit facility, senior notes, senior subordinated notes, and nonrecourse secured notes payable. The Company primarily uses its unsecured revolving credit facility to finance increases in its homebuilding inventory. This facility was renewed in July 1995 for a three-year period, and total borrowing capacity was increased from $250 million to $400 million. As of December 31, 1995, the outstanding borrowings under this facility were $137.0 million, compared with $127.5 million as of December 31, 1994. In addition, the Company had letters of credit outstanding under this facility totaling $23.0 million and $7.4 million at December 31, 1995 and 1994, respectively. To finance land purchases, the Company may also use seller-financed, non-recourse secured notes payable. At December 31, 1995 and 1994, such notes payable outstanding amounted to $4.5 million and $25.6 million, respectively. Housing inventories decreased to $537.9 million as of December 31, 1995, from $600.1 million as of the end of 1994. Of this reduction, $38 million was due to the noncash charge related to the adoption of FASB 121. For further information regarding FASB 121, refer to the Homebuilding section of "Management's Discussion and Analysis of Results of Operations and Financial Condition." The remaining decrease is due to a lower investment in unsold homes under construction. The financial services segment uses cash generated from operations and borrowing arrangements to finance its operations. In June 1995, the Company renewed its bank facility, which provides up to $325 million for mortgage warehouse funding and $40 million for working capital advances, and extended the maturity of the facility to May 1997. Other borrowing arrangements as of year-end 1995 included repurchase agreement facilities aggregating $800 million, a new $100 million revolving credit facility used to finance investment portfolio securities, and a $35 million credit facility to be used for the short-term financing of optional bond redemptions. At December 31, 1995 and 1994, the combined borrowings under these agreements were $367.5 million and $377.6 million, respectively. Mortgage loans, notes receivable, and mortgage-backed securities held by the limited-purpose subsidiaries are pledged as collateral for the issued bonds, the terms of which provide for the retirement of all bonds from the proceeds of the collateral. The source of cash for the bond payments is cash received from the mortgage loans, notes receivable, and mortgage-backed securities. The Ryland Group, Inc. has not guaranteed the debt of the financial services segment or the limited-purpose subsidiaries. The Ryland Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS YEAR ENDED DECEMBER 31, (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1995 1994 1993 ---- ---- ---- Revenues: Homebuilding $1,458,174 $1,443,212 $1,203,563 Financial services 89,611 123,631 136,529 Limited-purpose subsidiaries 37,267 52,293 110,392 --------------------------------------- Total revenues 1,585,052 1,619,136 1,450,484 --------------------------------------- Expenses: Homebuilding: Cost of sales 1,279,746 1,261,821 1,058,829 Interest 29,807 28,209 26,118 Selling, general and administrative 151,087 142,254 119,546 Impairment of inventories and joint venture investments 45,000 0 45,000 --------------------------------------- Total homebuilding expenses 1,505,640 1,432,284 1,249,493 Financial services: Interest 23,750 26,694 30,631 General and administrative 47,991 63,411 62,147 --------------------------------------- Total financial services expenses 71,741 90,105 92,778 Limited-purpose subsidiaries expenses 37,215 52,197 110,234 Corporate expenses 12,913 17,187 14,240 --------------------------------------- Total expenses 1,627,509 1,591,773 1,466,745 --------------------------------------- (Loss) earnings from continuing operations before taxes (42,457) 27,363 (16,261) Tax (benefit) expense (16,983) 10,946 (6,694) --------------------------------------- Net (loss) earnings from continuing operations (25,474) 16,417 (9,567) Discontinued operations: Earnings from discontinued operations (net of taxes in 1995 $2,212, 1994 $3,982, 1993 $4,607) 3,318 5,974 6,911 Gain on sale of discontinued operations (net of taxes-$13,025) 19,538 0 0 --------------------------------------- Net (loss) earnings before cumulative effect of a change in accounting principle (2,618) 22,391 (2,656) Cumulative effect of a change in accounting principle (net of taxes-$1,384) 0 2,076 0 --------------------------------------- Net (loss) earnings $ (2,618) $ 24,467 $ (2,656) ======================================= Preferred dividends $ 2,193 $ 2,441 $ 2,589 Net (loss) earnings applicable to common stockholders $ (4,811) $ 22,026 $ (5,245) Net (loss) earnings per common share: Primary: Net (loss) earnings from continuing operations $ (1.78) $ 0.90 $ (0.79) Discontinued operations 1.47 0.39 0.45 --------------------------------------- Net (loss) earnings before cumulative effect of a change in accounting principle (0.31) 1.29 (0.34) Cumulative effect of a change in accounting principle 0.00 0.13 0.00 --------------------------------------- Net (loss) earnings per common share $ (0.31) $ 1.42 $ (0.34) ======================================= Fully Diluted: Net (loss) earnings from continuing operations $ (1.78) $ 0.92 $ (0.79) Discontinued operations 1.47 0.36 0.45 --------------------------------------- Net (loss) earnings before cumulative effect of a change in accounting principle (0.31) 1.28 (0.34) Cumulative effect of a change in accounting principle 0.00 0.12 0.00 --------------------------------------- Net (loss) earnings per common share $ (0.31) $ 1.40 $ (0.34) ======================================= Average common shares outstanding Primary 15,585,000 15,561,000 15,327,000 Fully diluted 15,585,000 16,676,000 15,327,000 See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS DECEMBER 31, (AMOUNTS IN THOUSANDS)
1995 1994 ---- ---- ASSETS HOMEBUILDING: Cash and cash equivalents $ 54,518 $ 25,963 Housing inventories: Homes under construction 332,272 404,346 Land under development and improved lots 205,646 195,767 --------------------------------- Total inventories 537,918 600,113 Investment in/advances to unconsolidated joint ventures 2,527 11,500 Property, plant and equipment 34,662 24,001 Purchase price in excess of net assets acquired 21,575 22,607 Other assets 45,376 56,062 --------------------------------- 696,576 740,246 --------------------------------- FINANCIAL SERVICES: Cash and cash equivalents 1,474 863 Mortgage loans held for sale, net 285,001 214,772 Mortgage-backed securities and notes receivable, net 112,544 171,120 Mortgage servicing and administration rights, net 7,814 12,014 Other assets 42,586 56,251 --------------------------------- 449,419 455,020 --------------------------------- OTHER ASSETS: Collateral for bonds payable of limited-purpose subsidiaries 375,146 459,044 Net deferred taxes 41,259 27,822 Other 18,389 22,356 ----------------------------------- TOTAL ASSETS $ 1,580,789 $ 1,704,488 =================================== See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS DECEMBER 31, (amounts in thousands, except share data)
1995 1994 ---- ---- LIABILITIES HOMEBUILDING: Accounts payable and other liabilities $ 78,853 $ 95,551 Long-term debt 396,607 408,744 --------------------------------- 475,460 504,295 --------------------------------- FINANCIAL SERVICES: Accounts payable and other liabilities 27,219 21,040 Short-term notes payable 367,469 377,629 --------------------------------- 394,688 398,669 --------------------------------- OTHER LIABILITIES: Bonds payable of limited purpose subsidiaries 364,672 446,752 Other 44,845 42,650 -------------------------------- TOTAL LIABILITIES 1,279,665 1,392,366 ================================= STOCKHOLDERS' EQUITY Convertible preferred stock, $1 par value: Authorized-1,400,000 shares Issued-943,097 shares (1,072,903 for 1994) 943 1,073 Common stock, $1 par value: Authorized-78,600,000 shares Issued-15,681,891 shares (15,475,242 for 1994) 15,682 15,475 Paid-in capital 115,611 115,863 Retained earnings 179,937 193,635 Net unrealized gain on mortgage-backed securities 2,550 1,763 Due from RSOP Trust (13,599) (15,687) ------------------------------- TOTAL STOCKHOLDERS' EQUITY 301,124 312,122 ================================ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,580,789 $ 1,704,488 ================================ See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in thousands, except share data)
Preferred Common Paid-In Retained Stock Stock Capital Earnings Balance at January 1, 1993 $ 1,199 $15,390 $119,100 $196,203 Net loss (2,656) Preferred stock dividends (per share $2.21) (2,589) Common stock dividends (per share $0.60) (9,196) Common stock repurchased and retired (99) (2,115) Conversion of preferred stock (45) 45 (415) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable (1,987) RSOP debt repayments Restricted stock (110) (2,145) Employee stock plans (116,529 shares) 117 1,833 704 --------------------------------------------------- Balance at December 31, 1993 1,154 15,343 116,386 180,351 --------------------------------------------------- Adjustment to beginning balance for change in accounting principle, net of taxes of $5,063 Net earnings 24,467 Preferred stock dividends (per share $2.21) (2,441) Common stock dividends (per share $0.60) (9,262) Conversion of preferred stock (81) 81 (814) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable (470) RSOP debt repayments Change in net unrealized gain on mortgage -backed securities, net of taxes of $3,888 Employee stock plans (51,869 shares) 51 761 520 ---------------------------------------------- Balance at December 31, 1994 $ 1,073 15,475 115,863 193,635 --------------------------------------------- Net loss (2,618) Preferred stock dividends (per share $2.21) (2,193) Common stock dividends (per share $0.60) (9,358) Conversion of preferred stock (130) 130 (1,387) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable 151 RSOP debt repayments Change in net unrealized gain on mortgage -backed securities, net of taxes of $525 Employee stock plans (77,181 shares) 77 984 471 -------------------------------------------- Balance at December 31, 1995 $ 943 $15,682 $115,611 $179,937 ============================================== See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in thousands, except share data)
Total Net Unrealized Deferred Stock- Gain on Mortgage- Due From Compen- holders' Backed Securities RSOP Trust sation Equity Balance at January 1, 1993 $ 0 $(24,058) $(2,145) $305,689 Net loss (2,656) Preferred stock dividends (per share $2.21) (2,589) Common stock dividends (per share $0.60) (9,196) Common stock repurchased and retired (2,214) Conversion of preferred stock (415) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable 1,114 (873) RSOP debt repayments 2,957 2,957 Restricted stock 2,145 (110) Employee stock plans (116,529 shares) 2,654 ------------------------------------------------ Balance at December 31, 1993 0 (19,987) 0 293,247 ------------------------------------------------ Adjustment to beginning balance for change in accounting principle, net of taxes of $5,063 7,594 7,594 Net earnings 24,467 Preferred stock dividends (per share $2.21) (2,441) Common stock dividends (per share $0.60) (9,262) Conversion of preferred stock (814) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable (584) (1,054) RSOP debt repayments 4,884 4,884 Change in net unrealized gain on mortgage -backed securities, net of taxes of $3,888 (5,831) (5,831) Employee stock plans (51,869 shares) 1,332 ------------------------------------------------ Balance at December 31, 1994 1,763 (15,687) 0 312,122 ------------------------------------------------ Net loss (2,618) Preferred stock dividends (per share $2.21) (2,193) Common stock dividends (per share $0.60) (9,358) Conversion of preferred stock (1,387) Reclassification of preferred paid-in capital and proportionate amount of RSOP receivable 251 402 RSOP debt repayments 1,837 1,837 Change in net unrealized gain on mortgage -backed securities, net of taxes of $525 787 787 Employee stock plans (77,181 shares) 1,532 ------------------------------------------------ Balance at December 31, 1995 $ 2,550 $(13,599) $ 0 $301,124 ================================================ See notes to consolidated financial statements.
The Ryland Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, (AMOUNTS IN THOUSANDS)
1995 1994 1993 - ----------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) earnings $ (2,618) $ 24,467 $ (2,656) Adjustments to reconcile net (loss) earnings to net cash (used for) provided by operating activities: Depreciation and amortization 34,512 25,640 26,091 Cumulative effect of a change in accounting principle 0 (3,460) 0 Gain on sale of discontinued operations (32,563) 0 0 Gain on sale of investment 0 0 (5,322) Gain on sale of mortgage backed securities-available- for-sale (4,772) (2,349) 0 Decrease (increase) in inventories 62,195 (105,267) (4,362) Net change in other assets, payables and other liabilities (16,953) 6,387 (77,572) Equity in losses (earnings) of/distributions from unconsolidated joint ventures 8,973 11,319 11,623 (Increase) decrease in mortgage loans held for sale, net (70,229) 320,907 (143,146) Decrease in mortgage- backed securities, net 0 0 48,685 -------------------------------------- Net cash (used for) provided by operating activities (21,455) 277,644 (146,659) -------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property, plant and equipment (30,152) (19,019) (12,641) Proceeds from sale of discontinued operations 47,000 0 0 Principal reduction of mortgage collateral 57,039 155,277 694,789 Principal reduction of mortgage-backed securities-available- for-sale 5,264 36,887 0 Sales of mortgage-backed securities-available- for-sale 68,539 33,066 0 Principal reduction of mortgage-backed securities-held-to- maturity 19,401 81,049 0 (Increase) decrease in funds held by trustee (853) 79,530 73,914 Other investing activities, net (470) 1,200 6,710 -------------------------------------- Net cash provided by investing activities 165,768 367,990 762,772 -------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Decrease) increase in short-term notes payable (10,160) (339,304) 129,061 Cash proceeds of long-term debt 14,747 55,074 114,858 Reduction of long-term debt (26,884) (27,370) (51,384) Bond principal payments (83,279) (348,047) (763,357) Common and preferred stock dividends (11,551) (11,703) (11,785) Other financing activities, net 1,980 6,052 2,571 --------------------------------------- Net cash used for financing activities (115,147) (665,298) (580,036) -------------------------------------- Net increase (decrease) in cash and cash equivalents 29,166 (19,664) 36,077 Cash and cash equivalents at beginning of year 26,826 46,490 10,413 ------------------------------------- CASH AND CASH EQUIVALENTS AT AT END OF PERIOD $ 55,992 $ 26,826 $ 46,490 ------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest (net of capitalized interest) $ 104,630 $ 117,305 $ 168,761 Cash paid for income taxes (net of refund received in 1995) $ 17,026 $ 26,555 $ 26,540 See notes to consolidated financial statements.
THE RYLAND GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, except share data, in all notes unless otherwise noted) NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Ryland Group, Inc. is a leading national homebuilder and mortgage-related financial services firm. The Company builds homes in 26 markets in 19 states and is one of the largest single-family on-site homebuilders in the United States. The Company's homebuilding segment specializes in the sale and construction of single-family attached and detached housing. The financial services segment provides mortgage-related products and services for retail customers including loan origination, loan servicing, and title and escrow services, and also conducts investment activities. BASIS OF PRESENTATION The consolidated financial statements include the accounts of The Ryland Group, Inc. and its wholly owned subsidiaries (the "Company"). Intercompany transactions have been eliminated in consolidation. Certain amounts in the consolidated statements of prior years have been reclassified to conform to the 1995 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PER SHARE DATA Primary net (loss) earnings per common share is computed by dividing net (loss) earnings, after considering preferred stock dividend requirements, by the weighted average number of common shares outstanding considering dilutive common equivalent shares. Common equivalent shares relating to stock options are computed using the treasury stock method. Common equivalent shares were not dilutive for the years ended December 31, 1995 and 1993. Fully diluted net (loss) earnings per common share additionally gives effect to the assumed conversion of the preferred shares held by The Ryland Group, Inc. Retirement and Stock Ownership Plan Trust (RSOP Trust) into common stock, as well as the amount of the additional RSOP Trust contribution required to fund the difference between the RSOP Trust's earnings from preferred share dividends and the RSOP Trust's potential earnings from common share dividends after an assumed conversion. The effect of the RSOP Trust was not dilutive for the years ended December 31, 1995 and 1993. INCOME TAXES The Company files a consolidated federal income tax return. Certain items of income and expense are included in one period for financial reporting purposes and another for income tax purposes. Deferred income taxes are provided in recognition of these differences. Deferred tax assets and liabilities are determined based on the enacted tax rates and are subsequently adjusted for changes in these rates. A change in the deferred tax assets or liabilities results in a charge or credit to deferred tax expense. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, which includes model home furnishings, are carried at cost, less accumulated depreciation and amortization. Depreciation is provided for, principally, by the straight-line method over the estimated useful lives of the assets. Model home furnishings are amortized over the life of the community as homes are closed. HOMEBUILDING REVENUES Homebuilding revenues are recognized when home sales are completed and title passes to the customer at closing. SERVICE LIABILITIES Service and warranty costs are estimated and accrued for at the time a home closes. HOUSING INVENTORIES Housing inventories consist principally of homes under construction and land under development, and improved lots. The Company adopted Statement of Financial Accounting Standards No. 121 (FASB 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in the fourth quarter of 1995. Prior to the adoption of FASB 121, inventories were stated at the lower of cost or net realizable value and were reported net of valuation reserves. As part of the implementation of FASB 121, the carrying basis of inventories to be held and used was written down by the amount of reserves provided under prior accounting rules. Under FASB 121, inventories to be held and used are stated at cost unless a subdivision is determined to be impaired, in which case the impaired inventories are written down to fair value. Writedowns of impaired inventories to fair value are recorded as adjustments to the cost basis of the respective inventory. Inventories to be disposed of are stated at the lower of cost or fair value less cost to sell and are reported net of valuation reserves. Valuation reserves related to inventories to be disposed of amounted to $8.3 million at December 31, 1995, and included $7.0 million that was provided in the fourth quarter of 1995. Costs of inventory include direct costs of land, material acquisition, home construction, and related direct overhead expenses. Real estate taxes, insurance, and interest are capitalized during the land development stage. The costs of acquiring and developing land and constructing certain related amenities are allocated to the parcels to which these costs relate. The following table is a summary of capitalized interest:
1995 1994 ------ ----- Capitalized interest as of January 1, $ 22,243 $ 25,539 Interest capitalized 17,543 12,282 Interest amortized (12,137) (15,578) -------- --------- Capitalized interest as of December 31, $ 27,649 $ 22,243 ======== ========
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets of acquired businesses (goodwill) is being amortized on a straight-line basis over 30 years. On a periodic basis, the Company evaluates the businesses to which goodwill relates in order to insure that the carrying value of goodwill has not been impaired. LOAN ORIGINATION FEES, COSTS, AND MORTGAGE DISCOUNTS Loan origination fees, net of the related direct origination costs, and loan discount points are deferred as an adjustment to the carrying value of the related mortgage loans held for sale and are recognized into income upon the sale of the mortgage loans. Discounts on mortgage collateral for the bonds of the limited-purpose subsidiaries primarily represent loan origination discount points and purchase price discounts. These discounts are deferred as an adjustment to the recorded book value of the related mortgage loans. They are amortized into interest income over their respective lives using the interest method, which is adjusted for the effect of prepayments. HEDGING CONTRACTS The Company enters into forward delivery contracts, options on forward delivery contracts, futures contracts, and options on futures contracts (collectively referred to as hedging contracts), as an end-user, for the purpose of minimizing its exposure to movements in interest rates on mortgage loan commitments and mortgage loans held for sale. These hedging contracts primarily represent commitments or options to purchase or sell mortgages or securities generally within 90 days and at a specified price or yield. Forward delivery contracts and futures are commitments only and, as such, are not recorded on the Company's balance sheet or statements of earnings. Option premiums are deferred when paid and recognized as an adjustment to gains on sales of mortgages over the lives of the options on a straight-line basis. Changes in the market value of hedging contracts are deferred and included in mortgage loans held for sale. Changes in market value are recognized in income as an adjustment to gains on sales of mortgages when the loans and securities are sold. DEFERRED FINANCING COSTS Financing costs incurred in connection with the issuance of bonds by the limited-purpose subsidiaries are capitalized and amortized over the respective lives of the bonds using the interest method. MORTGAGE SERVICING RIGHTS Retained mortgage servicing rights on originated loans are capitalized by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans based on their relative fair values. Capitalized servicing rights, which include purchased servicing rights, are amortized in proportion to and over the period of estimated servicing revenues. MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale are reported net of discounts and are valued at the lower of cost or market determined on an aggregate basis. Any gain or loss on the sale of the loans is recognized at the time of the sale. MORTGAGE-BACKED SECURITIES The Company classifies its mortgage-backed securities into three categories: held-to-maturity, available-for-sale, and trading. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designations as of each balance sheet date. Investment securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities classified as held-to-maturity are stated at amortized cost. Those securities which are held-to-maturity are currently held in a limited-purpose subsidiary and are collateral for bonds payable whose indentures prohibit liquidation of the collateral unless the corresponding bonds are redeemed. Prepayment risk is the only significant risk associated with the mortgage- backed securities classified as held-to-maturity. Securities classified as available-for-sale are measured at fair value with the unrealized gains and losses, net of tax, reflected as a component of stockholders' equity. Securities classified as trading are measured at fair value with gains and losses, both realized and unrealized, recognized in the statement of earnings. At December 31, 1995 and 1994, there were no securities classified as trading. NEW ACCOUNTING PRONOUNCEMENTS FASB 121 In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (FASB 121). The Company adopted this new standard for its inventories, joint venture investments, and other long-lived assets in the fourth quarter of 1995. In accordance with FASB 121, prior period financial statements have not been restated to reflect the change in accounting principle. FASB 121 provides that when events or changes in circumstances indicate that the carrying amount of assets might not be recoverable, companies should evaluate the need for an impairment writedown. In the fourth quarter of 1995, in response to competitive market pressures in California, the Company determined that some product repositioning, increased homebuyer incentives, and reduced selling prices would be necessary in certain of its California subdivisions. The land inventory in most of these subdivisions was acquired in 1988 and 1989 and had a cost basis substantially in excess of current market values. Accordingly, the Company evaluated the affected California subdivisions and determined that certain subdivision inventories were impaired. Under FASB 121, a writedown of $31 million was required to state the impaired inventories at their fair value. Fair value was based upon an evaluation of comparable market prices, discounted cash flow analysis, and expected returns for comparable properties. In addition, the Company decided in the fourth quarter of 1995 to dispose of certain joint venture investments and certain other subdivision inventories because the Company believes that it can achieve higher returns on alternative uses of its capital. As a result, the Company recorded a reserve of $14 million in the fourth quarter of 1995 to reduce the carrying value of these assets to their fair value less cost to sell. Of the total reserve, $7 million pertained to joint venture investments that the Company plans to dispose of in 1996. The Company's carrying value for all of its joint venture investments has now been reduced to $2.5 million. The remaining $7 million reserve primarily pertained to certain subdivision lots that the Company plans to dispose of during 1996 with a carrying value of $11.4 million. FASB 122 In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122 (FASB 122), "Accounting for Mortgage Servicing Rights an amendment of FASB Statement No. 65." This statement requires a mortgage banking enterprise to capitalize retained mortgage servicing rights on originated or purchased loans by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans (without the servicing rights) based on their relative fair values. Previously, only the cost of mortgage servicing rights acquired through a purchase transaction could be capitalized. The new statement also specifies new procedures for assessing impairment of capitalized mortgage servicing rights, whenever capitalized, and requires that impairment shall be recognized through a valuation allowance for individual portfolio stratifications based on the fair value of those rights. The adoption of FASB 122 resulted in a favorable after-tax impact of $.7 million for the year ended December 31, 1995. In accordance with FASB 122, prior period financial statements have not been restated. The book value of the capitalized mortgage servicing rights at December 31, 1995, was $7.8 million, and the aggregate fair value totaled $9.5 million. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type, and interest rates were used to stratify the post-implementation originated mortgage servicing rights. FASB 115 In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 (FASB 115), "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with FASB 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of adopting FASB 115 as of January 1, 1994, increased net income by $2.1 million (net of $1.4 million in deferred income taxes). This cumulative effect adjustment related to unearned income of discount points on mortgage-backed securities, which can now be amortized into income during the period that the mortgage-backed securities are held. The January 1, 1994 balance of stockholders' equity was increased by $7.6 million (net of $5.1 million in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale, which were previously carried at the lower of amortized cost or market. In November 1995, the Financial Accounting Standards Board issued Special Report No. 155-B, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," as an aid in understanding and implementing Statement 115. The effect of adopting this implementation guidance as of December 31, 1995, has resulted in the reclassification of $74,184 of mortgage-backed securities from the held-to- maturity classification to the available-for-sale classification. The related increase in net unrealized gains recorded in stockholders' equity at December 31, 1995, totaled $2,185, net of deferred taxes of $1,456. Restatement of prior periods to reflect the effects of initially adopting this implementation guidance is not permitted. NOTE B: SEGMENT INFORMATION Segment information in the following table is presented on the basis of continuing operations and excludes amounts related to the institutional mortgage-securities administration business, which was sold in 1995 and is reported as discontinued operations. For additional information, refer to Note C: Discontinued Operations. In addition, the Company is no longer in the securities issuance business and, therefore, the limited-purpose subsidiaries are no longer reported as a separate business segment. Amounts related to the limited-purpose subsidiaries are combined with corporate expenses and corporate assets in the following table as "Other."
SEGMENT INFORMATION 1995 1994 1993 ------ ----- ----- REVENUES: Homebuilding $ 1,458,174 $ 1,443,212 $ 1,203,563 Financial services 89,611 123,631 136,529 Other (limited-purpose subsidiaries) 37,267 52,293 110,392 ------------ ------------ ------------ Total $ 1,585,052 $ 1,619,136 $ 1,450,484 ============ ============ ============ PRETAX (LOSS) EARNINGS: Homebuilding $ (47,466) $ 10,928 $ (45,930) Financial services 17,870 33,526 43,751 Corporate and other (12,861) (17,091) (14,082) ------------ ------------ ------------- Total $ (42,457) $ 27,363 $ (16,261) ============ ============ ============= DEPRECIATION AND AMORTIZATION: Homebuilding $ 28,410 $ 17,911 $ 8,743 Financial services 4,846 4,250 7,132 Corporate and other 1,256 3,479 10,216 ------------ ------------ ------------ Total $ 34,512 $ 25,640 $ 26,091 ============ ============ ============ IDENTIFIABLE ASSETS: Homebuilding $ 696,576 $ 740,246 $ 646,784 Financial services 449,419 455,020 820,931 Corporate and other 434,794 509,222 847,978 ------------ ------------ ------------ Total $ 1,580,789 $ 1,704,488 $ 2,315,693 ============ ============ ============
NOTE C: DISCONTINUED OPERATIONS On June 30, 1995, pursuant to an Asset Purchase Agreement dated April 10, 1995, the Company completed the sale of its institutional mortgage-securities administration business to Norwest Bank Minnesota, National Association for a purchase price of $47 million in cash. The Company's institutional mortgage- securities administration business included master servicing, securities administration, investor information services, and tax calculation and reporting. The current and prior period results for this business (formerly reported as institutional financial services) as well as the gain on the sale of the business have been reported as discontinued operations in the accompanying consolidated statements of earnings. There were no operating results from the discontinued business for the second half of 1995 as the sale occurred in the second quarter. Revenues from operations of the discontinued business were $11.4 million, $23.6 million and $24.0 million, for 1995, 1994 and 1993, respectively. Net earnings from operations of the discontinued business were $3.3 million (net of taxes of $2.2 million) for 1995, $6.0 million (net of taxes of $4.0 million) for 1994 and $6.9 million (net of taxes of $4.6 million) for 1993. The Company reported a net gain from the sale of the institutional mortgage- securities administration business of $19.5 million (net of taxes of $13.0 million) in the second quarter of 1995. Proceeds from the sale were used to repay long-term debt of the homebuilding segment and short-term notes payable of the financial services segment. The gain reported reflects the proceeds from the sale less the book value of the net assets of the institutional mortgage-securities administration business, transaction costs, accrued expenses, other costs directly related to the transaction, and income taxes. NOTE D: INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES The Company participates in homebuilding joint ventures primarily in its California and Mid-Atlantic regions. Summarized financial information for all joint venture entities accounted for under the equity method is as follows: STATEMENTS OF EARNINGS
Year ended December 31, 1995 1994 1993 ------ ------- ------ Revenues $ 23,045 $ 38,900 $ 72,527 Cost of sales 21,287 36,718 67,912 Expenses 894 2,544 3,930 -------- --------- --------- Pretax earnings (losses) $ 864 $ (362) $ 685 ======== ========= ======== The Company's share of pretax earnings (losses) $ 406 $ (37) $ 460 Impairment valuation reserve (7,000) 0 (2,400) --------- ---------- --------- Pretax losses $ (6,594) $ (37) $ (1,940) ========= ========= =========
BALANCE SHEETS
December 31, 1995 1994 ------ ----- Assets: Housing inventories $ 15,521 $ 31,698 Other assets 8,449 9,636 -------- -------- Total assets $ 23,970 $ 41,334 ======== ======== Liabilities and Partners' Equity: Debt $ 11,892 $ 14,219 Other liabilities 7,261 9,286 Due to the Company 7,905 8,195 ------ ------ Total liabilities 27,058 31,700 The Company's equity (5,378) 3,305 Other partners' equity 2,290 6,329 ------- ------ Total equity (3,088) 9,634 ------- ------ Total liabilities and equity $ 23,970 $ 41,334 ======= =======
The Company generally has a 50 percent interest in these joint ventures and records its interest in their operating results using the equity method. The Company's share of operating results is not always in proportion to its ownership interest. The Company's equity and the pretax earnings (losses) reflected in the above table included charges to earnings of $7,000 and $2,400 in 1995 and 1993, respectively, related to joint venture investments in the Mid-Atlantic region. The joint ventures primarily use non-recourse Financing arrangements collateralized by joint venture land and improvements. The Company had guaranteed $1,400 and $2,535 of joint venture debt at December 31, 1995 and 1994, respectively. NOTE E: ASSETS OF FINANCIAL SERVICES AND THE LIMITED-PURPOSE SUBSIDIARIES FINANCIAL SERVICES Mortgage loans held for sale consist of loans collateralized by first mortgages or first deeds of trust on single-family attached or detached houses. Mortgage-backed securities and notes receivable consist of GNMA certificates, FNMA mortgage pass-through certificates, FHLMC participation certificates, notes receivable secured by mortgage-backed securities, and whole loans. Mortgage loans held for sale and mortgage-backed securities were reported net of mortgage (premiums)/discounts of ($547) and $4,175 at December 31, 1995 and 1994, respectively. Mortgage loans held for sale, mortgage-backed securities, and notes receivable are pledged as collateral for certain short- term notes payable (see Note F). The financial services segment serviced 81,000 loans with principal balances totaling $6.2 billion and $6.9 billion at December 31, 1995 and 1994, respectively. As a mortgage servicer, the Company may incur risk with respect to mortgages that are delinquent or in foreclosure to the extent that losses are not covered by a mortgage insurer or guarantor. At December 31, 1995 and 1994, $2,409 and $2,201, respectively, were reserved for potential losses on the servicing portfolio. These reserves are established based on the current economic environment and historical experience for foreclosures and delinquencies. LIMITED-PURPOSE SUBSIDIARIES Collateral for bonds payable consists of notes receivable secured by mortgage- backed securities, fixed-rate mortgage loans, and mortgage-backed securities secured by first liens on single-family residential housing. Mortgage-backed securities consist of GNMA certificates, FNMA mortgage pass-through certificates, and FHLMC participation certificates. All principal and interest on the collateral is remitted directly to a trustee and is available for payment on the bonds. The components of collateral for bonds payable at December 31 are summarized as follows:
1995 1994 ------ ----- Notes receivable $ 158,352 $ 192,657 Mortgage-backed securities 147,532 185,726 Mortgage loans 51,917 66,197 Funds held by trustee 26,231 25,378 Mortgage discounts (8,886) (10,914) ------- -------- Total $ 375,146 $ 459,044 ======= ========
Cash reserves totaling $189 and $1,701 as of December 31, 1995 and 1994, respectively, provide additional security for the bonds and will be available for payment on the bonds in the event of certain circumstances as described in the trust indentures. Neither The Ryland Group, Inc. nor its homebuilding and financial services subsidiaries have guaranteed or are otherwise obligated with respect to these bond issues. MORTGAGE-BACKED SECURITIES: UNREALIZED GAINS AND LOSSES Mortgage-backed securities are held by the financial services segment and reported in the balance sheet caption, "Mortgage-backed securities and notes receivable," and are also held by the limited-purpose subsidiaries in the balance sheet caption, "Collateral for bonds payable." The following is a consolidated summary of mortgage-backed securities as of:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------ ------- --------- -------- DECEMBER 31, 1995 Available-for-sale $ 79,133 $ 4,659 $ 409 $ 83,383 Held-to-maturity 110,007 8,754 0 118,761 --------- -------- ------- --------- Total $ 189,140 $ 13,413 $ 409 $ 202,144 ========= ======== ======= ========= DECEMBER 31, 1994 Available-for-sale $ 60,709 $ 3,082 $ 144 $ 63,647 Held-to-maturity 215,487 6,502 2,050 219,939 --------- -------- ------- -------- Total $ 276,196 $ 9,584 $ 2,194 $ 283,586 ========= ======== ======= =========
NOTE F: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE Financial services had outstanding borrowings at December 31 as follows:
1995 1994 ---- ---- Mortgage warehouse and working capital facility $ 244,254 $ 199,500 Repurchase agreements 82,653 178,129 Revolving credit agreement 34,260 0 Bond redemption Financing agreement 6,302 0 --------- --------- Total outstanding borrowings $ 367,469 $ 377,629
During 1995, the Company renewed its bank facility which provides up to $325 million for mortgage warehouse funding and $40 million for working capital advances, and extended the maturity of the facility to May 1997. The working capital advances are secured by the common stock of one of the Company's subsidiaries within the financial services segment, certain loan-servicing rights, and the related loan-servicing advances. Borrowings outstanding under this bank facility totaling $244,254 at December 31, 1995, were collateralized by mortgage loans held for sale with outstanding principal balances of $263,544. The outstanding warehouse borrowings totaling $199,500 at December 31, 1994, were collateralized by mortgage loans held for sale with outstanding principal balances of $197,366 and loan servicing advances of $17,600. The effective interest rates on these borrowings were 4.1 percent, 2.1 percent, and 2.4 percent for 1995, 1994, and 1993, respectively. The agreement contains certain financial covenants, which the Company met at December 31, 1995. The repurchase agreements represent short-term borrowings. The collateral for these borrowings consists of mortgage loans held for sale and mortgage- backed securities with outstanding balances on December 31, 1995 and 1994, of $84,113 and $183,260, respectively. The effective interest rates were 6.4 percent, 4.6 percent, and 3.7 percent for 1995, 1994, and 1993, respectively. The following table provides additional information relating to the mortgage loans and mortgage-backed securities collateralizing the repurchase agreements at December 31, 1995:
Assets -------------------------------- Carrying Accrued Fair Repurchase Interest Maturity Value Interest Value Liability Rate - ------------- -------- -------- ------- -------- ------ Up to 30 days $ 27,323 $ 193 $ 27,579 $ 26,544 6.5% 31 to 90 days 37,764 322 38,795 37,094 6.3% Demand 19,026 175 20,817 19,015 6.0% -------- ----- -------- -------- Total $ 84,113 $ 690 $ 87,191 $ 82,653 ======== ===== ======== ========
In September 1995, the Company entered into a $100 million revolving credit facility to be used for financing investment securities in the financial services segment. The agreement carries a one-year term, bears interest at market rates, and is collateralized by investment portfolio securities with outstanding balances of $34,426 at December 31, 1995. The effective interest rate on the revolving credit agreement was 6.24 percent for 1995. The Company also has a secured $35 million credit agreement to be used for the short-term financing of optional bond redemptions, which was renewed in January 1996. The agreement carries a one-year term and bears interest at market rates. The effective interest rates for this credit agreement during 1995 and 1994 were 6.5 percent and 1.3 percent, respectively. The weighted-average interest rates at the end of the period on all short- term borrowings were 4.6 percent, 4.6 percent, and 3.1 percent for 1995, 1994, and 1993, respectively. The weighted-average interest rates during the period on all short-term borrowings were 4.8 percent, 3.5 percent, and 3.1 percent for 1995, 1994, and 1993, respectively. NOTE G: OFF BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN ORIGINATIONS The Company is a party to financial instruments in the normal course of business. The financial services segment uses financial instruments to meet the financing needs of its customers and reduce its exposure to fluctuations in interest rates. These instruments involve, to varying degrees, elements of credit and market risk not recognized in the consolidated balance sheets. The Company has no derivative Financial instruments that are held for trading purposes. The contract or notional amounts of these financial instruments as of December 31 are as follows:
1995 1994 ------ ------ Commitments to originate mortgage loans $ 64,393 $ 85,466 Hedging contracts: Forward delivery contracts $ 157,850 $ 146,900 Options on forward delivery contracts $ 45,000 $ 5,000
In addition, to protect against exposure to interest rate fluctuations on adjustable-rate mortgage-loan commitments, at December 31, 1995 and 1994, the Company contracted with various parties to deliver $154,200 and $205,466, respectively, in adjustable- and fixed-rate mortgage loans for a specified price on a primarily best efforts basis. Commitments to originate mortgage loans represent loan commitments with customers at current market rates up to 120 days before settlement. Loan commitments have no carrying value on the balance sheet. These commitments expose the Company to market risk as a result of increases in mortgage interest rates. The amount of risk is limited to the difference between the contract price and current market value, and is mitigated by fees collected from the customer and by the Company's hedging activities. Loan commitments had interest rates ranging from 6.3 percent to 11.0 percent as of December 31, 1995, and 5.3 percent to 11.9 percent as of December 31, 1994. Hedging contracts are regularly entered into by the Company for the purpose of mitigating its exposure to movements in interest rates on mortgage commitments and mortgage loans held for sale. The selection of these hedging contracts is based upon the Company's marketing strategy, which establishes a risk tolerance level. The major factors influencing the use of the various hedging contracts include general market conditions, interest rate, types of mortgages originated, and the percentage of mortgage loan commitments expected to be funded. The market risk assumed while holding the hedging contracts generally mitigates the market risk associated with the mortgage loan commitments and mortgage loans held for sale. Exposure to credit risk in the event of nonperformance by the other parties to the hedging contracts would be limited to the difference between the contract price and current market value of the hedged item, which would be a small percentage of the outstanding commitments, and would be limited to those instances where the Company was in a net unrealized gain position. The Company manages this credit risk by entering into agreements with counterparties meeting the credit standards of the Company and monitoring position limits. Net deferred hedging (losses)/gains included with mortgage loans held for sale on the Company's balance sheet at December 31, 1995 and 1994, amounted to ($2,463) and $423, respectively. NOTE H: FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's financial instruments, both on and off the balance sheet, are held for purposes other than trading. The fair values of these financial instruments are based on quoted market prices, where available, or are estimated using present value or other valuation techniques. Estimated fair values are significantly affected by the assumptions used, including the discount rate and estimates of cash flow. In that regard, the derived fair- value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The table below sets forth the carrying values and fair values of the Company's financial instruments, except for those financial instruments noted below for which the carrying values approximate fair values at the end of the year. It excludes non-financial instruments and, accordingly, the aggregate fair-value amounts presented do not represent the underlying value of the Company. The Company used the following methods and assumptions in estimating fair values: Cash and cash equivalents, industrial revenue bonds, bank credit agreement, loan servicing receivables, and short-term notes payable: The carrying amounts reported in the balance sheet approximate fair values. Secured notes payable: The fair values of the Company's secured notes payable are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Senior notes, senior subordinated notes, mortgage loans held for sale, mortgage-backed securities, the various hedging contracts if settled on December 31, 1995, and mortgage loan commitments: The fair values of these financial instruments are estimated based on quoted market prices for similar financial instruments. Call right options: In estimating the fair value, current mortgage prepayment speeds and mortgage collateral balances were used to estimate when the call rights would be exercisable. Based on year-end 1995 and 1994 collateral prices, the implied net gains that could be realized on exercise of the options and sale of the mortgage collateral were estimated. These net gains were then discounted using a current long-term market interest rate.
1995 1994 ------------------ ------------------ Carrying Fair Carrying Fair Value Value Value Value ------------------ ------------------ HOMEBUILDING Liabilities: Secured notes payable $ 4,498 $ 4,498 $ 25,560 $ 25,527 Senior notes 53,000 55,490 53,000 51,869 Senior subordinated notes 200,000 201,500 200,000 171,220 FINANCIAL SERVICES Assets: Mortgage loans held for sale, net $285,001 $286,176 $214,772 $215,876 Mortgage-backed securities, held-to-maturity, net - - 32,620 34,558 Mortgage-backed securities, available-for-sale, net 47,911 47,911 63,647 63,647 Notes receivable and other 64,633 68,332 74,853 76,124 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: Forward delivery contracts - (1,447) - (453) Options on forward delivery contracts - - - 13 Commitments to originate mortgage loans - 296 - (61) Call right options - 5,012 - 2,547 Other Assets: Collateral for bonds payable of the limited-purpose subsidiaries $375,146 $395,760 $459,044 $468,179 Other Liabilities: Bonds payable of limited-purpose subsidiaries $364,672 $394,175 $446,752 $466,714
NOTE I: LIMITED-PURPOSE SUBSIDIARIES BONDS PAYABLE The Company's limited-purpose subsidiaries are no longer issuing mortgage- backed securities and mortgage-participation securities. Previously, they issued mortgage-backed bonds and the Company retained residual interests in some of these bonds. Payments are made on the bonds on a periodic basis as a result of, and in amounts relating to, corresponding payments received on the underlying mortgage collateral. The following table sets forth information with respect to the limited- purpose subsidiaries' bonds payable outstanding at December 31:
1995 1994 ------ ------- Bonds payable, net of discounts: 1995-$6,662; 1994-$7,862 $ 364,672 $ 446,752 Range of interest rates 7.25-12.625% 7.25%-12.625% Stated maturities 2006-2019 2006-2021
NOTE J: LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, 1995 1994 ----- ------ Bank credit agreement $ 137,000 $ 127,500 Senior subordinated notes 200,000 200,000 Senior notes 53,000 53,000 Secured notes payable 4,498 25,560 Industrial revenue bonds 2,109 2,684 --------- -------- 396,607 408,744 Less current portion (35,073) (18,062) --------- --------- $ 361,534 $ 390,682 ========= =========
The Company has an unsecured credit agreement with a group of banks, which was renewed in 1995 for a three-year period. The total borrowing capacity under this agreement, which matures in July 1998, was increased from $250 million to $400 million. Borrowings under the agreement bear interest at variable short-term rates. The effective interest rates for 1995, 1994, and 1993 were 8.0 percent, 6.6 percent, and 5.0 percent, respectively. The Company has $100,000 of 10.5 percent senior subordinated notes outstanding, due July 15, 2002, with interest payable semi-annually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after July 15, 1997. The Company also has $100,000 of 9.625 percent senior subordinated notes, due 2004, with interest payable semi-annually, which may be redeemed at the option of the Company, in whole or in part, at any time on or after December 1, 2000. Senior subordinated notes are subordinated to all existing and future senior debt of the Company. At December 31, 1995, the Company had $53,000 of senior notes outstanding. The notes bear a fixed interest rate of 10.5 percent and mature in the years 1996 through 2000. Senior notes amounting to $15,000 matured and were paid off in January 1996. The Company's secured notes payable bear interest at 5.0 to 9.5 percent and are secured by land included in inventories with carrying values of approximately $8,694 and $38,037 as of December 31, 1995 and 1994, respectively. These notes are scheduled to be repaid in 1996. Industrial revenue bonds (IRBs), due in 1999, were issued in connection with the construction of manufacturing plants and bear interest at rates approximating short-term, tax-exempt rates. The combined effective interest rates for 1995, 1994, and 1993 were 4.5 percent, 3.3 percent, and 3.1 percent, respectively. The IRBs are collateralized with a first lien on all real and personal property at the respective sites, having a net carrying value on December 31, 1995 and 1994, of $4,774 and $5,143, respectively. Maturities of long-term debt for each of the next five years are as follows:
1996 $ 35,073 1997 15,575 1998 137,650 1999 309 2000 8,000
The bank credit agreement, senior subordinated indenture agreements, senior note agreements, and IRB loan agreements contain certain financial covenants. Under the loan covenants the Company has $13,662 of retained earnings available for dividends at December 31, 1995. At December 31, 1995, the Company is in compliance with its covenants. NOTE K: INCOME TAXES The Company's (benefit) expense for income taxes relating to (losses) earnings from continuing operations for the years ended December 31 is summarized as follows:
1995 1994 1993 ----- ----- ----- CURRENT: Federal $ (1,257) $ 5,671 $ 17,382 State (266) 1,203 3,566 -------- ------- -------- Total current (1,523) 6,874 20,948 DEFERRED: Federal (12,754) 3,359 (22,936) State (2,706) 713 (4,706) -------- ------- -------- Total deferred (15,460) 4,072 (27,642) -------- ------- -------- Total (benefit) expense $(16,983) $10,946 $ (6,694) ======== ======= ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A reconciliation between the total income tax (benefit) expense and the income tax (benefit) expense computed by applying the statutory federal income tax rate to (losses) earnings from continuing operations before income taxes is as follows:
1995 1994 1993 ---- ----- ----- Computed income taxes at statutory rate (35%) $ (14,860) $ 9,577 $ (5,691) Applicable state taxes (1,932) 1,245 (740) Goodwill amortization 408 408 408 RSOP dividend (401) (401) (328) Other, net (198) 117 (343) --------- ------- -------- Total actual income tax (benefit) expense $ (16,983) $10,946 $ (6,694) ========= ======= ========
Significant components of the Company's deferred tax liabilities and assets as of December 31 were as follows:
1995 1994 ---- ---- DEFERRED TAX ASSETS: Inventory valuation provisions and operational reserves $ 37,278 $ 24,070 Employee benefit plans 5,472 4,479 Capitalization of costs to inventory 5,809 6,756 Recognition of joint venture income 847 2,474 Other 2,531 2,676 ------- ------ Total deferred tax assets 51,937 40,455 ======= ====== DEFERRED TAX LIABILITIES: Gross profit from sales reported on the installment method (5,091) (6,082) Preconstruction interest (2,307) (3,039) Unrealized market gain (1,354) (1,690) Other (1,926) (1,822) ------- ------- Total deferred tax liabilities (10,678) (12,633) ------- ------- Net deferred tax asset $ 41,259 $ 27,822 ======= =======
The Company has determined that no valuation allowance for the deferred tax asset is required due to tax carrybacks currently available. The Company had a current tax asset of $7,750 as of December 31, 1995, and a current tax asset of $11,614 as of December 31, 1994. NOTE L: STOCKHOLDERS' EQUITY PREFERRED STOCK On August 31, 1989, the Company sold 1,267,327 shares of non-transferable convertible preferred stock, par value $1.00, to the RSOP Trust for $31.5625 per share, or an aggregate purchase price of approximately $40,000 (see Note M). Each share of preferred stock pays an annual cumulative dividend of $2.21. During 1995, 1994, and 1993, the Company paid $2,193, $2,441, and $2,589, respectively, in dividends on the preferred stock. Each share of preferred stock is entitled to a number of votes equal to the shares into which it is convertible, and the holders of the preferred stock generally vote together with the common stockholders on all matters. Under the RSOP Trust, at the option of the trustee, the Company may be obligated to redeem the preferred stock to satisfy distribution obligations to or investment elections of participants. For purposes of these redemptions, the value of each share of preferred stock is determined monthly by an independent appraiser, with a minimum guaranteed value of $25.25 per share. The Company may issue common stock to satisfy this redemption obligation, with any excess redemption price to be paid in cash. At December 31, 1995 and 1994, the maximum cash obligation for such redemptions was shown outside of stockholders' equity as part of other liabilities. This obligation is calculated assuming that all preferred shares outstanding were submitted for redemption. Based upon the appraised value of each share of preferred stock ($25.50, $25.25, and $29.125) and the market value of each share of common stock ($14.00, $15.00, and $20.00) at December 31, 1995, 1994, and 1993, respectively, and the application of a proportionate amount of the note due from the RSOP Trust, the net amounts of this obligation at December 31, 1995, 1994, and 1993 were $3,051, $3,453, and $2,398, respectively. During 1995 and 1994, 129,806 and 80,749 shares of preferred stock, respectively, were converted into shares of common stock. COMMON SHARE PURCHASE RIGHTS On December 17, 1986, the Company declared a dividend of one common share purchase right for each share of common stock outstanding on February 9, 1987. Each right entitles the holder to purchase one share of common stock at an exercise price of $70. The rights become exercisable 20 business days after any party acquires or announces an offer to acquire 20 percent or more of the Company's common stock. The rights expire January 11, 1997, and are redeemable at $0.05 per right at any time before 20 business days following the time that any party acquires 20 percent or more of the Company's common stock. In the event the Company enters into a merger or other business combination, or if a substantial amount of its assets are sold after the time that the rights become exercisable, the rights provide that the holder will receive, upon exercise, shares of the common stock of the surviving or acquiring Company having a market value of twice the exercise price. Until the earlier of the time that the rights become exercisable, are redeemed or expire, the Company will issue one right with each new share of common stock issued. NOTE M: EMPLOYEE INCENTIVE AND STOCK PLANS The Company's employee incentive and stock plans are as follows: RETIREMENT AND STOCK OWNERSHIP PLAN On August 16, 1989, the Company established an employee stock ownership plan, known as the RSOP Trust. The RSOP Trust's purchase of shares of preferred stock was Financed by a loan to the RSOP Trust by the Company in an amount of $40,000. The loan bears interest at the rate of 9.99 percent and is expected to be repaid by the RSOP Trust through dividends received on the preferred stock and Company contributions. The RSOP Trust incurred interest on this loan in 1995, 1994, and 1993 of $2,229, $2,637, and $3,045, respectively. Preferred shares are collateral for the loan and are released to the RSOP Trust as debt payments are made. As of December 31, 1995, 428,001 shares under the RSOP Trust have been allocated to participants and 515,096 shares remain unallocated. There are two components within the RSOP: a 401(k) plan and a Profit sharing plan. All full-time employees with one year of service are eligible to participate in the RSOP. Pursuant to Section 401(k) of the Internal Revenue Code, the plan permits deferral of a portion of a participant's income into a variety of investment options. Compensation expense reflects the Company's matching contributions of the employee 401(k) contributions and any discretionary profit sharing contribution. Total compensation expense amounted to $5,072, $4,986, and $5,042 in 1995, 1994, and 1993, respectively. EQUITY INCENTIVE PLAN AND OTHER RELATED PLANS The Company's 1992 Equity Incentive Plan permits the Company to provide equity incentives in the form of stock options, stock appreciation rights, performance shares, restricted stock, and other stock-based awards to employees. Under the Company's 1992 Equity Incentive Plan, options are granted to purchase shares at prices not less than the fair-market value of the shares at the date of grant. The options are exercisable at various dates over one- to 10-year periods. The Company uses the intrinsic value method to measure compensation expense related to the award of stock options. Since stock option awards are granted at prices no less than the fair-market value of the shares at the date of grant, no compensation expense is recognized. Pursuant to the Equity Incentive Plan, the Company has long-term incentive plans for officers and key employees. After each fiscal year, restricted shares of the Company's common stock and cash are credited to the accounts of the participants according to a prescribed formula. Total compensation expense relating to these plans amounted to $1,404 in 1995 and $2,504 in 1994. There was no compensation expense relating to this plan in 1993. Under the Company's Non-employee Director Equity Plan, stock options are granted to directors to purchase shares at prices not less than the fair- market value of the shares at the date of grant. A maximum of 100,000 shares of common stock has been reserved for issuance under this plan. On November 29, 1993, the Company entered into a Stock Unit Agreement with an officer, pursuant to the Equity Incentive Plan. The Company granted to the officer 75,000 stock units. Each stock unit is payable in one share of the Company's common stock. The units vest in increments of 15,000 units for five years beginning November 1, 1994. For 1995 and 1994, the Company recognized compensation expense of $267 and $315, respectively, under this plan The following is a summary of the transactions relating to all stock option plans for each year ended December 31:
1995 1994 1993 ------ ------- ------- Options outstanding Beginning of year 1,262,599 1,040,530 1,034,792 Granted 620,270 507,600 240,800 Exercised (47,600) (45,030) (94,622) Canceled (289,569) (240,501) (140,440) --------- --------- ---------- Options outstanding end of year 1,545,700 1,262,599 1,040,530 Available for future grant 530,729 708,157 737,351 --------- --------- --------- Total shares reserved 2,076,429 1,970,756 1,777,881 ========= ========= ========= Options exercisable at December 31 701,262 656,827 600,500 ========= ========= ========= Prices related to options exercised during the year $10.94-$15.25 $10.13-$20.75 $10.13-$23.25 Prices related to options outstanding on December 31, 1995, ranged from $13.50 to $26.00.
NOTE N: COMMITMENTS AND CONTINGENCIES COMMITMENTS In the normal course of business, the Company acquires rights under option agreements to purchase land for use in future homebuilding operations. As of December 31, 1995, the Company had deposits and letters of credit outstanding of $29,761 for options and land purchase contracts having a total purchase price of $334,462. Rent expense primarily relates to office facilities, model home furniture, and equipment. Total rent expense amounted to $11,681, $13,973, and $10,544 for the years ended December 31, 1995, 1994 and 1993, respectively. Future minimum rental commitments under non-cancelable leases with remaining terms in excess of one year are as follows:
1996 $ 9,559 1997 8,704 1998 6,091 1999 4,044 2000 3,395 After 2000 2,883 -------- Total lease commitments $ 34,676 ========
CONTINGENCIES Contingent liabilities may arise from the obligations incurred in the ordinary course of business, or from the usual obligations of on-site housing producers for the completion of contracts. Some municipalities require the Company to issue development bonds or maintain letters of credit to assure completion of public facilities within a project. Total development bonds at December 31, 1995, were $85,859, and total letters of credit at December 31, 1995, were $4,077. One current and two former officers of Ryland Mortgage Company ("RMC") have been notified that they are targets of a federal grand jury investigation concerning alleged misappropriation of funds from the Resolution Trust Corporation ("RTC"). The Company has been advised that the investigation relates to alleged overpayments to RMC of approximately $3 million under two mortgage-servicing contracts with the RTC. The Company is investigating this matter, and at this time cannot predict how it will be resolved or whether the Company or RMC will incur any liability. The Company is also party to various legal proceedings generally incidental to its businesses. Based on evaluation of these matters and discussions with counsel, management believes that liabilities to the Company arising from these matters will not have a material adverse effect on the financial condition of the Company. The Ryland Group, Inc. and Subsidiaries REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders The Ryland Group, Inc. We have audited the accompanying consolidated balance sheets of The Ryland Group, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Ryland Group, Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note A to the financial statements, in the fourth quarter of 1995, the Company changed its method of accounting for impairment of long- lived assets in accordance with the adoption of FASB No. 121 and, effective January 1, 1994, the Company also changed its method of accounting for investments in debt securities in accordance with the adoption of FASB No. 115. /s/ Ernst & Young LLP Baltimore, Maryland February 5, 1996 The Ryland Group, Inc. and Subsidiaries QUARTERLY FINANCIAL DATA (amounts in thousands, except per share data) unaudited
1995 QUARTER ENDED Dec. 31(1) Sept. 30 June 30 March 31 - ---------------------------------------------------------------------------- Consolidated Results: Revenues $448,040 $402,587 $389,228 $345,197 (Loss) earnings from continuing operations before taxes (39,588) 1,130 (1,536) (2,463) Income tax (benefit) expense (15,835) 452 (614) (986) --------- -------- --------- -------- Net (loss) earnings from continuing operations (23,753) 678 (922) (1,477) Discontinued operations, net of taxes(2) Earnings from discontinued operations 0 0 1,168 2,150 Gain on sale of discontinued operations 0 0 19,538 0 --------- -------- -------- -------- Net (loss) earnings before cumulative effect of a change in accounting principle (23,753) 678 19,784 673 Cumulative effect of a change in accounting principle (net of taxes of $1,384) 0 0 0 0 --------- -------- -------- -------- Net (loss) earnings $(23,753) $ 678 $ 19,784 $ 673 Net (loss) earnings per common share (primary) $ (1.55) $ 0.01 $ 1.22 $ 0.01 Weighted average common shares outstanding 15,667 15,812 15,764 15,676 (1) Reflects a $27 million after-tax charge related to homebuilding inventories and investments in unconsolidated joint ventures. (2) The Company sold its institutional mortgage-securities administration business in the second quarter of 1995. (3) Includes the effect of a change in accounting principle of $0.13 per share.
1994 QUARTER ENDED Dec. 31(1) Sept. 30 June 30 March 31 - ---------------------------------------------------------------------------- Consolidated Results: Revenues $439,720 $441,975 $410,649 $326,792 (Loss) earnings from continuing operations before taxes 1,343 11,378 10,026 4,616 Income tax (benefit) expense 538 4,551 4,010 1,847 -------- -------- -------- -------- Net (loss) earnings from continuing operations 805 6,827 6,016 2,769 Discontinued operations, net of taxes(2) Earnings from discontinued operations 1.460 1,562 1,566 1,386 Gain on sale of discontinued operations 0 0 0 0 -------- -------- ------- -------- Net (loss) earnings before cumulative effect of a change in accounting principle 2,265 8,389 7,582 4,155 Cumulative effect of a change in accounting principle (net of taxes of $1,384) 0 0 0 2,076 Net (loss) earnings $ 2,265 $ 8,389 $ 7,582 $ 6,231 Net (loss) earnings per common share (primary) $ 0.11 $ 0.50 $ 0.45 $ 0.36(3) Weighted average common shares outstanding 15,572 15,554 15,553 15,574 (1) Reflects a $27 million after-tax charge related to homebuilding inventories and investments in unconsolidated joint ventures. (2) The Company sold its institutional mortgage-securities administration business in the second quarter of 1995. (3) Includes the effect of a change in accounting principle of $0.13 per share.
The Ryland Group, Inc. and Subsidiaries COMMON STOCK PRICES AND DIVIDENDS The Ryland Group, Inc., lists its common shares on the New York Stock Exchange, trading under the symbol RYL. The table below presents the high and low market prices and dividend information for the Company. The number of common stockholders of record as of February 7, 1996, was 3,252. (See Note J for dividend restrictions.)
Dividends Declared 1995 High Low Per Share - ---------------------------------------------------- --------------------- First quarter $15 $ 13 3/8 $0.15 Second quarter 17 1/4 14 3/8 0.15 Third quarter 17 1/4 14 5/8 0.15 Fourth quarter 15 5/8 12 3/8 0.15
Dividends Declared 1994 High Low Per Share - -------------------------------------------------------------------------- First quarter $25 5/8 $19 3/4 $0.15 Second quarter 21 17 3/8 $0.15 Third quarter 19 1/8 15 7/8 $0.15 Fourth quarter 16 3/8 12 7/8 $0.15
EX-21 7 EXHIBIT 21 LIST OF SUBSIDIARIES OF REGISTRANT Ryland Mortgage Company (an Ohio Corporation) M.J. Brock & Sons, Inc. (a Delaware Corporation) LPS Holdings Corporation (a Maryland Corporation) EX-23 8 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Ryland Group, Inc., of our report dated February 5, 1996, included in the 1995 Annual Report to the Shareholders of The Ryland Group, Inc. Our audits also included the financial statement schedule of The Ryland Group,, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-16774, Form S-3 No. 33-28692, Form S-8 No. 33- 32431, Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-8 No. 33-56905, Form S-8 No. 33-56917) of The Ryland Group, Inc., and in the related Prospectuses of our report dated February 5, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of The Ryland Group, Inc. /s/Ernst & Young LLP Baltimore, Maryland March 22, 1996 EX-24 9 EXHIBIT 24 - POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of The Ryland Group, Inc., a Maryland corporation, constitute and appoint R. Chad Dreier and Michael D. Mangan and either of them, the true and lawful agents and attorneys-in-fact of the undersigned with full power and authority in said agents and attorneys-in-fact, and in either of them, to sign for the undersigned in their respective names as directors and officers of The Ryland Group, Inc., the Annual Report on Form 10-K of The Ryland Group, Inc., for the fiscal year ended December 31, 1995, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. We hereby confirm all acts taken by such agents and attorneys-in-fact, or either of them, as herein authorized. DATED: February 21, 1996 /s/ R. Chad Dreier -------------------------------------- R. Chad Dreier, Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) /s/ Andre W. Brewster -------------------------------------- Andre W. Brewster, Director /s/ James A. Flick, Jr. -------------------------------------- James A. Flick, Jr., Director /s/ Robert J. Gaw -------------------------------------- Robert J. Gaw, Director /s/ Leonard M. Harlan -------------------------------------- Leonard M. Harlan, Director /s/ L.C. Heist -------------------------------------- L.C. Heist, Director /s/ William L. Jews -------------------------------------- William L. Jews, Director /s/ William G. Kagler -------------------------------------- William G. Kagler, Director /s/ John H. Mullin, III -------------------------------------- John H. Mullin, III, Director /s/ Charlotte St. Martin -------------------------------------- Charlotte St. Martin, Director /s/ John O. Wilson -------------------------------------- John O. Wilson, Director EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RYLAND GROUP, INC. FORM 10-K FOR THE PERIOD ENDED 12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 DEC-31-1995 55,992 112,544 285,001 0 537,918 0 34,662 0 1,580,789 0 732,141 15,682 0 943 284,499 1,580,789 1,458,174 1,585,052 1,324,746 1,523,893 12,982 0 90,703 (42,457) (16,983) (25,474) 22,856 0 0 (2,618) (0.31) (0.31)
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