-----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, TffqFHf60P9L+POyxlPpFzgn8a7nLwHgE6UObJ4gOApawKzVNfWpeKM8QZM7RnCk RhI1BuGFAaWuOrqyjUkkHA== 0000882184-96-000011.txt : 19961223 0000882184-96-000011.hdr.sgml : 19961223 ACCESSION NUMBER: 0000882184-96-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HORTON D R INC /DE/ CENTRAL INDEX KEY: 0000882184 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 752386963 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14122 FILM NUMBER: 96683784 BUSINESS ADDRESS: STREET 1: 1901 ASCENSION BLVD STREET 2: STE 100 CITY: ARLINGTON STATE: TX ZIP: 76006 BUSINESS PHONE: 8178568200 10-K 1 FORM 10-K ANNUAL REPORT FOR D.R. HORTON, INC. Letter to Our Stockholders: D.R. Horton, Inc. enjoyed another exceptional year in 1996. By growing revenues and earnings to new records, our Company achieved its 19th consecutive year of growth and profitability and is now the twenty-second largest homebuilder in the United States. SINCE COMPLETING OUR INITIAL PUBLIC OFFERING IN JUNE 1992, D.R. HORTON, INC. HAS: . Expanded from 8 to 24 markets . Grown its revenues from $153 million to over $547 million . Increased net income from $8.1 million to $27.4 million . Increased stockholders' equity from $50.2 million to $177.6 million . Provided stockholders with an annual return on average stockholders' equity of 20% The growth that we have experienced since June 1992 reinforces the belief that we can achieve our goal of $1 billion in revenues by the year 2000. KEY FINANCIAL ACCOMPLISHMENTS IN 1996 INCLUDE: . 33% increase in net income to $27.4 million . 25% increase in revenues to $547.3 million (3,284 homes) . 30% increase in new sales orders to $585.5 million (3,488 homes) . 22% increase in year end sales backlog to $208.9 million (1,204 homes) DURING 1996 WE ALSO WERE SUCCESSFUL IN: . Improving our pretax earnings by 70 basis points to 8.1% of revenues. This was accomplished by improved gross margins (20 basis points), reduced selling, general and administrative expenses as a percentage of revenues (40 basis points), and increased other income from mortgage and title activities (10 basis points). . Listing our Company on the New York Stock Exchange under the symbol "DHI", which reduced the quoted spreads on our stock and improved the execution of stockholder transactions. . Raising $43.2 million of additional equity by issuing additional common stock in January 1996. This provided us with the equity necessary for our continued growth and increased our book value per share by 18%. . Increasing our banking relationships with credit facilities approaching $300 million, all on an unsecured basis and at improved financing rates and terms. $100 million of this amount is a five-year term note and $150 million is a three-year revolver. By using bank financing instead of public debt, the Company saved over $2 million in financing costs in 1996 alone. . Expanding our operations to Pensacola and Albuquerque, which provided new opportunities for future growth. D.R. Horton, Inc. served 24 markets and is one of three homebuilding companies with operations in 19 states. . Diversifying our activities to expand on the relationships we have with our homebuyers by creating DRH Mortgage Company, Ltd., a joint venture, which provides mortgage financing services primarily to purchasers of homes built and sold by the Company. We presently offer these services in our Texas and Arizona markets, with expansion planned to other markets. Our title agency activities also were expanded to include operations in Florida and additional markets in Texas. We continue exploring other ways to broaden the services we provide to our homebuyers. . Using option contracts to control (rather than own) adequate land positions to meet our future needs allows us to conserve our capital and reduce the risk associated with land ownership. At September 30, 1996, D.R. Horton held option contracts for 9,180 lots with an estimated aggregate purchase price approximating $290 million. This represents about 64% of our total lot position. . Distributing an 8% stock dividend in May as a method of enhancing stockholder value. We believe this also improves the liquidity of our common stock. . Establishing the D.R. Horton stock purchase plan to promote employee purchases of D.R. Horton, Inc. common stock. Company employees own more than 50% of the outstanding stock, thereby uniting employees and stockholders in common goals. COMPANY AWARDS We reward excellence within our Company by issuing three annual awards: . The Dallas/Fort Worth East Division, managed by Leon Horton, was named "Division of The Year" by Mr. Horton's peer group within the Company. . Our San Diego Division had an award winning Triana Project where the Company enjoyed great success. Nancy French, our sales person on this project, led the Company by selling the highest dollar volume of homes and is our "Sales Person of the Year". Tom Lombardi, the construction manager for the same project, is our "Construction Person of the Year" for supervising construction of the most homes in 1996. We congratulate the recipients of these awards and we emphasize that our employees are key to the success of our Company. THE FUTURE D.R. Horton is well positioned to achieve its 20th consecutive year of growth and profitability in 1997. We begin the year with a large backlog and strong financial position. Most importantly, we have a dedicated group of employees to accomplish our goals. In the first three months of our 1997 fiscal year, we entered the Nashville market and acquired substantially all the assets of SGS Communities in North and Central New Jersey and Trimark Communities in Denver. SGS compliments our geographic diversity and provides a vehicle for expansion into other Northeast markets. Trimark expands our existing Denver activities by diversifying our product offerings to include affordable townhomes and condominiums. We expect immediate incremental earnings from these acquisitions, and now have operations in 26 markets in 21 states. Our history demonstrates our ability to grow by starting up operations in new markets and successfully acquiring homebuilding companies that make immediate contributions to our earnings. The growth of our Company through geographic expansion is unmatched by anyone in the industry. We are grateful for our success in 1996 and look forward to increased profitability in the future. /s/ Donald R. Horton Donald R. Horton Chairman of the Board and President - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-4112 -------------- D.R. HORTON, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2386963 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1901 ASCENSION BLVD, SUITE 100 76006 ARLINGTON, TEXAS (Zip Code) (Address of principal executive offices) (817) 856-8200 (Registrant's telephone number, including area code) 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 $.01 per The New York Stock Exchange share (Title of Class) 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 ((S)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. YES NO X --- --- AS OF DECEMBER 6, 1996, THERE WERE 32,377,695 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, ISSUED AND OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THESE SHARES HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $184,851,000. SOLELY FOR PURPOSES OF THIS CALCULATION, ALL DIRECTORS AND EXECUTIVE OFFICERS WERE EXCLUDED AS AFFILIATES OF THE REGISTRANT. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 23, 1997, are incorporated herein by reference in Part III. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS D.R. Horton, Inc. and its operating subsidiaries are engaged primarily in the construction and sale of single-family homes in the Mid-Atlantic, Midwest, Southeast, Southwest and Western regions of the United States. The Company offers high-quality homes with custom features, designed principally for the entry-level and move-up market segments. The Company's homes generally range in size from 1,000 to 5,000 square feet and range in price from $80,000 to $600,000. For the year ended September 30, 1996, the Company closed homes with an average sales price approximating $166,600. The Company is one of the most geographically diversified homebuilders in the United States, with operating divisions in 21 states and 26 markets. These markets include Albuquerque, Atlanta, Austin, Birmingham, Charlotte, Chicago, Cincinnati, Dallas/Fort Worth, Denver, Greensboro, Houston, Kansas City, Las Vegas, Los Angeles, Minneapolis/St. Paul, Nashville, New Jersey, Orlando, Pensacola, Phoenix, Raleigh/Durham, Salt Lake City, San Diego, South Florida, St. Louis and suburban Washington, D.C. The Company was incorporated in Delaware on July 1, 1991, to acquire all of the assets and businesses of 25 predecessor companies, which were residential home construction and development companies owned or controlled by Donald R. Horton. The Company's principal executive offices are located at 1901 Ascension Blvd., Suite 100, Arlington, Texas 76006, and its telephone number is (817) 856-8200. OPERATING STRATEGY The Company believes that there are several important elements to its operating strategy which have enabled it to achieve consistent growth and profitability. The following are important elements of this strategy: Geographic Diversification. From 1978 to late 1987, the Company's homebuilding activities were conducted exclusively in the Dallas/Fort Worth area. The Company then instituted a policy of diversifying geographically and commenced operations in late 1987 in Phoenix. The Company entered Atlanta and Orlando in 1988; Charlotte in 1989; Houston in 1990; suburban Washington, D.C. in 1991; Chicago, Cincinnati, Raleigh/Durham and South Florida in 1992; Austin, Los Angeles, Salt Lake City and San Diego in 1993; Minneapolis/St. Paul, Kansas City and Las Vegas in 1994; Birmingham, Denver, Greensboro and St. Louis in 1995; and Albuquerque and Pensacola in 1996. In the early months of fiscal 1997, the Company announced the commencement of operations in Nashville and North Central New Jersey. The Company continually monitors the sales and margins achieved in each of the subdivisions in which it operates as part of an overall evaluation of the employment of its capital. The Company believes there are significant growth opportunities in its existing markets, however, it intends to continue its policy of geographic diversification by seeking to enter new markets. The Company believes that its diversification strategy mitigates the effects of local and regional economic cycles and enhances its growth potential. Typically, the Company will not invest material amounts in real estate, including raw land, developed lots, models and speculative homes, or overhead in start-up operations in new markets until such markets demonstrate significant growth potential and acceptance of the Company and its products. Acquisitions -- As an integral component of the Company's operational strategy of continued expansion and geographic diversification, the Company continually evaluates opportunities for strategic acquisitions. The Company believes that the expansion of its operations through the acquisition of existing homebuilding companies affords it several benefits not found in start-up operations. Such benefits include established land positions and inventories; existing relationships with land owners, developers, subcontractors and suppliers; brand name recognition; and proven product acceptance by homebuyers in the market. In evaluating potential acquisition candidates, the Company seeks homebuilding companies that have an excellent reputation, a track record of profitability and a strong management team with an entrepreneurial orientation. The Company has limited the risks associated with acquiring a going concern by conducting extensive operational, financial and legal due diligence on each acquisition candidate and by structuring each transaction typically as a purchase of 1 assets and assumption of only specific related liabilities. In addition, the Company seeks to further limit acquisition risk by only acquiring homebuilding companies that the Company believes should have an immediate positive impact on the Company's earnings. The Company has acquired five homebuilding companies since 1994. Joe Miller Homes, Inc./Argus Development, Inc. in Minneapolis/St. Paul, Minnesota, were acquired in April 1994. Arappco Inc., in Greensboro, North Carolina, and Regency Development, Inc., in Birmingham, Alabama, were acquired in July and September, 1995, respectively. In October and December 1996 (fiscal 1997), the Company acquired Trimark Communities, L.L.C. in Denver, Colorado and SGS Communities, Inc. in North Central New Jersey, respectively. In both existing and new markets, the Company anticipates that it will continue to evaluate potential future acquisition opportunities that satisfy its acquisition criteria. Market Focus -- Custom Features. The Company positions itself between large volume homebuilders and local custom homebuilders by offering a broader selection of homes that typically have more amenities and greater design flexibility than homes offered by volume builders, at prices that are generally more affordable than those charged by local custom builders. The Company generally offers between five and ten home designs that it believes will appeal to local homebuyers at each of its subdivisions, but is prepared to offer additional building plans and options that may be more suitable or desirable to homebuyers. The Company also is prepared to customize such designs to the individual tastes and specifications of its homebuyers. While most design modifications are significant to homebuyers, such changes typically involve relatively minor adjustments including, among other things, modifying the interior or exterior dimensions of the home and changing exterior materials. Such changes generally improve the Company's gross margins. Consequently, the Company believes that it is able to maintain the efficiencies of a volume builder while delivering high-quality, personalized homes to its customers. The Company believes that its ability to cater to the design tastes and desires of the prospective homebuyer at competitive prices, even at the entry-level, distinguishes it from many of its competitors. Decentralized Operations. The Company's homebuilding activities are decentralized to give more operating flexibility to its local division managers. The Company's homebuilding activities are conducted through 30 operating divisions, some of which are in the same general market area. Generally, each operating division consists of a vice president, an office manager and staff, a sales manager, one to eleven sales people and one construction manager, who oversees one to nine construction supervisors. The Company believes that division managers, who are intimately familiar with local conditions, make better decisions regarding local operations than do the centralized, corporate management teams who make such decisions for many of our competitors. Each operating division is responsible for preliminary site selection, negotiation of option or similar contracts, and overseeing land development activities. Site selection and lot acquisition typically involve a feasibility study by the operating division, including soil and environmental reviews, a review of existing zoning and other governmental requirements, and a review of the need for and extent of offsite work and additional lot preparation required to meet local building codes. Each operating division also plans its homebuilding schedule, selects the building plans and architectural scheme for its subdivisions, obtains all necessary building approvals, and develops a marketing plan for its homes. Division managers receive performance bonuses based upon achieving targeted operating levels in their operating divisions. The Company's corporate office controls key risk elements by retaining oversight and responsibility for final approval of all land and lot acquisitions, inventory levels, financing arrangements, accounting and management reporting, payment of subcontractor invoices, payroll and employee benefits. Cost Management. The Company strives to control its overhead costs by centralizing its administrative and accounting functions and by limiting the number of field administrative personnel and middle level management positions. The Company also attempts to minimize advertising costs by participating in promotional activities, publications and newsletters sponsored by local real estate brokers, mortgage companies, utility companies and trade associations, and, in certain instances, by positioning its subdivisions in conspicuous locations that permit it to take advantage of local traffic patterns. The Company attempts to control construction costs through the efficient design of its homes and by obtaining favorable pricing from certain subcontractors based on the high volume of work they perform for the Company. 2 The Company's management information systems, including the purchase order system, also assist in controlling construction costs by allowing corporate and division management to monitor expenditures on a home-by-home basis. In addition, the Company's management information systems allow the Company to monitor its inventory composition and levels, thereby controlling capital and overhead costs. Limited Real Estate Exposure. The Company generally acquires developed building lots pursuant to lot option and similar contracts after all zoning and other governmental entitlements and approvals are obtained. By utilizing lot option contracts, the Company purchases the right, but not the obligation, to buy building lots at predetermined prices on a takedown schedule commensurate with anticipated home closings. The lot option contracts are generally on a nonrecourse basis, thereby limiting the Company's financial exposure to earnest money deposits given to property sellers. This practice enables the Company to control significant lot positions with minimal up front capital and substantially reduces the risks associated with land ownership and development. The Company attempts to control a two to four year supply of building lots within each market based on current and expected absorption rates. At September 30, 1996, the Company held lot option and similar contracts for 9,180 lots with an estimated aggregate purchase price approximating $290 million. These options are secured by cash deposits approximating $3.6 million and promissory notes approximating $1.4 million. MARKETS The Company's homebuilding activities are conducted in five geographic regions, comprised of the following markets:
GEOGRAPHIC REGION MARKETS ----------------- ------- Mid-Atlantic...... Charlotte, Greensboro, North Central New Jersey, Raleigh/Durham, Suburban Washington, D.C. Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, Midwest........... St. Louis Atlanta, Birmingham, Nashville, Orlando, Pensacola, South Southeast......... Florida Southwest......... Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix Western........... Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego
The Company's operations in each of its markets 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 secondary home sales activity. The Company considers each of these factors when entering new markets or conducting operations in existing markets. Revenues for the Company by geographic region are:
YEAR ENDED SEPTEMBER 30, -------------------------- 1994 1995 1996 -------- -------- -------- (IN THOUSANDS) Mid-Atlantic...................................... $121,829 $113,251 $116,452 Midwest........................................... 54,072 69,929 88,461 Southeast......................................... 53,384 49,291 87,181 Southwest......................................... 139,420 153,074 173,802 Western........................................... 24,612 51,843 81,440 -------- -------- -------- Total........................................... $393,317 $437,388 $547,336 ======== ======== ========
Land Policies While the Company expects to continue to rely predominantly on lot option and similar contracts to secure developed lots, it will pursue selected land acquisition and development opportunities to augment its inventory of low-cost, quality building lots and to maximize profit opportunities. Substantially all of the land acquired by the Company is purchased only after necessary entitlements have been obtained so that the Company has the right to begin development or construction. The Company generally limits its acquisitions to smaller tracts of entitled land that will yield under 150 lots when developed and, where possible, obtains options to acquire adjacent parcels for later development. By limiting 3 its acquisition and development activities to smaller parcels of land, the Company reduces the financial and market risks associated with holding land during the development period. Before it acquires tracts of land, the Company will, among other things, complete a feasibility study, which includes soil tests, independent environmental studies and other engineering work, and determine that all necessary zoning and other governmental entitlements required to develop and use the property for home construction have been acquired. At September 30, 1996, only about 36% of the Company's total lot position of 14,350 lots was being or had been developed by the Company. Although the Company purchases land and engages in land development activities primarily to support its own homebuilding activities, lots and land are occasionally sold to other developers and homebuilders. The following table sets forth a summary of the Company's land/lot positions at September 30, 1996: Finished lots owned by the Company.................................... 968 Lots under development owned by the Company........................... 4,202 ------ Total owned lots.................................................... 5,170 Lots available under lot option and similar contracts................. 9,180 ------ Total land/lot position............................................. 14,350 ======
The Company also seeks to limit its exposure to real estate inventory risks by (i) generally commencing construction of homes under contract only after receipt of a satisfactory down payment and, where applicable, the buyer's receipt of mortgage approval, (ii) limiting the number of speculative homes (homes started without an executed sales contract) built in each subdivision, and (iii) closely monitoring local market and demographic trends, housing preferences and related economic developments, such as new job opportunities, local growth initiatives and personal income trends. CONSTRUCTION The Company's home designs are prepared by architects in each of the Company's markets to appeal to the local tastes and preferences of the community. Optional interior and exterior features also are offered by the Company to enhance the basic home design and to promote the custom aspect of the Company's sales efforts. Substantially all of the Company's construction work is performed by subcontractors. The Company's construction supervisors monitor the construction of each home, participate in material design and building decisions, coordinate the activities of subcontractors and suppliers, subject the work of subcontractors to quality and cost controls and monitor compliance with zoning and building codes. Subcontractors typically are retained for a specific subdivision pursuant to a contract that obligates the subcontractor to complete construction at a fixed price. Agreements with the Company's subcontractors and suppliers generally are negotiated for each subdivision. The Company competes with other homebuilders for qualified subcontractors, raw materials and lots in the markets where it operates. Construction time for the Company's homes depends on the weather, availability of labor, materials and supplies, and other factors. The Company typically completes the construction of a home within four months. The Company does not maintain significant inventories of construction materials, except for work in process materials for homes under construction. Typically, the construction materials used in the Company's operations are readily available from numerous sources. The Company does not have any long-term contracts with suppliers of its building materials. In recent years, the Company has not experienced any significant delays in construction due to shortages of materials or labor. MARKETING AND SALES The Company markets and sells its homes through commissioned employees and independent real estate brokers. Home sales are typically conducted from sales offices located in furnished model homes used in each subdivision. At September 30, 1996, the Company owned 223 model homes. These model homes generally are 4 not offered for sale until the completion of the respective subdivision. The Company's sales personnel assist prospective homebuyers by providing them with floor plans, price information, tours of model homes and the selection of options and other custom features. Such personnel are trained by the Company and kept informed as to the availability of financing, construction schedules and marketing and advertising plans. In addition to using model homes, the Company typically builds a limited number of speculative homes in each subdivision to enhance its marketing and sales activities. Construction of these speculative homes also is necessary to satisfy the requirements of relocated personnel and independent brokers, who often represent homebuyers requiring a completed home within 60 days. A majority of these speculative homes are sold while under construction or immediately following completion. The number of speculative homes is influenced by local market factors, such as new employment opportunities, significant job relocations, growing housing demand and the length of time the Company has built in the market. Depending upon the seasonality of each of its markets, the Company seeks to limit its speculative homes to approximately five homes per subdivision. At September 30, 1996, the Company was operating in 184 subdivisions and averaged under five speculative homes in each subdivision. The Company advertises on a limited basis in newspapers and in real estate broker, mortgage company and utility publications, brochures, newsletters and billboards. To minimize advertising costs, the Company attempts to operate in subdivisions in conspicuous locations that permit it to take advantage of local traffic patterns. The Company also believes that model homes play a significant role in its marketing efforts. Consequently, the Company expends significant efforts in creating an attractive atmosphere in its model homes. Sales of the Company's homes generally are made pursuant to a standard sales contract which requires a down payment of 5% to 10% of the sales price. The contract includes a financing contingency which permits the customer to cancel in the event mortgage financing at prevailing interest rates is unobtainable within a specified period, typically four to six weeks, and may include other contingencies, such as the sale of an existing home. The Company includes a home sale in its sales backlog upon execution of the sales contract and receipt of the initial down payment. The Company does not recognize revenue upon the sale of a home until the home is closed and title passes. The Company estimates that the average period between the execution of a sales contract for a home and closing is approximately three to five months for presold homes. CUSTOMER SERVICE AND QUALITY CONTROL The Company's operating divisions are responsible for pre-closing, quality control inspections and responding to customers' post-closing needs. The Company believes that prompt and courteous response to homebuyers' needs during and after construction reduces post-closing repair costs, enhances the Company's reputation for quality and service, and ultimately leads to significant repeat and referral business from the real estate community and homebuyers. The Company provides its homebuyers with a limited one-year warranty on workmanship and building materials. The subcontractors who perform most of the actual construction, in turn provide warranties of workmanship to the Company, and generally are prepared to respond to the Company and homeowner promptly upon request. In most cases, the Company supplements its one-year warranty by purchasing a ten-year limited warranty from a third party. To cover its potential warranty obligations, the Company accrues an estimated amount for future warranty costs. CUSTOMER FINANCING In 1996, the Company formed D.R. Horton Mortgage Company, Ltd., a joint venture with a third party, to provide mortgage financing services, principally to purchasers of homes built and sold by the Company. D.R. Horton Mortgage presently provides services in Dallas/Fort Worth, Austin, Houston and Phoenix. In its other markets, the Company does not underwrite or otherwise provide mortgage financing. The Company works with a variety of mortgage lenders that make available to homebuyers a range of conventional mortgage financing programs. By making information about these programs available to prospective homebuyers and maintaining a relationship with such mortgage lenders, the Company is able to coordinate and expedite the entire sales transaction by 5 ensuring that mortgage commitments are received and that closings take place on a timely and efficient basis. TITLE SERVICES Through its wholly owned subsidiaries, DRH Title Company of Texas, Ltd. and DRH Title Company of Florida, Inc., the Company serves as a title insurance agent by providing title insurance policies and closing services to purchasers of homes built and sold by the Company in the Dallas/Fort Worth, Austin and Florida markets. The Company assumes no underwriting risk associated with these title policies. EMPLOYEES At September 30, 1996, the Company employed 612 persons, of whom 203 were sales and marketing personnel, 199 were executive, administrative and clerical personnel, 198 were involved in construction, and 12 worked in title operations. Fewer than 10 of the Company's employees are covered by collective bargaining agreements. Certain of the subcontractors which the Company engages are represented by labor unions or are subject to collective bargaining agreements. The Company believes that its relations with its employees and subcontractors are good. ITEM 2. PROPERTIES The Company owns a 52,000 square foot office complex, consisting of three single-story buildings of steel and brick construction, located in Arlington, Texas, that serves as the Company's principal executive offices and houses two of the Company's Dallas/Fort Worth divisions. The Company also leases approximately 52,100 square feet of space for its operating divisions under leases expiring between November 1996 and July 2001. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business. Such matters, if decided adversely to the Company, would not, in the opinion of management, have a material adverse effect upon the financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock (the "Common Stock") is listed on the New York Stock Exchange under the symbol "DHI". The following table sets forth the high and low sales prices for the Common Stock for the periods indicated, as reported on the NASDAQ National Market (through December 13, 1995) and on the New York Stock Exchange on and after December 14, 1995, adjusted for the 9% stock dividend of June 1995, the seven for five stock split (effected as a 40% stock dividend) of September 1995 and the 8% stock dividend of May 1996.
YEAR ENDED SEPTEMBER 30, ------------------------------------ 1995 1996 ----------------- ------------------ HIGH LOW HIGH LOW --------- ------- --------- -------- Quarter Ended December 31............... $ 8 5/16 $5 3/8 $11 $8 15/16 Quarter Ended March 31.................. 6 5/16 5 5/16 11 15/16 8 15/16 Quarter Ended June 30................... 8 15/16 6 9/16 10 5/8 8 5/8 Quarter Ended September 30.............. 10 1/2 8 1/2 10 3/8 7 1/2
As of September 30, 1996, there were approximately 189 holders of record. No cash dividends have been declared since the completion of the initial public offering. 6 The declaration of cash dividends is at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, cash flows, capital requirements, the general financial condition of the Company and general business conditions. Other than as required to maintain the financial ratios and net worth requirements under the credit facilities, there are no restrictions on the payment of cash dividends by the Company. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company are qualified by reference to and should be read in conjunction with the consolidated financial statements, related notes thereto and other financial data included elsewhere herein. These historical results are not necessarily indicative of the results to be expected in the future. In 1993, the Company changed its fiscal year end to September 30, thus operating information for the nine months then ended represents the Company's fiscal period.
PERIODS ENDED SEPTEMBER 30, ---------------------------------- NINE YEAR ENDED MONTHS YEARS DECEMBER 31, ------ --------------------------- 1992 1993 1993 1994 1995 1996 ------------- ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT NET INCOME PER SHARE) INCOME STATEMENT DATA: Revenues................ $182.6 $190.1 $248.2 $393.3 $437.4 $547.3 Net Income.............. 9.2 8.9 12.2 17.7 20.5 27.4 Net Income per share(1)............... .38 .32 .44 .63 .74 .87 AS OF AS OF SEPTEMBER 30, DECEMBER 31, --------------------------- 1992 1993 1994 1995 1996 ------------- ------ ------ ------ ------ (IN MILLIONS) (IN MILLIONS) BALANCE SHEET DATA: Inventories............. $ 90.4 $129.0 $204.1 $282.9 $345.3 Total Assets............ 104.3 158.7 230.9 318.8 402.9 Notes Payable........... 31.6 62.2 108.6 169.9 169.9 Stockholders' Equity.... 55.9 65.9 84.6 106.1 177.6
- -------- (1) Adjusted for stock dividends of 5% in 1993, 6% in 1994, 9% and 40% in 1995, and 8% in 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following tables set forth certain information regarding the Company's operations for the periods indicated.
PERCENTAGES OF REVENUE ------------------------- YEAR ENDED SEPTEMBER 30, ------------------------- 1994 1995 1996 ------- ------- ------- Costs and Expenses: Cost of sales................................... 82.9% 82.2% 82.0% Selling, general and administrative expenses.... 9.9 10.2 9.8 Interest expense................................ -- 0.3 0.3 ------- ------- ------- Total costs and expenses......................... 92.8 92.7 92.1 Other (income)................................... (0.1) (0.1) (0.2) Income before income taxes....................... 7.3 7.4 8.1 Income taxes..................................... 2.8 2.7 3.1 ------- ------- ------- Net income....................................... 4.5% 4.7% 5.0% ======= ======= =======
7
YEAR ENDED SEPTEMBER 30, ------------------------------------------------- 1994 1995 1996 --------------- --------------- --------------- HOMES HOMES HOMES HOMES CLOSED CLOSED PERCENT CLOSED PERCENT CLOSED PERCENT - ------------ ------ -------- ------ -------- ------ -------- Mid-Atlantic (Charlotte, Greensboro, Raleigh/Durham, Suburban Washington, D.C.)...................... 442 18.7% 436 17.6% 547 16.7% Midwest (Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, St. Louis)..................... 286 12.1 348 14.1 457 13.9 Southeast (Atlanta, Birmingham, Orlando, Pensacola, South Florida).. 398 16.9 303 12.2 519 15.8 Southwest (Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix).......... 1,108 47.0 1,131 45.7 1,239 37.7 Western (Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego)........... 126 5.3 256 10.4 522 15.9 ----- -------- ----- -------- ----- -------- 2,360 100.0% 2,474 100.0% 3,284 100.0% ===== ======== ===== ======== ===== ======== YEAR ENDED SEPTEMBER 30, ------------------------------------------------- 1994 1995 1996 --------------- --------------- --------------- HOMES HOMES HOMES NEW SALES CONTRACTS SOLD $ SOLD $ SOLD $ - ------------------- ------ -------- ------ -------- ------ -------- ($ IN THOUSANDS) Mid-Atlantic (Charlotte, Greensboro, Raleigh/Durham, Suburban Washington, D.C.)...................... 402 $113,434 403 $103,952 495 $106,908 Midwest (Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, St. Louis)..................... 272 51,890 339 68,675 527 100,990 Southeast (Atlanta, Birmingham, Orlando, Pensacola, South Florida).. 346 48,073 371 64,654 493 80,104 Southwest (Albuquerque, Austin, Dallas/ Fort Worth, Houston, Phoenix).......... 1,138 149,023 1,148 155,202 1,311 190,006 Western (Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego)........... 169 32,167 292 56,777 662 107,481 ----- -------- ----- -------- ----- -------- 2,327 $394,587 2,553 $449,260 3,488 $585,489 ===== ======== ===== ======== ===== ======== AS OF SEPTEMBER 30, ------------------------------------------------- 1994 1995 1996 --------------- --------------- --------------- YEAR END SALES BACKLOG HOMES $ HOMES $ HOMES $ - ---------------------- ------ -------- ------ -------- ------ -------- ($ IN THOUSANDS) Mid-Atlantic (Charlotte, Greensboro, Raleigh/Durham, Suburban Washington, D.C.)...................... 137 $ 42,886 198 $ 43,949 146 $ 34,405 Midwest (Chicago, Cincinnati, Kansas City, Minneapolis/St. Paul, St. Louis)..................... 123 23,585 114 22,332 184 34,861 Southeast (Atlanta, Birmingham, Orlando, Pensacola, South Florida).. 68 10,216 190 33,557 164 26,479 Southwest (Albuquerque, Austin, Dallas/Fort Worth, Houston, Phoenix).......... 400 56,004 417 58,132 489 74,336 Western (Denver, Las Vegas, Los Angeles, Salt Lake City, San Diego)........... 45 7,833 81 12,766 221 38,807 ----- -------- ----- -------- ----- -------- 773 $140,524 1,000 $170,736 1,204 $208,888 ===== ======== ===== ======== ===== ========
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995 Revenues increased by 25.1% to $547.3 million in 1996 from $437.4 million in 1995. The number of homes closed by the Company increased by 32.7%, to 3,284 homes in 1996 from 2,474 homes in 1995. Home closings increased in all of the Company's market regions, with percentage increases ranging from 9.5% in the Southwest region to 103.9% in the Western region. Of the 32.7% increase in 1996 home closings, 13.4% was the result of acquisitions made in Greensboro and Birmingham in the last quarter of 1995. The 1996 increase in revenues was achieved in spite of a 4.1% decrease in the average selling price of homes closed, to $166,600 in 1996 from $173,700 in 1995. The decrease was due to changes in the geographic mix of homes closed within the Company and different price points in certain markets. New net sales contracts increased 36.6% to 3,488 homes in 1996 from 2,553 in 1995. Percentage increases in new net sales contracts ranging from 126.7% to 14.2% were achieved in the Company's market regions. The 1996 average sales price was $167,900, compared to $176,000 in 1995. The Company was operating in 184 subdivisions at September 30, 1996, compared to 162 at September 30, 1995. At September 30, 1996, the Company's backlog of sales contracts was 1,204 homes, a 20.4% increase over the comparable figure at September 30, 1995. The average sales price of homes in backlog increased to $173,500 at September 30, 1996, from $170,700 at September 30, 1995. Cost of sales increased by 24.8%, to $449.1 million in 1996 from $359.7 million in 1995. As a percentage of revenues, cost of sales decreased by 0.2%, to 82.0% in 1996 from 82.2% in 1995. This improvement resulted from good market conditions during the year, proactive efforts to maintain sales prices and control costs, and higher margins on homes closed on internally developed lots. The Company does not capitalize pre-opening costs for new subdivisions. Selling, general and administrative (SG&A) expense increased by 20.9%, to $53.9 million in 1996 from $44.5 million in 1995. The increase in SG&A expense was due largely to the increases in sales and construction activity required to sustain the higher levels of revenues. SG&A expense as a percentage of revenues decreased by 0.4%, to 9.8% in 1996 from 10.2% in 1995, as the Company was successful in controlling its variable overhead costs while the revenue increase offset more fixed costs. Interest expense increased to $1.5 million in 1996, from $1.2 million in 1995, caused by average interest-bearing debt growing at a slightly faster pace than the average amount of inventory under construction and development. The Company follows a policy of capitalizing interest only on inventory under construction or development. During both 1996 and 1995, a portion of incurred interest and other financing costs could not be charged to inventory and was expensed. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other income, which consists mainly of interest income, pretax earnings from the Company's title operations and, in 1996, pretax earnings from the Company's mortgage operations, increased to $1.5 million in 1996, from $0.6 million in 1995. The increase was due primarily to the fact that 1996 comprised a full year of operations for DRH Title Company of Texas, Ltd., compared to only six months in 1995. Additionally, DRH Title Company of Florida, Inc., and DRH Mortgage Company, Ltd. commenced operation in 1996 and provided pretax earnings. The provision for income taxes increased 41.9%, to $17.1 million in 1996 from $12.0 million in 1995, due in part to the corresponding increase in income before income taxes. The effective tax rate increased to 38.4% in 1996 from 36.9% in 1995. As a percentage of revenues, the income tax provision increased 0.4% to 3.1% in 1996. The increases in the effective tax rate and in the tax provision as a percentage of revenues were due primarily to higher expected rates of state and local income taxes. 9 YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994 Revenues increased by 11.2%, to $437.4 million in 1995 from $393.3 million in 1994. The number of homes closed by the Company increased by 4.8% to 2,474 homes in 1995 from 2,360 homes in 1994, led by a 103.2% increase in the Company's Western region and a 21.7% increase in the Company's Midwest region. The large increase in the Western region resulted from earlier investments incurred to enter markets within this region and illustrates a normal progression for newer markets. The 1995 increase in revenues also was due in part to a 4.3% increase in the average selling price of homes closed, to $173,700 in 1995 from $166,600 in 1994. The increase was due primarily to changes in the geographic mix of homes closed within the Company, as homes closed in the newer markets were at higher prices. Miscellaneous land/lot sales in 1995 and the impact of acquisitions also contributed to the increase in revenues. New net sales contracts increased by 9.7%, to 2,553 homes in 1995 from 2,327 in 1994. Percentage increases in new net sales contracts were achieved in all of the Company's market regions, led by 72.8% and 24.6% increases in the Western and Midwest regions, respectively. The 1995 average selling price was $176,000, compared to $169,600 in 1994. The Company was operating in 162 subdivisions at September 30, 1995, compared to 137 at September 30, 1994. At September 30, 1995, the Company's backlog of sales contracts was 1,000 homes, a 29.4% increase over the comparable figure at September 30, 1994. The average sales price of homes in backlog decreased to $170,700 at September 30, 1995, from $181,800 at September 30, 1994. Cost of sales increased by 10.3%, to $359.7 million in 1995 from $326.1 million in 1994. As a percentage of revenues, cost of sales decreased by 0.7%, to 82.2% in 1995 from 82.9% in 1994. This improvement resulted from proactive efforts to maintain sales prices and control costs, higher margins on homes closed on internally developed lots, and miscellaneous land/lot sales. The Company does not capitalize pre-opening costs for new subdivisions. Selling, general and administrative (SG&A) expense increased by 14.0%, to $44.5 million in 1995 from $39.1 million in 1993. The increase in SG&A expense was due largely to the increases in sales and construction activity required to sustain the higher levels of revenues. SG&A expense as a percentage of revenues increased by 0.3%, to 10.2% in 1995 from 9.9% in 1994, due partly to costs associated with expansion into new markets which had not yet generated significant revenues. Interest expense totalled $1.2 million in 1995, compared to none in 1994. The Company follows a policy of capitalizing interest only on inventory under construction or development. During 1995, the Company expensed a portion of incurred interest and other financing costs due to increased levels of developed lots and finished homes. During the 1994 period, all such costs were capitalized in inventory. Capitalized interest and other financing costs are included in cost of sales at the time of home closings. Other income, which consisted mainly of interest income and pretax earnings of DRH Title Company of Texas, Ltd. in 1995, increased to $621,000 in 1995, from $446,000 in 1994. The provision for income taxes increased 10.0%, to $12.0 million in 1995 from $10.9 million in 1994, due primarily to the corresponding increase in income before income taxes. The effective tax rate decreased to 36.9% in 1995 from 38.2% in 1994. As a percentage of revenues, the income tax provision decreased by 0.1% to 2.7% in 1995. The decreases in the effective tax rate and in the tax provision as a percentage of revenues were due primarily to the effects of certain tax planning strategies relating to state income taxes. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company believes it has adequate financial resources and sufficient credit lines to meet its working capital needs. At September 30, 1996, the Company had available cash and cash equivalents of $32.5 million. Inventories (including finished homes and construction in progress, residential lots developed and 10 under development, and land) had increased by 22.0%, to $345.3 million, from $282.9 million at September 30, 1995. The increase was due to higher business activity and the fact that the Company was operating in a greater number of markets and subdivisions. In several markets, the Company is limited in its ability to acquire finished lots under option contracts, which results in an increase in residential lot inventory. The Company financed the inventory increase by borrowing under credit facilities, retaining earnings, and the $43.2 million net proceeds of a public stock offering in January 1996. The Company's ratio of notes payable to total capital decreased to 48.9% at September 30, 1996, from 61.6% at September 30, 1995. The equity to total assets ratio increased during the year to 44.1% at September 30, 1996, from 33.3% at September 30, 1995. The Company's financing needs depend upon the results of its operations, sales volume, inventory levels, inventory turnover, and acquisitions of other homebuilding companies. The Company has financed its operations by borrowing from financial institutions, by retaining earnings and from the sale of common stock. Common stock options exercised in 1994, 1995 and 1996, provided funding of $0.9 million, $0.8 million and $0.7 million, respectively. Beginning in 1994, the Company began acquiring the principal assets of other homebuilding companies, and had made three acquisitions through September 30, 1996. Two additional acquisitions were completed in October and December of 1996, the first three months of the Company's 1997 fiscal year. To date, all acquisitions have been for cash with the assumption of certain liabilities, typically trade accounts and notes payable. The acquisitions have been funded through working capital and borrowings under existing credit facilities. During April 1996, the Company entered a new facility with eight financial institutions to provide unsecured borrowings. At September 30, 1996, the Company had outstanding debt of $169.9 million. The majority of that amount represents borrowings under the terms of the Company's new $260 million unsecured bank credit facility, which has multi-year terms. The Company also has $47.5 million in additional borrowing capacity under separate unsecured bank revolving credit facilities with annual terms. The completion of the public sale of common stock in January 1996 and the new credit facilities provide the Company with a strong financial position, with resources adequate to fund near-term growth objectives. To secure the Company's performance under its contractual development and building obligations, the Company obtained performance bonds and letters of credit for the benefit of third parties (principally municipalities in which the Company conducts homebuilding activities) approximating $21.7 million and $5.2 million, respectively, at September 30, 1996. The Company's rapid growth requires significant amounts of cash. It is anticipated that future home construction, lot and land purchases and acquisitions will be funded through internally generated funds and new and existing lending relationships. The Company continuously evaluates its capital structure and in the future, may seek to increase unsecured debt and obtain additional equity to further solidify the capital structure or to provide funds for acquisitions. Except for ordinary expenditures for the construction of homes and, to a limited extent, the acquisition of land and lots for development and sale of homes, at September 30, 1996, the Company had no material commitments for capital expenditures. Inflation The Company, as well as the homebuilding industry in general, may be adversely affected during periods of high inflation, primarily because of higher land and construction costs. Inflation also increases the Company's financing, labor and material costs. In addition, higher mortgage interest rates significantly affect the affordability of permanent mortgage financing to prospective homebuyers. The Company attempts to pass through to its customers any increases in its costs through increased sales prices and, to date, inflation has not had a material adverse effect on the Company's results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company's future results of operations. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors........................................... 13 Consolidated Balance Sheets, September 30, 1996 and 1995................. 14 Consolidated Statements of Income for the three years ended September 30, 1996.................................................................... 15 Consolidated Statements of Stockholders' Equity for the three years ended September 30, 1996...................................................... 16 Consolidated Statements of Cash Flows for the three years ended September 30, 1996................................................................ 17 Notes to Consolidated Financial Statements............................... 18
12 REPORT OF INDEPENDENT AUDITORS The Board of Directors D.R. Horton, Inc. We have audited the accompanying consolidated balance sheets of D. R. Horton, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1996. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of D. R. Horton, Inc. and subsidiaries at September 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP November 8, 1996 Fort Worth, Texas 13 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ----------------- 1995 1996 -------- -------- (IN THOUSANDS) ASSETS Cash......................................................... $ 16,737 $ 32,467 Inventories: Finished homes and construction in progress................. 182,772 216,264 Residential lots -- developed and under development......... 98,824 127,707 Land held for development................................... 1,312 1,312 -------- -------- 282,908 345,283 Property and equipment (net)................................. 5,359 5,631 Earnest money deposits and other assets...................... 10,680 15,247 Excess of cost over net assets acquired (net)................ 3,103 4,285 -------- -------- $318,787 $402,913 ======== ======== LIABILITIES Accounts payable............................................. $ 29,312 $ 34,391 Accrued expenses and customer deposits....................... 13,523 21,011 Notes payable................................................ 169,879 169,873 -------- -------- 212,714 225,275 STOCKHOLDERS' EQUITY Preferred stock, $.10 par value, 30,000,000 shares autho- rized, no shares issued..................................... -- -- Common stock, $.01 par value, 100,000,000 shares authorized, 25,437,067 shares in 1995 and 32,362,036 in 1996, issued and outstanding................................................. 254 324 Additional capital........................................... 91,635 159,714 Retained earnings............................................ 14,184 17,600 -------- -------- 106,073 177,638 -------- -------- $318,787 $402,913 ======== ========
See accompanying notes to consolidated financial statements. 14 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 1994 1995 1996 -------------- -------------- -------------- (IN THOUSANDS, EXCEPT NET INCOME PER SHARE) Revenues....................... $393,317 $437,388 $547,336 Cost of sales.................. 326,099 359,742 449,054 -------------- -------------- -------------- 67,218 77,646 98,282 Selling, general and adminis- trative expense............... 39,073 44,549 53,860 -------------- -------------- -------------- Operating income............... 28,145 33,097 44,422 Other: Interest expense.............. -- (1,161) (1,474) Other income.................. 446 621 1,484 -------------- -------------- -------------- 446 (540) 10 -------------- -------------- -------------- INCOME BEFORE INCOME TAXES... 28,591 32,557 44,432 Provision for income taxes..... 10,928 12,018 17,053 -------------- -------------- -------------- NET INCOME................... $ 17,663 $ 20,539 $ 27,379 ============== ============== ============== Net income per share........... $ 0.63 $ 0.74 $ 0.87 ============== ============== ============== Weighted average number of shares of common stock outstanding, including common stock equivalents............. 27,845 27,849 31,420 ============== ============== ==============
See accompanying notes to consolidated financial statements. 15 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL COMMON ADDITIONAL RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY ------ ---------- -------- ------------- (IN THOUSANDS) Balances at October 1, 1993.......... $155 $ 61,305 $ 4,413 $ 65,873 Net income.......................... -- -- 17,663 17,663 Exercise of stock options (109,860 shares)............................ 1 907 -- 908 Issuance under D.R. Horton, Inc. employee benefit plans (7,200 shares)............................ -- 110 -- 110 Six percent stock dividend.......... 9 11,225 (11,235) (1) ---- -------- -------- -------- Balances at September 30, 1994....... 165 73,547 10,841 84,553 Net income.......................... -- -- 20,539 20,539 Exercise of stock options (116,400 shares)............................ 1 772 -- 773 Issuances under D.R. Horton, Inc. employee benefit plans (20,549 shares)............................ -- 208 -- 208 Nine percent stock dividend......... 15 17,181 (17,196) -- Seven for five stock split.......... 73 (73) -- -- ---- -------- -------- -------- Balances at September 30, 1995....... 254 91,635 14,184 106,073 Net income.......................... -- -- 27,379 27,379 Stock sold through public offering (4,375,000 shares)................. 44 43,149 -- 43,193 Exercise of stock options (124,619 shares)............................ 1 696 -- 697 Issuances under D.R. Horton, Inc. employee benefit plans (29,300 shares) ........................... 1 296 -- 297 Eight percent stock dividend........ 24 23,938 (23,963) (1) ---- -------- -------- -------- Balances at September 30, 1996....... $324 $159,714 $ 17,600 $177,638 ==== ======== ======== ========
See accompanying notes to consolidated financial statements. 16 D.R. HORTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, ------------------------------ 1994 1995 1996 -------- --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income.................................... $ 17,663 $ 20,539 $ 27,379 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization................ 1,190 2,025 2,583 Expense associated with issuance of stock under certain D.R. Horton employee benefit plans....................................... 110 208 229 Changes in operating assets and liabilities: Increase in inventories..................... (61,234) (56,401) (62,375) Increase in earnest money deposits and other assets..................................... (393) (910) (4,271) Increase (decrease) in accounts payable, accrued expenses and customer deposits..... (1,317) 2,197 12,567 -------- --------- --------- NET CASH USED IN OPERATING ACTIVITIES.......... (43,981) (32,342) (23,888) -------- --------- --------- INVESTING ACTIVITIES Net purchase of property and equipment........ (2,563) (2,414) (2,667) Net cash paid for acquisitions................ (3,583) (4,577) (1,370) -------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES.......... (6,146) (6,991) (4,037) -------- --------- --------- FINANCING ACTIVITIES Proceeds from notes payable................... 133,297 232,964 238,987 Repayment of notes payable.................... (92,791) (188,857) (239,289) Proceeds from common stock offerings, including stock associated with certain employee benefit plans....................... -- -- 43,260 Proceeds from exercise of stock options....... 907 773 697 -------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES...... 41,413 44,880 43,655 -------- --------- --------- INCREASE (DECREASE) IN CASH................ (8,714) 5,547 15,730 Cash at beginning of year...................... 19,904 11,190 16,737 -------- --------- --------- Cash at end of year............................ $ 11,190 $ 16,737 $ 32,467 ======== ========= ========= Supplemental cash flow information: Interest paid................................. $ 7,059 $ 11,689 $ 14,628 ======== ========= ========= Income taxes paid............................. $ 11,561 $ 11,336 $ 16,143 ======== ========= =========
See accompanying notes to consolidated financial statements. 17 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business. The Company is engaged primarily in the construction and sale of single-family housing in 19 states in the United States. The Company designs, builds and sells single-family houses on finished lots which it purchases ready for home construction or which it develops. The Company purchases undeveloped land to develop into finished lots for future construction of single-family houses and for sale to others. The Company also provides title agency and mortgage services in selected markets; however, such activities are not material to the consolidated operating results of the Company. Principles of Consolidation: The consolidated financial statements include the accounts of D.R. Horton, Inc. (the Company) and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation. Accounting Principles: The preparation of financial statements in accordance 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. Statements of Financial Accounting Standards: During the fourth quarter of 1996, the Company elected to adopt Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") retroactive to October 1, 1995. The adoption of FAS 121 did not impact the Company's results of operations or financial position and did not result in a restatement of any of the financial results for fiscal 1996. The Company believes the adoption of FAS 121 would not have had an effect on financial results in fiscal 1995 and 1994 had FAS 121 been adopted in those years. Statement of Financial Accounting Standards No. 123 "Accounting for Stock- Based Compensation" ("FAS 123"), issued in October 1995, establishes financial accounting and reporting standards for stock-based employee compensation plans. As permitted by FAS 123, the Company has elected to continue to use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations, in accounting for its Stock Incentive Plan. Refer to Note F. Cash: The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Amounts in transit from title companies for home closings are included in cash. Cost of Sales: Cost of sales includes home warranty costs, purchased discounts for customer financing, and sales commissions paid to third parties. Fair Value of Financial Instruments: The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The carrying amounts of cash and cash equivalents and trade payables approximate fair value because of the short maturity of these financial instruments. Generally, the homebuilding notes payable bear interest at rates indexed to LIBOR or the Federal Funds rate. Therefore, the carrying amounts of the outstanding borrowings at September 30, 1996, approximate fair value. At both September 30, 1996 and 1995, the estimated fair value of the Company's debt, including the interest rate swap agreement described in Note B, approximated its carrying value. Fair value estimates are made at specific points in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect estimates. 18 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Inventories: Inventories are stated at the lower of cost (specific identification method) or net realizable value. In addition to direct land acquisition, land development and direct housing construction costs, inventory costs include interest and real estate taxes, which are capitalized in inventory during the development and construction periods. Residential lots are transferred to construction in progress when building permits are requested. Land and development costs, capitalized interest and real estate taxes incurred during land development are allocated to individual lots on a prorata basis. Interest. The Company capitalizes interest during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the home buyer. The summary of interest for 1994, 1995 and 1996 is:
YEAR ENDED SEPTEMBER 30, ---------------------------- 1994 1995 1996 -------- -------- -------- (IN THOUSANDS) Capitalized interest, beginning of year....... $ 1,581 $ 4,325 $ 7,118 Interest incurred............................. 7,269 12,002 14,835 Interest expensed............................. Directly..................................... -- (1,161) (1,474) Amortized to cost of sales................... (4,525) (8,048) (9,437) -------- -------- -------- Capitalized interest, end of year............. $ 4,325 $ 7,118 $ 11,042 ======== ======== ========
Property and Equipment: Property and equipment, including model home furniture, are stated on the basis of cost. Major renewals and improvements are capitalized. Repairs and maintenance are expensed as incurred. Depreciation generally is provided using the straight-line method over the estimated useful life of the asset. Accumulated depreciation was $3,481,000 and $5,000,000 as of September 30, 1995 and 1996, respectively. Excess of Cost Over Net Assets Acquired: The excess of amounts paid for business acquisitions over the net fair value of the assets acquired and liabilities assumed is amortized using the straight-line method over twenty years. Additional consideration paid in subsequent periods under the terms of purchase agreements are included as acquisition costs. Amortization expense was $42,000, $114,000 and $188,000 in 1994, 1995 and 1996, respectively. Accumulated amortization was $156,000 and $344,000 at September 30, 1995 and 1996, respectively. Revenue Recognition: Revenue generally is recognized at the time of the closing of a sale, when title to and possession of the property transfer to the buyer. Net Income Per Share: Net income per share is based upon the average number of shares of common stock outstanding during each year and the effect of common stock equivalents related to dilutive stock options. 19 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE B -- NOTES PAYABLE Notes payable (in thousands):
SEPTEMBER 30, ----------------- 1995 1996 -------- -------- Unsecured: Banks $250,000 term and revolving credit facility, maturing April, 1999 to April,2001, rates range from Federal Funds + 1.6% to LIBOR + 2%.............................. $134,800 $158,600 $10,000 revolving line of credit, maturing March 1997, LIBOR + 2%.............................................. -- -- $20,000 revolving line of credit, maturing September 1997, LIBOR + 1 1/2%.......................................... 7,000 -- $17,500 revolving line of credit, payable on demand with six months' notice, LIBOR + 1 1/4%...................... 13,770 4,000 Other notes payable....................................... 14,309 7,273 -------- -------- Total notes payable..................................... $169,879 $169,873 ======== ========
Maturities of notes payable, assuming the revolving lines of credit are not extended, are $10.3 million in 1997, $0.4 million in 1998, $59.2 million in 1999, and $100.0 million in 2001. The weighted average interest rates at September 30, 1995 and 1996 were 7.9% and 7.5%, respectively. In addition to the stated interest rates, various credit facilities require the Company to pay certain fees. The $250 million credit facility also provides $10 million for use as letters of credit. Effective October 1, 1996, there was a reduction in the interest rate on the revolving portion of $250 million credit facility. Certain of the notes and loan agreements contain financial covenants generally relating to cash dividends, minimum interest coverage, net worth, leverage, inventory levels and other matters. The Company uses an interest rate swap agreement to help manage a portion of its interest rate exposure. The agreement converts from a variable rate to a fixed rate on a notional amount of $100 million. The agreement expires April 2001. The Company does not expect non-performance by the counterparty, and any losses incurred in the event of non-performance would not be material. As a result of this agreement, the Company incurred net interest expense of $0.4 million during 1996. Net payments or receipts under the Company's interest rate swap agreement are recorded as adjustments to interest expense. NOTE C -- ACQUISITIONS In 1994 and 1995, the Company made the following acquisitions:
COMPANY ACQUIRED DATE ACQUIRED CONSIDERATION ---------------- -------------- ------------- Regency Development, Inc. (Birmingham)........ September 1995 $12.3 million Arappco, Inc. (Greensboro).................... July 1995 $12.2 million Joseph M. Miller Construction, Inc./Argus Development, Inc. (Minneapolis).............. April 1994 $16.6 million
Consideration includes cash paid, promissory notes and assumption of certain accounts payable and notes payable which were repaid subsequent to the acquisitions. The acquisitions contain provisions for additional consideration to be paid annually for up to three years subsequent to the acquisition date, based upon subsequent pretax income. Such additional consideration will be recorded when paid as excess cost over net assets acquired, which is amortized using the 20 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) straight line method over 20 years. All of the acquired companies are involved in homebuilding and land development. The Company has accounted for these acquisitions under the purchase method and has included the operations of the acquired businesses in its Consolidated Statements of Income since their acquisition. The Company's unaudited pro forma summary consolidated results of operations as if the above noted acquisitions had occurred at October 1, 1995 are presented below. In preparing the pro forma information, various assumptions were made and the Company does not purport this information to be indicative of what would have occurred had the acquisitions been made as of October 1, 1995.
YEAR ENDED SEPTEMBER 30, 1995 ------------------ (IN THOUSANDS, EXCEPT NET INCOME PER SHARE) Revenues............................................... $474,476 Net Income............................................. $ 22,359 Net Income per share................................... $ 0.80
NOTE D -- STOCKHOLDERS' EQUITY The Board of Directors of the Company declared the following common stock dividends:
DECLARED DATE AMOUNT PAID RECORD DATE ------------- ------ ------- ----------- 5/12/94 6% 6/30/94 5/31/94 4/20/95 9% 6/30/95 5/31/95 4/22/96 8% 5/24/96 5/08/96
Stock Split: On August 15, 1995, the Board of Directors declared a seven- for-five stock split effected in the form of a 40% stock dividend on its common stock. Accordingly, the $.01 par value for the additional shares issued, in respect of the seven-for-five stock split, was transferred from additional paid-in-capital to common stock. Net income per share and weighted average shares outstanding for all periods presented have been restated to reflect the stock dividends and the stock split. Other than as required to maintain the financial ratios and net worth requirements under the credit agreements, there are no restrictions on the payment of cash dividends by the Company. 21 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE E -- PROVISION FOR INCOME TAXES 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. These differences primarily relate to the capitalization of inventory costs, the accrual of warranty costs, and depreciation. The Company's deferred tax assets and liabilities are not significant. The difference between income tax expense and tax computed by applying the federal statutory income tax rate to income before taxes is due primarily to the effect of applicable state income taxes. Income tax expense consists of:
YEAR ENDED SEPTEMBER 30, ---------------------------- 1994 1995 1996 -------- -------- -------- (IN THOUSANDS) Current: Federal....................................... $ 10,477 $ 11,767 $ 17,650 State......................................... 963 1,274 1,829 -------- -------- -------- 11,440 13,041 19,479 -------- -------- -------- Deferred: Federal....................................... (468) (923) (2,198) State......................................... (44) (100) (228) -------- -------- -------- (512) (1,023) (2,426) -------- -------- -------- $ 10,928 $ 12,018 $ 17,053 ======== ======== ========
NOTE F -- EMPLOYEE BENEFIT PLANS The D.R. Horton, Inc. Profit Sharing Plus Plan is a 401(k) plan for Company employees. The Company matches 50% of employees' voluntary contributions up to a maximum of 3% of each participant's earnings. Additional employer contributions in the form of profit sharing are at the discretion of the Company. Expenses for this Plan were $158,000, $233,000 and $327,000 for 1994, 1995 and 1996, respectively. Effective January 1, 1994, the Company adopted the D.R. Horton, Inc. Stock Tenure Plan (an Employee Stock Ownership Plan), covering those employees generally not participating in certain other D.R. Horton benefit plans. Contributions are made at the discretion of the Company. Expenses of $110,000, $106,000 and $229,000 were recognized for 1994, 1995 and 1996, respectively, related to Company contributions of common stock to the Plan. The Company's Supplemental Executive Retirement Plans (SERP's) are non-qualified deferred compensation programs that provide benefits payable to certain management employees upon retirement, death, or termination of employment with the Company. SERP No. 1 provides for voluntary deferral of compensation which is invested under a trust agreement. All salary deferrals under this Plan have been accrued and the investments are recorded as an other asset. Under SERP No. 2, the Company accrues an unfunded benefit, as well as an interest factor based upon a predetermined formula. The Company recorded $231,000, $347,000 and $313,000 of expense for SERP No. 2 in 1994, 1995 and 1996, respectively. In 1996, the Company approved the D.R. Horton, Inc. Employee Stock Purchase Plan which allows employees to purchase stock directly from the Company at market value. At September 30, 1996, 237,500 shares of common stock have been reserved for future issuance under the stock tenure and stock purchase plans. 22 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The D.R. Horton, Inc. 1991 Stock Incentive Plan provides for the granting of stock options to certain key employees of the Company to purchase shares of common stock. Options are granted at exercise prices which approximate the market value of the Company's common stock at the date of the grant. Options generally expire 10 years after the dates on which they were granted and vest evenly over the life of the option. At September 30, 1996, 3,034,250 shares of common stock have been reserved for future issuance under this plan. Activity under the plan is:
1994 1995 1996 ------------------ ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE STOCK OPTIONS OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES ------------- -------- -------- --------- -------- --------- -------- Outstanding at beginning of year................ 872,655 $ 7.32 992,713 $ 8.60 1,782,517 $ 6.56 Granted................. 185,700 13.98 313,000 12.15 559,000 10.15 Exercised............... (109,860) 3.62 (116,400) 3.84 (124,619) 3.24 Cancelled............... (6,500) 7.86 (19,940) 9.80 (122,022) 8.54 Effects of stock dividends.............. 50,718 8.26 613,144 6.87 145,908 6.69 -------- ------ --------- ------ --------- ------ Outstanding at end of year................... 992,713 $ 8.60 1,782,517 $ 6.56 2,240,784 $ 7.11 ======== ====== ========= ====== ========= ====== Exercisable at end of year................... 403,997 $ 5.55 565,551 $ 4.44 659,615 $ 4.74 ======== ====== ========= ====== ========= ======
Exercise prices for options outstanding at September 30, 1996, ranged from $1.804 to $10.185. The weighted average remaining contractual lives of those options are as follows:
OUTSTANDING EXERCISABLE --------------------------- ------------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE MATURITY EXERCISE MATURITY PRICE RANGE OPTIONS PRICE (YEARS) OPTIONS PRICE (YEARS) ----------- --------- -------- -------- ------- -------- -------- Less than $4.............. 161,631 $1.89 5.0 161,631 $1.89 5.0 $4-$8..................... 1,239,792 5.99 6.9 459,841 5.35 6.4 More than $8.............. 839,361 9.76 9.1 38,143 9.47 7.9 --------- ----- --- ------- ----- --- Total................... 2,240,784 $7.11 7.6 659,615 $4.74 6.2 ========= ===== === ======= ===== ===
The Company has elected to follow Accounting Principles Board Opinion No. 25 in accounting for its employee stock options. The exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, therefore, no compensation expense is recognized. Application of the fair value method, as specified by FAS 123, had no material impact on net income or net income per share amounts. However, such pro forma effects are not indicative of future fair value effects until the rules stipulated by FAS 123 are applied to all outstanding, nonvested awards. NOTE G -- COMMITMENTS AND CONTINGENCIES The Company is involved in lawsuits and other contingencies in the ordinary course of business. Management believes that, while the ultimate outcome of the contingencies cannot be predicted with certainty, the ultimate liability, if any, will not have a material adverse effect on the Company's financial position. In the ordinary course of business, the Company enters into option agreements to purchase land and developed lots. Deposits of approximately $5.0 million at September 30, 1996, secure the Company's performance under these agreements. 23 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company leases office space under noncancelable operating leases. Minimum annual lease payments under these leases at September 30, 1996, are approximately:
(IN THOUSANDS) 1997............................... $342 1998............................... 199 1999............................... 46 2000............................... 38 2001............................... 33 ---- $658 ====
Rent expense approximated $840,000, $989,000 and $1,140,000, for 1994, 1995 and 1996, respectively. In the normal course of its business activities, the Company provides letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At September 30, 1996, outstanding letters of credit totalled $5.2 million and performance bonds totalled $21.7 million. NOTE H -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results of operations are:
1996 -------------------------------------------------- THREE MONTHS ENDED -------------------------------------------------- SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 ------------- ----------- ----------- ------------ (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Revenues................ $ 168,943 $ 143,283 $ 114,042 $ 121,068 Gross Margin............ 30,677 25,897 20,175 21,533 Net income.............. 9,408 7,434 5,122 5,415 Net income per share(1)............... .29 .23 .16 .19 1995 -------------------------------------------------- THREE MONTHS ENDED -------------------------------------------------- SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 ------------- ----------- ----------- ------------ (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Revenues................ $ 132,827 $ 120,529 $ 87,076 $ 96,956 Gross Margin............ 23,992 21,647 15,359 16,648 Net income.............. 6,681 6,090 3,948 3,820 Net income per share(1)............... .24 .22 .14 .14 1994 -------------------------------------------------- THREE MONTHS ENDED -------------------------------------------------- SEPTEMBER 30 JUNE 30 MARCH 31 DECEMBER 31 ------------- ----------- ----------- ------------ (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Revenues................ $ 124,024 $ 107,782 $ 82,606 $ 78,905 Gross Margin............ 21,038 17,729 14,416 14,035 Net income.............. 5,679 4,690 3,698 3,596 Net income per share(1)............... .20 .17 .13 .13
- -------- (1) Net income per share differs from that previously reported due to the effect of the 1996 eight percent stock dividend. 24 D.R. HORTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE I -- SUBSEQUENT EVENTS (UNAUDITED) In October and December 1996, the Company acquired substantially all the assets of two homebuilding companies, Trimark Communities L.L.C., in Denver, Colorado and SGS Communities, Inc., in North Central New Jersey, respectively. Total consideration for these acquisitions was $31 million which includes cash paid, and the assumption of certain accounts payable and notes payable. The acquisitions contain provisions for additional consideration to be paid annually for up to four years based upon subsequent pretax income of the acquired businesses. Any such additional consideration will be recorded when paid as excess cost over net assets acquired which will be amortized on a straight line method over 20 years. These acquisitions will be accounted for under the purchase method and their operations will be included in the Company's Consolidated Statements of Income from the date of their acquisition. 25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth under the caption "Election of Directors" at pages 2 through 4 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth under the caption "Executive Compensation" at pages 6 and 7 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the caption "Beneficial Ownership of Common Stock" at page 5 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth under the caption "Executive Compensation -- Transactions with Management" at page 11 of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on January 23, 1997, and incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements: See Item 8 above. 2. Financial Statement Schedules: Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the "Commission") are not required under the related instructions or are not applicable, and therefore have been omitted. 26 3. Exhibits:
EXHIBIT NUMBER EXHIBIT ------- ------- 3.1 -- Amended and Restated Certificate of Incorporation, as amended(1) 3.2 -- Bylaws, as amended(2) 10.1 -- Form of Indemnification Agreement between the Company and each of its directors and executive officers and schedule of substantially identical documents(1) 10.2 -- D.R. Horton, Inc. 1991 Stock Incentive Plan(3)(4) 10.2a -- Amendment No. 1 to 1991 Stock Incentive Plan(3)(4) 10.2b -- Amendment No. 2 to 1991 Stock Incentive Plan(3)(4) 10.2c -- Amendment No. 3 to 1991 Stock Incentive Plan(4)(5) 10.2d -- Amendment No. 4 to 1991 Stock Incentive Plan(4)(5) 10.2e -- Amendment No. 5 to 1991 Stock Incentive Plan(1)(4) 10.3 -- Form of Non-Qualified Stock Option Agreement (Term Vesting)(6) 10.4 -- Form of Non-Qualified Stock Option Agreement (Performance Vesting)(7) 10.5 -- Form of Incentive Stock Option (Term Vesting)(7) 10.6 -- Form of Incentive Stock Option (Performance Vesting)(7) 10.7 -- Form of Restricted Stock Agreement (Term Vesting)(7) 10.8 -- Form of Restricted Stock Agreement (Performance Vesting)(7) 10.9 -- Form of Stock Appreciation Right Agreement (Term Vesting)(7) 10.10 -- Form of Stock Appreciation Right Agreement (Performance Vesting)(7) 10.11 -- Form of Stock Appreciation Right Notification (Tandem)(7) 10.12 -- Form of Performance Share Notification(7) 10.13 -- Form of Performance Unit Notification(7) 10.14 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No. 1(2)(4) 10.15 -- D.R. Horton, Inc. Supplemental Executive Retirement Trust No. 1(2)(4) 10.16 -- D.R. Horton, Inc. Supplemental Executive Retirement Plan No. 2(2)(4) 10.17 -- Master Loan and Inter-Creditor Agreement dated as of April 15, 1996, by and among D.R. Horton, Inc., as Borrower, and NationsBank, N.A. (South), Bank of America National Trust and Savings Association, and certain other lenders (collectively, "Lenders"), and NationsBank, N.A. (South) as a Bank, Issuing Bank and Administrative Agent for Lenders and Bank of America National Trust and Savings Association as a Bank and Co-Agent for Lenders(8) 10.18 -- Working Capital Line of Credit Agreement dated as of July 31, 1996, by and between D.R. Horton, Inc., as Borrower, and Barnett Bank, N.A., as Lender(8) 10.19 -- Revolving Credit Agreement dated as of September 17, 1996, by and between D.R. Horton, Inc., as Borrower, and PNC Bank, National Association, and Lender(8) 21.1 -- Subsidiaries of D.R. Horton,Inc.(8) 23.1 -- Consent of Ernst & Young LLP, Fort Worth, Texas(8)
- -------- (1) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, filed with the Commission on November 22, 1995. (2) Incorporated by reference from the Registrant's Transition Report on Form 10-K for the period from January 1, 1993 to September 30, 1993, filed with the Commission on December 28, 1993. 27 (3) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (Registration No. 33-46554) declared effective by the Commission on June 4, 1992. (4) Management contract or compensatory plan or arrangement. (5) Incorporated by reference from the Registrant's Annual Report Form 10-K for the fiscal year ended September 30, 1994, filed with the Commission on December 9, 1994. (6) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (Registration No. 33-81856) filed with the Commission on July 22, 1994. (7) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, filed with the Commission on March 29, 1993. (8) Filed herewith. 28 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Acts of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 21, 1996 D.R. HORTON, INC. By /s/ Donald R. Horton ---------------------------------- Donald R. Horton, Chairman of the Board and President 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Donald R. Horton Chairman of the November 21, 1996 - ------------------------------------- Board and President DONALD R. HORTON (Principal Executive Officer) /s/ Richard Beckwitt Director November 21, 1996 - ------------------------------------- RICHARD BECKWITT /s/ Richard I. Galland Director November 21, 1996 - ------------------------------------- RICHARD I. GALLAND /s/ Richard L. Horton Director November 21, 1996 - ------------------------------------- RICHARD L. HORTON /s/ Terrill J. Horton Director November 21, 1996 - ------------------------------------- TERRILL J. HORTON /s/ David J. Keller Treasurer, Chief November 21, 1996 - ------------------------------------- Financial Officer DAVID J. KELLER and Director (Principal Financial Officer and Principal Accounting Officer) /s/ Francine I. Neff Director November 21, 1996 - ------------------------------------- FRANCINE I. NEFF /s/ Scott J. Stone Director November 21, 1996 - ------------------------------------- SCOTT J. STONE /s/ Donald J. Tomnitz Director November 21, 1996 - ------------------------------------- DONALD J. TOMNITZ
29 CORPORATE INFORMATION D.R. Horton, Inc. (the "Company") is engaged primarily in the construction and sale of single-family homes. The Company offers high-quality homes with custom features, designed principally for the entry-level and move-up segments. Horton has established a unique marketing niche, offering a broader selection of homes that typically have more amenities and greater design flexibility than homes offered by volume builders, at prices that are generally more affordable than those charged by local custom builders. Horton homes range in size from 1,000 to 5,000 square feet and are priced from $80,000 to $600,000. For the year ended September 30, 1996, the Company closed 3,284 homes with an average sales price of approximately $166,600. The Company is geographically diversified, operating in 21 states and 26 markets. Plans call for continued expansion in current markets, as well as entry into new markets that have significant entry-level and move-up market segments consistent with the Company's product and pricing strategy. THE BOARD OF DIRECTORS TRANSFER AGENT AND REGISTRAR DONALD R. HORTON Chairman and President (2) Society National Bank Cleveland, Ohio RICHARD BECKWITT President -- Investments Division (2) INVESTOR RELATIONS RICHARD I. GALLAND David J. Keller Former Chief Executive Officer and D.R. Horton, Inc. Chairman of Fina, Inc. (1) (2) 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006 (817) 856-8200 RICHARD L. HORTON Vice President -- Dallas/Fort Worth East Division ANNUAL MEETING TERRILL J. HORTON Vice President -- Dallas/Fort Worth North Division January 23, 1997 9:30 a.m. C.S.T. DAVID J. KELLER Executive Vice President, Treasurer and At the Corporate Offices of Chief Financial Officer (2) D.R. Horton, Inc. 1901 Ascension Blvd., Suite 100 Arlington, Texas 76006 FRANCINE I. NEFF Former Treasurer of the United States (1) SCOTT J. STONE Former Vice President -- Eastern Region DONALD J. TOMNITZ President -- Homebuilding Division - -------- (1) Audit Committee Member (2) Compensation Committee Member 30 EX-10.17 2 MASTER LOAN AND INTER-CREDITOR AGREEMENT MASTER LOAN AND INTER-CREDITOR AGREEMENT among D. R. HORTON, INC., as Borrower, NATIONSBANK, N.A. (SOUTH), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, SANWA BANK CALIFORNIA, FIRST AMERICAN BANK, SSB, COMERICA BANK, SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, BANK ONE TEXAS, NA and THE FIRST NATIONAL BANK OF CHICAGO, as Banks, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Co-Agent for the Banks, and NATIONSBANK, N.A. (SOUTH), as Administrative Agent for the Banks, and as Issuing Bank TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS.............................................. 1 ARTICLE 2 LOANS AND LETTERS OF CREDIT.............................. 15 2.1 Extension of Credit...................................... 15 2.2 Manner of Borrowing and Disbursement Under Loans......... 16 2.3 Interest on Loans........................................ 18 2.4 Issuance and Administration of Letters of Credit......... 18 2.5 Fees and Commissions on Loans and Letters of Credit...... 23 2.6 Notes, Loan and Letters of Credit Accounts............... 24 2.7 Repayment of Loans and Letters of Credit................. 25 2.8 Manner of Payment........................................ 25 2.9 Application of Payments.................................. 26 ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY ...................... 27 3.1 Loan Funding Availability................................ 27 ARTICLE 4 LOAN DISBURSEMENTS....................................... 30 4.1 Prior to the First Disbursement or Letter of Credit...... 30 4.2 Subsequent Disbursements................................. 31 ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES........................................... 32 5.1 Payment.................................................. 32 5.2 Performance.............................................. 32 5.3 Additional Information................................... 32 5.4 Quarterly Financial Statements and Other Information..... 32 5.5 Compliance Certificates.................................. 32 5.6 Annual Financial Statements and Information; Certificate of No Default............................................ 33 5.7 Financial and Inventory Covenants........................ 33 5.8 Other Financial Documentation............................ 34 5.9 Security Interest in Loan Inventory...................... 34 5.10 Payment of Contractors................................... 34 5.11 Inspection and Appraisal................................. 35 5.12 Fees and Expenses........................................ 35 5.13 Hazardous Substances..................................... 35 5.14 Insurance................................................ 36 5.15 Litigation............................................... 36 5.16 Reportable Event......................................... 36 5.17 Secured Indebtedness..................................... 37 i Page 5.18 Interest Rate Hedging.................................... 37 ARTICLE 6 DEFAULT AND REMEDIES..................................... 37 6.1 Defaults................................................. 37 6.2 Remedies................................................. 40 6.3 Waivers.................................................. 41 6.4 Cross-Default............................................ 41 6.5 No Liability of the Banks................................ 42 ARTICLE 7 THE ADMINISTRATIVE AGENT................................. 42 7.1 Appointment and Authorization............................ 42 7.2 Delegation of Duties..................................... 43 7.3 Interest Holders......................................... 43 7.4 Consultation with Counsel................................ 43 7.5 Documents................................................ 43 7.6 Administrative Agent and Affiliates...................... 43 7.7 Responsibility of the Administrative Agent............... 43 7.8 Action by Administrative Agent........................... 44 7.9 Notice of Default or Event of Default.................... 44 7.10 Responsibility Disclaimed................................ 45 7.11 Indemnification.......................................... 45 7.12 Credit Decision.......................................... 45 7.13 Successor Administrative Agent........................... 46 7.14 Co-Agent................................................. 46 ARTICLE 8 GENERAL CONDITIONS....................................... 46 8.1 Benefit.................................................. 46 8.2 Assignment............................................... 47 8.3 Amendment and Waiver..................................... 47 8.4 Additional Obligations and Amendments.................... 48 8.5 Consideration of Renewal................................. 48 8.6 Terms.................................................... 48 8.7 Governing Law and Jurisdiction........................... 49 8.8 Publicity................................................ 49 8.9 Attorneys' Fees.......................................... 49 8.10 Mandatory Arbitration.................................... 50 8.11 Invalidation of Provisions............................... 50 8.12 Execution in Counterparts................................ 51 8.13 Captions................................................. 51 8.14 Notices.................................................. 51 8.15 Final Agreement.......................................... 54 ii EXHIBITS Exhibit A - Commitment Ratios Exhibit B - Form of Inventory Quarterly Report Exhibit C - Form of Inventory Summary Report Exhibit D - Form of Request for Advance Exhibit E - Form of Request for Issuance of Letter of Credit Exhibit F - Form of Letter of Credit Application Exhibit G - Form of Quarterly Compliance Certificate Exhibit H - Existing Interest Rate Hedge Agreement SCHEDULE Schedule 1.56 - Prior Letters of Credit Schedule 1.84 - Subsidiaries of the Borrower iii MASTER LOAN AND INTER-CREDITOR AGREEMENT THIS MASTER LOAN AND INTER-CREDITOR AGREEMENT (this "Agreement") dated as of the 16th day of April, 1996, is by and among D. R. HORTON, INC., a Delaware corporation (the "Borrower"); NATIONSBANK, N.A. (SOUTH); BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION; SANWA BANK CALIFORNIA; FIRST AMERICAN BANK, SSB; COMERICA BANK; SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION; BANK ONE TEXAS, NA; and THE FIRST NATIONAL BANK OF CHICAGO (collectively, the "Banks"); NATIONSBANK, N.A. (SOUTH), as issuing bank for letters of credit (in such capacity, the "Issuing Bank"), NATIONSBANK, N.A. (SOUTH), as agent for the Banks (in such capacity, the "Agent"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as co-agent for the Banks (in such capacity, the "Co- Agent"), and NATIONSBANK, N.A. (SOUTH), as administrative agent for the Banks and the Issuing Bank (in such capacity, the "Administrative Agent"). IN CONSIDERATION of the sum of TEN AND NO/100 DOLLARS ($10.00) in hand paid by each party to the other and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the undersigned, the undersigned hereby covenant and agree as follows: ARTICLE 1 DEFINITIONS For the purposes of this Agreement, the words and phrases set forth below shall have the following meanings: 1.1 Acquisition Cost. If the subject Developed Lot or Land Parcel was purchased individually, the Acquisition Cost for such Developed Lot or Land Parcel shall be the actual purchase price and closing costs approved by the Administrative Agent and paid by the Borrower or its Restricted Subsidiaries for the acquisition of such individual Developed Lot or Land Parcel excluding Administrative Costs, together with all applicable Development Costs. If the subject Developed Lot or Land Parcel was part of a larger group of Developed Lots or Land Parcels, the Acquisition Cost for such Developed Lot or Land Parcel shall be the pro rata portion of the overall actual purchase price and closing costs approved by the Administrative Agent and paid by the Borrower and its Restricted Subsidiaries for the acquisition of such larger group of Developed Lots or Land Parcels allocable to the subject Developed Lot or Land Parcel excluding Administrative Costs, together with a pro rata portion of all applicable Development Costs. 1.2 Administrative Agent. NationsBank, N.A. (South), in its capacity as Administrative Agent hereunder. 1.3 Administrative Costs. Costs and expenses incurred by the Borrower or its Restricted Subsidiaries in connection with (a) the marketing and selling of Inventory which is part of the Loan Inventory and (b) the administration, management and operation of the Borrower's and its Restricted Subsidiaries' businesses (excluding, without limitation, Interest Expense and fees payable hereunder). 1.4 Advance or Advances. Amounts advanced by the Banks to the Borrower pursuant to Article 2 hereof on the occasion of any borrowing or in connection with draws under Letters of Credit. 1.5 Affiliate. Any Person (other than a Person whose sole relationship with the Borrower is as an employee) directly or indirectly controlling, controlled by, or under common control with the Borrower. For purposes of this definition, "control" when used with respect to any Person means the direct or indirect beneficial ownership of more than twenty percent (20%) of the voting securities or voting equity or partnership interests, of such Person or the power to direct or cause the direction of the management and policies of such Person, whether by control or otherwise. 1.6 Agreement. This Master Loan and Inter-Creditor Agreement. 1.7 Agreement Date. The date as of which the Borrower, the Administrative Agent, the Issuing Bank and the Banks execute this Agreement. 1.8 Applicable Law. In respect of any Person, all provisions of constitutions, statutes, rules, regulations, and orders of governmental bodies or regulatory agencies applicable to such Person, including, without limitation, all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound. 1.9 Authorized Signatory. With respect to the Borrower, such personnel of the Borrower as set forth in an incumbency certificate of the Borrower delivered to the Administrative Agent on the Agreement Date (or any duly executed incumbency certificate delivered after the Agreement Date) and certified therein as being duly authorized by the Borrower to execute documents, agreements, and instruments on behalf of the Borrower. 1.10 Available Revolving Loan Commitment. As of any date of determination, an amount equal to the lesser of (a) the Revolving Loan Commitment or (b) (i) the Loan Funding Availability less (ii) the sum of (A) the principal amount of the Term Loan then outstanding, (B) the principal amount of the Revolving Loans then outstanding, (C) unreimbursed draws under any Letter of Credit, and (D) the outstanding principal balances of all unsecured Indebtedness for Money Borrowed (excluding capitalized lease obligations, notes payable for insurance premiums, non-recourse promissory notes for seller financing and promissory notes issued as earnest money for contracts). -2- 1.11 Banks. NationsBank, N.A. (South); Bank of America National Trust and Savings Association; Sanwa Bank California; First American Bank, SSB; Comerica Bank; SouthTrust Bank of Alabama, National Association; Bank One Texas, NA; and The First National Bank of Chicago. An individual Bank is sometimes referred to as a "Bank." 1.12 Borrower. D. R. Horton, Inc., a Delaware corporation. 1.13 Business Day. A day on which none of the Banks are authorized or required to be closed and foreign exchange markets are open for the transaction of business required for this Agreement in Atlanta, Georgia. 1.14 Change of Control. Either (i) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Borrower and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary of the Borrower), provided that a transaction where the holders of all classes of Common Equity of the Borrower immediately prior to such transaction own, directly or indirectly, 50% or more of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control; (ii) a "person" or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Borrower or Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or any trust or other entity formed or controlled by Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton)) becomes the "beneficial owner" (as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the Borrower representing more than 50% of the voting power of the Common Equity of the Borrower; (iii) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Borrower; or (iv) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower, provided that a liquidation or dissolution of the Borrower which is part of a transaction that does not constitute a Change of Control under the proviso contained in clause (i) above shall not constitute a Change of Control. 1.15 Change of Management. Donald R. Horton shall cease to serve either as Chairman of the Board of Directors of the Borrower or as President of the Borrower. 1.16 Code. The Internal Revenue Code of 1986, as amended. 1.17 Commitment Ratios. The percentages in which the Banks are severally bound to satisfy the Revolving Loan Commitment and the Term Loan Commitment to make Advances to the Borrower as set forth on Exhibit A attached hereto and incorporated herein. 1.18 Common Equity. With respect to any Person, capital stock of such Person that is generally entitled to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person. -3- 1.19 Construction Costs. All costs accepted by the Administrative Agent actually incurred by the Borrower or its Restricted Subsidiaries with respect to the construction of a Dwelling as of the date of determination by the Administrative Agent, excluding (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such Dwelling and (b) Administrative Costs. 1.20 Continuing Director. A director who either was a member of the board of directors of the Borrower on the Agreement Date or who became a director of the Borrower subsequent to such date and whose election, or nomination for election by the Borrower's stockholders, was duly approved by a majority of the Continuing Directors on the board of directors of the Borrower at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Borrower on behalf of the entire board of directors of the Borrower in which such individual is named as nominee for a director. 1.21 Default. Any of the events specified in Section 6.1 hereof, provided that any requirement for notice or lapse of time, or both, has been satisfied. 1.22 Default Rate. A simple per annum interest rate equal to the sum of (a) the Term Loan Base Rate or the Revolving Loan Base Rate, as the case may be, plus (b) two hundred basis points (2%). 1.23 Developed Lots. Subdivision lots owned by the Borrower or its Restricted Subsidiaries, subject to a recorded plat, which the Borrower has designated and the Administrative Agent has accepted to be included and are included as "Developed Lots" in the calculation of the Loan Funding Availability (exclusive of any Dwelling Lot). An individual Developed Lot is sometimes referred to herein as a "Developed Lot." 1.24 Development Costs. All costs accepted by the Administrative Agent actually incurred by the Borrower and its Restricted Subsidiaries with respect to the development of a Land Parcel into a Developed Lot or Developed Lots as of the date of determination by the Administrative Agent, excluding (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such parcel of land and (b) Administrative Costs. 1.25 Dwelling. A house which the Borrower or any Restricted Subsidiary has constructed or is constructing on a Developed Lot which has been designated as a Dwelling Lot. 1.26 Dwelling Lots. Developed Lots with Dwellings which the Borrower or any Restricted Subsidiary has designated and the Administrative Agent has accepted to be included and are included as "Dwelling Lots" in the calculation of the Loan Funding Availability. The term "Dwelling Lot" includes the Dwelling located thereon. An individual Dwelling Lot is sometimes referred to herein as a "Dwelling Lot." 1.27 EBITDA. With respect to the Borrower and all Restricted Subsidiaries, earnings for the preceding twelve (12) months (including without limitation dividends from Unrestricted Subsidiaries including, without -4- limitation, net income (or loss) of any Person that accrued prior to the date that such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Borrower or any of its Restricted Subsidiaries) before interest incurred, state and federal income taxes paid, franchise taxes paid and depreciation and amortization, all in accordance with GAAP. 1.28 ERISA. The Employee Retirement Income Security Act of 1974, as in effect on the Agreement Date and as such Act may be amended thereafter from time to time. 1.29 ERISA Affiliate. (a) Any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b) any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with the Borrower, (c) any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with the Borrower, or (d) any other entity required to be aggregated with the Borrower pursuant to regulations under Code Section 414(o). 1.30 Event of Default. Any event specified in Section 6.1 hereof and any other event which with any passage of time or giving of notice (or both) would constitute such event a Default. 1.31 Exchange Act. The Securities Exchange Act of 1934, as amended. 1.32 Federal Funds Effective Rate. As of any date, the "Federal Funds Effective Rate" for each relevant month as published in the Federal Reserve Statistical Release H.15 (519), as published by the Board of Governors of the Federal Reserve System, or any successor publication published by the Board of Governors of the Federal Reserve System. 1.33 Financial Covenant Carve Out. Any acquisition of Inventory, which the Borrower has elected to exclude from the calculation of the covenants set forth in Sections 5.7(a), (b), (g), (h) and (i) hereof; provided, however, that no acquisition may qualify as a "Financial Covenant Carve Out" if (a) the Borrower has elected to have an acquisition designated as a "Financial Covenant Carve Out" in the preceding twelve (12) calendar month period; (b) such acquisition has already been designated as a "Financial Covenant Carve Out" on the last day of each of the two (2) fiscal quarter ends immediately following the date of such acquisition; (c) contemporaneously with delivery by the Borrower of the notice of designation of an acquisition as a "Financial Covenant Carve Out", the Borrower fails to deliver to the Administrative Agent and the Co-Agent a plan of action reflecting that the Borrower will be in compliance (after giving effect to such acquisition) with the covenants in Sections 5.7(a), (b), (g), (h) and (i) hereof on or prior to the last day of the third fiscal quarter following the date of such acquisition; and (d) the acquisition in question would, if it were included in the compliance calculations, cause (1) the ratio of Notes Payable to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 1.9 to 1, (B) as of the last day of each fiscal quarter of the Borrower in 1997, 2.1 to 1, (C) as of the last -5- day of each fiscal quarter ofthe Borrower in 1998, 2.2 to 1, or (2) the ratio of Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 2.25 to 1, (B) as of the last day of each fiscal quarter of the Borrower in 1997, 2.5 to 1, or (C) as of the last day of each fiscal quarter of the Borrower in 1998, 2.6 to 1. 1.34 Fixed Charges. The aggregate consolidated interest incurred of the Borrower and its Restricted Subsidiaries for the most recently completed four (4) fiscal quarters for which results have been reported to the Banks. 1.35 Fixed Charges Coverage Ratio. The ratio of the Borrower's EBITDA to Fixed Charges. 1.36 Force Majeure Delay. A delay to the development of a Lot Under Development or a delay to the construction of a Dwelling which is caused by fire, earthquake or other Acts of God, strike, lockout, acts of public enemy, riot, insurrection, or governmental regulation of the sale or transportation of materials, supplies or labor, provided that the Borrower furnishes the Administrative Agent with written notice of any such delay within ten (10) days from the commencement of any such delay and provided that the period of the Force Majeure shall not exceed the period of delay caused by such event. 1.37 Funding Period. A period commencing on the day immediately following the date that the Loan Funding Availability is established pursuant to Section 3.1(c) hereof by the Administrative Agent and ending on the date that the Loan Funding Availability next is established pursuant to Section 3.1(c) hereof by the Administrative Agent. 1.38 GAAP. As in effect as of the Agreement Date, generally accepted accounting principles consistently applied. 1.39 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. 1.40 Guaranty or Guaranteed. As applied to an obligation (each a "primary obligation"), shall mean and include (a) any guaranty, direct or indirect, in any manner, of any part or all of such primary obligation, and (b) any agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such primary obligation, including, without limiting the foregoing, any reimbursement obligations as to amounts drawn down by beneficiaries of outstanding letters of credit, and any obligation of such Person (the "primary obligor"), whether or not contingent, (i) to purchase any such primary obligation or any property or asset constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of such primary obligation or (2) to maintain working capital, equity capital or the net worth, cash flow, solvency or other balance sheet or income statement condition of any other Person, (iii) to purchase property, assets, securities or services primarily for -6- the purpose of assuring the owner or holder of any primary obligation of the ability of the primary obligor with respect to such primary obligation to make payment thereof or (iv) otherwise to assure or hold harmless the owner or holder of such primary obligation against loss in respect thereof. 1.41 Guarantors. DRH Construction, Inc., a Delaware corporation DRH New Mexico Construction, Inc., a Delaware corporation D.R. Horton, Inc. - Albuquerque, a Delaware corporation D.R. Horton, Inc. - Minnesota, a Delaware corporation D.R. Horton Los Angeles Holding Company, Inc., a California corporation D.R. Horton Los Angeles Management Company, Inc., a California corporation D.R. Horton Los Angeles No. 9, Inc., a California corporation D.R. Horton Los Angeles No. 10, Inc., a California corporation D.R. Horton Los Angeles No. 11, Inc., a California corporation D.R. Horton, Inc. - Birmingham, a Delaware corporation D.R. Horton, Inc. - Greensboro, a Delaware corporation D.R. Horton San Diego Holding Company, Inc., a California corporation D.R. Horton San Diego Management Company, Inc., a California corporation D.R. Horton San Diego No. 9, Inc., a California corporation D.R. Horton San Diego No. 10, Inc., a California corporation D.R. Horton San Diego No. 11, Inc., a California corporation D.R. Horton San Diego No. 12, Inc., a California corporation D.R. Horton San Diego No. 13, Inc., a California corporation D.R. Horton San Diego No. 14, Inc., a California corporation D.R. Horton San Diego No. 15, Inc., a California corporation D.R. Horton San Diego No. 16, Inc., a California corporation D.R. Horton San Diego No. 17, Inc., a California corporation D.R. Horton - Texas, Ltd., a Texas limited partnership Together with each additional Restricted Subsidiary of Borrower as may from time to time deliver a Guaranty of the Loans and Letters of Credit which Guaranty is accepted by Administrative Agent. 1.42 Indebtedness. With respect to any specified Person, (a) all items, except items of (i) shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv) general contingency or deferred tax reserves, (v) liabilities for deposits and (vi) deferred income, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, (b) all direct or indirect obligations secured by any Lien to which any property or asset owned by such Person is subject, whether or not the obligation secured thereby shall have been assumed, and (c) all reimbursement obligations with respect to outstanding letters of credit. -7- 1.43 Indebtedness for Money Borrowed. With respect to any specified Person, all money borrowed by such Person and Indebtedness represented by notes payable by such Person and drafts accepted representing extensions of credit to such Person, all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, all Indebtedness of such Person upon which interest charges are customarily paid, and all Indebtedness of such Person issued or assumed as full or partial payment for property or services, whether or not any such notes, drafts, obligations, or Indebtedness represent Indebtedness for money borrowed. For purposes of this definition, interest which is accrued but not paid on the original due date or within any applicable cure or grace period as provided by the underlying contract for such interest shall be deemed Indebtedness for Money Borrowed. 1.44 Interest Expense. In respect of any period, an amount equal to the sum of the interest incurred during such period based on a stated interest rate with respect to Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries on a consolidated basis. 1.45 Inventory. All real and personal property, improvements and fixtures owned by the Borrower or the Restricted Subsidiaries, including but not limited to all Land Parcels, Lots Under Development, Development Lots and Dwelling Lots. 1.46 Inventory Quarterly Report. The detailed quarterly written report with respect to the Loan Inventory, in substantially the form of Exhibit B attached hereto, to be prepared by the Borrower and submitted to the Administrative Agent in accordance with Section 3.1(c) hereof. 1.47 Inventory Summary Report. The monthly written summary of the Loan Inventory, in substantially the form of Exhibit C attached hereto, to be prepared by the Borrower and submitted to the Administrative Agent in accordance with Section 3.1(c) hereof. 1.48 Issuing Bank. NationsBank, N.A. (South) (or any successor Issuing Bank appointed in accordance with the provisions of this Agreement), as issuer of the Letters of Credit. 1.49 Land Parcels. Parcels of land owned by the Borrower or any of its Restricted Subsidiaries which are, as of the date of determination, not scheduled for commencement of development into Developed Lots during the twelve (12) calendar months immediately following such date of determination and which the Borrower has designated as "Land Parcels". An individual Land Parcel is sometimes referred to as a "Land Parcel." 1.50 Letter of Credit Banks. NationsBank, N.A. (South) and Bank of America National Trust and Savings Association. 1.51 Letter of Credit Commitment. As of any date of determination, $10,000,000 less all then outstanding Letter of Credit Obligations. 1.52 Letter of Credit Bank Commitment Ratio. The percentages in which the Letter of Credit Banks are severally bound to reimburse the Issuing Bank for -8- draws under Letters of Credit pursuant to the terms hereof, as set forth on Exhibit A attached hereto and incorporated herein. 1.53 Letter of Credit Maturity Date. April 30, 1999, or such earlier date as payment of the Letter of Credit Obligations shall be due (whether by acceleration or otherwise). 1.54 Letter of Credit Obligations. At any time, the sum of (a) an amount equal to the aggregate undrawn and unexpired amount (including the amount to which any such Letter of Credit can be reinstated pursuant to the terms hereof) of the then outstanding Letters of Credit and (b) an amount equal to the aggregate drawn, but unreimbursed, drawings on any Letters of Credit. 1.55 Letter of Credit Reserve Account. An interest bearing account maintained by the Administrative Agent for the benefit of the Issuing Bank, the proceeds of which are maintained as cash collateral for the Letter of Credit Obligations. The amount of funds in the Letter of Credit Reserve Account shall not exceed the then outstanding Letter of Credit Obligations, and any excess shall be applied as set forth in Section 2.9 hereof. All funds in the Letter of Credit Reserve Account shall be invested in such investments as the Administrative Agent, in its sole and absolute discretion, deems appropriate. The Borrower hereby acknowledges and agrees that any interest earned on such funds shall be retained by the Administrative Agent as additional collateral for the Letter of Credit Obligations. Upon satisfaction in full of all Letter of Credit Obligations, the Administrative Agent shall pay any amounts then held in such account to the Borrower. 1.56 Letters of Credit. Letters of credit issued for the account of the Borrower to support obligations of the Borrower or any of its Affiliates, including but not limited to earnest money payments under option contracts, project completion performance or project maintenance (but not credit enhancement), including, without limitation, those Letters of Credit issued by the Issuing Bank prior to the Agreement Date and more fully described on Schedule 1.56 attached hereto. An individual Letter of Credit is sometimes referred to as a "Letter of Credit." 1.57 Lien. With respect to any property, any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in the nature of any of the foregoing in respect of such property, whether or not choate, vested, or perfected. 1.58 Loan Documents. This Agreement, the Notes and any and all other documents evidencing the Notes or the Letters of Credit as the same may be amended, substituted, replaced, extended or renewed from time to time. 1.59 Loan Funding Availability. The amount available for advancement under the Notes to the Borrower established pursuant to Section 3.1 hereof, at any applicable time, by the Administrative Agent based on the Loan Inventory. -9- 1.60 Loan Inventory. Lots Under Development, Developed Lots and Dwelling Lots which are not encumbered by a Lien or Liens (other than any Permitted Encumbrance) and which have been designated by the Borrower and accepted by the Administrative Agent as "Loan Inventory" to be utilized for the purpose of calculating the Loan Funding Availability. 1.61 Loans. Collectively, amounts advanced by the Banks to the Borrower under the Revolving Loan Commitment and the Term Loan Commitment and evidenced by the Notes. 1.62 Lots Under Development. Land Parcels which are, as of the date of determination, being developed into Developed Lots or which are scheduled for the commencement of development into Developed Lots within twelve (12) calendar months after the date of determination, and which the Borrower has designated and the Administrative Agent has accepted to be included and are included as "Lots Under Development" in the calculation of the Loan Funding Availability. An individual Lot Under Development is sometimes referred to as a "Lot Under Development." 1.63 Majority Banks. At any time, Banks the total of whose Commitment Ratios exceeds fifty percent (50%) of the aggregate Commitment Ratios of Banks entitled to vote hereunder. 1.64 Models. A Dwelling Lot containing a dwelling unit which is designated by the Borrower as a model unit for use in marketing and promoting the sale of Dwelling Lots. 1.65 New York Federal Funds Rate. For any day, the rate per annum (rounded upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day. 1.66 Notes. The Term Loan Notes and the Revolving Loan Notes. 1.67 Notes Payable. With respect to the Borrower and all Restricted Subsidiaries, all Indebtedness for Money Borrowed other than promissory notes issued as earnest money for contracts, non-recourse promissory notes for seller financing and notes payable for insurance premiums and capitalized lease obligations. 1.68 Obligations. (a) All payment and performance obligations of the Borrower and all other obligors to the Banks, the Issuing Bank and the Administrative Agent under this Agreement and the other Loan Documents, as they may be amended from time to time, or as a result of making the Loans, and (b) the obligation to pay an amount equal to the amount of any and all damages which the Borrower is obligated to pay pursuant to the Loan Documents to, or on behalf of, the Banks, the Issuing Bank and the Administrative Agent, or any of them, which they may suffer by reason of a breach by any of the Borrower or any other -10- obligor of any obligation, covenant, or undertaking with respect to this Agreement or any other Loan Document. 1.69 Overnight Federal Funds Rate. The rate on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal Reserve Bank of New York. 1.70 Performance Benchmarks. The following financial ratios (exclusive of any Financial Covenant Carve Out) for the Borrower and its Restricted Subsidiaries on a consolidated basis as of both June 30, 1996 and September 30, 1996: (a) Total Liabilities to Tangible Net Worth of less than or equal to 1.7 to 1; (b) Notes Payable to Tangible Net Worth of less than or equal to 1.4 to 1; and (c) Fixed Charges Coverage Ratio of greater than or equal to 3.5 to 1. 1.71 Permitted Encumbrances. Liens, encumbrances, easements and other matters which (a) are in favor of the Administrative Agent, the Agent, the Co-Agent, the Banks and the Issuing Bank to secure the Obligations, (b) are on real estate for real estate taxes not yet delinquent, (c) are for taxes, assessments, judgments, governmental charges or levies or claims the non-payment of which is being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the Borrower's books (but only so long as no foreclosure, distraint sale or similar proceedings have been commenced with respect thereto and remain unstayed for a period of thirty (30) days after their commencement), (d) are in favor of carriers, warehousemen, mechanics, laborers and materialmen incurred in the ordinary course of business for sums not yet past due or being diligently contested in good faith (if adequate reserves are being maintained by the Borrower with respect thereto), (e) are incurred in the ordinary course of business in connection with worker's compensation and unemployment insurance, or (f) are easements, rights-of-way, restrictions or similar encumbrances on the use of real property which does not interfere with the ordinary conduct of business of the Borrower or materially detract from the value of such real property. 1.72 Person. An individual, corporation, partnership, limited liability company, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. 1.73 Plan. An employee benefit plan within the meaning of Section 3(3) of ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate. 1.74 Reconciliation Date. Two (2) Business Days after the Borrower's receipt of notice from the Administrative Agent pursuant to Section 3.1(d) hereof that the outstanding principal balance of the Loans exceeds the Available Loan Commitment. -11- 1.75 Reportable Event. Shall have the meaning set forth in Section 4043(b) of ERISA. 1.76 Request for Advance. Any certificate signed by an Authorized Signatory of the Borrower requesting an Advance hereunder which will increase the aggregate amount of the Loans outstanding, which certificate shall be denominated a "Request for Advance," and shall be in substantially the form of Exhibit D attached hereto. Each Request for Advance shall, among other things, (a) specify the date of the Advance, which shall be a Business Day, (b) specify the amount of the Advance, (c) state that there shall not exist, on the date of the requested Advance and after giving effect thereto, a Default or an Event of Default, and (d) state that all conditions precedent to the making of the Advance have been satisfied. 1.77 Request for Issuance of Letter of Credit. Any certificate signed by an Authorized Signatory of the Borrower requesting that the Issuing Bank issue a Letter of Credit hereunder, which certificate shall be in substantially the form of Exhibit E attached hereto, and shall, among other things, (a) specify the stated amount of the Letter of Credit, (b) specify the effective date for the issuance of the Letter of Credit (which shall be a Business Day), (c) specify the date on which the Letter of Credit is to expire (which shall be a Business Day), (d) specify the Person for whose benefit such Letter of Credit is to be issued, (e) specify other relevant terms of such Letter of Credit, (f) be accompanied by a completed letter of credit application substantially similar to Exhibit F attached hereto or otherwise in form and substance satisfactory to the Issuing Bank, and (g) state that there shall not exist, on the date of issuance of the requested Letter of Credit and after giving effect thereto, a Default or an Event of Default. 1.78 Restricted Subsidiary. Any Subsidiary of the Borrower which has been designated as a Restricted Subsidiary by the Borrower and from which the Administrative Agent is required to receive a duly executed Subsidiary Guaranty, including, without limitation, the Guarantors. 1.79 Revolving Loans. Revolving lines of credit to be advanced by the Banks pursuant to the terms of this Agreement and evidenced by the Revolving Loan Notes. 1.80 Revolving Loan Base Rate. At any time, the lesser of (a) (i) at all times (1) prior to October 1, 1996, and (2) if the Performance Benchmarks have not been attained, thereafter, the New York Federal Funds Rate plus one hundred sixty basis points (1.60%), and (ii) effective October 1, 1996, so long as the Performance Benchmarks have been attained, the New York Federal Funds Rate plus one hundred forty-four basis points (1.44%) or (b) (i) at all times (1) prior to October 1, 1996, and (2) if the Performance Benchmarks have not been attained, thereafter, the Three-Month LIBOR plus one hundred fifty basis points (1.5%), and (ii) effective October 1, 1996, so long as the Performance Benchmarks have been attained, the Three-Month LIBOR plus one hundred thirty-five basis points (1.35%). -12- 1.81 Revolving Loan Commitment. The several obligations of the Banks to advance funds in the aggregate sum of up to $150,000,000 to the Borrower pursuant to the terms hereof as such obligations may be reduced from time to time pursuant to the terms hereof. 1.82 Revolving Loan Maturity Date. April 30, 1999, or such earlier date as payment of the Revolving Loans shall be due (whether by acceleration or otherwise). 1.83 Revolving Loan Notes. The promissory notes by the Borrower one each in favor of each of the Banks evidencing such Bank's pro rata share of the Revolving Loans, as well as any promissory note or notes issued by the Borrower in substitution, replacement, extension, amendment or renewal of any such promissory note or notes. An individual Revolving Loan Note held by a Bank is sometimes referred to as a "Revolving Loan Note." The combined face amount of the Revolving Loan Notes may not exceed ONE HUNDRED FIFTY MILLION AND NO/100 DOLLARS ($150,000,000.00). 1.84 Speculative Lot. Any Dwelling Lots having a fully or partially constructed dwelling unit thereon which Dwelling Lot is not subject to a bona fide contract for the sale of such Dwelling Lot to a third party, excluding Developed Lots containing Dwellings used as Models. 1.85 Subsidiary. As applied to any Person, (a) any corporation of which fifty percent (50%) or more of the outstanding stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class or classes of securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which fifty percent (50%) or more of the outstanding partnership interests, is at the time owned by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is controlled or susceptible to being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person; provided, however, that for purposes of this Agreement and the other Loan Documents the term "Subsidiary" shall not include DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the context otherwise requires, "Subsidiaries" as used herein shall mean the Subsidiaries of the Borrower. The Subsidiaries of the Borrower as of the Closing Date are set forth on Schedule 1.84 attached hereto. 1.86 Subsidiary Guaranty. A guaranty agreement in form and substance satisfactory to the Administrative Agent whereunder a Restricted Subsidiary guarantees the full and faithful payment and performance of all of the Obligations of the Borrower hereunder and under the other Loan Documents. 1.87 Super-Majority Banks. At any time, Banks the total of whose Commitment Ratios exceeds sixty-six and two thirds percent (66-2/3%) of the aggregate Commitment Ratios of Banks entitled to vote hereunder. -13- 1.88 Tangible Assets. The difference between total assets of the Borrower and its Restricted Subsidiaries and all intangible assets of the Borrower and its Restricted Subsidiaries, all as determined in accordance with GAAP. 1.89 Tangible Net Worth. With respect to the Borrower and its Restricted Subsidiaries, stockholder's equity on a consolidated basis less all "intangible assets" as defined under GAAP and amounts invested in Unrestricted Subsidiaries of such Person. 1.90 Term Loan. Amounts advanced by the Banks on the Agreement Date under the Term Loan Commitment pursuant to the terms of this Agreement and evidenced by the Term Loan Notes. 1.91 Term Loan Base Rate. The Three-Month LIBOR plus two hundred basis points (2%). 1.92 Term Loan Commitment. The several obligations of the Banks to advance on the Agreement Date funds in the aggregate sum of $100,000,000 to the Borrower pursuant to the terms hereof. 1.93 Term Loan Maturity Date. April 16, 2001, or such earlier date as payment of the Term Loan shall be due (whether by acceleration or otherwise). 1.94 Term Loan Notes. The promissory notes by the Borrower one each in favor of each of the Banks evidencing such Bank's pro rata share of the Term Loan, as well as any promissory note or notes issued by the Borrower in substitution, replacement, extension, amendment or renewal of any such promissory note or notes. An individual Term Loan Note held by a Bank is sometimes referred to as a "Term Loan Note." The combined face amount of the Term Loan Notes may not exceed ONE HUNDRED MILLION AND NO/100s DOLLARS ($100,000,000). 1.95 Third Party Notes Payable. With respect to the Borrower and its Restricted Subsidiaries, all Indebtedness for Money Borrowed other than (a) publicly issued Indebtedness for Money Borrowed which is pari passu with the Obligations, (b) non-recourse Indebtedness, (c) Indebtedness owed to the seller of any Inventory acquired by the Borrower or its Restricted Subsidiaries, (d) Indebtedness which is structurally subordinate to the Obligations or which is convertible into equity at the option of the Borrowers, (e) Indebtedness for earnest money and (f) notes payable for insurance premiums and capitalized lease obligations. 1.96 Three-Month LIBOR. As of any date of determination, a rate of interest per annum equal to the three (3) month London Interbank Offered Rate for deposits in United States dollars (rounded to two decimal places) in amounts comparable to the outstanding principal amount of the Loans then outstanding, which interest rate is set forth in the Wall Street Journal (Eastern Edition) on the next Business Day; provided, however, if more than one such offered rate -14- appears in the Wall Street Journal (Eastern Edition), the applicable rate shall be the highest thereof. 1.97 Total Capital. The sum of the Tangible Net Worth of the Borrower and its Restricted Subsidiaries plus Notes Payable of the Borrower and its Restricted Subsidiaries. 1.98 Total Liabilities. All items required by GAAP to be set forth as "liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated balance sheet. 1.99 Unrestricted Subsidiaries. Subsidiaries of the Borrower which are not Restricted Subsidiaries. 1.100 Working Capital. The total of the Borrower's and its Restricted Subsidiaries' assets minus the sum of the Borrower's and Restricted Subsidiaries' fixed assets, intangible assets, earnest monies for lot and land option contracts represented by promissory notes payable by the Borrower and Restricted Subsidiaries and the total of the Borrower's and Restricted Subsidiaries' liabilities. [ Total Assets - (Fixed Assets + Intangible Assets + Earnest Monies Represented by Promissory Notes + Total Liabilities).] Each definition of an agreement in this Article 1 shall include such agreement as modified, amended, or supplemented from time to time with the prior written consent of the Majority Banks, except as provided in Section 8.3 hereof, and except where the context otherwise requires, definitions imparting the singular shall include the plural and vice versa. Except where otherwise specifically restricted, reference to a party to a Loan Document includes that party and its successors and assigns. All terms used herein which are defined in Article 9 of the Uniform Commercial Code in effect in the State of Georgia on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein. All accounting terms used herein without definition shall be used as defined under GAAP as of the Agreement Date. ARTICLE 2 LOANS AND LETTERS OF CREDIT 2.1 Extension of Credit. Subject to the terms and conditions of, and in reliance upon the representations and warranties made in this Agreement and the other Loan Documents, the Banks agree, severally in accordance with their respective Commitment Ratios, and not jointly, to extend credit to the Borrower in an aggregate principal amount not to exceed $250,000,000 and the Issuing Bank agrees to issue Letters of Credit on behalf of the Borrower in an aggregate face amount not to exceed $10,000,000, all as provided below: -15- (a) The Term Loan. Subject to the terms and conditions of this Agreement and provided that there is no Default or Event of Default, the Banks agree, severally in accordance with their Commitment Ratios, and not jointly, upon the terms and subject to the conditions of this Agreement, to lend to the Borrower, on the Agreement Date, amounts which in the aggregate do not exceed the Term Loan Commitment. Advances under the Term Loan Commitment which are repaid may not be reborrowed. (b) The Revolving Loans. Subject to the terms and conditions of this Agreement and provided that there is no Default or Event of Default, the Banks agree, severally in accordance with their Commitment Ratios, and not jointly, upon the terms and subject to the conditions of this Agreement, to lend and relend to the Borrower, prior to the Revolving Loan Maturity Date, amounts which in the aggregate at any one time outstanding do not exceed the Available Revolving Loan Commitment. Advances under the Revolving Loan Commitment may be repaid and reborrowed from time to time on a revolving basis as set forth herein. (c) The Letters of Credit. Subject to the terms and conditions of this Agreement and provided that there is no Default or Event of Default, the Issuing Bank agrees to issue Letters of Credit for the account of the Borrower pursuant to Section 2.4 hereof in an aggregate amount for the Borrower at any one time not to exceed the Letter of Credit Commitment. (d) Use of Loan Proceeds. The Administrative Agent, the Banks and the Borrower agree that the proceeds of the Loans shall be used for general corporate purposes, including, without limitation, working capital support, home construction, lot acquisition, lot development, land acquisition, asset acquisitions and stock acquisitions. 2.2 Manner of Borrowing and Disbursement Under Loans. (a) Advances. The Borrower shall give the Administrative Agent irrevocable written notice for Advances under the Loans not later than 12:00 noon (Eastern time) on the day immediately preceding the date of the requested Advance in the form of a Request for Advance, or notice by telephone or telecopy followed immediately by a Request for Advance; provided, however, that the failure by the Borrower to confirm any notice by telephone or telecopy with a Request for Advance shall not invalidate any notice so given. Each Advance hereunder shall be in principal amounts of not less than $100,000 and in integral multiples of $100,000. Subsequent to the initial Advance(s) of the Loans made on the Agreement Date, the Borrower may not request, in the aggregate, more than (i) two (2) Advances in any calendar month plus (ii) four (4) additional Advances in any twelve (12) calendar month period. In any event, the Borrower may not request, in the aggregate, more than twenty-eight (28) Advances in any twelve (12) calendar month period. (b) Notification of Banks. Upon receipt of a Request for Advance or notice by telephone or telecopy, the Administrative Agent shall promptly notify each Bank by telephone or telecopy of the requested Advance, the date on which the Advance is to be made, the amount of the Advance and the -16- amount of such Bank's portion of the applicable Advance based upon such Bank's Commitment Ratio. Each Bank shall, not later than 12:00 noon (Eastern time) on the date specified in such notice, make available to the Administrative Agent at the Administrative Agent's office, or at such account as the Administrative Agent shall designate, the amount of its portion of the applicable Advance in immediately available funds. (c) Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an Advance hereunder, the Administrative Agent shall, subject to the satisfaction of the conditions set forth in this Agreement, disburse the amounts made available to the Administrative Agent by the Banks in immediately available funds by (i) transferring the amounts so made available by wire transfer pursuant to the instructions of the Borrower, or (ii) in the absence of such instructions, crediting the amounts so made available to the account of the Borrower maintained with the Administrative Agent or an affiliate of the Administrative Agent. Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Advance that such Bank will not make available to the Administrative Agent such Bank's ratable portion of such Advance, and so long as notice has been given as provided in Section 2.2(b) hereof, the Administrative Agent may assume that such Bank has made such portion available to the Administrative Agent on the date of such Advance and the Administrative Agent may, in its sole discretion and in reliance upon such assumption, without any obligation hereunder to do so, make available to the Borrower on such date a corresponding amount. If and to the extent such Bank shall not have so made such ratable portion available to the Administrative Agent, such Bank agrees to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent for the first two (2) days that such amount is not repaid, at the Overnight Federal Funds Rate, and, thereafter, at the Overnight Federal Funds Rate plus four percent (4%) per annum. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's portion of the applicable Advance for purposes of this Agreement. If such Bank does not repay such corresponding amount immediately upon the Administrative Agent's demand therefor, the Administrative Agent may notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent, together with all interest accrued thereon and on the same terms and conditions that would have applied to such Advance had such Bank funded its portion thereof. Any payments received by the Administrative Agent following such demand shall be applied in repayment of amounts owed to the Administrative Agent hereunder prior to any other application. The failure of any Bank to fund its portion of any Advance shall not relieve any other Bank of its obligation, if any, hereunder to fund its respective portion of the Advance on the date of such borrowing, but no Bank shall be responsible for any such failure of any other Bank. In the event that, at any time when this Agreement is not in Default, a Bank for any reason fails or refuses to fund its portion of an Advance, then, until such time as such Bank has funded its portion of such Advance, or all other Banks have received payment in full (whether by repayment or prepayment) of the principal and interest due in respect of such Advance, such non-funding Bank shall (i) be automatically deemed to have transferred to the Bank serving as Administrative Agent all of such non-funding Bank's right to vote regarding any issue on which voting is -17- required or advisable under this Agreement or any other Loan Document, and (ii) not be entitled to receive payments of principal, interest or fees from the Borrower in respect of such Advances which such Bank failed to make. 2.3 Interest on Loans. (a) Revolving Loans. Interest on Revolving Loans shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Revolving Loan Base Rate times the principal balance outstanding from time to time under the Revolving Loan Notes for the number of days such principal amounts are outstanding during such calendar month. Interest then outstanding shall be due and payable in arrears as provided in Section 2.7 hereof. (b) Term Loan. Interest on the Term Loan shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Term Loan Base Rate times the principal balance outstanding from time to time under the Term Loan Notes for the number of days such principal amounts are outstanding during such calendar month. Interest then outstanding shall be due and payable in arrears as provided in Section 2.7 hereof. (c) Upon Default. Upon the occurrence and during the continuance of a Default, the Super-Majority Banks shall have the option (but shall not be required to give prior notice thereof to the Borrower to accelerate the maturity of the Loans or to exercise any other rights or remedies hereunder in connection with the exercise of this right) to charge interest on the outstanding principal balance of the Loans at the Default Rate from the date of such Default. Such interest shall be payable on the earliest of demand, the first (1st) Business Day of the next calendar month or the Revolving Loan Maturity Date or the Term Loan Maturity Date, as applicable, and shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the Super-Majority Banks) of the applicable Default, (ii) agreement by the Super-Majority Banks to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. 2.4 Issuance and Administration of Letters of Credit. (a) Subject to the terms and conditions hereof, the Issuing Bank, on behalf of the Letter of Credit Banks, and in reliance on the agreements of the Letter of Credit Banks set forth in subsection (d) below, hereby agrees to issue one or more Letters of Credit up to an aggregate face amount equal to the Letter of Credit Commitment, provided, however, that the Issuing Bank shall have no obligation to issue any Letter of Credit if a Default or Event of Default would be caused thereby; and provided further, however, that at no time shall the total Letter of Credit Obligations outstanding hereunder exceed $10,000,000. Each Letter of Credit shall (1) be denominated in U.S. dollars, and (2) expire no later than 365 days after its date of issuance (but in no event later than the Letter of Credit Maturity Date). A Letter of Credit may contain provisions for automatic renewal provided that no Default or Event of Default exists on the renewal date or would be caused by such renewal and provided -18- further that the new expiration date does not extend beyond the Letter of Credit Maturity Date. Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits and, to the extent not inconsistent therewith, the laws of the State of Georgia and shall be in a form reasonably acceptable to the Issuing Bank. The Issuing Bank shall not at any time be obligated to issue, or cause to be issued, any Letter of Credit if such issuance would conflict with, or cause the Issuing Bank to exceed any limits imposed by, any Applicable Law. If a Letter of Credit provides that it is automatically renewable unless notice is given by the Issuing Bank that it will not be renewed, the Issuing Bank shall not be bound to give a notice of non-renewal unless directed to do so by the Letter of Credit Banks at least thirty (30) days prior to the date on which such notice of non-renewal is required to be delivered to the beneficiary of the applicable Letter of Credit pursuant to the terms thereof. The Borrower hereby agrees that upon the Letter of Credit Maturity Date (whether by reason of acceleration or otherwise) at the request of the Administrative Agent, the Borrower shall deposit in an interest bearing account with the Administrative Agent, as cash collateral for the Obligations, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby grants to the Administrative Agent (for itself and on behalf of the Issuing Bank) a security interest in all such cash. Upon receipt of the cash collateral referred to in the preceding sentence, the obligations of the Letter of Credit Banks under this Section 2.4 shall cease; provided that, if for any reason, all or any part of such cash collateral must be surrendered or disgorged by the Administrative Agent, then such obligations shall be automatically reinstated. The terms hereof shall govern the reimbursement obligation of the Borrower with respect to the Letters of Credit. (b) The Borrower may from time to time request that the Issuing Bank issue a Letter of Credit. The Borrower shall execute and deliver to the Administrative Agent and the Issuing Bank a Request for Issuance of Letter of Credit for each Letter of Credit to be issued by the Issuing Bank, not later than 12:00 noon (Eastern time) on the fifth (5th) Business Day preceding the date on which the requested Letter of Credit is to be issued, or such shorter notice as may be acceptable to the Issuing Bank and the Administrative Agent. Upon receipt of any such Request for Issuance of Letter of Credit, subject to satisfaction of all conditions precedent thereto as set forth in Article 5 hereof, the Issuing Bank shall process such Request for Issuance of Letter of Credit 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. The Issuing Bank shall furnish a copy of such Letter of Credit to the Borrower and the Administrative Agent following the issuance thereof. The Borrower shall pay or reimburse the Issuing Bank on demand for normal and customary costs and expenses incurred by the Issuing Bank in effecting payment under, amending or otherwise administering the Letters of Credit. (c) At such time as the Administrative Agent shall be notified by the Issuing Bank that the beneficiary under any Letter of Credit has drawn on the same, the Administrative Agent shall promptly notify the Borrower and each Letter of Credit Bank, by telephone or telecopy, of the amount of the draw and, in the case of each Letter of Credit Bank, such Letter of Credit Bank's portion -19- of such draw amount as calculated in accordance with its Letter of Credit Bank Commitment Ratio. (d) The Borrower hereby agrees to immediately reimburse the Issuing Bank for amounts paid by the Issuing Bank in respect of draws under a Letter of Credit issued at the Borrower's request. In order to facilitate such repayment, the Borrower hereby irrevocably requests the Letter of Credit Banks, and the Letter of Credit Banks hereby severally agree, on the terms and conditions of this Agreement (other than as provided in Article 2 hereof with respect to the amounts of, the timing of requests for, and the repayment of Advances hereunder), with respect to any drawing under a Letter of Credit prior to the occurrence of an event described in clauses (e) or (f) of Section 6.1 hereof, to make an Advance hereunder on each day on which a draw is made under any Letter of Credit and in the amount of such draw, and to pay the proceeds of such Advance directly to the Issuing Bank to reimburse the Issuing Bank for the amount paid by it upon such draw. Each Letter of Credit Bank shall pay its share of such Advance by paying its portion of such Advance to the Administrative Agent in accordance with Section 2.2(c) hereof and its Letter of Credit Bank Commitment Ratio, without reduction for any set-off or counterclaim of any nature whatsoever and regardless of whether any Default or Event of Default (other than with respect to an event described in clauses (e) or (f) of Section 6.1 hereof) then exists or would be caused thereby. If at any time that any Letters of Credit are outstanding, any of the events described in clauses (e) or (f) of Section 6.1 hereof shall have occurred, then each Letter of Credit Bank shall, automatically upon the occurrence of any such event and without any action on the part of the Issuing Bank, the Borrower, the Administrative Agent, the Banks or the Letter of Credit Banks, be deemed to have purchased an undivided participation in the face amount of all Letters of Credit then outstanding in an amount equal to such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio, and each Letter of Credit Bank shall, notwithstanding such Default, upon a drawing under any Letter of Credit, immediately pay to the Administrative Agent for the account of the Issuing Bank, in immediately available funds, the amount of such Letter of Credit Bank's participation (and the Issuing Bank shall deliver to such Letter of Credit Bank a loan participation certificate dated the date of the occurrence of such event and in the amount of such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio). The disbursement of funds in connection with a draw under a Letter of Credit pursuant to this Section shall be subject to the terms and conditions of Section 2.2(c) hereof. The obligation of each Letter of Credit Bank to make payments to the Administrative Agent, for the account of the Issuing Bank, in accordance with this Section 2.4 shall be absolute and unconditional and no Letter of Credit Bank shall be relieved of its obligations to make such payments by reason of noncompliance by any other Person with the terms of the Letter of Credit or for any other reason. The Administrative Agent shall promptly remit to the Issuing Bank the amounts so received from the Letter of Credit Banks. Any overdue amounts payable by any of the Letter of Credit Banks to the Issuing Bank in respect of a draw under any Letter of Credit shall bear interest, payable on demand, for the first two (2) days of such non-payment, at the Overnight Federal Funds Rate, and, thereafter, at the Overnight Federal Funds Rate plus four percent (4%). -20- (e) The obligation of the Borrower to reimburse the Letter of Credit Banks for Advances made to reimburse the Issuing Bank for draws under any Letters of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, the following circumstances: (i) Any lack of validity or enforceability of any Loan Document; (ii) Any amendment or waiver of or consent to any departure from any or all of the Loan Documents; (iii) Any improper use which may be made of any Letter of Credit or any improper acts or omissions of any beneficiary or transferee of any Letter of Credit in connection therewith; (iv) The existence of any claim, set-off, defense or any right which the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or Persons for whom any such beneficiary or any such transferee may be acting) or any Bank or Letter of Credit Bank (other than the defense of payment to such Bank or Letter of Credit Bank in accordance with the terms of this Agreement) or any other Person (other than the Issuing Bank), whether in connection with any Letter of Credit, any transaction contemplated by any Letter of Credit, this Agreement, any other Loan Document, or any unrelated transaction; (v) Any statement or any other documents presented under any Letter of Credit proving to be insufficient, forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever, provided that such payment shall not have constituted gross negligence or willful misconduct of the Issuing Bank; (vi) The insolvency of any Person issuing any documents in connection with any Letter of Credit; (vii) Any breach of any agreement between the Borrower and any beneficiary or transferee of any Letter of Credit; (viii) Any irregularity in the underlying transaction with respect to which any Letter of Credit is issued, including any fraud by the beneficiary or any transferee of such Letter of Credit; or (ix) Any other circumstances arising from causes beyond the control of the Issuing Bank. -21- (f) Each Letter of Credit Bank shall be responsible for its pro rata share (based on such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio) of any and all reasonable out-of-pocket costs, expenses (including reasonable legal fees) and disbursements which may be incurred or made by the Issuing Bank in connection with the collection of any amounts due under, the administration of, or the presentation or enforcement of any rights conferred by any Letter of Credit, the Borrower's or any guarantor's obligations to reimburse or otherwise, excluding, however, any such expenses incurred by the Issuing Bank as a result of the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under a Letter of Credit complies with the terms of the Letter of Credit. In the event the Borrower shall fail to pay such expenses of the Issuing Bank within ten (10) days after demand for payment by the Issuing Bank, each Letter of Credit Bank shall thereupon pay to the Issuing Bank its pro rata share (based on such Letter of Credit Bank's Letter of Credit Bank Commitment Ratio) of such expenses within five (5) days from the date of the Issuing Bank's notice to the Letter of Credit Banks of the Borrower's failure to pay; provided, however, that if the Borrower or any guarantor shall thereafter pay such expense, the Issuing Bank will repay to each Letter of Credit Bank the amounts received from such Letter of Credit Bank hereunder. The Borrower hereby irrevocably requests the Letter of Credit Banks and the Letter of Credit Banks hereby severally agree subject to compliance with the terms and conditions hereof (other than as provided in Article 2 hereof with respect to the amounts of and the timing of requests for Advances hereunder), to make an Advance to the Issuing Bank, on behalf of the Borrower for reimbursement of expenses under this Section 2.4(f). (g) The Borrower agrees that each Advance by the Letter of Credit Banks to reimburse the Issuing Bank for draws under any Letter of Credit or for expenses as provided in Section 2.4(f) hereof, shall be payable immediately on the date of such Advance and shall bear interest at the Base Rate until paid in full or at the Default Rate following the occurrence of a Default. (h) The Borrower agrees that it will indemnify and hold harmless the Administrative Agent, the Issuing Bank, each Letter of Credit Bank and each other Bank and each of their respective employees, representatives, officers and directors from and against any and all claims, liabilities, obligations, losses (other than loss of profits), damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable attorneys' fees, but excluding taxes) which may be imposed on, incurred by or asserted against the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or any such Bank in any way relating to or arising out of the issuance of a Letter of Credit, except that the Borrower shall not be liable to the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or any such Bank for any portion of such claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent, the Issuing Bank, any such Letter of Credit Bank or such Bank, as the case may be, or any such claims, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements arising solely out of a controversy among the Administrative Agent, the Issuing Bank, the Letter of Credit Banks and the -22- Banks, or any of them. This Section 2.4(h) shall survive termination of this Agreement. 2.5 Fees and Commissions on Loans and Letters of Credit. (a) Administration Fee. The Borrower agrees to pay to the Administrative Agent, for its administrative services as administrative agent for the Banks and the Issuing Bank hereunder, a fee of $50,000.00 per annum. Such fee shall be due and payable on the Agreement Date and on each anniversary of the Agreement Date, and shall be fully earned when due and non-refundable when paid. In the event that following the payment of an annual administration fee, all obligations of the Borrower hereunder shall be fully and finally performed and this Agreement shall be terminated prior to the next anniversary of the Agreement Date, a pro rata portion of such fee shall be refunded to the Borrower, based upon the time remaining to the next anniversary of the Agreement Date. (b) Renewal Fee. In the event that the Revolving Loan Maturity Date shall be extended, the Borrower agrees to pay to the Administrative Agent for distribution to each of the Banks which elects to renew this Agreement in accordance with Section 8.5 hereof, on a pro rata basis in accordance with their respective Commitment Ratios, an annual renewal fee in consideration of the agreement of such Banks to extend the Revolving Loan Maturity Date of this Agreement in the amount of five one hundredths of one percent (.05%) of the amount of the Revolving Loan Commitment (as of the effective date of such renewal). Such fee shall be due and payable on the effective date of the renewal, and shall be fully earned when due and non-refundable when paid. In the event that following the payment of an annual renewal fee, all Obligations of the Borrower hereunder shall be fully and finally performed and this Agreement shall be terminated prior to the extended Revolving Loan Maturity Date, a pro rata portion of such annual renewal fee most recently paid shall be refunded to the Borrower, based upon the time remaining to the extended Revolving Loan Maturity Date. (c) Unused Fee on Revolving Loans. The Borrower agrees to pay to the Administrative Agent for the benefit of the Banks, in accordance with their respective Commitment Ratios, an unused fee for each calendar year on the difference between (i) the Revolving Loan Commitment and (ii) the daily sum of the outstanding Revolving Loans for each day during the applicable period, in each case at the rate of (A) if the average difference between clauses (i) and (ii) for the period is less than $50,000,000, 15 basis points (.15%), (B) if the average difference between clauses (i) and (ii) for the period is less than $100,000,000, but greater than or equal to $50,000,000, 22.5 basis points (.225%), and (C) if the average difference between clauses (i) and (ii) is greater than or equal to $100,000,000, 30 basis points (.30%). Such unused fee shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable quarterly in arrears on the eighteenth (18th) day of each January, April, July, and October for the immediately preceding calendar quarter, commencing on July 18, 1996 (for the period from the Agreement Date through June 30, 1996), and on the Revolving Loan Maturity Date, and shall be fully earned when due and non-refundable when paid. -23- (d) Letter of Credit Fees. The Borrower agrees to pay to the Administrative Agent for the benefit of the Issuing Bank and the Letter of Credit Banks, a fee on the stated amount of any outstanding Letters of Credit from the date of issuance through the expiration date of each such Letter of Credit in an amount equal to the greater of (i) $100 and (ii) a rate (A) for any Letter of Credit issued on a date when the aggregate stated amount of all then outstanding Letters of Credit, together with the stated amount of the Letter of Credit being issued, is less than or equal to $6,000,000, of three-quarters of one percent (3/4%) per annum, and (B) for any Letter of Credit issued on a date when the aggregate stated amount of all then outstanding Letters of Credit, together with the stated amount of the Letter of Credit being issued, is in excess of $6,000,000, of one percent (1%) per annum (the "Letter of Credit Fees"). The Letter of Credit Fees shall be calculated on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable on the date of issuance and renewal of each Letter of Credit, and shall be fully earned when due and non-refundable when paid. The Administrative Agent shall, promptly after receipt of the Letter of Credit Fees, distribute, (x) in the case of clause (A) above, one-third (1/3rd) of such Letter of Credit Fees to the Issuing Bank, with the remainder to the Letter of Credit Banks in accordance with their respective Letter of Credit Bank Commitment Ratios, and (y) in the case of clause (B) above, ten percent (10%) of such Letter of Credit Fees to the Issuing Bank, with the remainder to the Letter of Credit Banks in accordance with their respective Letter of Credit Bank Commitment Ratios. 2.6 Notes, Loan and Letters of Credit Accounts. (a) The Loans shall be repayable in accordance with the terms and provisions set forth herein, and shall be evidenced by the Notes. One of the Term Loan Notes and one of the Revolving Loan Notes shall be payable to the order of each Bank in accordance with the respective Commitment Ratio of such Bank. The Notes shall be issued by the Borrower to each of the Banks and shall be duly executed and delivered by Authorized Signatories. (b) Each Bank and each Letter of Credit Bank, as the case may be, may open and maintain on its books in the name of the Borrower a loan account with respect to the Loans and interest thereon and a letter of credit account with respect to its obligations pursuant to Letters of Credit. Each Bank which opens such accounts in respect of the Loans shall debit the applicable loan account for the principal amount of each Advance made by it and accrued interest thereon, and shall credit such loan account for each payment on account of principal of or interest on the Loans. Each Letter of Credit Bank which opens such accounts in respect of the Letters of Credit shall debit the applicable account for the amount of each Advance made by it and accrued interest thereon, and shall credit such account for each payment on account of principal and interest of Letter of Credit Advances. The records of each Bank and each Letter of Credit Bank, as the case may be, with respect to the accounts maintained by it shall be prima facie evidence of the Loans and Letter of Credit Obligations and accrued interest thereon, but the failure to maintain such records shall not impair the obligation of the Borrower to repay Indebtedness hereunder. -24- (c) The Administrative Agent and Issuing Bank may maintain in accordance with their usual practice records of account evidencing the Indebtedness of the Borrower resulting from Advances under the Loans and each drawing under a Letter of Credit. In any legal action or proceeding in respect of this Agreement, the entries made in such record shall be prima facie evidence, absent manifest error, of the existence and amounts of the obligations of the Borrower therein recorded. Failure of the Issuing Bank to maintain any such record shall not excuse the Borrower from the obligation to pay such Indebtedness. To the extent that the records of the Administrative Agent or Issuing Bank conflict with the records of the Banks maintained pursuant to Section 2.6(b) above, absent manifest error, the records of the Administrative Agent or Issuing Bank, as the case may be, shall control. (d) Each Advance from the Banks under this Agreement shall be made pro rata on the basis of their respective Commitment Ratios. (e) Each Advance made on account of drawing under Letters of Credit shall be made pro rata by the Letter of Credit Banks on the basis of their respective Letter of Credit Bank Commitment Ratios. 2.7 Repayment of Loans and Letters of Credit. (a) Interest. The Borrower shall pay, on the eighteenth (18th) calendar day of each month, all interest on the Term Loan and the Revolving Loans which has accrued as of the first (1st) calendar day of such month, commencing on the eighteenth (18th) calendar day of the first (1st) full calendar month following the Agreement Date. (b) Letters of Credit. The Borrower shall repay all draws upon the Letters of Credit immediately upon the Issuing Bank's demand therefor. The Borrower shall make certain other payments in respect of the Letter of Credit Obligations as provided in Sections 2.4(a), 2.4(g) and 3.1 hereof. (c) Reconciliation of Loan Inventory. The Borrower shall repay certain portions of the outstanding principal of the Loans and accrued and unpaid interest thereon upon the reconciliation of the Loan Funding Availability against the outstanding principal balance under the Notes as provided in Section 3.1 hereof. (d) Maturity. In addition to the foregoing, a final payment of all Obligations then outstanding shall be due and payable by the Borrower on the Revolving Loan Maturity Date, the Term Loan Maturity Date or the Letter of Credit Maturity Date, as applicable. 2.8 Manner of Payment. (a) Each payment (including any prepayment) by the Borrower on account of the principal of or interest on the Loans, fees, and any other amount owed to the Banks or the Administrative Agent under this Agreement, the Notes, or the other Loan Documents shall be made not later than 1:00 p.m.(Eastern time) -25- on the date specified for payment under this Agreement or such other Loan Document to the Administrative Agent to an account designated by the Administrative Agent, for the account of the Banks, the Issuing Bank or the Administrative Agent, as the case may be, in lawful money of the United States of America in immediately available funds. Any payment received by the Administrative Agent after 12:00 noon (Eastern time) shall be deemed received on the next Business Day for purposes of interest accrual. In the case of a payment for the account of a Bank or the Issuing Bank, then, subject to the provisions of Section 2.9 of this Agreement, the Administrative Agent will promptly thereafter distribute the amount so received in like funds to such Bank or the Issuing Bank. If the Administrative Agent shall not have received any payment from the Borrower as and when due, the Administrative Agent will promptly notify the Banks and, if appropriate, the Issuing Bank, accordingly, and the Administrative Agent shall not be obligated to make any distributions under this Section 2.8. (b) If any payment under this Agreement or any of the Notes shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment. (c) The Borrower may not make payments, in the aggregate, under this Agreement (excluding any payments specifically required pursuant to the terms of this Agreement) more than (i) two (2) times in any calendar month plus (ii) four (4) additional times in any twelve (12) calendar month period. In any event, the Borrower may not make, in the aggregate, more than twenty-eight (28) payments (excluding any payments specifically required pursuant to the terms of this Agreement) under this Agreement in any twelve (12) calendar month period. (d) The Borrower agrees to pay principal, interest, fees, and all other amounts due hereunder or under the Notes and Letter of Credit Obligations without set-off or counterclaim or any deduction whatsoever. 2.9 Application of Payments. Unless otherwise specifically provided in this Agreement or the other Loan Documents, payments made to the Administrative Agent, the Letter of Credit Banks or the Banks, or any of them, or otherwise received by the Administrative Agent, the Letter of Credit Banks or the Banks, or any of them (from realization on collateral for the Obligations or otherwise), shall be applied (subject to Section 2.2(c) hereof) in the following order to the extent such Obligations are then due and payable hereunder: First, to the costs and expenses, if any, incurred by the Administrative Agent or the Banks, or any of them, in the collection of such amounts under this Agreement or any of the other Loan Documents, including, without limitation, any reasonable costs incurred in connection with the sale or disposition of any collateral for the Obligations; Second, pro rata among the Administrative Agent, the Issuing Bank and the Banks based on the total amount of fees then due and payable hereunder or under any other Loan Document and to any other fees and commissions then due and payable by the Borrower to the Banks, the Issuing Bank and the -26- Administrative Agent under this Agreement or any Loan Document; Third, to any due and unpaid interest which may have accrued on the Term Loan and the Revolving Loans, pro rata among the Banks based on the outstanding principal amount of the Term Loan and the Revolving Loans as the case may be, outstanding immediately prior to such payment; Fourth, to any amounts outstanding with respect to draws under Letters of Credit; Fifth, to any unpaid principal of the Revolving Loans, pro rata among the Banks based on the principal amount of the Revolving Loans outstanding immediately prior to such payment; Sixth, to any unpaid principal of the Term Loan, pro rata among the Banks based on the outstanding principal amount of the Term Loan outstanding immediately prior to such payment, to any unpaid principal of the Term Loan; Seventh, to the extent any Letters of Credit are then outstanding, for deposit into the Letter of Credit Reserve Account; Eighth, to any other Obligations not otherwise referred to in this Section 2.9 until all such Obligations are paid in full; Ninth, to actual damages incurred by the Administrative Agent, the Issuing Bank or the Banks, or any of them, by reason of any breach hereof or of any other Loan Documents by the Borrower or a Restricted Subsidiary; and Tenth, upon satisfaction in full of all Obligations, to the Borrower or as otherwise required by law. Notwithstanding the foregoing, (a) in the case of any voluntary prepayment hereunder at a time when there does not exist an Event of Default or Default, the Borrower may designate the order of application of such payments with respect to items Fifth and Sixth in the immediately preceding sentence, and (b) after the occurrence and during the continuance of a Default or an Event of Default, payments with respect to items Fourth, Fifth and Sixth in the immediately preceding sentence shall be applied to such items based upon the ratio of the Obligations under each of such items to the aggregate Obligations under all of such items. If any Bank shall obtain any payment (whether involuntary or otherwise) on account of the Loans made by it in excess of its ratable share of the Loans then outstanding and such Bank's share of any expenses, fees and other items due and payable to it hereunder, such Bank shall forthwith purchase a participation in the Loans from the other Banks as shall be necessary to cause such purchasing Bank to share the excess payment ratably based on the applicable Commitment Ratios with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation so long as the Obligations are not increased. ARTICLE 3 INVENTORY AND FUNDING AVAILABILITY 3.1 Loan Funding Availability. At the designated times set forth herein, the Administrative Agent shall establish a Loan Funding Availability for the Loan Inventory. -27- (a) Calculation of Loan Funding Availability. The Loan Funding Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan Funding Availability. A = seventy-five percent (75%) of the sum of all Acquisition Costs for all Lots Under Development which are included in the Loan Inventory. If, after a parcel of land is designated a Lot Under Development, development of such parcel ceases for thirty (30) calendar days or more (other than by reason of a Force Majeure Delay), at the discretion of the Administrative Agent, the Loan Funding Availability for such parcel may be reduced to an amount determined by the Administrative Agent (which amount can be zero) until development of such Lot Under Development is resumed to the satisfaction of the Administration Agent. B = seventy-five percent (75%) of the sum of all Acquisition Costs for all Developed Lots included in the Loan Inventory. C = one hundred percent (100%) of the sum of all Acquisition Costs and Construction Costs for all Dwelling Lots included in the Loan Inventory. (b) Designation of Land Parcels, Lots Under Development, Developed Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day of each calendar month (other than a month following the end of a calendar quarter), the Borrower shall deliver to the Administrative Agent an Inventory Summary Report in the form attached hereto as Exhibit C and incorporated herein. On or before the fifteenth (15th) calendar day of each month following the end of a calendar quarter, the Borrower shall deliver to the Administrative Agent an Inventory Quarterly Report in the form attached hereto as Exhibit B and incorporated herein which form shall have been completed and signed by the Borrower. The Inventory Summary Report and Inventory Quarterly Report shall reflect Inventory that the Borrower desires to have designated as Loan Inventory. Upon the Administrative Agent's receipt of the Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Administrative Agent may conduct inspections or reviews of the subject Inventory that the Administrative Agent deems appropriate, at the expense of the Administrative Agent except as hereinafter expressly provided. Based upon the information in the Inventory Summary Report or Inventory Quarterly Report, as the case may be, and the other information compiled by the Administrative Agent, the Administrative Agent shall determine, in its discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not previously designated as part of the Loan Inventory shall be designated part of the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or Dwelling Lot. (c) Periodic Establishment of Loan Funding Availability. Within two (2) business days of the Administrative Agent's receipt of an Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Administrative Agent shall establish the Loan Funding Availability based on the Report delivered to the Administrative Agent and information compiled by the Administrative Agent. In the event the Borrower does not submit the Inventory -28- Summary Report or Inventory Quarterly Report in the time and manner set forth above or furnish sufficient information to the Administrative Agent to enable the Administrative Agent to establish a new Loan Funding Availability, the Administrative Agent will establish a Loan Funding Availability based on some or all of the previous information submitted to the Administrative Agent by the Borrower in the immediately preceding Inventory Summary Report or Inventory Quarterly Report and the information compiled by the Administrative Agent, as required hereunder, in connection therewith, as the case may be, or other information available to the Administrative Agent. (d) Reconciliation. In the event that the Loan Funding Availability for a particular Funding Period is less than the then outstanding principal amount under the Loans, Third Party Notes Payable and unpaid draws under Letters of Credit, the Administrative Agent shall notify the Borrower thereof. On or before the Reconciliation Date, the Borrower shall (i) (A) pay to the Administrative Agent a principal payment to be applied to the Loans and unpaid draws under Letters of Credit and/or (B) provide to the Administrative Agent evidence that the principal amount of Third Party Notes Payable has been reduced in an aggregate amount sufficient to eliminate the excess of the outstanding principal amount of the Loans, Third Party Notes Payable and unpaid draws under Letters of Credit over the Loan Funding Availability, together with any accrued and unpaid interest on such excess or (ii) provide a revised Inventory Summary Report or Inventory Quarterly Report designating sufficient additional Inventory (which shall be acceptable to the Administrative Agent, in its discretion) as Loan Inventory to cause the Loan Funding Availability to equal or exceed the outstanding principal of the Loans, Third Party Notes Payable and unpaid draws under Letters of Credit. (e) Removal/Disapproval of Inventory for Loan Funding Availability. If, at any time, the Administrative Agent determines, in its reasonable discretion, that any part of the Loan Inventory is not acceptable for inclusion in the calculation of the Loan Funding Availability as a result of an unforeseen material adverse change in the condition of such portion of the Loan Inventory or as a result of the existence of hazardous wastes or materials in or on any Inventory which are in violation of any warranty, representation or covenant of the Loan Documents regarding such hazardous wastes or materials, the Administrative Agent may exclude such portion of the Loan Inventory from the calculation of the Loan Funding Availability. If, after such exclusion, the then outstanding principal amount under the Notes would exceed the Loan Funding Availability, the Borrower shall pay to the Administrative Agent on the Reconciliation Date immediately following the exclusion of such Loan Inventory, a principal payment on the Loans in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Loans over the Loan Funding Availability, together with accrued and unpaid interest on such excess. -29- ARTICLE 4 LOAN DISBURSEMENTS AND LETTERS OF CREDIT 4.1 Prior to the First Disbursement or Letter of Credit. Prior to requesting the first disbursement under the Loans or Letter of Credit hereunder, the Borrower shall deliver all of the following items to the Administrative Agent, in form and substance satisfactory to the Administrative Agent. The Administrative Agent and the Banks shall have no obligation to make the first disbursement hereunder and the Issuing Bank shall have no obligation to issue the first Letter of Credit hereunder until all of these items have been so executed and/or delivered to the Administrative Agent. (a) Notes and Guaranties. A Revolving Loan Note and a Term Loan Note by the Borrower payable to the order of each Bank. A Guaranty from each Guarantor in favor of the Banks and Administrative Agent. (b) Taxpayer Identification Number. The Borrower's federal taxpayer identification number. (c) Authority Documents of Borrower. Articles of Incorporation of the Borrower certified by the office of the Secretary of State in which the Borrower is incorporated; Bylaws of the Borrower certified by an officer of the Borrower; Certificate of Existence of the Borrower issued by the state in which the Borrower is incorporated; Incumbency Certificate of the Borrower reflecting the Authorized Signatories; Corporate resolutions of the Borrower certified by an officer of the Borrower and authorizing the Borrower to enter into this Agreement and execute all related documents and Loan Documents applicable to the Revolving Loans and the Term Loan; and documentation evidencing the Borrower's qualification to do business for each state in which any part of the Loan Inventory owned by Borrower is located certified by the office of the Secretary of State of such state. (d) Attorney's Opinion. The written opinion of the Borrower's counsel (or special counsel to the Administrative Agent) in form and content acceptable to the Administrative Agent and which addresses the following matters: (i) Existence, Due Authorization and Execution. Borrower is duly organized and existing as a corporation and is in good standing and qualified to do business under the laws of Borrower's state of incorporation and the states in which the Loan Inventory is located and that the Loan Documents evidencing the Loans have been properly executed by the persons authorized to do so; -30- (ii) Enforceability. The Loan Documents are enforceable against the Borrower in accordance with their terms; and (iii) Miscellaneous. As to such other matters as the Administrative Agent or the Banks may reasonably request. Such opinions may be qualified to the extent of the knowledge of such counsel based upon reasonable investigation. (e) Inventory Quarterly Report. The Inventory Quarterly Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof, for the most recent calendar quarter. (f) Request for Advance or Letter of Credit. The Request for Advance that the Borrower is required to deliver pursuant to Section 2.2 hereof or the Request for Issuance of Letter of Credit that the Borrower is required to deliver in connection with any issuance of a Letter of Credit hereunder, as the case may be. (g) Other Documents. Other documents that the Admini- strative Agent may reasonably require. (h) Fees. Payment of all fees and expenses payable on the Agreement Date to the Banks, the Letter of Credit Banks, the Issuing Bank and the Administrative Agent. (i) Insurance. Certificate(s) of insurance required pursuant to Section 5.15 hereof. (j) Environmental Indemnity Agreement. An environmental indemnity agreement by the Borrower in favor of the Administrative Agent, the Issuing Bank and the Banks whereby the Borrower indemnifies such Persons against any and all environmental matters with respect to the Loan Inventory. 4.2 Subsequent Disbursements and Letters of Credit. Prior to requesting subsequent disbursements under the Revolving Loans (subsequent to the first disbursement) or Letters of Credit hereunder (subsequent to the first Letter of Credit), the Borrower shall execute and deliver to the Administrative Agent all of the following items, in form and substance satisfactory to the Administrative Agent. The Administrative Agent and the Banks shall have no obligation to make further disbursements or issue additional Letters of Credit until all of these items have been properly executed and delivered to the Administrative Agent. There shall be no disbursement of the Term Loan after the first disbursement. (a) Inventory Summary Report. The Inventory Summary Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof. -31- (b) Inventory Quarterly Report. The Inventory Quarterly Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof. (c) Request for Advance. The Request for Advance that the Borrower is required to deliver pursuant to Section 2.2 hereof or the Request for Issuance of Letter of Credit that the Borrower is required to deliver in connection with any issuance of a Letter of Credit hereunder, as the case may be. (d) Other Documents. Such other documents that the Administrative Agent may reasonably require. ARTICLE 5 BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES The Borrower makes the following covenants, agreements, representations and warranties with respect to the Loan Documents and the obligations thereunder to the Banks: 5.1 Payment. The Borrower shall pay when due all sums owing under this Agreement, the Notes and the other Loan Documents executed by the Borrower. 5.2 Performance. The Borrower shall perform all Obligations under this Agreement, the Notes and the other Loan Documents executed by the Borrower. 5.3 Additional Information. On request of the Administrative Agent, the Borrower shall deliver to the Administrative Agent and/or the Issuing Bank any documents or information with respect to the Inventory that the Administrative Agent and/or the Issuing Bank may reasonably require including, without limitation, surveys and acquisition closing documentation. 5.4 Quarterly Financial Statements and Other Information. Within forty-five (45) days after the last day of each quarter in each fiscal year of the Borrower, except the last quarter in each such fiscal year of the Borrower, the Borrower shall deliver to the Administrative Agent the Form 10-Q of the Borrower as filed with the Securities and Exchange Commission. Within ten (10) days from the date of filing, the Borrower shall provide to the Administrative Agent a copy of every other report filed by the Borrower with the Securities and Exchange Commission under the Exchange Act and a copy of each registration statement filed by the Borrower with the Securities and Exchange Commission pursuant to the Securities Act of 1933. 5.5 Compliance Certificates. Within forty-five (45) days from the end of each fiscal quarter of the Borrower, the Borrower shall provide to the Administrative Agent a certificate signed by an Authorized Signatory of the Borrower in the form attached hereto as Exhibit G setting forth such -32- calculations required to establish whether the Borrower was in compliance with Section 5.7 hereof. 5.6 Annual Financial Statements and Information; Certificate of No Default. Within one hundred (100) days after the end of each fiscal year of the Borrower, the Borrower shall deliver to the Administrative Agent the Form 10-K of the Borrower as filed with the Securities and Exchange Commission, together with the audited consolidated financial statements of the Borrower (which shall be prepared by an independent accounting firm of recognized standing). 5.7 Financial and Inventory Covenants. Until the obligations are repaid in full, the Borrower shall adhere to the following financial covenants (after giving effect to any Financial Covenant Carve Out), all on a consolidated basis with the Restricted Subsidiaries and determined as of the last day of each fiscal quarter of the Borrower: (a) The Borrower shall maintain at all times a ratio of Notes Payable to Tangible Net Worth of not greater than 1.75 to 1.0 on a consolidated basis. (b) The Borrower shall maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not more than 2.25 to 1. (c) The Borrower shall maintain at all times a ratio of (i) EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0. (d) The Borrower shall maintain at all times Working Capital of $100,000,000 on a consolidated basis. (e) The Borrower shall maintain at all times a minimum Tangible Net Worth of one hundred ten million and no/100 dollars ($110,000,000.00), plus fifty percent (50%) of annual net profits for such fiscal year, plus fifty percent (50%) of any capital paid into the Borrower (other than stock issued in connection with an employee stock ownership plan, an employee stock option plan, an employee stock purchase plan or for an acquisition), plus one hundred percent (100%) of net losses with absolute minimum Tangible Net Worth of not less than one hundred ten million and no/100 dollars ($110,000,000.00), on a consolidated basis. (f) The Borrower shall not at any time permit Third Party Notes Payable to be greater than thirteen percent (13%) of Tangible Assets on a consolidated basis. (g) The total number of Speculative Lots owned by the Borrower and its Restricted Subsidiaries at any given time shall not exceed sixty percent (60%) of all Dwelling Lots (completely or partially constructed) then owned by the Borrower and its Restricted Subsidiaries. Models shall not be considered "Speculative Lots" for purposes of this Section 5.7(g). -33- (h) The Borrower shall not permit the total number of Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed two and one-half (2 1/2) times the number of Developed Lots containing Dwellings closed by the Borrower and all Restricted Subsidiaries during the immediately preceding twelve (12) calendar months. The Borrower shall not permit the aggregate cost of all Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed forty percent (40%) of all Tangible Assets of the Borrower on a consolidated basis. (i) The cost of the land owned by Borrower and all Restricted Subsidiaries at any given time which has not been developed into Developed Lots and is not scheduled for commencement of development into Developed Lots within twelve (12) calendar months from the date of determination shall not exceed ten percent (10%) of all Tangible Assets of the Borrower and its Restricted Subsidiaries on a consolidated basis. In the event that the Borrower or any Restricted Subsidiary classifies certain undeveloped land as being scheduled for development within twelve (12) calendar months for the purpose of this provision and, as of the last day of such twelve (12) calendar month period, development of such land has not commenced, such land shall not be classified as scheduled for development within twelve (12) calendar months until such development is commenced. 5.8 Other Financial Documentation. The Borrower shall provide to the Administrative Agent such other financial information as the Administrative Agent may reasonably request from time to time to clarify or amplify the information required to be furnished to the Administrative Agent under this Agreement. 5.9 Security Interest in Loan Inventory. After the occurrence and during the continuance of a Default under Sections 5.7(a), (b), (c), (e) or (f) hereof or an Event of Default under Section 6.2(b) hereof, the Borrower shall execute and deliver to the Administrative Agent (a) security instruments and other documentation related thereto, in form and content reasonably acceptable to the Administrative Agent, granting the Administrative Agent a first-in-priority security interest in the Loan Inventory in an amount equal to the then outstanding principal under the Loans and all outstanding Letters of Credit, and (b) other documentation related to the granting of such security interest that the Administrative Agent, in its reasonable discretion, deems appropriate. The Borrower shall cause such documentation to be executed and returned to the Administrative Agent within three (3) calendar days of the Borrower's receipt thereof. 5.10 Payment of Contractors. The Borrower shall pay in a timely manner, and shall cause its Subsidiaries to pay in a timely manner, any and all contractors and subcontractors who conduct work in or on the Inventory, subject to the right of the Borrower to contest any amount in dispute, so long as the contesting of such amount is pursued diligently and in good faith. The Borrower will advise the Administrative Agent in writing immediately if the Borrower or any of its Subsidiaries receives any written notice from any contractor(s), -34- subcontractor(s) or material furnisher(s) to the effect that said contractor(s) or material furnisher(s) have not been paid for any labor or materials furnished to or in the Inventory and such outstanding payment or payments are individually or collectively equal to or greater than two hundred thousand and no/100 dollars ($200,000.00) per subdivision or seven million and no/100 dollars ($7,000,000.00) in the aggregate. The Borrower will further make available to the Administrative Agent, for inspection and copying, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which the Borrower claims title to any materials, fixtures or articles used in the development of the Loan Inventory or construction of improvements on the Loan Inventory including, without limitation, the Dwellings. 5.11 Inspection and Appraisal. The Borrower shall permit the Administrative Agent and the Banks and their authorized agents to enter upon the Inventory during normal working hours and as often as they desire, for the purpose of inspecting or appraising the Loan Inventory or the construction of the Dwellings. 5.12 Fees and Expenses. The Borrower shall pay when due all commitment and renewal fees and external legal fees incurred by the Administrative Agent in connection with the making of the Loans. 5.13 Hazardous Substances. The Borrower warrants and represents to the Administrative Agent, Issuing Bank and the Banks that to the best of their knowledge and belief and based on environmental assessments of the Inventory commissioned by the Borrower, except to the extent disclosed to the Administrative Agent in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory, the Inventory has not been and is not now being used in violation of any federal, state or local environmental law, ordinance or regulation, that no proceedings have been commenced, or notice(s) received, concerning any alleged violation of any such environmental law, ordinance or regulation, and that the Inventory is free of hazardous or toxic substances and wastes, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit except as set forth in the Site Assessments. The Borrower covenants that it shall neither permit any such materials to be brought on to the Inventory, nor shall it acquire real property to be added to the Loan Inventory upon which any such materials exist, except to the extent disclosed to the Administrative Agent in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory; and if such materials are so brought or found located thereon, such materials shall be immediately removed, with proper disposal, to the extent required by applicable environmental laws, ordinances and regulations, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. The Borrower further represents and warrants that the Borrower will promptly transmit to the Administrative Agent and the Banks copies of any citations, orders, notices or other material governmental or other communications received with respect to any hazardous materials, substances, wastes or other environmentally regulated substances affecting the Inventory. Notwithstanding the foregoing, there shall not be a -35- default of this provision should the Borrower store or use minimal quantities of the aforesaid materials, provided that: such substances are of a type and are held only in a quantity normally used in connection with the construction, occupancy or operation of comparable buildings or residential developments (such as cleaning fluids and supplies normally used in the day to day operation of residential developments), such substances are being held, stored and used in complete and strict compliance with all applicable laws, regulations, ordinances and requirements, and the indemnity set forth below shall always apply to such substances, and it shall continue to be the responsibility of the Borrower to take all remedial actions required under and in accordance with this Agreement in the event of any unlawful release of any such substance. 5.14 Insurance. The Borrower shall keep the Inventory comprising the Loan Inventory insured by responsible insurance companies in such amounts and against such risks as is customary for owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate or, to the customary extent (and in a manner approved by the Administrative Agent) the Borrower may be self insured. All insurance herein provided for shall be in form and with companies reasonably approved by the Administrative Agent. The Borrower shall also maintain general liability insurance, workman's compensation insurance, automobile insurance for all vehicles owned by them and any other insurance reasonably required by the Administrative Agent, to the extent commercially available at a reasonable cost. On the Agreement Date, the Borrower shall deliver to the Administrative Agent a copy of a certificate of insurance evidencing the insurance required hereunder. In addition, on the date of delivery of each report required by Section 3.1(b) hereof, the Borrower shall certify to the Administrative Agent that all insurance policies required to be maintained hereunder remain in full force and effect. 5.15 Litigation. The Borrower warrants and represents to the Administrative Agent, the Issuing Bank and the Banks that as of the Agreement Date, none of the Borrower nor any Restricted Subsidiary is a party to any litigation having a reasonable probability of being adversely determined to the Borrower or any Restricted Subsidiary which, if adversely determined, would impair the ability of the Borrower to carry on its business substantially as now conducted or contemplated or would materially adversely affect the financial condition, business or operations of the Borrower. 5.16 Reportable Event. Promptly after Borrower receives notice or otherwise becomes aware thereof, the Borrower shall notify the Administrative Agent of the occurrence of any Reportable Event with respect to any Plan as to which the Pension Benefit Guaranty Corporation has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that the Borrower shall give the Administrative Agent notice of any failure to meet the minimum funding standards of Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code. -36- 5.17 Secured Indebtedness. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness which is secured in whole or in part by any of the Inventory (other than Permitted Encumbrances); except that the Borrower and its Restricted Subsidiaries may incur Indebtedness in favor of a seller of Inventory to the Borrower which is secured solely by the Inventory contemporaneously acquired from such seller and Indebtedness secured solely by the Borrower's headquarters building located in Arlington, Texas. 5.18 Interest Rate Hedging. Until the third anniversary of the Agreement Date, the Borrower shall enter into and maintain one or more interest hedge agreements having a notional amount equal to the Term Loan then outstanding such that the weighted average term of all such interest hedge agreements is not less than three (3) years from the Agreement Date. Any such interest hedge agreement shall provide such interest rate protection in conformity with International Swap Dealers Association standards on terms reasonably acceptable to the Administrative Agent, such terms to include consideration of the creditworthiness of the other party to such interest rate hedge agreements. It is hereby acknowledged and agreed that the interest rate hedge agreement entered into by the Borrower with the Administrative Agent (or its affiliate) to be effective on April 1, 1996 (and more completely described on Exhibit H attached hereto), satisfies the requirements of this Section. ARTICLE 6 DEFAULT AND REMEDIES 6.1 Defaults. Each of the following shall constitute a Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule, or regulation of any governmental or non-governmental body: (a) Any representation or warranty made under this Agreement shall prove incorrect or misleading in any material respect when made or deemed to have been made; (b) The Borrower shall default in the payment of any principal, interest or other monetary amounts payable hereunder or under the Notes, or any of them, or under the other Loan Documents (other than payments due on the Revolving Loan Maturity Date or the Term Loan Maturity Date, as the case may be) which payment default is not cured within thirty (30) calendar days of Borrower's receipt of notice from the Administrative Agent; (c) The Borrower shall default in the performance or observance of any other agreement or covenant contained in this Agreement not specifically referred to elsewhere in this Section 6.1, and such Event of Default shall not be cured to the Majority Banks' satisfaction within a period of ninety (90) days from the date the Borrower receives notice from the Administrative Agent with respect thereto; -37- (d) There shall occur any Event of Default in the performance or observance of any agreement or covenant or breach of any representation or warranty contained in any of the Loan Documents (other than this Agreement or as otherwise provided in this Section 6.1 of this Agreement) or any Subsidiary Guaranty, which shall not be cured to the Majority Banks' satisfaction within the applicable cure period, if any, provided for in such Loan Document or ninety (90) days from the date the Borrower receives notice from the Administrative Agent with respect thereto if no cure period is provided in such Loan Document; (e) There shall be entered a decree or order for relief in respect of the Borrower or any of its Restricted Subsidiaries under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or ordering the winding-up or liquidation of the affairs of the Borrower or any of its Restricted Subsidiaries, or an involuntary petition shall be filed against the Borrower or any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of thirty (30) consecutive days; (f) The Borrower or any of its Restricted Subsidiaries shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Borrower or any of its Restricted Subsidiaries shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or the Borrower or any of its Restricted Subsidiaries shall fail generally to pay their respective debts as they become due, or the Borrower or any of its Restricted Subsidiaries shall take any corporate or partnership action to authorize any such action; (g) A final judgment shall be entered by any court against the Borrower or any of its Restricted Subsidiaries for the payment of money which exceeds $500,000.00, which judgment is not covered by insurance or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or any of its Restricted Subsidiaries which, together with all other such property of the Borrower or any of its Restricted Subsidiaries subject to other such process, exceeds in value $500,000.00 in the aggregate, and if, within thirty (30) days after the entry, issue, or levy thereof, such judgment, warrant, or process shall not have been paid or discharged or bonded or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant, or process shall not have been paid or discharged; (h) (1) There shall be at any time any "accumulated funding deficiency," as defined in ERISA or in Section 412 of the Code, with respect to any Plan; or (2) a trustee shall be appointed by a United States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan; or (3) any of the Borrower and its -38- ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty Corporation in connection with the termination of any Plan; or (4) any Plan or trust created under any Plan of any of the Borrower and its ERISA Affiliates shall engage in a non-exempt "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which would subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and by reason of any or all of the events described in clauses (1) through (4), as applicable, the Borrower shall have waived (and/or is likely to incur) and/or incurred liability in excess of $1,000,000.00 in the aggregate; (i) All or any portion of any Loan Document shall at any time and for any reason be declared by a court of competent jurisdiction in a suit with respect to such Loan Document to be null and void, or a proceeding shall be commenced by any governmental authority involving a legitimate dispute or by the Borrower or any of its Restricted Subsidiaries, having jurisdiction over the Borrower or any of its Restricted Subsidiaries, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or the Borrower or any of its Restricted Subsidiaries shall deny that it has any liability or obligation for the payment of principal or interest purported to be created under any Loan Document; (j) There shall occur any Change of Control; (k) Except for conveyances of all or any part of the Loan Inventory between the Borrower and the Guarantors there occurs any sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or any part of the Loan Inventory or any interest therein, voluntarily or involuntarily, whether by operation of law or otherwise, except (i) in accordance with the terms of this Agreement, (ii) for execution of contracts with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of business; (l) Except in the normal course of Borrower's development of inventory into Developed Lots and construction of Dwellings thereon, without the prior written consent of Administrative Agent, Borrower grants any easement or dedication, files any plat, condominium declaration, or restriction or otherwise encumbers all or any portion of the Loan Inventory, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect any Inventory which is part of the Loan Inventory; or Notwithstanding anything contained herein to the contrary, the occurrence of any of the foregoing shall not be a Default or an Event of Default hereunder if: (i) the occurrence pertains only to specific parcel(s) within the Loan Inventory; and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on or before ten (10) days in the case of a monetary occurrence and thirty (30) days in the case of a non-monetary occurrence after the occurrence or, if the Borrower is entitled to notice and cure, within the applicable notice and cure period. In the event that any such parcel is a Lot Under Development, Developed -39- Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately calculated excluding such parcel. If, as the result of such removal, the outstanding principal balance under the Loans together with any unreimbursed draws under Letters of Credit would exceed the Loan Funding Availability, the Borrower shall pay (X) to the Administrative Agent on the Reconciliation Date immediately following the removal of such Inventory from the Loan Inventory, a principal payment on the Loans in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Loans and unreimbursed draws under Letters of Credit over the Loan Funding Availability, together with any due and unpaid interest on such excess or (Y) add additional Inventory to the Loan Inventory (which is acceptable to the Administrative Agent) in an amount sufficient to cause the Loan Funding Availability to equal or exceed the Loans and unreimbursed draws under Letters of Credit. 6.2 Remedies. If a Default shall have occurred and shall be continuing: (a) With the exception of a Default specified in Sections 6.1(e), (f) or (g) hereof, the Administrative Agent shall at the request, or may with the consent, of the Super- Majority Banks, by notice to the Borrower (i) declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, (ii) terminate the Revolving Loan Commitment and the Letter of Credit Commitment, and (iii) require the Borrower to, and the Borrower shall thereupon, deposit in the Letter of Credit Reserve Account, an amount equal to the maximum amount currently or at any time thereafter to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank and grants to them a security interest in, all such cash as security for the Obligations. (b) Upon the occurrence of a Default under Sections 6.1(e), (f) or (g) hereof, the Revolving Loan Commitment and the Letter of Credit Commitment shall automatically terminate and such principal, interest (including without limitation, interest which would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws), Letter of Credit Obligations and other amounts payable under this Agreement or the Notes shall thereupon and concurrently therewith become due and payable, all without any action by the Administrative Agent, the Issuing Bank or the Banks or the holders of the Notes, and the Borrower shall thereupon forthwith deposit in the Letter of Credit Reserve Account an amount equal to all outstanding Letter of Credit Obligations, all without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or in the Notes to the contrary notwithstanding, and the Borrower hereby pledges to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank, and grants to the Administrative Agent, the Letter of Credit Banks and the Issuing Bank a security interest in, all such cash as security for the Obligations. -40- (c) In accordance with Section 5.9 hereof, the Administrative Agent may deliver to the Borrower security instruments and other documentation related thereto for execution by the Borrower which, if executed, would grant the Administrative Agent a first-in- priority security interest in all or part of the Loan Inventory. Upon the Administrative Agent's delivery of the foregoing, the Borrower shall execute and deliver such documentation to the Administrative Agent within three (3) calendar days of the Administrative Agent's delivery thereof. The Administrative Agent may also obtain such appraisals of all or any part of the Loan Inventory as the Administrative Agent may elect, at the cost and expense of the Borrower. (d) The Administrative Agent, with the concurrence of the Super-Majority Banks, shall exercise all of the post-default rights granted to it and to them under the Loan Documents or under Applicable Law. (e)The rights and remedies of the Administrative Agent, the Issuing Bank and the Banks hereunder shall be cumulative, and not exclusive. 6.3 Waivers. Neither a waiver of any Default or Event of Default by the Borrower hereunder nor any representation by a Bank or Banks as to the nonoccurrence or nonexistence thereof shall be implied from any delay or omission by any one or all of the Banks to notify the Borrower thereof or to take action on account of such Default or Event of Default, and no express waiver shall affect any Default or Event of Default other than the matter specified in the waiver and it shall be operative only for the time and to the extent therein stated. Waivers of any covenants, terms or conditions contained herein must be in writing and shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. Any one or all of the Banks' consent or approval to or of any act by the Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent or similar act. Any one or all of the Banks' exercise of any right or remedy or hereunder shall not in any way constitute a cure or waiver of a Default or an Event of Default, or invalidate any act done pursuant to any notice of the occurrence of a Default or an Event of Default, or prejudice the Banks in the exercise of any of their rights hereunder or under the Notes or any other Loan Documents, unless, in the exercise of said rights, the Banks realize all amounts owed to them under the Notes and other Loan Documents. 6.4 Cross-Default. All of the Notes and other Loan Documents are "cross defaulted" such that (a) the occurrence of an Event of Default under any one of the Loan Documents shall constitute an Event of Default under this Agreement and all of the Loan Documents and (b) the occurrence of a Default under any one of the Loan Documents shall constitute a Default under this Agreement and all of the other Loan Documents. -41- 6.5 No Liability of the Banks. (a) Construction and/or Development. None of the Banks, the Administrative Agent or the Issuing Bank shall be liable to any party for (i) the development of or construction upon any of the Inventory, (ii) the failure to develop or construct or protect improvements on the Inventory, (iii) the payment of any expense incurred in connection with the development of or construction upon the Inventory, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Banks' or the Administrative Agent's exercise of any remedy available to them. In addition, the Banks shall not be liable to the Borrower or any third party for the failure of the Banks or their authorized agents to discover or to reject materials or workmanship during the course of the Banks' inspections of the Inventory. (b) Dwelling Lots. In addition to 6.5(a) above, none of the Banks, the Administrative Agent or the Issuing Bank shall be liable to any party for (i) the construction or completion of the Dwellings, (ii) the failure to construct, complete or protect the Dwellings, (iii) the payment of any expense incurred in connection with the construction of the Dwellings, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Banks' or the Administrative Agent's exercise of any remedy available to them. In addition, the Banks shall not be liable to the Borrower or any third party for the failure of the Banks or their authorized agents to discover or to reject materials or workmanship during the course of the Banks' inspections of the Dwelling Lots. (c) Other Banks. The obligations of each Bank under this Agreement are separate and independent such that no action, inaction or responsibility of one Bank shall be imputed to the remaining Banks. The Borrower hereby waives any claim or demand against each Bank as to the action, inaction or responsibility of another. ARTICLE 7 THE ADMINISTRATIVE AGENT. 7.1 Appointment and Authorization. Each Bank hereby irrevocably appoints and authorizes, and hereby agrees that it will require any transferee of any of its interest in its Loans and in its Notes irrevocably to appoint and authorize, the Administrative Agent to take such actions as its agent on its behalf and to exercise such powers hereunder as are delegated by the terms hereof, together with such powers as are reasonably incidental thereto. Neither the Administrative Agent nor any of its directors, officers, employees, or agents shall be liable to any Bank (or any transferee thereof) for any action taken or omitted to be taken by it or them hereunder or in connection herewith (including, without limitation, the granting or withholding of approval of any matter), except for its or their own gross negligence or willful misconduct. The Banks hereby each acknowledge and agree that the Administrative Agent may, absent actual knowledge to the contrary, rely upon certifications of the Borrower with respect to Inventory, financial covenant compliance, covenant compliance and all matters related thereto. The Administrative Agent shall -42- endeavor to exercise its rights and responsibilities under this Agreement in accordance with its usual practices for borrowers similar to the Borrower, but the Administrative Agent shall not be liable to the Banks with respect to errors or omissions with respect to the foregoing unless they are the result of the gross negligence or willful misconduct of the Administrative Agent. 7.2 Delegation of Duties. The Administrative Agent may execute any of its duties under the Loan Documents by or through agents or attorneys selected by it using reasonable care and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to any Bank for the negligence or misconduct of any agents or attorneys selected by it with reasonable care. 7.3 Interest Holders. The Administrative Agent may treat each Bank, or the Person designated in the last notice filed with the Administrative Agent under this Section 7.3, as the holder of all of the interests of such Bank in its Loans and in its Notes until written notice of transfer, signed by such Bank (or the Person designated in the last notice filed with the Administrative Agent) and by the Person designated in such written notice of transfer, in form and substance satisfactory to the Administrative Agent, shall have been filed with the Administrative Agent. 7.4 Consultation with Counsel. The Administrative Agent may consult with legal counsel selected by it and shall not be liable to any Bank (or transferee thereof) for any action taken or suffered by it in good faith in reliance thereon. 7.5 Documents. The Administrative Agent shall be under no duty to examine, inquire into, or pass upon the validity, effectiveness, or genuineness of this Agreement, any Note, or any instrument, document, or communication furnished pursuant hereto or in connection herewith, and the Administrative Agent shall be entitled to assume that they are valid, effective, and genuine, have been signed or sent by the proper parties, and are what they purport to be. 7.6 Administrative Agent and Affiliates. The Administrative Agent and its affiliates may accept deposits from, administer depository accounts for and generally engage in any kind of business with the Borrower or any Affiliates of, or Persons doing business with, the Borrower, without any obligation to account to any Bank (or any transferee thereof) therefor. 7.7 Responsibility of the Administrative Agent. The duties and obligations of the Administrative Agent under this Agreement are only those expressly set forth in this Agreement. The Administrative Agent shall be entitled to assume that no Default or Event of Default has occurred and is continuing unless it has actual knowledge, or has been notified by the Borrower, of such fact and has either determined that a Default or an Event of Default has occurred or has been notified by a Bank that such Bank considers that a Default or an Event of Default has occurred and is continuing, and such Bank shall specify in detail the nature thereof in writing. The Administrative Agent shall not be liable hereunder to any Bank (or any transferee thereof) for any action -43- taken or omitted to be taken except for its own gross negligence or willful misconduct. The Administrative Agent shall provide each Bank with copies of such documents received from the Borrower as such Bank may reasonably request. 7.8 Action by Administrative Agent. (a) Except for action requiring the approval of the Majority Banks, the Super- Majority Banks or all Banks, the Administrative Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, unless the Administrative Agent shall have been instructed by the Majority Banks or the Super-Majority Banks, as the case may be, to exercise or refrain from exercising such rights or to take or refrain from taking such action, provided that the Administrative Agent shall not exercise any rights under Section 6.2(a) of this Agreement without the request of the Majority Banks or the Super-Majority Banks, as the case may be. The Administrative Agent shall incur no liability to any Bank (or any transferee thereof) under or in respect of this Agreement with respect to anything which it may do or refrain from doing in the reasonable exercise of its judgment or which may seem to it to be necessary or desirable in the circumstances, except for its gross negligence or willful misconduct. (b) The Administrative Agent shall not be liable to the Banks or to any Bank in acting or refraining from acting under this Agreement in accordance with the instructions of the Majority Banks or the Super-Majority Banks, as the case may be, and any action taken or failure to act pursuant to such instructions shall be binding on all Banks. (c) The Borrower shall have the right to rely upon actions and representations of the Administrative Agent in the performance of its duties hereunder (including, without limitation, representations with respect to amendments or waivers pursuant to Section 8.3 hereof), without regard to whether such actions or representations are actually authorized by the Banks or any of them and without seeking confirmation or ratification of such actions or representations. 7.9 Notice of Default or Event of Default. In the event that the Administrative Agent or any Bank shall acquire actual knowledge, or shall have been notified in writing, of any Default or Event of Default, the Administrative Agent or such Bank shall promptly notify the Banks and the Administrative Agent, and the Administrative Agent shall take such action and assert such rights under this Agreement as the Majority Banks or Super-Majority Banks (as applicable) shall request in writing, and the Administrative Agent shall not be subject to any liability by reason of its acting pursuant to any such request. If the Majority Banks or Super- Majority Banks (as applicable) shall fail to request the Administrative Agent to take action or to assert rights under this Agreement in respect of any Default or Event of Default within ten (10) days (or shorter period as set forth in such notice) after their receipt of the notice of any Default or Event of Default from the Administrative Agent, or shall request inconsistent action with respect to such Default or Event of Default, the Administrative Agent may, but shall not be required to, take such action and -44- assert such rights (other than rights under Article 6 hereof) as it deems in its discretion to be advisable for the protection of the Banks, except that, if the Majority Banks or Super-Majority Banks (as applicable) have instructed the Administrative Agent not to take such action or assert such right, in no event shall the Administrative Agent act contrary to such instructions. 7.10 Responsibility Disclaimed. The Administrative Agent, in its capacity as Administrative Agent, shall be under no liability or responsibility whatsoever as Administrative Agent: (a) To the Borrower or any other Person or entity as a consequence of any failure or delay in performance by or any breach by, any Bank or Banks of any of its or their obligations under this Agreement; (b) To any Bank or Banks, as a consequence of any failure or delay in performance by, or any breach by, the Borrower or any other obligor of any of its obligations under this Agreement or the Notes or any other Loan Document; or (c) To any Bank or Banks for any statements, representations, or warranties in this Agreement, or any other document contemplated by this Agreement or any information provided pursuant to this Agreement, any other Loan Document, or any other document contemplated by this Agreement, or for the validity, effectiveness, enforceability, or sufficiency of this Agreement, the Notes, any other Loan Document, or any other document contemplated by this Agreement. 7.11 Indemnification. The Banks agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower) pro rata according to their respective Commitment Ratios, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including fees and expenses of experts, agents, consultants, and counsel), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement, any other Loan Document, or any other document contemplated by this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, any other Loan Document, or any other document contemplated by this Agreement, except that no Bank shall be liable to the Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent. The provisions of this Section 7.11 shall survive the termination of this Agreement. 7.12 Credit Decision. Each Bank represents and warrants to each other and to the Administrative Agent that: (a) In making its decision to enter into this Agreement and to make Advances it has independently taken whatever steps it considers necessary -45- to evaluate the financial condition and affairs of the Borrower and that it has made an independent credit judgment, and that it has not relied upon information provided by the Administrative Agent; and (b) So long as any portion of the Loans or Letter of Credit Obligations remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Borrower. 7.13 Successor Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent (which shall be any Bank or a commercial Issuing Bank organized under the laws of the United States of America or any political subdivision thereof which has combined capital and reserves in excess of $250,000,000) as provided below, the Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Borrower and may be removed at any time for cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent which shall be any Issuing Bank or a commercial bank organized under the laws of the United States of America or any political subdivision thereof which has combined capital and reserves in excess of $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges, duties, and obligations of the retiring Administrative Agent, and, after fully performing its obligations pursuant to Section 2.8 hereof as to all payments received by it, the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 7.13 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 7.14 Co-Agent. The Co-Agent shall have no duties or obligations under this Agreement or the other Loan Documents in its capacity as Co-Agent. ARTICLE 8 GENERAL CONDITIONS 8.1 Benefit. This Agreement is made and entered into for the sole protection and benefit of the Administrative Agent, the Issuing Bank and the Banks and the Borrower, their successors and assigns, and no other person or persons other than the Borrower shall have any right of action hereon or rights to the Loan proceeds at any time. None of the Administrative Agent, the Issuing Bank or the Banks shall (a) owe any duty whatsoever to any claimant for labor -46- performed or material furnished in connection with the construction of any Dwelling or improvement on any Inventory, or (b) owe any duty to apply any undisbursed portion of the Loan to the payment of any claim, or (c) owe any duty to exercise any right or power of the Banks hereunder or arising from any Default by the Borrower. 8.2 Assignment. The terms hereof shall be binding upon and inure to the benefit of the heirs, successors, assigns, and personal representatives of the parties hereto; provided, however, that the Borrower shall not assign this Agreement or any of its rights, interests, duties or obligations hereunder or any Loan proceeds or other monies to be advanced hereunder in whole or in part without the prior written consent of the Banks and any such assignment (whether voluntary or by operation law) without said consent shall be void and render automatically terminated any obligation of any Bank hereunder to advance any further monies pursuant to this Agreement or any other Loan Document. Any Bank may assign its rights and obligations under this Agreement, the Notes and any other Loan Documents, in whole or in part, to any other Person, provided that all of the provisions hereof shall continue in full force and effect and, in the event of such assignment, such Bank shall thereafter be relieved of all liability hereunder with respect to actions or omissions of such Bank occurring thereafter, but only to the extent of the interest so assigned and any Loan disbursements made by any assignee(s) shall be deemed made in pursuance and not in modification hereof and shall be evidenced by the applicable Note and any other Loan Documents. Notwithstanding the foregoing, without the prior written consent of all of the other Banks, no Bank shall have the right to assign any portion of its interest, rights or obligations hereunder to any other Person unless (a) the assignee shall assume all of the obligations of the assigning Bank under this Agreement, to the extent of the interest so assigned, and (b) following such assignment, each of the assigning Bank and the assignee shall maintain a Commitment Ratio of not less than six percent (6%). Notwithstanding anything in this Section 8.2 to the contrary, any Bank may enter into participation agreements with any other Person, so long as such agreement does not confer any rights under this Agreement, any other Loan Document or the Subsidiary Guaranty to any purchaser thereof, or relieve such Bank from any of its Obligations under this Agreement (it being understood that all actions hereunder shall be conducted as if no such participation had been granted). 8.3 Amendment and Waiver. Neither this Agreement nor any term hereof may be amended orally, nor may any provision hereof be waived orally but only by an instrument in writing signed by the Majority Banks and, in the case of an amendment, also by the Borrower, except that in the event of (a) any (i) amendment or waiver having a duration of more than ninety (90) days or (ii) direction to the Administrative Agent regarding termination of the Commitments, acceleration, or exercise of remedies, any action may be made only by an instrument in writing signed by the Super-Majority Banks, or (b) (i) any change in the amount of the Revolving Loan Commitment, (ii) any change in the timing of, or the amount of, payments of principal, interest, and fees due hereunder or any change in the applicable rate of interest or in the method of calculating funding availability, (iii) any waiver of any Event of Default due to the failure by the Borrower to pay any sum due hereunder, (iv) any reduction in the amount of the Term Loan without a corresponding payment, (v) any amendment of this Section 8.3 or of the definitions of Majority Banks or Super-Majority -47- Banks, or (vi) the release of any Guarantor other than in connection with the conversion of such Guarantor to an Unrestricted Subsidiary, any amendment or waiver may be made only by an instrument in writing signed by each of the Banks and, in the case of an amendment, also by the Borrower. Each Bank hereby acknowledges and agrees that a response to any request for action by the Administrative Agent shall be made within ten (10) days from the receipt of such request and that the failure to respond within such period shall be deemed to be an acceptance by such Bank of the course of action recommended by the Administrative Agent. 8.4 Additional Obligations and Amendments. The Banks shall be under no obligation to extend any loans to the Borrower other than as specifically set forth in this Agreement. This Agreement shall not be amended except by a written instrument signed by all parties hereto which instrument contains a specific reference to this Agreement. Each Bank agrees that it will not enter into any financing agreement with the Borrower or any of its Subsidiaries without the consent of all of the Banks. 8.5 Consideration of Renewal. The Banks agree that within thirty (30) calendar days prior to each anniversary of the Agreement Date, representatives of the Banks will consult with each other to determine whether the Banks are willing, in their sole and absolute discretion, to extend the Revolving Loan Maturity Date and/or the Letter of Credit Maturity Date for a period of not more than one (1) calendar year from the then current Revolving Loan Maturity Date or Letter of Credit Maturity Date, as the case may be. Notwithstanding the foregoing, if there has occurred a Change of Management, the Banks shall not have any obligation to consult, as to any proposed extension of either the Revolving Loan Maturity Date or the Letter of Credit Maturity Date, with any Bank which has not approved, in writing, such Change of Management. The Administrative Agent shall, within a reasonable period of time thereafter, advise the Borrower whether the Banks are willing to so extend the Revolving Loan Maturity Date or the Letter of Credit Maturity Date. If the Banks and the Borrower agree to so extend the Revolving Loan Maturity Date or the Letter of Credit Maturity Date, such agreement shall be evidenced by appropriate amendments to the Loan Documents, executed by all applicable parties. In the event that any Bank does not agree to extend the Revolving Loan Maturity Date and/or the Letter of Credit Maturity Date, the Revolving Loan Maturity Date then in effect with respect to such Bank's Revolving Loans shall remain unchanged, and the Borrower in its sole discretion may (a) repay in full (together with all accrued interest and fees with respect thereto) such Bank's Term Loan, without respect to any other provisions herein, or (b) may require such Bank to assign without recourse or warranty one-hundred percent (100%) of its Term Loan (and such Bank hereby agrees to so assign) to a replacement bank designated by the Borrower (and acceptable to the Administrative Agent) which assignment shall be effective upon receipt by such Bank of payment in full of all Obligations then outstanding to such Bank. 8.6 Terms. Whenever the context and construction require, all words used in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine. -48- 8.7 Governing Law and Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of Georgia, and such laws shall govern the interpretation, construction and enforcement hereof. For the purposes of any legal action or proceeding brought by the Administrative Agent or the Banks with respect to this Agreement or the Loan Documents, the Borrower hereby irrevocably submits to the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and hereby irrevocably designates and appoints CT Corporate System, 1201 Peachtree Street, N.E., Atlanta, Georgia 30361, as its authorized agent for service of process in the State of Georgia. The Borrower also hereby submits to the non-exclusive jurisdiction and venue of the United States District Court for the Northern District of Georgia for any action, suit or proceeding arising out of or relating to this Agreement or the Loan Documents. The Administrative Agent and the Banks shall for all purposes be entitled to treat such designee of Borrower as the authorized agent to receive for or on its behalf service of writs or summons or other legal process in Georgia; delivery of such service to such authorized agent shall be deemed to be made when delivered or mailed by certified mail addressed to such authorized agent, with a copy to the Borrower at the address of the Borrower last known to the Administrative Agent, sent by overnight delivery service. In the event that, for any reason, such agent or its successor shall no longer serve as agent of the Borrower to receive service of process in the State of Georgia, the Borrower shall establish a successor so to serve, and shall advise the Administrative Agent thereof, so that at all times Borrower will maintain an agent to receive service of process in the State of Georgia on its behalf with respect to this Agreement and the Loan Documents. In the event that, for any reason, service of legal process cannot be made in the manner described above, such service may be made in such other manner permitted by law. The Borrower hereby irrevocably waives any objection it might now or hereafter be entitled to make with respect to the venue of any suit, action or proceeding arising out of or relating to this Agreement and the Loan Documents which is brought in the Superior Court of Fulton County, Georgia or, at the election of the Administrative Agent, in the United States District Court for the Northern District of Georgia, and the Borrower hereby irrevocably waives any right to claim that any such suit, action or proceeding brought in any such court has been brought in an incorrect forum. 8.8 Publicity. Subject to the Borrower's approval, the Administrative Agent shall have the right to incorporate the names of the Banks into signage placed upon the Loan Inventory. Each Bank shall have the right to secure printed publicity through newspaper and other media concerning the Inventory and source of financing. 8.9 Attorneys' Fees. The Borrower shall pay on demand all attorneys' fees and other costs and expenses actually incurred by the Administrative Agent, the Co-Agent, the Issuing Bank and the Banks, or any of them, in the enforcement of or preservation of the Banks', the Administrative Agent's or the Issuing Bank's rights under this Agreement and the other Loan Documents. To the full extent permitted by applicable law, the Borrower agrees to pay interest on any fees, costs or expenses due to the Administrative Agent, the Issuing Bank and the Banks, or any of them, under this Section 8.9 which are not paid when due at the Default Rate. In the event that any Loan Document contains a provision regarding enforcement or preservation of rights which is different from this Section 8.9, this Section 8.9 shall control. -49- 8.10 Mandatory Arbitration. Any controversy or claim between or among the parties hereto arising out of or relating to this Agreement, the Loan Documents or any related instruments including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or, if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Endispute, Inc., doing business as J.A.M.S./Endispute ("J.A.M.S."), as amended from time to time, and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary judgment or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action. (a) Special Rules. The arbitration shall be conducted in the City of Atlanta, Georgia and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) days. (b) Reservation of Rights. Nothing in this Loan Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Loan Agreement; or (ii) be a waiver by a Bank or Banks of the protection afforded to it or them by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of a Bank or Banks (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to obtain from a court provisional or ancillary remedies such as injunctive relief or the appointment of a receiver. The Administrative Agent may (or at the direction of the Majority Banks) exercise such self help remedies (including, without limitation, remedies under Section 6.2 hereof), or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Loan Agreement. Neither the exercise of self help remedies nor the institution or maintenance of provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action to arbitrate the merits of the controversy or claim occasioning resort to such remedies. No provision in this Agreement or any Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in this Agreement. 8.11 Invalidation of Provisions. In the event that any one or more of the provisions of this Agreement is deemed invalid by a court having jurisdiction over this Agreement or other similar authority, the Administrative Agent, the Issuing Bank and the Banks may, in their sole discretion, terminate this Agreement in whole or in part. -50- 8.12 Execution in Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.13 Captions. The captions herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof. 8.14 Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall, unless other specifically provided in such other Loan Document, be deemed sufficiently given or furnished if (a) in writing and delivered by personal delivery, by courier, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified below (unless changed by similar notice in writing given by the particular party whose address is to be changed), (b) by telex with confirmation thereof in writing by sender pursuant to subsection (a) above, (c) facsimile to the facsimile number specified below with confirmation thereof in writing by sender pursuant to subsection (a) above, or (d) by oral communication with confirmation thereof in writing by the notifying party pursuant to subsection (a) above within three (3) business days after such oral communication. Any such notice or communication shall be deemed to have been given and to be effective either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telex, when transmitted (answerback confirmed), or, in the case of facsimile, upon receipt or, in the case of oral communication, upon the effectiveness of written confirmation as hereinabove provided. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason. BORROWER: D. R. Horton, Inc. 1901 Ascension Boulevard Suite 100 Arlington, Texas 76006 Attn: David J. Keller and Ted I. Harbour Facsimile No.: (817) 856-8249 Telephone No.: (817) 856-8200 -51- ADMINISTRATIVE AGENT: NationsBank, N.A. (South) 70 Mansell Court Roswell, Georgia 30076 Attn: Henry A. Dyer Facsimile No.: (770) 642-1261 Telephone No.: (770) 993-1000 With copy to: Powell, Goldstein, Frazer & Murphy 16th Floor 191 Peachtree St. N.E. Atlanta, Georgia 30303 Attn: James H. Keaten Facsimile No.: (404) 572-6999 Telephone No.: (404) 572-6600 BANKS: NationsBank, N.A. (South) 70 Mansell Court Roswell, Georgia 30076 Attn: Henry A. Dyer Facsimile No.: (770) 642-1261 Telephone No.: (770) 993-1000 -52- Bank of America National Trust and Savings Association 5 Park Plaza Suite 500 Irvine, California 92714-8525 Attn: William D. Balfour, III Vice President Facsimile No.: (714) 260-5639 Telephone No.: (714) 260-5698 Sanwa Bank California Real Estate Industries 4041 MacArthur Boulevard, Suite 100 Newport Beach, California 92660 Attn: Russ Wakeham Vice President Facsimile No.: (714) 852-1510 Telephone No.: (714) 622-6007 First American Bank, SSB The Princeton Tower 14651 Dallas Parkway 6th Floor Dallas, Texas 75240 Attn: Jeff Schultz Facsimile No.: (214) 419-3394 Telephone No.: (214) 419-3414 Comerica Bank 500 Woodward Avenue 7th Floor, M/C 3256 Detroit, Michigan 48226 Attn: Kurt Strehlke Facsimile No.: (313) 222-9295 Telephone No.: (313) 222-9291 SouthTrust Bank of Alabama, National Association 420 N. 20th Street, 11th Floor Birmingham, Alabama 35203 Attn: Jordy Henson Facsimile No.: (205) 254-4879 Telephone No.: (205) 254-5004 -53- Bank One Texas, NA 241 N. Central, 20th Floor Phoenix, Arizona 85004 Attn: Jennifer Pescatore Assistant Vice President Facsimile No.: (602) 221-1661 Telephone No.: (602) 221-1372 The First National Bank of Chicago Real Estate Finance One First National Plaza, Suite 0315 Chicago, Illinois 60670-0315 Attn: Kevin Gillen Vice President Facsimile No.: (312) 732-1117 Telephone No.: (312) 732-1486 8.15 Final Agreement. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -54- IN WITNESS WHEREOF, the Borrower and the Banks have caused this Agreement to be executed by their duly authorized officers and their seals affixed hereto as of the day and year set forth above. BORROWER: D. R. HORTON, INC., a Delaware corporation Date of Execution: By: /s/ David J. Keller _____________________ Title: Treasurer [CORPORATE SEAL] ADMINISTRATIVE AGENT, AGENT, NATIONSBANK, N.A. (SOUTH), a national CO-AGENT, ISSUING BANK banking association, as Administrative Agent, AND BANKS: Agent, Issuing Bank and as a Bank Date of Execution: By: /s/ - ------------------ Title: Senior Vice-President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, as Co-Agent and as a Bank Date of Execution: By: /s/ - ------------------ Title: Vice-President SANWA BANK CALIFORNIA, a California corporation, as a Bank Date of Execution: By: /s/ - ------------------ Title: Vice-President Master Loan and Inter-Creditor Agreement Signature Page 1 FIRST AMERICAN BANK, SSB, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ Title: Senior Vice-President [BANK SEAL] COMERICA BANK, a Michigan banking corporation, as a Bank Date of Execution: By: /s/ - ------------------ Title: Vice-President SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ Title: Vice President [BANK SEAL] BANK ONE TEXAS, NA, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ Title: Senior Vice-President Master Loan and Inter-Creditor Agreement Signature Page 2 THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, as a Bank Date of Execution: By: /s/ - ------------------ Title: Vice President EX-10.18 3 WORKING CAPITAL LINE OF CREDIT AGREEMENT WORKING CAPITAL LINE OF CREDIT AGREEMENT among D.R. HORTON, INC., as Borrower and BARNETT BANK, N.A., as Lender TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1 ARTICLE II AMOUNT AND TERMS OF LOAN 15 Section 2.1 Line of Credit 15 Section 2.2 Promissory Note 15 Section 2.3 Application of Funds 16 Section 2.4 Taxes and Assessments on Note 16 Section 2.5 Extension of Credit 16 Section 2.6 Manner of Borrowing and Disbursement Under L 16 Section 2.7 Interest on Loan 17 Section 2.8 Fees on Loan 17 Section 2.9 Repayment of Loan 17 Section 2.10 Manner of Payment 18 ARTICLE III BORROWER'S REPRESENTATIONS AND WARRANTIES 18 Section 3.1 Organization and Standing 19 Section 3.2 Power and Authority 19 Section 3.3 Valid and Binding Obligations 19 Section 3.4 Title of Collateral 19 Section 3.5 Financial Statements and Other Information 19 Section 3.6 Litigation 20 Section 3.7 Consent or Filing 20 ARTICLE IV CONDITIONS PRECEDENT 20 Section 4.1 Opinion of Counsel 20 Section 4.2 Documents and Instruments 20 Section 4.3 Correctness of Warranties 21 Section 4.4 Certificate of Resolution 21 Section 4.5 Borrowing Base Report 21 Section 4.6 Insurance Certificate 21 Section 4.7 Guarantors 21 Section 4.8 Other Documents 22 Section 4.9 Subsequent Disbursements 22 (i) ARTICLE V DISBURSEMENT AMOUNT AND PROCEDURE 22 Section 5.1 Loan Funding Availability 22 Section 5.2 Inspections/Valuations 24 Section 5.3 Lender Counsel Approval 25 Section 5.4 Liability of Lender 25 ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS 25 Section 6.1 Corporate Existence and Qualification 26 Section 6.2 Financial Statments/Status Reports 26 Section 6.3 Taxes and Claims 26 Section 6.4 Pay Indebtedness to Lender and Perform Other 27 Section 6.5 Litigation 27 Section 6.6 Defaults 27 Section 6.7 Further Assurances 27 Section 6.8 Funds Not Assignable 28 Section 6.9 Financial Covenants 28 Section 6.10 Inventory Covenants 29 Section 6.11 Additional Information 30 Section 6.12 Compliance Certificates 30 Section 6.13 Payment of Contractors 30 Section 6.14 Bank Group Line 30 Section 6.15 Hazardous Substances 31 Section 6.16 Insurance 32 Section 6.17 Reportable Event 33 Section 6.18 Secured Indebtedness 33 ARTICLE VII DEFAULT AND REMEDIES 33 Section 7.1 Defaults 33 Section 7.2 Remedies 37 Section 7.3 Cross Default 38 Section 7.4 Waiver of Default 38 Section 7.5 Rights and Remedies Not Waived 38 ARTICLE VIII MISCELLANEOUS 38 Section 8.1 Lien: Setoff By Lender 38 Section 8.2 Waivers 39 Section 8.3 Benefit 39 Section 8.4 Assignment 39 Section 8.5 Amendment and Waiver 40 (ii) Section 8.6 Terms 40 Section 8.7 Governing law and Jurisdiction 40 Section 8.8 Publicity 40 Section 8.9 Expenses of Lender 40 Section 8.10 Invalidation of Provisions 41 Section 8.11 Notices 41 Section 8.12 Termination by the Borrower 42 Section 8.13 Controlling Agreement 42 Section 8.14 Titles 42 Section 8.15 Counterparts 43 Section 8.16 Time is of the Essence 43 Section 8.17 Waiver of Trail by Jury 43 EXHIBITS Exhibit A Request for Advance Exhibit B Summary Borrowing Base Report Exhibit C Detailed Borrowing Base Report Exhibit D Quarterly Compliance Certificate (iii) WORKING CAPITAL LINE OF CREDIT AGREEMENT THIS WORKING CAPITAL LINE OF CREDIT AGREEMENT dated the 31st day of July, 1996, by and between D. R. HORTON, INC., a Delaware corporation, whose address is 1901 Ascension Boulevard, Suite 100, Arlington, Texas 76006, and BARNETT BANK, N.A., a national banking association, whose address is P.O. Box 678267, Orlando, Florida 32867-8267, Attention: Closing Department Manager. R E C I T A L S A. The Borrower has requested the Lender to lend to the Borrower up to the sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00) under a revolving line of credit; and B. The Lender is willing to make such loan upon the terms and conditions set forth in the Loan Documents (as that term is hereinafter defined). NOW, THEREFORE, in consideration of the mutual promises, conditions, represen tations and warranties hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged, the parties covenant and agree as follows: ARTICLE I DEFINITIONS In addition to the terms as may be defined throughout this Agreement, or in any Loan Document, the following terms shall be defined for use throughout this Agreement as follows: Section 1.1. Acquisition Cost. 1.1(1) Developed Lots. If the subject is a Developed Lot(s), costs shall include the purchase price plus the amount paid for any impact fees paid by the Borrower and its Restricted Subsidiaries with respect to such Developed Lot(s). If the Developed Lot(s) was developed by the Borrower or its Restricted Subsidiaries, costs shall also include land costs, site development and soft costs (engineering, interest, etc.) paid by Borrower and its Restricted Subsidiaries, associated with the development of such lots. 1.1(2) Lots Under Development. Costs in connection with Lots Under Development shall include land costs, site development and soft costs (engineering, interest, etc.) paid by Borrower and its Restricted Subsidiaries, associated with the development of such lots. - 1 - Administrative Costs shall be excluded from Acquisition Costs of both Developed Lots or Lots Under Development. Section 1.2. Administrative Agent. NationsBank, N.A. (South) Section 1.3. Administrative Costs. Costs and expenses incurred by the Borrower or its Restricted Subsidiaries in connection with (a) the marketing and selling of Inventory which is part of the Loan Inventory and (b) the administration, management and operation of the Borrower's and its Restricted Subsidiaries' businesses (excluding, without limitation, Interest Expense and fees payable hereunder). Section 1.4. Advance or Advances. Amounts advanced by the Lender to the Borrower pursuant to this Agreement. Section 1.5. Agreement. This Working Capital Line of Credit Agreement. Section 1.6. Agreement Date. The date as of which the Borrower and the Lender execute this Agreement. Section 1.7. Applicable Law. In respect of any Person, all provisions of constitutions, statutes, rules, regulations, and orders of governmental bodies or regulatory agencies applicable to such Persons including, without limitation, all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound. Section 1.8. Authorized Signatory. With respect to the Borrower, such personnel of the Borrower as set forth in an incumbency certificate of the Borrower delivered to the Lender on the Agreement Date (or any duly executed incumbency certificate delivered after the Agreement Date) and certified therein as being duly authorized by the Borrower to execute documents, agreements, and instruments on behalf of the Borrower. - 2 - Section 1.9. Bank Group Line. The credit accommodations described in and evidenced by that certain Master Loan and Inter-Creditor Agreement among D. R. Horton, Inc., as "Borrower", NationsBank, N.A. (South), Bank of America National Trust and Savings Association, Sanwa Bank California, First American Bank, SSB, Comerica Bank, SouthTrust Bank of Alabama, National Association, Bank One Texas, NA and First National Bank of Chicago, as "Banks", Bank of America National Trust and Savings Association, as "Co-Agent for the Banks", and NationsBank, N.A. (South) as Administrative Agent for the Banks, and as Issuing Bank dated April 16, 1996. Section 1.10. Borrower. D.R. HORTON, INC., a Delaware corporation Section 1.11. Borrowing Base Report. Consists of the Summary Borrowing Base Report and Detailed Borrowing Base Report which reflect inventory that the Borrower desires to have designated as Loan Inventory. Section 1.12. Change of Control. Either (i) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Borrower and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary of the Borrower), provided that a transaction where the holders of all classes of Common Equity of the Borrower immediately prior to such transaction own, directly or indirectly, 50% or more of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control; (ii) a "person" or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Borrower or Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or any trust or other entity formed or controlled by Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton)) becomes the "beneficial owner" (as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the Borrower representing more than 50% of the voting power of the Common Equity of the Borrower; (iii) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Borrower; or (iv) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower, provided that a liquidation or dissolution of the Borrower which is part of a transaction that does not constitute a Change of Control under the proviso contained in clause (i) above shall not constitute a Change of Control. Section 1.13. Closing Date. The date contained in the first paragraph of this Agreement. - 3 - Section 1.14. Code. The Internal Revenue Code of 1986, as amended. Section 1.15. Common Equity. With respect to any Person, capital stock of such Person that is generally entitled to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person. Section 1.16. Construction Costs. All costs accepted by the Lender actually incurred by the Borrower or its Restricted Subsidiaries with respect to the construction of a Dwelling as of the date of determination by the Lender, which shall include direct costs associated with a given Dwelling's construction (including Lot) plus indirect costs such as real estate taxes and interest costs allocated to the Dwelling during the construction phase. Direct cost is defined as costs for which a "hard" charge has been allocated (to the Dwelling being constructed) without consideration for any allocable soft costs (promotional materials, sales effort costs, overhead, supervision, etc.). Excluded from Construction Costs are (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such Dwelling and (b) Administrative Costs. Section 1.17. Continuing Director. A director who either was a member of the board of directors of the Borrower on the Agreement Date or who became a director of the Borrower subsequent to such date and whose election, or nomination for election by the Borrower's stockholders, was duly approved by a majority of the Continuing Directors on the board of directors of the Borrower at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Borrower on behalf of the entire board of directors of the Borrower in which such individual is named as nominee for a director. Section 1.18. Default. Any of the events specified in Article VI hereof, provided that any requirement for notice or lapse of time, or both, has been satisfied. Section 1.19. Default Rate. The Default Rate as defined in the Note. - 4 - Section 1.20. Detailed Borrowing Base Report. A unit-by-unit inventory summary of the Loan Inventory in form acceptable to Lender and certified as true and correct by an Executive Officer of the Borrower containing, at a minimum, the cost funded to date for each Dwelling Lot, each Development Lot and each Lot Under Development including, but not limited to those elements of cost set forth in Sections 1.1, 1.3 and 1.16 hereof. Section 1.21. Developed Lots. Subdivision lots owned by the Borrower or its Restricted Subsidiaries located in the State of Florida, subject to a recorded plat, which the Borrower has designated and Lender has accepted to be included and are included as "Developed Lots" in the calculation of the Loan Funding Availability (exclusive of any Dwelling Lot). An individual Developed Lot is sometimes referred to herein as a "Developed Lot." Section 1.22. Dwelling. A house which the Borrower or any Restricted Subsidiary has constructed or is constructing on a Developed Lot which has been designated as a Dwelling Lot. Section 1.23. Dwelling Lots. Lots with Dwellings which the Borrower or any Restricted Subsidiary located in the State of Florida has designated and Lender has accepted to be included and are included as "Dwelling Lots" in the calculation of the Loan Funding Availability. The term "Dwelling Lot" includes the Dwelling located thereon. An individual Dwelling Lot is sometimes referred to herein as a "Dwelling Lot." Section 1.24. EBITDA. With respect to the Borrower and all Restricted Subsidiaries, earnings for the preceding twelve (12) months (including, without limitation, dividends from Unrestricted Subsidiaries including, without limitation, net income (or loss) of any Person that accrued prior to the date that such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Borrower or any of its Restricted Subsidiaries) before interest incurred, state and federal income taxes paid, franchise taxes paid and depreciation and amortization, all in accordance with GAAP. - 5 - Section 1.25. ERISA. The Employee Retirement Income Security Act of 1974, as in effect on the Agreement Date and as such Act may be amended thereafter from time to time. Section 1.26. ERISA Affiliate. (a) Any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b) any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with the Borrower, (c) any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with the Borrower, or (d) any other entity required to be aggregated with the Borrower pursuant to regulations under Code Section 414(o). Section 1.27. Event of Default. Any event specified in Article VI hereof and any other event which with any passage of time or giving of notice (or both) would constitute such event a Default. Section 1.28. Exchange Act. The Securities Exchange Act of 1934, as amended. Section 1.29. Executive Officer. The President, any Executive Vice President, Vice President, Assistant Vice President, Secretary, Assistant Secretary or Treasurer of the Borrower. Section 1.30. Financial Covenant Carve Out. Any acquisition of Inventory, which the Borrower has elected to exclude from the calculation of the covenants set forth in Sections 6.9(1), 6.9(2), 6.10(1), 6.10(2) and 6.10(3) hereof; provided, however, that no acquisition may qualify as a "Financial Covenant Carve Out" if (a) the Borrower has elected to have an acquisition designated as a "Financial Covenant Carve Out" in the preceding twelve (12) calendar month period; (b) such acquisition has already been designated as a "Financial Covenant Carve Out" on the last day of each of the two (2) fiscal quarter ends immediately following the date of such acquisition; (c) contemporaneously with delivery by the Borrower of the notice of designation of an acquisition as a "Financial Covenant Carve Out", the Borrower fails to deliver to the Lender a plan of action reflecting that the Borrower will be in compliance (after giving effect to such acquisition) with the covenants in Sections 6.9(1), 6.9(2), 6.10(1), 6.10(2) and 6.10(3) hereof on or prior to the last day of the third fiscal quarter following the date of such - 6 - acquisition; and (d) the acquisition in question would, if it were included in the compliance calculations, cause (1) the ratio of Notes Payable to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 1.9 to 1, (B) as of the last day of each fiscal quarter of the Borrower in 1997, 2.1 to 1, (C) as of the last day of each fiscal quarter of the Borrower in 1998, 2.2 to 1, or (2) the ratio of Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 2.25 to 1, (B) as of the last day of each fiscal quarter of the Borrower in 1997, 2.5 to 1, or (C) as of the last day of each fiscal quarter of the Borrower in 1998, 2.6 to 1. Section 1.31. Fixed Charges. The aggregate consolidated interest incurred of the Borrower and its Restricted Subsidiaries for the most recently completed four (4) fiscal quarters for which results have been reported to Lender. Section 1.32. Force Majeure. An occurrence outside the control of the Borrower which cannot be avoided by the exercise of due care by the Borrower which delays performance by the Borrower in the nature of and including but not limited to strikes, lockouts, unavailability of materials, power failure, riots, war or destructive natural causes. The phrase "subject to Force Majeure" as used herein shall mean that the time period for the Borrower's performance shall be extended by a length of time equivalent to the period during which the occurrence constituting Force Majeure shall exist. Notwithstanding the foregoing, in no event shall the Borrower's obligations to make payments under the Note be delayed or extended. Section 1.33. Funding Period. A period commencing on the day immediately following the date that the Loan Funding Availability is established pursuant to Section 5.1(c) hereof by the Lender and ending on the date that the Loan Funding Availability next is established pursuant to Section 5.1(c) hereof by the Lender. Section 1.34. GAAP. As in effect as of the Agreement Date, generally accepted accounting principles consistently applied. - 7 - Section 1.35. Guaranty or Guaranteed. As applied to an obligation (each a "primary obligation"), shall mean and include (a) any guaranty, direct or indirect, in any manner, of any part or all of such primary obligation, and (b) any agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such primary obligation, including, without limiting the foregoing, and any obligation of such Person (the Primary obligor"), whether or not contingent, (i) to purchase any such primary obligation or any property or asset constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or-payment of such primary obligation or (2) to maintain working capital, equity capital or the net worth, cash flow, solvency or other balance sheet or income statement condition of any other Person, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner or holder of any primary obligation of the ability of the primary obligor with respect to such primary obligation to make payment thereof or (iv) otherwise to assure or hold harmless the owner or holder of such primary obligation against loss in respect thereof. Section 1.36. Guarantors. DRH CONSTRUCTION, INC., a Delaware corporation DRH NEW MEXICO CONSTRUCTION, INC., a Delaware corporation D.R. HORTON, INC. - ALBUQUERQUE, a Delaware corporation D.R. HORTON, INC. - MINNESOTA, a Delaware corporation D.R. HORTON LOS ANGELES HOLDING COMPANY, INC., a California corporation D.R. HORTON LOS ANGELES MANAGEMENT COMPANY, INC., a California corporation D.R. HORTON LOS ANGELES NO. 9, INC., a California corporation D.R. HORTON LOS ANGELES NO. 10, INC., a California corporation D.R. HORTON LOS ANGELES NO. 11, INC., a California corporation D.R. HORTON, INC. - BIRMINGHAM, a Delaware corporation D.R. HORTON, INC. - GREENSBORO, a Delaware corporation D.R. HORTON SAN DIEGO HOLDING COMPANY, INC., a California corporation D.R. HORTON SAN DIEGO MANAGEMENT COMPANY, INC., a California corporation D.R. HORTON SAN DIEGO NO. 9, INC., a California corporation D.R. HORTON SAN DIEGO NO. 10, INC., a California corporation D.R. HORTON SAN DIEGO NO. 11, INC., a California corporation D.R. HORTON SAN DIEGO NO. 12, INC., a California corporation D.R. HORTON SAN DIEGO NO. 13, INC., a California corporation D.R. HORTON SAN DIEGO NO. 14, INC., a California corporation D.R. HORTON SAN DIEGO NO. 15, INC., a California corporation D.R. HORTON SAN DIEGO NO. 16, INC., a California corporation D.R. HORTON SAN DIEGO NO. 17, INC., a California corporation D.R. HORTON - TEXAS, LTD., a Texas limited partnership - 8 - Together with each additional Restricted Subsidiary of Borrower as may from time to time deliver a Guaranty of the Loan which Guaranty is accepted by Lender. Section 1.37. Indebtedness. With respect to any specified Person, (a) all items, except items of (i) shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv) general contingency or deferred tax reserves, (v) liabilities for deposits and (vi) deferred income, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, (b) all direct or indirect obligations secured by any Lien to which any property or asset owned by such Person is subject, whether or not the obligation secured thereby shall have been assumed, and (c) all reimbursement obligations with respect to outstanding letters of credit. Section 1.38. Indebtedness for Money Borrowed. With respect to any specified Person, all money borrowed by such Person and Indebtedness represented by notes payable by such Person and drafts accepted representing extensions of credit to such Person, all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, all Indebtedness of such Person upon which interest charges are customarily paid, and all Indebtedness of such Person issued or assumed as full or partial payment for property or services, whether or not any such notes, drafts, obligations, or Indebtedness represent Indebtedness for money borrowed. For purposes of this definition, interest which is accrued but not paid on the original due date or within any applicable cure or grace period as provided by the underlying contract for such interest shall be deemed Indebtedness for Money Borrowed. Section 1.39. Interest Expense. In respect of any period, an amount equal to the sum of the interest incurred during such period based on a stated interest rate with respect to Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries on a consolidated basis. Section 1.40. Inventory. All real and personal property, improvements and fixtures owned by the Borrower or the Restricted Subsidiaries, including but not limited to all Land Parcels, Lots Under Development, Developed Lots and Dwelling Lots. - 9 - Section 1.41. Land Parcels. Parcels of land owned by the Borrower or any of its Restricted Subsidiaries which are, as of the date of determination, not scheduled for commencement of development into Developed Lots during the twelve (12) calendar months immediately following such date of determination and which the Borrower has designated as "Land Parcels." An individual Land Parcel is sometimes referred to as a "Land Parcel." Section 1.42. Lender. Barnett Bank, N.A. Section 1.43. Lien. With respect to any property, any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in the nature of any of the foregoing in respect of such property, whether or not choate, vested, or perfected. Section 1.44. Loan Amount. SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00). Section 1.45. Loan Documents. This Agreement, the Note and any and all other documents evidencing the Note as the same may be amended, substituted, replaced, extended or renewed from time to time. Section 1.46. Loan Funding Availability. The amount available for advancement under the Note to the Borrower established pursuant to Section 5.1 hereof, at any applicable time, by the Lender based on the Loan Inventory. Section 1.47. Loan Inventory. Shall consist of Lots Under Development, Developed Lots, and Dwelling Lots which are not encumbered by a lien or liens (other than any Permitted Encumbrance) and which have been designated as Loan Inventory to be utilized for the purpose of calculating Funding Availability under this Agreement. - 10 - Section 1.48. Loan. Collectively, amounts advanced by the Lender to the Borrower under the Loan Documents evidenced by the Note. Section 1.49. Lots Under Development. Land Parcels located in the State of Florida which are, as of the date of determination, being developed into Developed Lots or which are scheduled for the commencement of development into Developed Lots within twelve (12) calendar months after the date of determination, and which the Borrower has designated and the Lender has accepted to be included and are included as "Lots Under Development" in the calculation of the Funding Availability. An individual Lot Under Development is sometimes referred to as a "Lot Under Development." Section 1.50. Maturity Date. The date when the Loan is due and payable as defined in the Note. Section 1.51. Models. A Dwelling Lot containing a dwelling unit which is designated by the Borrower as a model unit for use in marketing and promoting the sale of Dwelling Lots. Section 1.52. Note. Promissory Note in the principal amount of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00) of even date herewith. Section 1.53. Notes Payable. With respect to the Borrower and all Restricted Subsidiaries, all Indebtedness for money borrowed other than promissory notes issued as earnest money for contracts, non-recourse promissory notes for seller financing and notes payable for insurance premiums and capitalized lease obligations. Section 1.54. Note Rate. The interest rate established in the Note. - 11 - Section 1.55. Obligations. (a) All payment and performance obligations of the Borrower and all other obligors to the Lender under the Loan Documents, as they may be amended from time to time, or as a result of making the Loan, and (b) the obligation to pay an amount equal to the amount of any and all damages which the Borrower is obligated to pay pursuant to the Loan Documents to, or on behalf of, the Lender, which they may suffer by reason of a breach by any of the Borrower or any other obligor of any obligation, covenant, or undertaking with respect to this Agreement or any other Loan Document. Section 1.56. Permitted Encumbrances. Liens, encumbrances, easements and other matters which (a) are in favor of Lender to secure the subject facility, (b) are on real estate for real estate taxes not yet delinquent, (c) are for taxes, assessments, judgments, governmental charges or levies or claims the non-payment of which is being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the Borrower's books (but only so long as no foreclosure, distraint sale or similar proceedings have been commenced with respect thereto and remain unstayed for a period for thirty (30) days after their commencement), (d) are in favor of carriers, warehousemen, mechanics, laborers and materialmen incurred in the ordinary course of business for sums not yet past due or being diligently contested in good faith (if adequate reserves are being maintained by the Borrower with respect thereto), (e) are incurred in the ordinary course of business in connection with worker's compensation and unemployment insurance, or (f) are easements, rights-of-way, restrictions or similar encumbrances on the use of real property which does not interfere with the ordinary conduct of business of the Borrower or materially detract from the value of such real property. Section 1.57. Person. An individual, corporation, partnership, limited liability company, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. Section 1.58. Plan. An employee benefit plan within the meaning of Section 3(3) of ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate. Section 1.59. Reconciliation Date. Two (2) Business Days after the Borrower's receipt of notice from the Lender pursuant to Section 5.1(4) hereof that the outstanding principal balance of the Loan exceeds the Loan Funding Availability. - 12 - Section 1.60. Reportable Event. Shall have the meaning set forth in Section 4043(b) of ERISA. Section 1.61. Request for Advance. Any certificate signed by an Authorized Signatory of the Borrower requesting an Advance hereunder which will increase the aggregate amount of the Loan outstanding, which certificate shall be denominated a "Request for Advance," and shall be in substantially the form of Exhibit A attached hereto. Each Request for Advance shall, among other things, (a) specify the date of the Advance, which shall be a Business Day, (b) specify the amount of the Advance, (c) state that there shall not exist, on the date of the requested Advance and after giving effect thereto, a Default or an Event of Default, and (d) state that all conditions precedent to the making of the Advance have been satisfied. Section 1.62. Restricted Subsidiaries. Affiliated or wholly owned companies of D.R. Horton, Inc. which provide guarantees. Section 1.63. Speculative Lot. Any Dwelling Lots having a fully or partially constructed dwelling unit thereon which Dwelling Lot is not subject to a bona fide contract for the sale of such Dwelling Lot to a third party, excluding Developed Lots containing Dwellings used as Models. Section 1.64. Subsidiary. As applied to any Person, (a) any corporation of which fifty percent (50%) or more of the outstanding stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class or classes of securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which fifty percent (50%) or more of the outstanding partnership interests, is at the time owned by such Persons or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is controlled or susceptible to being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person; provided, however, that for purposes of this Agreement and the other Loan Documents the term "Subsidiary" shall not include DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the context otherwise requires, "Subsidiaries as used herein shall mean the Subsidiaries of the Borrower. - 13 - Section 1.65. Subsidiary Guaranty. A guaranty agreement in form and substance satisfactory to the Lender whereunder a Restricted Subsidiary guarantees the full and faithful payment and performance of all of the Obligations of the Borrower hereunder and under the other Loan Documents. Section 1.66. Summary Borrowing Base Report. An aggregate inventory summary of the Loan Inventory in form acceptable to Lender and certified as true and correct by an Executive Officer of the Borrower containing, at a minimum, the cost funded to date for all Dwelling Lots, Developed Lots and Lots Under Development including those elements of cost set forth in Sections 1.1, 1.3 and 1.16 hereof. Section 1.67. Tangible Assets. The difference between total assets of the Borrower and its Restricted Subsidiaries and all intangible assets of the Borrower and its Restricted Subsidiaries, all as determined in accordance with GAAP. Section 1.68. Tangible Net Worth: With respect to the Borrower and its Restricted Subsidiaries, stockholder's equity on a consolidated basis less all "intangible assets" as defined under GAAP and amounts invested in Unrestricted Subsidiaries of such Person. Section 1.69. Total Liabilities. All items required by GAAP to be set forth as "liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated balance sheet. Section 1.70. Unrestricted Subsidiaries. Affiliated or wholly owned companies of D.R. Horton, Inc. not providing guarantees. Section 1.71. Working Capital. The total of the Borrower's and its Restricted Subsidiaries' assets minus the sum of the Borrower's and Restricted Subsidiaries' fixed assets, intangible assets, earnest monies for lot and land option contracts represented by promissory notes payable by the Borrower and Restricted Subsidiaries and the total of the Borrower's and Restricted Subsidiaries' liabilities. [Total Assets - - (Fixed Assets + Intangible Assets + Earnest Monies Represented by Promissory Note + Total Liabilities).] - 14 - Each definition of an agreement in this Article I shall include such agreement as modified, amended, or supplemented from time to time with the prior written consent of the Lender, and except where the context otherwise requires, definitions imparting the singular shall include the plural and vice versa. Except where otherwise specifically restricted, reference to a party to a Loan Document includes that party and its successors and assigns. All terms used herein which are defined in Article 9 of the Uniform Commercial Code in effect in the State of Florida on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein. All accounting terms used herein without definition shall be used as defined under GAAP as of the Agreement Date. ARTICLE II AMOUNT AND TERMS OF LOAN Section 2.1. Line of Credit. The Lender hereby grants to the Borrower a revolving line of credit not to exceed the sum of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00) to be funded and disbursed only in accordance with the terms and conditions contained herein. Subject to the terms, conditions and collateral requirements hereinafter set forth in this Agreement, at any time and from time to time, the Borrower may borrow from and repay to and reborrow from the Lender at such time and in such amounts not exceeding the maximum amount of SEVENTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($17,500,000.00) in effect under this Agreement. Section 2.2. Promissory Note. 2.2(1) Execution of Note. Under the terms of this Agreement, the Borrower shall execute and deliver to the Lender Note. 2.2(2) Due Date of Note. The Note is due on demand. 2.2(3) Grace Period for Payment. Notwithstanding the foregoing, in the event Lender shall demand repayment of the amounts disbursed pursuant to the Note, for reasons other than the monetary and/or non-monetary default by the Borrower, Borrower shall have six (6) months from the date demand is made by the Lender in which to repay such amounts and any amounts thereafter disbursed. During the first ninety (90) days of such six (6) month period, the Lender shall continue to disburse funds pursuant to this Agreement. - 15 - Section 2.3. Application of Funds. The Lender and the Borrower agree that all funds received from the Lender under this Agreement are to be used as working capital. Nothing herein shall impose upon the Lender any obligation to see to the proper application of any Advance. Section 2.4. Taxes and Assessments on Note. The Borrower shall promptly pay all taxes and assessments assessed or levied, under and by virtue of any State, Federal or Municipal law or regulation now in existence or hereinafter passed, to Lender as a result of its ownership of the Note. Section 2.5. Extension of Credit. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties made in this Agreement and the other Loan Documents, and provided that there is no Default or Event of Default, the Lender agrees to lend and relend to the Borrower amounts which in the aggregate at any one time outstanding do not exceed the Loan Amount. Section 2.6. Manner of Borrowing and Disbursement Under Loan. 2.6(1) Request for Advance. The Borrower shall give the Lender irrevocable written notice for Advances under the Loan not later than 12:00 noon (Eastern time) on the day immediately preceding the date of the requested Advance in the form of a Request for Advance, or notice by telephone or telecopy followed immediately by a Request for Advance; provided, however, that the failure by the Borrower to confirm any notice by telephone or telecopy with a Request for Advance shall not invalidate any notice so given. Subsequent to the initial Advance(s) of the Loan made on the Agreement Date, the Borrower may not request, in the aggregate, more than two (2) Advances in any calendar month. No disbursements shall be made more than thirty (30) days after the submission of a Summary Borrowing Base Report or Detailed Borrowing Base Report, whichever is applicable. 2.6(2) Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an Advance hereunder, the Lender shall, subject to the satisfaction of the conditions set forth in this Agreement, disburse the amount requested by (i) transferring the amounts by wire transfer pursuant to the instructions of the Borrower, or (ii) in the absence of such instructions, crediting the amounts so made available to the account of the Borrower maintained with the Lender. 2.6(3) No Default. Prior to making any advance under the Loan Documents, the Lender, in its sole discretion, may verify that the Borrower is not in default under the Loan Documents and the Lender shall not be obligated to make any advance unless and until it is reasonably satisfied as to the accuracy - 16 - of such information. The Lender shall not be obligated to make any Advances hereunder: (a) upon this Agreement being deemed to expire as a result of any law, regulation or regulatory action now or hereafter enacted or adopted; or (b) upon the making of any such Advance becoming prohibited by any law, regulation or regulatory action now or hereafter enacted or adopted. Section 2.7. Interest on Loan. 2.7(1) Loan. Interest shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Note Rate times the principal balance outstanding from time to time under the Note for the number of days such principal amounts are outstanding during such calendar month. 2.7(2) Upon Default. Upon the occurrence and during the continuance of a Default, the Lender shall have the option (but shall not be required to give prior notice thereof to the Borrower to accelerate the maturity of the Loan or to exercise any other rights or remedies hereunder in connection with the exercise of this right) to charge interest on the outstanding principal balance of the Loan at the Default Rate from the date of such Default. Such interest shall be payable on the earliest of demand or the next interest payment date established in the Note, as applicable, and shall accrue until the earlier of (i) waiver or cure (to the satisfaction of the Lender) of the applicable Default, (ii) agreement by the Lender to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. Section 2.8. Fees on Loan. The Borrower agrees to pay to the Lender an unused fee for each calendar year on the difference between (i) the Loan Amount and (ii) the average daily outstanding balance of the Loan during the applicable period, at the rate of 15 basis points (.15 %). Such unused fee shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable quarterly in arrears on the twenty-fifth (25th) day of each January, April, July, and October for the immediately preceding calendar quarter, commencing on October 25, 1996 (for the period from the Agreement Date through September 30, 1996), and on the Maturity Date, and shall be fully earned when due and non-refundable when paid. Section 2.9. Repayment of Loan. 2.9(1) Interest. The Borrower shall pay interest on the Loan as set forth in the Note. - 17 - 2.9(2) Reconciliation of Loan Inventory. The Borrower shall repay certain portions of the outstanding principal of the Loan and accrued and unpaid interest thereon upon the reconciliation of the Loan Funding Availability against the outstanding principal balance under the Note as provided in Section 5.1 hereof. 2.9(3) Maturity. In addition to the foregoing, a final payment of all Obligations then outstanding shall be due and payable by the Borrower on Maturity Date. Section 2.10. Manner of Payment. 2.10(1) Time. Each payment (including any prepayment) by the Borrower on account of the principal of or interest on the Loan, fees, and any other amount owed to the Lender under this Agreement, the Note, or the other Loan Documents shall be made not later than 1:00 p.m. (Eastern time) on the date specified for payment under this Agreement or such other Loan Document in lawful money of the United States of America in immediately available funds. Any payment received by the Lender after 1:00 p.m. (Eastern time) shall be deemed received on the next Business Day for purposes of interest accrual. 2.10(2) Date. If any payment under this Agreement or any of the Note shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment. 2.10(3) Amount. The Borrower may not make payments, in the aggregate, under this Agreement (excluding any payments specifically required pursuant to the terms of this Agreement) more than two (2) times in any calendar month. 2.10(4) No Set Off. The Borrower agrees to pay principal, interest, fees, and all other amounts due hereunder or under the Note without set-off or counterclaim or any deduction whatsoever. ARTICLE III BORROWER'S REPRESENTATIONS AND WARRANTIES To induce the Lender to enter into this Agreement, the Borrower makes the following representations and warranties which shall be deemed to be continuous representations and warranties so long as any credit hereunder remains available or any indebtedness of the Borrower to the Lender remains unpaid: - 18 - Section 3.1. Organization and Standing. The Borrower is a corporation duly organized and existing under the laws of the State of Delaware and is duly qualified to do business in each jurisdiction in which the conduct of its business requires such qualification, including the State of Florida. To the best of the Borrower's knowledge and belief, the Borrower is in compliance with all applicable laws and regulations governing the conduct of its business and governing consummation of the transactions. Section 3.2. Power and Authority. The execution, delivery and performance hereof by the Borrower are within its corporate powers and have been duly authorized by all necessary corporate and shareholder action, are not in contravention of law or the terms of its Articles of Incorporation or By-Laws or any amend ment thereto, or any indenture, agreement or undertaking to which it is a party or by which it is bound. Section 3.3. Valid and Binding Obligations. The Loan Documents constitute the legal, valid and binding respective obligations of the Borrower subject to applicable bankruptcy and insolvency laws and laws affecting creditors' rights and the enforcement thereof generally. Section 3.4. Title to Collateral. The Borrower has, or will have, good and marketable title to all property from time to time listed in the Summary Borrowing Base Report free and clear of all mortgages, pledges, liens, security interests or other encumbrances. The Borrower will warrant and defend the Collateral against the claims and demands of all persons except for claims and demands arising from the title exceptions referenced in the preceding sentence. Section 3.5. Financial Statements and Other Information. Subject to any limitation stated therein or in connection therewith by the Borrower in writing, all balance sheets, earnings statements and other financial data which have been or shall hereafter be furnished to the Lender to induce it to enter into this Agreement or otherwise in connection herewith do or will fairly represent the financial condition of the Borrower as of the dates and the results of its operations for the period for which the same are furnished to the Lender and have been or will be prepared in accordance with GAAP and all other information, reports and other papers and data furnished to the Lender are and or will be, at the time the same are so furnished, accurate and correct in all material respects and complete insofar as complete ness may be necessary to give the Lender a true and accurate knowledge of the subject matter. There are no material liabilities of any kind of the Borrower as of the - 19 - date of the most recent financial statements which are not reflected therein. There have been no materially adverse changes in the financial condition or operation of the Borrower since the date of such financial statements. Section 3.6. Litigation. The Borrower warrants and represents to the Lender that as of the Agreement Date, none of the Borrower nor any Restricted Subsidiary is a party to any litigation having a reasonable probability of being adversely determined to the Borrower or any Restricted Subsidiary which, if adversely determined, would impair the ability of the Borrower to carry on its business substantially as now conducted or contemplated or would materially adversely affect the financial condition, business or operations of the Borrower. Section 3.7. Consent or Filing. No consent, approval or authorization of, or registration, declaration or filing with any court, any governmental body or authority or other person or entity is required in connection with the valid execution, delivery or performance of this Agreement or any document required by this Agreement or in connection with any of the transactions contemplated thereby, except the filing of any financing statements contemplated hereunder. ARTICLE IV CONDITIONS PRECEDENT The effectiveness of this Agreement and the obligations of the Lender to consummate any of the transactions contemplated hereby shall be subject to the satisfaction of the following conditions precedent, at or prior to the Closing Date: Section 4.1. Opinion of Counsel. Borrower shall cause to be delivered to Lender an opinion from counsel to the Borrower addressed to and in form satisfactory to the Lender regarding the legal matters set forth in Sections 3.1, 3.2, 3.3, 3.6 and 3.7 hereof. Section 4.2. Documents and Instruments. The Lender shall have received all the instruments and documents contemplated to be delivered by the Borrower hereunder, and the same shall be in full force and effect. This Agreement and all of the instruments and documents executed in connection therewith are herein after referred to as the "Loan Documents". - 20 - Section 4.3. Correctness of Warranties. All representations and warranties contained herein or otherwise made to the Lender in connection herewith shall be true and correct. Section 4.4. Certificate of Resolution. The Board of Directors, or the Executive Committee thereof, and, if stockholder approval is necessary, the stockholders of Borrower shall have passed specific resolutions authorizing the execution and delivery of all documents and the taking of all actions called for by this Agree ment, and the Borrower shall have furnished to the Lender copies of such resolutions, certified by the Secretary. Section 4.5. Borrowing Base Report. The Borrower shall have delivered to the Lender the appropriate Borrowing Base Report as required by Section 5.1(2) of this Agreement. Both the Summary Borrowing Base Report and the Detailed Borrowing Base Report shall contain a sworn certificate attesting to the accuracy of the representations contained in said reports. Section 4.6. Insurance Certificate. Certificate(s) of insurance required pursuant to Section 6.16 hereof. Section 4.7. Guarantors. 4.7(1) Authorization. The Board of Directors and, if stockholder approval is necessary, the stockholders of each of the Guarantors shall have passed specific resolutions authorizing execution and delivery of the Guarantys and the Borrower shall have furnished to the Lender copies of such resolutions, certified by the Secretary of the respective corporations. With respect to the Guaranty by the limited partnership, the Borrower shall provide the Lender with a certificate of limited partnership evidencing the approval of the execution of the Guaranty by the general partner. 4.7(2) Withdrawal/Adding of Guarantors. Provided there is no Default under any Loan Document, the Guaranty of any Restricted Subsidiary may be released by the Lender upon the written request of the Borrower. The withdrawal of any Restricted Subsidiary shall be effective upon the written consent of the Lender. A Guaranty of any Restricted Subsidiary may be added at any time by the Borrower delivering to the Lender a continuing and unconditional guaranty in the form and content of the Guaranty executed by Restricted Subsidiaries simultaneous with the execution of this Agreement. - 21 - Section 4.8. Other Documents. Such other documents as the Lender may reasonably from time to time require in order to verify compliance with the Loan Documents. Section 4.9. Subsequent Disbursements. Prior to requesting subsequent disbursements under the Loan, (subsequent to the first disbursement) the Borrower shall execute and deliver to the Lender all of the following items, in form and substance satisfactory to the Lender. The Lender shall have no further obligation to make further disbursements until all such items have been properly executed and delivered to the Lender. (a) The Summary Borrowing Base Report or the Detailed Borrowing Base Report as required pursuant to this Agreement for all previous periods of time. (b) The Request for Advance that the Borrower is required to deliver in connection with the request of an Advance. (c) Such other documents as the Lender may reasonably require to insure compliance with the Loan Documents. ARTICLE V DISBURSEMENT AMOUNT AND PROCEDURE 5.1 Loan Funding Availability. At the designated times set forth herein, the Lender shall establish a Loan Funding Availability for the Loan Inventory. 5.1(1) Calculation of Loan Funding Availability. The Loan Funding Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan Funding Availability. A = seventy-five percent (75%) of the sum of all Acquisition Costs for all Lots Under Development which are included in the Loan Inventory. If, after a parcel of land is designated a Lot Under Development, development of such parcel ceases for thirty (30) calendar days or more (other than by reason of a Force Majeure), at the discretion of the Lender, the Loan Funding Availability for such parcel may be reduced to an amount determined by the Lender (which amount can be zero) until development of such Lot Under Development is resumed to the satisfaction of the Lender. - 22 - B = seventy-five percent (75%) of the sum of all Acquisition Costs for all Developed Lots included in the Loan Inventory. C = one hundred percent (100%) of the sum of all Acquisition Costs and Construction Costs for all Dwelling Lots included in the Loan Inventory. 5.1(2) Designation of Land Parcels. Lots Under Development. Developed Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day of each calendar month (other than a month following the end of a calendar quarter), the Borrower shall deliver to the Lender a Summary Borrowing Base Report in the form attached hereto as Exhibit B and incorporated herein. On or before the fifteenth (15th) calendar day of each month following the end of a calendar quarter, the Borrower shall deliver to the Lender a Detailed Borrowing Base Report in the form attached hereto as Exhibit C and incorporated herein which form shall have been completed and signed by the Borrower. The Summary Borrowing Base Report and Detailed Borrowing Base Report shall reflect Inventory that the Borrower desires to have designated as Loan Inventory. Upon the Lender's receipt of the Summary Borrowing Base Report or Detailed Borrowing Base Report, as the case may be, the Lender may conduct inspections or reviews of the subject Inventory that the Lender deems appropriate, at the expense of the Lender except as hereinafter expressly provided. Based upon the information in the Summary Borrowing Base Report or Detailed Borrowing Base Report, as the case may be, and the other information compiled by the Lender, the Lender shall determine, in its discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not previously designated as part of the Loan Inventory shall be designated part of the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or Dwelling Lot. 5.1(3) Periodic Establishment of Loan Funding Availability. Within two (2) business days of the Lender's receipt of an Summary Borrowing Base Report or Detailed Borrowing Base Report, as the case may be, the Lender shall establish the Loan Funding Availability based on the Report delivered to the Lender and information compiled by the Lender. In the event the Borrower does not submit the Summary Borrowing Base Report or Detailed Borrowing Base Report in the time and manner set forth above or furnish sufficient information to the Lender to enable the Lender to establish a new Loan Funding Availability, the Lender will establish a Loan Funding Availability based on some or all of the previous information submitted to the Lender by the Borrower in the immediately preceding Summary Borrowing Base Report or Detailed Borrowing Base Report and the information compiled by the Lender, as required hereunder, in connection therewith, as the case may be, or other information available to the Lender. 5.1(4) Reconciliation. In the event that the Loan Funding Availability for a particular Funding Period is less than the then outstanding principal amount under the Loan, the Lender shall notify the Borrower thereof. On or before the Reconciliation Date, the Borrower shall (i) pay to the Lender a - 23 - principal payment to be applied to the Loan; or (ii) provide a revised Summary Borrowing Base Report or Detailed Borrowing Base Report designating sufficient additional Inventory (which shall be acceptable to the Lender, in its discretion) as Loan Inventory to cause the Loan Funding Availability to equal or exceed the outstanding principal of the Loan. 5.1(5) Removal/Disapproval of Inventory for Loan Funding Availability. If, at any time, the Lender determines, in its reasonable discretion, that any part of the Loan Inventory is not acceptable for inclusion in the calculation of the Loan Funding Availability as a result of an unforeseen material adverse change in the condition of such portion of the Loan Inventory or as a result of the existence of hazardous wastes or materials in or on any Inventory which are in violation of any warranty, representation or covenant of the Loan Documents regarding such hazardous wastes or materials, the Lender may exclude such portion of the Loan Inventory from the calculation of the Loan Funding Availability. If, after such exclusion, the then outstanding principal amount under the Note would exceed the Loan Funding Availability, the Borrower shall pay to the Lender on the Reconciliation Date immediately following the exclusion of such Loan Inventory, a principal payment on the Loan in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Loan over the Loan Funding Availability, together with accrued and unpaid interest on such excess. Section 5.2. Inspections/Valuations. The Lender and/or any inspection agent employed by the Lender shall have the right, during the term of this Agreement to inspect the Property at any reasonable time to confirm the accuracy of the Borrowing Base Report and to independently evaluate the units, lots and projects comprising the Loan Inventory. In the event that the Borrowing Base Report is deemed inaccurate or in the event that the value of the Loan Inventory in the reasonable determination of the Lender exceeds the outstanding principal balance of the Loan, the Loan Funding Availability may be adjusted by the Lender or the affected portions of the Loan Inventory may be excluded from the Loan Inventory. In addition, the Lender shall have the right, with reasonable notice to Borrower, to examine the books of account and other records and files of the Borrower, and to discuss the affairs, business, finances and accounts of the Borrower with their respective officers and employees, all at such reasonable time and as often as the Lender may request provided that Lender shall not unreasonably interfere or disrupt the conduct of the Borrower's business. It is agreed that all inspection and valuation services rendered by or for Lender's officers or agents shall be rendered solely for the protection and benefit of the Lender and at the Lender's expense. - 24 - Section 5.3. Lender Counsel Approval. At the option and request of the Lender, the Lender may require that counsel for the Lender review any of the documents or instruments required, executed or provided in connection with this Agreement to confirm compliance with the terms and conditions of this Agreement; or to otherwise advise the Lender in its duties and responsibilities hereunder. The Borrower hereby agrees to reimburse the Lender for the reasonable fees (based on time spent) and costs associated therewith. Section 5.4. Liability of Lender. 5.4(1) To Third Parties. The Lender shall in no event be responsible or liable to any person other than the Borrower for its disbursement of or failure to disburse the funds or any part thereof, and neither the contractor nor any subcontractor nor materialmen or craftsmen nor laborers nor others shall have any claim or right against the Lender under this Agreement or the Lender's administration thereof. The Lender shall not be liable to any materialmen, contractors, craftsmen, laborers or others for goods or services delivered by them in or upon the Property, nor for debts or claims accruing to any such parties against the Borrower. Nor shall the Lender be liable for the manner in which any disbursements under this Agreement may be applied by the Borrower and the contractor or either of them or for any compliance with the Florida Construction Lien Law. The Borrower is not and shall not be an agent for Lender for any purpose. 5.4(2) To the Borrower. The Borrower has accepted and does accept, the full responsibility for the selection of its own contractor and subcontractors and all materials, supplies and equipment to be used in the construction of the improvements contemplated by this Agree ment, and the Lender assumes no responsibility for the completion of the improvements contemplated herein. Further, the Borrower has accepted and does accept full responsibility for compliance with the Florida Construction Lien Law and relieves the Lender of any and all liability with respect to that law and agrees to indemnify and hold the Lender harmless from any and all liability under it of any nature whatsoever. ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS The Borrower covenants and agrees that until the Note, together with interest and all other indebtedness to the Lender under the terms of this Agreement, are paid in full, unless specifically waived by the Lender in writing: - 25 - Section 6.1. Corporate Existence and Qualification. The Borrower will do, or cause to be done, all things necessary to preserve, renew and keep in full force and effect its corporate existence, rights, licenses and permits and comply with all laws applicable to it, operate its business in a proper and efficient manner and substantially as presently operated or proposed to be operated; and at all times maintain, preserve and protect all franchises and trade names and preserve all property used or useful in the conduct of its business, and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Section 6.2. Financial Statements/Status Reports. The Borrower will keep its books of accounts in accordance with GAAP and will furnish to the Lender: 6.2(1) 10-K. Within one hundred twenty (120) days after the close of Borrower's fiscal year the Form 10-K of the Borrower filed with the Securities and Exchange Commission, together with the audited, consolidated financial statements of the Borrower prepared by an independent accounting firm of recognized standing. 6.2(2) 10-Q. Within sixty (60) days after the last day of each quarter in each fiscal year of the Borrower, except the last quarter of such fiscal year of the Borrower, the Form 10-Q of the Borrower filed with the Securities and Exchange Commission containing financial statements of the Borrower and all entities related to and divisions of the Borrower, on a consolidated basis. 6.2(3) Sales Report. Within sixty (60) days of the end of the previous fiscal quarter, quarterly sales and inventory status reports showing units closed, units in backlog and income summary for all operations in the State of Florida of the Borrower and its Restricted Subsidiaries. 6.2(4) Other Financial Documentation. The Borrower shall provide to the Lender such other financial information as the Lender may reasonably request from time to time to clarify or amplify the information required to be furnished to the Lender under this Agreement. Section 6.3. Taxes and Claims. The Borrower shall properly pay and discharge: (a) all taxes, assessments and govern mental charges upon or against the Borrower or its assets prior to the date on which penalties attach thereto, unless and to the extent that such taxes are being diligently contested in good faith and by appropriate - 26 - proceedings and appropriate reserves therefor have been established; and (b) all lawful claims, whether for labor, materials, supplies, services or anything else which might or could, if unpaid, become a lien or charge upon the properties or assets of the Borrower, unless and to the extent only that the same are being diligently contested in good faith and by appro priate proceedings and appropriate reserves therefor have been established. Section 6.4. Pay Indebtedness to Lender and Perform Other Covenants. The Borrower shall: (a) make full and timely payments of the principal of and interest, and premium, if any, on the Note and all other indebtedness of the Borrower to the Lender, whether now existing or hereafter arising and (b) duly comply with all the terms and covenants contained in each of the instruments and documents given to the Lender pursuant to this Agree ment at the times and places and in the manner set forth herein. Section 6.5. Litigation. The Borrower will promptly notify the Lender upon the commencement of any action, suit, claim, counterclaim or proceeding against or investigation of the Borrower (except when the alleged liability is fully covered by insurance): (a) which has the reasonable possibility of being concluded adversely to the Borrower the result of which, in the reasonable opinion of the Borrower, could materially adversely affect the business of the Borrower; or (b) which questions the validity of this Agreement or any other document executed in connection herewith or any action taken or to be taken pursuant to any of the foregoing. Section 6.6. Defaults. The Borrower will promptly notify the Lender in writing of: (a) any material assessment by any taxing authority for unpaid taxes as soon as the Borrower has knowledge thereof; (b) the existence of any declared default in the payment or performance of any indebtedness (excluding non recourse indebtedness and excluding indebtedness incurred in lieu of contract deposits pursuant to contracts for the acquisition of buildable lots or land) owed by the Borrower to any other lender within ten (10) days of the declaration of such default which would materially and adversely affect the Borrower's assets or business. Section 6.7. Further Assurances. The Borrower shall, at its sole cost and expense, upon the request of the Lender, duly execute and deliver or cause to be duly executed and delivered to the Lender such further instruments and do and cause to be done such further acts that may be necessary or proper in the opinion of the Lender to carry out more effectively the intent and purpose of this Agreement. - 27 - Section 6.8. Funds Not Assignable. The proceeds of the Loan shall not be assigned by the Borrower nor subject to the process of any court upon legal action by or against the Borrower or by or against anyone claiming under or through Borrower, and for the purpose of this Agreement, the funds shall remain and be considered the money and property of the Lender until the Borrower is entitled to have them disbursed as provided herein. Nothing herein contained shall be considered as in anywise modifying, or subordinating the obligations previously given or to be given by the Borrower as security for the loan and such obligations shall be and remain in full force and effect, this Agreement being intended only as additional security for the loan and to insure its use for the purposes intended by the Lender and Borrower. Section 6.9. Financial Covenants. Until the obligations are repaid in full, the Borrower shall adhere to and certify quarterly as correct, the following financial covenants (after giving effect to any Financial Covenant Carve Out), all on a consolidated basis with the Restricted Subsidiaries and determined as of the last day of each fiscal quarter of the Borrower: 6.9(1) Ratio of Notes Payable. The Borrower shall maintain at all times a ratio of Notes Payable to Tangible Net Worth of not greater than 1.75 to 1.0 . 6.9(2) Ratio of Total Liabilities. The Borrower shall maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not more than 2.25 to 1. 6.9(3) Ratio of EBITDA. The Borrower shall maintain at all times a ratio of (i) EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0. 6.9(4) Working Capital. The Borrower shall maintain at all times Working Capital of $100,000,000 6.9(5) Minimum Tangible Net Worth. The Borrower shall maintain at all times a minimum Tangible Net Worth of one hundred ten million and no/100 dollars ($110,000,000.00), plus fifty percent (50%) of annual net profits for such fiscal year, plus fifty percent (50%) of any capital paid into the Borrower (other than stock issued in connection with an employee stock ownership plan, an employee stock option plan, an employee stock purchase plan or for an acquisition), plus one hundred percent (100%) of net losses with absolute minimum Tangible Net Worth of not less than one hundred ten million and no/100 dollars ($110,000,000.00). - 28 - 6.9(6) Compliance. Compliance with the financial covenants set forth in this Section 6.10. shall be tested quarterly based on either the Borrower's Form 10-Q or Form 10-K, as appropriate. Section 6.10. Inventory Covenants. During the term of this Agreement, the Borrower shall adhere to the following Inventory covenants which will be tested by the Lender as of the last day of each fiscal quarter of the Borrower: 6.10(1) Speculative Lots. The total number of Speculative Lots owned by the Borrower and its Restricted Subsidiaries at any given time shall not exceed sixty percent (60%) of all Dwelling Lots (completely or partially constructed) then owned by the Borrower and its Restricted Subsidiaries. Models shall not be considered "Speculative Lots" for purposes of this Section 6.10(1). 6.10(2) Developed Lots/Lots Under Development. The Borrower shall not permit the total number of Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed two and one-half (2 1/2) times the number of Developed Lots containing Dwellings closed by the Borrower and all Restricted Subsidiaries during the immediately preceding twelve (12) calendar months. The Borrower shall not permit the aggregate cost of all Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed forty percent (40%) of all Tangible Assets of the Borrower on a consolidated basis. 6.10(3) Land Cost. The cost of the land owned by Borrower and all Restricted Subsidiaries at any given time which has not been developed into Developed Lots and is not scheduled for commencement of development into Developed Lots within twelve (12) calendar months from the date of determination shall not exceed ten percent (10%) of all Tangible Assets of the Borrower and its Restricted Subsidiaries on a consolidated basis. In the event that the Borrower or any Restricted Subsidiary classifies certain undeveloped land as being scheduled for development within twelve (12) calendar months for the purpose of this provision and, as of the last day of such twelve (12) calendar month period, development of such land has not commenced, such land shall not be classified as scheduled for development within twelve (12) calendar months until such development is commenced. For purposes of Section 6.10(1), 6.10(2) and 6.10(3) only, the terms "Speculative Lots", "Dwelling Lot", "Models", "Developed Lots", "Lots Under Development" and "Dwellings" will include all properties of Borrower and Restricted Subsidiaries that are situated either within or without the State of Florida. - 29 - Section 6.11. Additional Information. Upon the request of the Lender, the Borrower shall deliver to Lender any documents or information with respect to the Inventory that the Lender may reasonably require including, without limitation, and acquisition closing documentation. Section 6.12. Compliance Certificates. Within forty-five (45) days from the end of each fiscal quarter of the Borrower, the Borrower shall provide to the Lender a certificate signed by an Authorized Signatory of the Borrower in the form attached hereto as Exhibit D setting forth such calculations required to establish whether the Borrower was in compliance with Section 6.10 hereof. Section 6.13. Payment of Contractors. The Borrower shall pay in a timely manner, and shall cause its Subsidiaries to pay in a timely manner, any and all contractors and subcontractors who conduct work in or on the Inventory, subject to the right of the Borrower to contest any amount in dispute, so long as the contesting of such amount is pursued diligently and in good faith. The Borrower will advise the Lender in writing immediately if the Borrower or any of its Subsidiaries receives any written notice from any contractor(s), subcontractor(s) or material furnisher(s) to the effect that said contractor(s) or material furnisher(s) have not been paid for any labor or materials furnished to or in the Inventory and such outstanding payment or payments are individually or collectively equal to or greater than two hundred thousand and no/ 100 dollars ($200,000.00) per subdivision or seven million and no/100 dollars ($7,000,000.00) in the aggregate. The Borrower will further make available to the Lender, for inspection and copying, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which the Borrower claims title to any materials, fixtures or articles used in the development of the Loan Inventory or construction of improvements on the Loan Inventory including, without limitation, the Dwellings. Section 6.14. Bank Group Line. 6.14(1) Default. Borrower shall provide immediate notice to Lender of any declared default under the Bank Group Line or under any other loan agreement or creditor agreement with any financial institution. 6.14(2) Notice of Change. Should the Borrower agree to any change or amendment to the Bank Group Line, it shall give notice to the Lender of such change prior to making the change, if time permits, and if not within two (2) business days after the making of such change. - 30 - Section 6.15. Hazardous Substances. The Borrower warrants and represents to the Lender that to the best of their knowledge and belief and based on environmental assessments of the Inventory commissioned by the Borrower, except to the extent disclosed to the Lender in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory, the Inventory has not been and is not now being used as a storage facility for any "Hazardous Substances", nor has it been used in violation of any federal, state or local environmental law, ordinance or regulation, that no proceedings have been commenced, or notice(s) received, concerning any alleged violation of any such environmental law, ordinance or regulation, and that the Inventory is free of hazardous or toxic substances and wastes, contaminants, oil, radioactive or other materials the removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit except as set forth in the Site Assessments. The Borrower covenants that it shall neither permit any such materials to be brought on to the Inventory, nor shall it acquire real property to be added to the Loan Inventory upon which any such materials exist, except to the extent disclosed to the Lender in environmental assessments or other writings or to the extent that it would not materially and adversely affect the use and marketability of any Inventory; and if such materials are so brought or found located thereon, such materials shall be immediately removed, with proper disposal, to the extent required by applicable environmental laws, ordinances and regulations, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. The Borrower further represents and warrants that the Borrower will promptly transmit to the Lender copies of any citations, orders, notices or other material governmental or other communications received with respect to any hazardous materials, substances, wastes or other environmentally regulated substances affecting the Inventory. Notwithstanding the foregoing, there shall not be a default of this provision should the Borrower store or use minimal quantities of the aforesaid materials, provided that: such substances are of a type and are held only in a quantity normally used in connection with the construction, occupancy or operation of comparable buildings or residential developments (such as cleaning fluids and supplies normally used in the day to day operation of residential developments), such substances are being held, stored and used in complete and strict compliance with all applicable laws, regulations, ordinances and requirements, and the indemnity set forth below shall always apply to such substances, and it shall continue to be the responsibility of the Borrower to take all remedial actions required under and in accordance with this Agreement in the event of any unlawful release of any such substance. Borrower hereby agrees to indemnify Lender and hold Lender harmless from and against any and all losses, liabilities, including strict liability, damages, injuries, expenses, including reasonable attorneys' fees, costs of any settlement or judgment and claims of any and every kind whatsoever paid incurred or suffered by, or asserted against, Lender by any person or entity or governmental agency for, with respect to, or as a direct or indirect result of, - 31 - the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or release from the Inventory of any Hazardous Substance (including, without limitation, any losses, liabili ties, including strict liability, damages, injuries, expenses, including reasonable attorneys' fees, costs of any settlement or judgment or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act, any so called federal, state or local "Superfund" "Superlien" laws, statutes, law ordinance, code, rule, regulation, order or decree regulating, with respect to or imposing liability, including strict liability, substances or standards of conduct concerning any Hazardous Substance), regardless of whether within the control of Lender. For purposes of this Agreement, "Hazardous Substances" shall mean and include those elements or compounds which are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency ("EPA") and the list of toxic pollutants designated by Congress or the EPA or defined by any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material as now or at any time hereafter in effect. If Borrower receives any notice of (i) the happening of any material event involving the spill, release, leak, seepage, discharge or clean-up of any Hazardous Substance on any of the Inventory or in connection with Borrower's operations thereon or (ii) any complaint, order, citation or material notice with regard to air emissions, water discharges, or any other environ mental, health or safety matter affecting Borrower (an "Environmental Complaint") from any person or entity (including without limitation the EPA) then Borrower shall immediately notify Lender orally and in writing of said notice. Lender shall have the right but not the obligation, and without limitation of Lender's rights under this Agreement, to enter onto the Inventory or to take such other actions as it deems necessary or advisable to clean up, remove, resolve or minimize the impact of, or otherwise deal with, any such Hazardous Substance or Environmental Complaint following receipt of any notice from any person or entity (including, without limitation, the EPA) asserting the existence of any Hazardous Substance or an Environmental Complaint pertaining to the Inventory or any part thereof which, if true, could result in an order, suit or other action against Borrower, which would have a material adverse effect on the Borrower, and/or which, in the sole opinion of Lender, could jeopardize its security under this Agreement. All reasonable costs and expenses incurred by Lender in the exercise of any such rights shall be secured by this Agreement and shall be payable by Borrower upon demand. Section 6.16. Insurance. The Borrower shall keep the Inventory comprising the Loan Inventory insured by responsible insurance companies in such amounts and against such - 32 - risks as is customary for owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate or, to the customary extent (and in a manner approved by the Lender) the Borrower may be self insured. All insurance herein provided for shall be in form and with companies reasonably approved by the Lender. The Borrower shall also maintain general liability insurance, workman's compensation insurance, automobile insurance for all vehicles owned by them and any other insurance reasonably required by the Lender, to the extent commercially available at a reasonable cost. On the Agreement Date, the Borrower shall deliver to the Lender a copy of a certificate of insurance evidencing the insurance required hereunder. In addition, on the date of delivery of each report required by Section 4.6 hereof, the Borrower shall certify to the Lender that all insurance policies required to be maintained hereunder remain in full force and effect. Section 6.17. Reportable Event. Promptly after Borrower receives notice or otherwise becomes aware thereof, the Borrower shall notify the Lender of the occurrence of any Reportable Event with respect to any Plan as to which the Pension Benefit Guaranty Corporation has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that the Borrower shall give the Lender notice of any failure to meet the minimum funding standards of Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code. Section 6.18. Secured Indebtedness. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness which is (a) secured in whole or in part by any of the Inventory (other than Permitted Encumbrances); or (b) contains any provision requiring the Borrower or any Restricted Subsidiary to grant to the lender thereunder any Lien at a future date or upon the occurrence of any subsequent event; except that the Borrower and its Restricted Subsidiaries may incur Indebtedness in favor of a seller of Inventory to the Borrower which is secured solely by the Inventory contemporaneously acquired from such seller and Indebtedness secured solely by the Borrower's headquarters building located in Arlington, Texas. ARTICLE VII DEFAULT AND REMEDIES Section 7.1. Defaults. Subsequent to any applicable notice and/or cure rights afforded by the Loan Documents, each of the following shall constitute a Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court - 33 - or any order, rule, or regulation of any governmental or non-governmental body: 7.1(1) Payment. Default by the Borrower in the payment of any principal, interest or payment due to the Lender under the Note or under any of the Loan Documents; 7.1(2) Performance. Default in the payment or performance of any other liability, obligation or covenant of the Borrower to the Lender under the Loan Documents, for a period of ten (10) days after written notice; provided (i) if Borrower reasonably cannot perform within such (10) day period and, in Lender's reasonable judgment, Lender's security will not be impaired, Borrower may have such additional time to perform as Borrower reasonably may require, provided and for so long as Borrower proceeds with due diligence to cure said default; and (ii) if Lender's security reasonably will be materially impaired if Borrower does not perform in less than ten (10) days, Borrower will have only such period following written notice in which to perform as Lender may reasonably specify. 7.1(3) Representation. Any representation, warranty, statement, certificate, schedule or report made or furnished by the Borrower that proves to have been false or erroneous in any material respect at the time of the making thereof, or to have omitted any substantial liability or claim against the Borrower, or if on the date of execution of this Agreement there shall have been any materially adverse change in any of the facts disclosed therein, which change shall not have been disclosed to the Lender at or prior to the time of such execution; 7.1(4) Litigation. Any litigation or any proceedings which are pending against the Borrower or Restricted Subsidiaries, the outcome of which would in Lender's reasonable determination materially adversely affect the continued operation of the Borrower, and the Borrower failing to take corrective measures reasonably satisfactory to the Lender within ten (10) days; 7.1(5) Obligations to Others. The failure of the Borrower to pay, when due, any other indebtedness for borrowed money owed by the Borrower to the Lender, or default by the Borrower in the performance of the terms of any loan agreement or indenture relating to such indebtedness, which failure or default would materially adversely affect the business, operations or financial condition of the Borrower, and any such default shall not have been remedied within thirty (30) days thereafter; 7.1(6) Obligations to Lender. Any default by Borrower on any other direct obliga tion that Borrower may have to the Lender which continues uncured for thirty (30) days after notice from Lender; 7.1(7) Other Default. There shall occur any Event of Default in the performance or observance of any agreement or covenant or breach of any - 34 - representation or warranty contained in any of the Loan Documents (other than this Agreement or as otherwise provided in this Section 7.1 of this Agreement) or any Subsidiary Guaranty, which shall not be cured to the Lender's satisfaction within the applicable cure period, if any, provided for in such Loan Document or ninety (90) days from the date the Borrower receives notice from the Lender with respect thereto if no cure period is provided in such Loan Document; 7.1(8) Title 11 Relief. There shall be entered a decree or order for relief in respect of the Borrower or any of its Restricted Subsidiaries under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or ordering the winding-up or liquidation of the affairs of the Borrower or any of its Restricted Subsidiaries, or an involuntary petition shall be filed against the Borrower or any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of thirty (30) consecutive days; 7.1(9) Title 11 Petition. The Borrower or any of its Restricted Subsidiaries shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Borrower or any of its Restricted Subsidiaries shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or the Borrower or any of its Restricted Subsidiaries shall fail generally to pay their respective debts as they become due, or the Borrower or any of its Restricted Subsidiaries shall take any corporate or partnership action to authorize any such action; 7.1(10) Judgment. A final judgment shall be entered by any court against the Borrower or any of its Restricted Subsidiaries for the payment of money which exceeds $500,000.00, which judgment is not covered by insurance or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or any of its Restricted Subsidiaries which, together with all other such property of the Borrower or any of its Restricted Subsidiaries subject to other such process, exceeds in value $500,000.00 in the aggregate, and if, within thirty (30) days after the entry, issue, or levy thereof, such judgment, warrant, or process shall not have been paid or discharged or bonded or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant, or process shall not have been paid or discharged; 7.1(11) ERISA Funding. (1) There shall be at any time any "accumulated funding deficiency," as defined in ERISA or in Section 412 of the Code, with respect to any Plan; or (2) a trustee shall be appointed by a United States District Court to administer any Plan; or the Pension Benefit Guaranty - 35 - Corporation shall institute proceedings to terminate any Plan; or (3) any of the Borrower and its ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty Corporation in connection with the termination of any Plan; or (4) any Plan or trust created under any Plan of any of the Borrower and its ERISA Affiliates shall engage in a non-exempt "prohibited transactions (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which would subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and by reason of any or all of the events described in clauses (1) through (4), as applicable, the Borrower shall have waived (and/or is likely to incur) and/or incurred liability in excess of $1,000,000.00 in the aggregate; 7.1(12) Invalidity of Documents. All or any portion of any Loan Document shall at any time and for any reason be declared by a court of competent jurisdiction in a suit with respect to such Loan Document to be null and void, or a proceeding shall be commenced by any governmental authority involving a legitimate dispute or by the Borrower or any of its Restricted Subsidiaries, having jurisdiction over the Borrower or any of its Restricted Subsidiaries, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or the Borrower or any of its Restricted Subsidiaries shall deny that it has any liability or obligation for the payment of principal or interest purported to be created under any Loan Document; 7.1(13) Change of Control. There shall occur any Change of Control; 7.1(14) Transfer of Property. Except for conveyances of all or any part of the Loan Inventory between the Borrower and the Guarantors there occurs any sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or any part of the Loan Inventory or any interest therein, voluntarily or involuntarily, whether by operation of law or otherwise, except (i) in accordance with the terms of this Agreement, (ii) for execution of contracts with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of business; 7.1(15) Property Change. Except in the normal course of Borrower's development of inventory into Developed Lots and construction of Dwellings thereon, without the prior written consent of Lender, Borrower grants any easement or dedication, files any plat, condominium declaration, or restriction or otherwise encumbers all or any portion of the Loan Inventory, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect any Inventory which is part of the Loan Inventory; or Notwithstanding anything contained herein to the contrary, the occurrence of any of the foregoing shall not be a Default or an Event of Default hereunder if: (i) the occurrence pertains only to specific parcel(s) within the Loan Inventory; and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on - 36 - or before ten (10) days in the case of a monetary occurrence and thirty (30) days in the case of a non-monetary occurrence after the occurrence or, if the Borrower is entitled to notice and cure, within the applicable notice and cure period. In the event that any such parcel is a Lot Under Development, Developed Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately calculated excluding such parcel. If, as the result of such removal, the outstanding principal balance under the Loan would exceed the Loan Funding Availability, the Borrower shall pay (X) to the Lender on the Reconciliation Date immediately following the removal of such Inventory from the Loan Inventory, a principal payment on the Loan in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Loan over the Loan Funding Availability, together with any due and unpaid interest on such excess or (Y) add additional Inventory to the Loan Inventory (which is acceptable to the Lender) in an amount sufficient to cause the Loan Funding Availability to equal or exceed the Loan. Section 7.2. Remedies. If a Default shall have occurred and shall be continuing: 7.2(1) Optional Acceleration. With the exception of a Default specified in Sections 7.1(8), 7.1(9) and 7.1(10), Lender may, by notice to the Borrower (i) declare the Note, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and (ii) terminate this Agreement. 7.2(2) Immediate Acceleration. Upon the occurrence of a Default under Sections 7. l(8), 7.1(9) or 7.1(10) hereof, this Agreement shall automatically terminate and such principal, interest (including without limitation, interest which would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws), and other amounts payable under this Agreement or the Note shall thereupon and concurrently therewith become due and payable, all without any action by the Lender, all without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or in the Note to the contrary notwithstanding. 7.2(3) Loan Document Rights. The Lender shall exercise all of the post-default rights granted to it and to them under the Loan Documents or under Applicable Law. 7.2(4) Cumulative Rights. The rights and remedies of the Lender hereunder shall be cumulative, and not exclusive. - 37 - Section 7.3. Cross Default. All of the Note and other Loan Documents are "cross defaulted such that (a) the occurrence of an Event of Default under any one of the Loan Documents shall constitute an Event of Default under this Agreement and all of the Loan Documents and (b) the occurrence of a Default under any one of the Loan Documents shall constitute a Default under this Agreement and all of the other Loan Documents. Section 7.4. Waiver of Default. The Lender at any time may waive any default or any event of default which shall have occurred and any of its consequences, in which case the parties hereto shall be restored to their former positions and rights and obligations hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon, and no such waiver shall be effective unless it is in a written document executed by a duly authorized officer. Section 7.5. Rights and Remedies Not Waived. No course of dealing between the Borrower and the Lender or any failure or delay on the part of the Lender in exercising any rights or remedies hereunder shall operate as a waiver of any rights or remedies of the Lender and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder. ARTICLE VIII MISCELLANEOUS Section 8.1. Lien; Setoff By Lender. The Borrower hereby grants to the Lender a continuing lien for all indebtedness and other liabilities of the Borrower to the Lender upon any and all moneys, securities, and other property of the Borrower and the proceeds thereof, now or hereafter held or received by or in transit to, the Lender from or to the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of the Borrower with, and any and all claims of the Borrower against the Lender at any time existing. Upon the occurrence of any Event of Default, the Lender is hereby authorized at any time and from time to time, without notice to the Borrower setoff, appropriate, and apply any or all items hereinabove referred to against all indebtedness and other liabilities of the Borrower to the Lender, whether under this Agreement, the Loan Documents or otherwise, and whether now existing or hereafter arising. - 38 - Section 8.2. Waivers. The Borrower waives presentment, demand, protest, notice of default, nonpayment, partial payments and all other notices and formalities relating to this Agreement other than notices speci fically required hereunder. The Borrower consents to and waives notice of the granting of indulgences or extensions of time of payment, the taking or releasing of security, the addition or release of persons primarily or secondarily liable on or with respect to liabilities of the Borrower to the Lender, all in such manner and at such time or times as the Lender may deem advisable. No act or omission of the Lender shall in any way impair or affect any of the indebtedness or liabilities of the Borrower to the Lender or rights of the Lender in any security. No delay by the Lender to exercise any right, power or remedy hereunder or under any security agreement, and no indulgence given to the Borrower in case of any default, shall impair any such right, power or remedy or be construed as having created a course of dealing or performance contrary to the specific provisions of this Agreement or as a waiver of any default by the Borrower or any acquiescence therein or as a violation of any of the terms or provisions of this Agreement. The Lender shall have the right at all times to enforce the provisions of this Agreement and all other documents executed in connection herewith in strict accordance with their terms, notwithstanding any course of dealing or performance by the Lender in refraining from so doing at any time and notwithstanding any custom in the banking trade. No course of dealing between the Borrower and the Lender shall operate as a waiver of any of the Lender's rights. Section 8.3. Benefit. This Agreement is made and entered into for the sole protection and benefit of the Lender and the Borrower, their successors and assigns, and no other person or persons other than the Borrower shall have any right of action hereon or rights to the Loan proceeds at any time. Lender shall not (a) owe any duty whatsoever to any claimant for labor performed or material furnished in connection with the construction of any Dwelling or improvement on any Inventory, or (b) owe any duty to apply any undisbursed portion of the Loan to the payment of any claim, or (c) owe any duty to exercise any right or power of the Lender hereunder or arising from any Default by the Borrower. Section 8.4. Assignment. The terms hereof shall be binding upon and inure to the benefit of the heirs, successors, assigns, and personal representatives of the parties hereto; provided, however, that the Borrower shall not assign this Agreement or any of its rights, interests, duties or obligations hereunder or any Loan proceeds or other monies to be advanced hereunder in whole or in part without the prior written consent of the Lender and any such assignment (whether voluntary or by - 39 - operation law) without said consent shall be void and render automatically terminated any obligation of Lender to advance any further monies pursuant to this Agreement or any other Loan Document. Section 8.5. Amendment and Waiver. This Agreement and the other Loan Documents represent the final agreement between the Lender and the Borrower and may not be contradicted by evidence of prior, contemporaneous or subsequent oral or written agreements of the Borrower and the Lender. Neither this Agreement nor any of the Loan Documents may be amended orally, nor may any provision hereof be waived orally but only by an instrument in writing signed by the Lender and the Borrower. Section 8.6. Terms. Whenever the context and construction require, all words used in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine. Section 8.7. Governing Law and Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of Florida, and such laws shall govern the interpretation, construction and enforcement hereof. Section 8.8. Publicity. Subject-to the Borrower's approval, the Lender shall have the right to incorporate its name into signage placed upon the Loan Inventory situated in Florida. Lender shall have the right to secure printed publicity through newspaper and other media concerning the Inventory and source of financing. Section 8.9. Expenses of Lender. The Borrower promises to reimburse the Lender promptly for all reasonable out-of-pocket expenses of every nature which the Lender may incur in connection with the Loan Documents, the making of any loans provided for herein or the collection of the Borrower's indebtedness, including, but not limited to, reasonable attorneys' fees of Lender's counsel relating to the preparation of the Loan Documents, all recording fees, and documentary stamps. Such expenses shall be paid at closing or in a reasonable time thereafter upon receipt of written invoices. The Borrower shall also pay reasonable post-closing expenses incurred by the Lender on behalf of the Borrower. Furthermore, the Borrower shall be liable for post-closing collection expenses, including, but not limited to the collection of obligations of the Borrower hereunder, including reasonable attorneys' fees, including appellate proceedings, post-judgment proceedings and - 40 - bankruptcy proceedings. In the event the Borrower fails to pay such expenses within a reasonable time, the Lender may either (a) disburse to itself under the terms of the Note any sums payable to Lender and such disbursement shall be considered with like effect as if same had been made to Borrower, or (b) pay such expenses on the Borrower's behalf and charge the Borrower's account. Section 8.10. Invalidation of Provisions. In the event that any one or more of the provisions of this Agreement is deemed invalid by a court having jurisdiction over this Agreement or other similar authority, Lender may, in its sole discretion, terminate this Agreement in whole or in part. Section 8.11. Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall, unless other specifically provided in such other Loan Document, be deemed sufficiently given or furnished if (a) in writing and delivered by personal delivery, by courier, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified below (unless changed by similar notice in writing given by the particular party whose address is to be changed), (b) by telex with confirmation thereof in writing by sender pursuant to subsection (a) above, (c) facsimile to the facsimile number specified below with confirmation thereof in writing by sender pursuant to subsection (a) above, or (d) by oral communication with confirmation thereof in writing by the notifying party pursuant to subsection (a) above within three (3) business days after such oral communication. Any such notice or communication shall be deemed to have been given and to be effective either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telex, when transmitted (answer back confirmed), or, in the case of facsimile, upon receipt or, in the case of oral communication, upon the effectiveness of written confirmation as hereinabove provided. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason. BORROWER: D. R. Horton, Inc. 1901 Ascension Boulevard Suite 100 Arlington, Texas 76006 Attn: David J. Keller - 41 - and Ted I. Harbour Facsimile No.: (817) 856-8249 Telephone No.: (817) 856-8200 LENDER: Barnett Bank, N.A. 707 Mendham Boulevard Post Office Box 678267 Orlando, Florida 32867-8267 Attn: Closing Department Manager Facsimile No.: (407) 658-3826 Telephone No.: (407) 658-3815 With a copy to: Winderweedle, Haines, Ward & Woodman, P.A. 250 Park Avenue South, 5th Floor Post Office Box 880 Winter Park, Florida 32790-0880 Attn: Victor E. Woodman, Esquire Facsimile No.: (407) 645-3728 Telephone No.: (407) 246-8412 Section 8.12. Termination by the Borrower. The Borrower may terminate this Agreement in its entirety by giving at least ten (10) days prior written notice of its intention to terminate and by payment in full of all Obligations. Upon the date of termination, the Borrower's obligation for the payment of the fee provided for in Section 2.8 hereof shall terminate. Section 8.13. Controlling Agreement. In the event any provision of this Agreement is inconsistent with any provision of any other document, whether heretofore executed, required or executed pursuant to this Agreement or otherwise, the provisions of this Agreement shall be controlling. Section 8.14. Titles. Titles to the sections of this Agreement are solely for the convenience of the parties hereto and are not an aid in the interpretation of this Agreement or any part thereof. - 42 - Section 8.15. Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same Agreement. Section 8.16. Time is of the Essence. The parties agree that time shall be of the essence in interpreting each and every term and condition contained herein. Section 8.17. Waiver of Trial by Jury. The Borrower and the Lender knowingly, voluntarily and intentionally waive the right either may have to a trial by jury in respect of any litigation based hereon, or arising out of, under or in connection with the Loan Documents and any agreement contemplated to be executed in conjunction therewith, or any course of conduct, course of dealing, statements (whether verbal or written) or actions of either party. This provision is a material inducement for the Lender entering into the loan evidenced by the Loan Documents. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. Signed, sealed and delivered in the presence of: D. R. HORTON, INC., a Delaware Corporation ____________________________________ By:__/s/ David J. Keller_____ DAVID J. KELLER, Executive Vice President - ------------------------------------ "Borrower" - 43 - BARNETT BANK, N.A., a national banking association ____________________________________ By:__/s/ Steven J. Markowkia STEVEN J. MARKOWSKIA Its: Vice President - ------------------------------------ "Lender" - 44 - EX-10.19 4 REVOLVING CREDIT AGREEMENT REVOLVING CREDIT AGREEMENT between D.R. HORTON, INC., as the Borrower and PNC BANK, NATIONAL ASSOCIATION, as the Bank Dated September 17, 1996 TABLE OF CONTENTS Page 1. DEFINITIONS 1 2. LOANS 15 2.1 Extension of Credit 15 2.2 Manner of Borrowing and Disbursement Under Revolving Loan 15 2.3 Interest on Revolving Loan 16 2.4 Unused Fee on Revolving Loan 16 2.5 Termination of Revolving Loan Commitment 16 2.6 Note and Loan Account 17 2.7 Repayment of Loans 17 2.8 Manner of Payment 17 2.9 Application of Payments 18 2.10 Additions and Deletions of Guarantors 18 3. INVENTORY AND FUNDING AVAILABILITY 19 3.1 Loan Funding Availability 19 4. LOAN DISBURSEMENTS 21 4.1 Prior to the First Disbursement 21 4.2 Subsequent Disbursement 22 5. BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES 23 5.1 Payment 23 5.2 Performance 23 5.3 Additional Information 23 5.4 Quarterly Financial Statements and Other Information 23 5.5 Compliance Certificates 24 5.6 Annual Financial Statements and Information Certificate of Default 24 5.7 Financial and Inventory Covenants 24 5.8 Other Financial Documentation 25 5.9 Relating to Multibank Loan Agreement 25 5.10 Payment of Contractors 26 5.11 Inspection and Appraisal 26 5.12 Fees and Expenses 26 5.13 Hazardous Substances 26 5.14 Insurance 27 5.15 Litigation 28 5.16 Reportable Event 28 5.17 Secured Indebtedness 28 6. DEFAULT AND REMEDIES 28 6.1 Defaults 28 6.2 Remedies 31 6.3 Waivers 31 6.4 Cross-Default 32 6.5 No Liability of the Bank 32 7. REGARDING THE MULTIBANK LOAN AGREEMENT 32 7.1 Subsequent Amendment of Multibank Loan Agreement 32 7.2 Notice of Amendment 33 7.3 Bank's Right to Subsequent Amendment 33 8. GENERAL CONDITIONS 33 8.1 Benefit 33 8.2 Assignment 33 8.3 Amendment and Waiver 34 8.4 Additional Obligations and Amendments 34 8.5 [Reserved] 34 8.6 Terms 34 8.7 Governing Law and Jurisdiction 34 8.8 [Reserved] 35 8.9 Attorney's Fees 35 8.10 Mandatory Arbitration 35 8.11 Invalidation of Provisions 36 8.12 Execution in Counterparts 36 8.13 Captions 36 8.14 Notices 36 8.15 Final Agreement 37 Exhibits Exhibit A - Form of Inventory Quarterly Report Exhibit B - Form of Inventory Summary Report Exhibit C - Form of Request for Advance Exhibit D - Form of Quarterly Compliance Certificate Schedule Schedule 1.70 - Subsidiaries of the Borrower REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT ("Agreement") dated as of September 17, 1996 is by and between D. R. HORTON, INC., a Delaware corporation (the "Borrower") and PNC BANK, NATIONAL ASSOCIATION ("the Bank"). IN CONSIDERATION of the sum of TEN AND NO/100 DOLLARS ($l0.00) in hand paid by each party to the other and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the undersigned, the undersigned hereby covenant and agree as follows: 1.DEFINITIONS For the purposes of this Agreement, the words and phrases set forth below shall have the following meanings: 1.1 Acquisition Cost. If the subject Developed Lot or Land Parcel was purchased individually, the Acquisition Cost for such Developed Lot or Land Parcel shall be the actual purchase price and closing costs approved by the Bank and paid by the Borrower or its Restricted Subsidiaries for the acquisition of such individual Developed Lot or Land Parcel excluding Administrative Costs, together with all applicable Development Costs. If the subject Developed Lot or Land Parcel was part of a larger group of Developed Lots or Land Parcels, the Acquisition Cost for such Developed Lot or Land Parcel shall be the pro rata portion of the overall actual purchase price and closing costs approved by the Bank and paid by the Borrower and its Restricted Subsidiaries for the acquisition of such larger group of Developed Lots or Land Parcels allocable to the subject Developed Lot or Land Parcel excluding Administrative Costs, together with a pro rata portion of all applicable Development Costs. 1.2 Administrative Costs. Costs and expenses incurred by the Borrower or its Restricted Subsidiaries in connection with (a) the marketing and selling of Inventory which is part of the Loan Inventory and (b) the administration, management and operation of the Borrower's and its Restricted Subsidiaries' businesses (excluding without limitation Interest Expense and fees payable hereunder). 1.3 Advance or Advances. Amounts advanced by the Bank to the Borrower pursuant to Article 2 hereof on the occasion of any borrowing. 1.4 Affiliate. Any Person (other than a Person whose sole relationship with the Borrower is as an employee) directly or indirectly controlling, controlled by, or under common control with the Borrower. For purposes of this definition, "control" when used with respect to any Person means the direct or indirect beneficial ownership of more than twenty percent (20%) of the voting securities or voting equity or partnership interests of such Person or the power to direct or cause the direction of the management and policies of such Person, whether by control or otherwise. 1.5 Agreement. This Revolving Credit Agreement. 1.6 Agreement Date. The date as of which the Borrower and the Bank execute this Agreement. 1.7 Applicable Law. In respect of any Person, all provisions of constitutions, statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to such Person, including without limitation all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound. 1.8 Authorized Signatory. With respect to the Borrower, such personnel of the Borrower as set forth in an incumbency certificate of the Borrower delivered to the Bank on the Agreement Date (or any duly executed incumbency certificate delivered after the Agreement Date) and certified therein as being duly authorized by the Borrower to execute documents, agreements and instruments on behalf of the Borrower. 1.9 Available Revolving Loan Commitment. As of any date of determination, an amount equal to the lesser of (a) the Revolving Loan Commitment or (b)(i) the Loan Funding Availability less (ii) the sum of (A) the principal amount of the Revolving Loan then outstanding and (B) the outstanding principal balances of all unsecured Indebtedness for Money Borrowed (excluding capitalized lease obligations, notes payable for insurance premiums, non-recourse promissory notes for seller financing and promissory notes issued as earnest money for contracts). 1.10 Bank. PNC Bank, National Association. 2 1.11 Borrower. D. R. Horton, Inc., a Delaware corporation. 1.12 Business Day. A day on which the Bank is not authorized or required to be closed and foreign exchange markets are open for the transaction of business required for this Agreement in New Jersey. 1.13 Change of Control. Either (i) any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of the Borrower and its Restricted Subsidiaries to any Person (other than a Restricted Subsidiary of the Borrower), provided that a transaction where the holders of all classes of Common Equity of the Borrower immediately prior to such transaction own, directly or indirectly, 50% or more of all classes of Common Equity of such Person immediately after such transaction shall not be a Change of Control; (ii) a "person" or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Borrower or Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton, or any trust or other entity formed or controlled by Donald R. Horton, his wife, children or grandchildren, or Terrill J. Horton) becomes the "beneficial owner" (as defined in Rule 13d-8 under the Exchange Act) of Common Equity of the Borrower representing more than 50% of the voting power of the Common Equity of the Borrower; (iii) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Borrower; or (iv) the stockholders of the Borrower approve any plan or proposal for the liquidation or dissolution of the Borrower, provided that a liquidation or dissolution of the Borrower which is part of a transaction that does not constitute a Change of Control under the proviso contained in clause (i) above shall not constitute a Change of Control. 1.14 Change of Management. Donald R. Horton shall cease to serve either as Chairman of the Board of Directors of the Borrower or as President of the Borrower. 1.15 Code. Internal Revenue Code of 1986, as amended. 1.16 Common Equity. With respect to any Person, capital stock of such Person that is generally entitled to (i) vote in the election of directors of such Person, or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management or policies of such Person. 3 1.17 Construction Costs. All costs accepted by the Bank actually incurred by the Borrower or its Restricted Subsidiaries with respect to the construction of a Dwelling as of the date of determination by the Bank excluding (a) projected costs and costs for materials or labor not yet delivered to provided to or incorporated into such Dwelling and (b) Administrative Costs. 1.18 Continuing Director. A director who either was a member of the board of directors of the Borrower on the Agreement Date or who became a director of the Borrower subsequent to such date and whose election, or nomination for election by the Borrower's stockholders, was duly approved by a majority of the Continuing Directors on the board of directors of the Borrower at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the Borrower on behalf of the entire board of directors of the Borrower in which such individual is named as nominee for a director. 1.19 Default. Any of the events specified in Section 6.1 hereof, provided that any requirement for notice or lapse of time, or both, has been satisfied. 1.20 Default Rate. A simple per annum interest rate equal to the sum of (a) the Revolving Loan Rate, as the case may be, plus (b) two hundred basis points (2%). 1.21 Developed Lots. Subdivision lots owned by the Borrower or its Restricted Subsidiaries, subject to a recorded plat, which the Borrower has designated and the Bank has accepted to be included and are included as "Developed Lots" in the calculation of the Loan Funding Availability (exclusive of any Dwelling Lot). An individual Developed Lot is sometimes referred to herein as a "Developed Lot." 1.22 Development Costs. All costs accepted by the Bank actually incurred by the Borrower and its Restricted Subsidiaries with respect to the development of a Land Parcel into a Developed Lot or Developed Lots as of the date of determination by the Bank excluding (a) projected costs and costs for materials or labor not yet delivered to, provided to or incorporated into such parcel of land and (b) Administrative Costs. 4 1.23 Dwelling. A house which the Borrower or any Restricted Subsidiary has constructed or is constructing on a Developed Lot which has been designated as a Dwelling Lot. 1.24 Dwelling Lots. Developed Lots with Dwellings which the Borrower or any Restricted Subsidiary has designated and the Bank has accepted to be included and are included as "Dwelling Lots" in the calculation of the Loan Funding Availability. The term "Dwelling Lot" includes the Dwelling located thereon. An individual Dwelling Lot is sometimes referred to herein as a "Dwelling Lot." 1.25 EBITDA. With respect to the Borrower and all Restricted Subsidiaries, earnings for the preceding twelve (12) months (including without limitation dividends from Unrestricted Subsidiaries, including without limitation net income (or loss) of any Person that accrued prior to the date that such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Borrower or any of its Restricted Subsidiaries) before interest incurred, state and federal income taxes paid, franchise taxes paid and depreciation and amortization, all in accordance with GAAP. 1.26 ERISA. The Employee Retirement Income Security Act of 1974, as in effect on the Agreement Date and as such Act may be amended thereafter from time to time. 1.27 ERISA Affiliate. (a) Any corporation which is a member of the same controlled group of corporations (within the meaning of Code Section 414(b)) as is the Borrower, (b) any other trade or business (whether or not incorporated) under common control (within the meaning of Code Section 414(c)) with the Borrower, (c) any other corporation, partnership or other organization which is a member of an affiliated service group (within the meaning of Code Section 414(m)) with the Borrower, or (d) any other entity required to be aggregated with the Borrower pursuant to regulations under Code Section 414(o). 1.28 Event of Default. Any event specified in Section 6.1 hereof and any other event which with any passage of time or giving of notice (or both) would constitute such Event of Default. 1.29 Exchange Act. The Securities Exchange Act of 1934, as amended. 5 1.30 Federal Funds Effective Rate. As of any date, the "Federal Funds Effective Rate" for each relevant month as published in the Federal Reserve Statistical Release H.15 (519), as published by the Board of Governors of the Federal Reserve System, or any successor publication published by the Board of Governors of the Federal Reserve System. 1.31 Financial Covenant Carve Out. Any acquisition of Inventory, which the Borrower has elected to exclude from the calculation of the covenants set forth in Sections 5.7(a), (b), (g), (h) and (i) hereof; provided, however, that no acquisition may qualify as a "Financial Covenant Carve Out" if (a) the Borrower has elected to have an acquisition designated as a "Financial Covenant Carve Out" in the preceding twelve (12) calendar month period; (b) such acquisition has already been designated as a "Financial Covenant Carve Out" on the last day of each of the two (2) fiscal quarter ends immediately following the date of such acquisition; (c) contemporaneously with delivery by the Borrower of the notice of designation of an acquisition as a "Financial Covenant Carve Out," the Borrower fails to deliver to the Bank a plan of action reflecting that the Borrower will be in compliance (after giving effect to such acquisition) with the covenants in Sections 5.7(a), (b), (g), (h) and (i) hereof on or prior to the last day of the third fiscal quarter following the date of such acquisition; and (d) the acquisition in question would, if it were included in the compliance calculations, cause (1) the ratio of Notes Payable to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 1.9 to 1 and (B) as of the last day of each fiscal quarter of the Borrower in 1997 prior to the Revolving Loan Maturity Date, 2.1 to 1 or (2) the ratio of Total Liabilities to Tangible Net Worth to exceed (A) as of the last day of each fiscal quarter of the Borrower in 1996, 2.25 to 1 and (B) as of the last day of each fiscal quarter of the Borrower in 1997 prior to the Revolving Loan Maturity Date, 2.5 to 1. 1.32 Fixed Charges. The aggregate consolidated interest incurred of the Borrower and its Restricted Subsidiaries for the most recently completed four (4) fiscal quarters for which results have been reported to the Bank. 1.33 Fixed Charges Coverage Ratio. The ratio of the Borrower's EBITDA to Fixed Charges. 1.34 Force Majeure Delay. A delay to the development of a Lot Under Development or a delay to the construction of a Dwelling which is caused by fire, earthquake or other acts of God, strike, lockout, acts of public enemy, riot, insurrection or governmental regulation of the sale or transportation of materials, supplies or labor, provided that the Borrower furnishes the Bank with written notice of any such delay within ten (10) days from the commencement of any such delay and provided that the period of the Force Majeure shall not exceed the period of delay caused by such event. 6 1.35 Funding Period. A period commencing on the day immediately following the date that the Loan Funding Availability is established pursuant to Section 3.1(c) hereof by the Bank and ending on the date that the Loan Funding Availability next is established pursuant to Section 3.1(c) hereof by the Bank. 1.36 GAAP. As in effect as of the Agreement Date, generally accepted accounting principles consistently applied. 1.37 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. 1.38 Guarantors. DRH Construction, Inc., a Delaware corporation D.R. Horton, Inc. - Albuquerque, a Delaware corporation D.R. Horton, Inc. - Minnesota, a Delaware corporation D.R. Horton Los Angeles Holding Company, Inc., a California corporation D.R. Horton Los Angeles Management Company, Inc., a California corp. D.R. Horton Los Angeles No. 9, Inc., a California corporation D.R. Horton Los Angeles No. 10, Inc., a California corporation D.R. Horton Los Angeles No. 11, Inc., a California corporation D.R. Horton, Inc. - Birmingham, a Delaware corporation D.R. Horton, Inc. - Greensboro, a Delaware corporation D.R. Horton San Diego Holding Company, Inc., a California corporation D.R. Horton San Diego Management Company, Inc., a California corporation D.R. Horton San Diego No. 9, Inc., a California corporation D.R. Horton San Diego No. 10, Inc., a California corporation D.R. Horton San Diego No. 11, Inc., a California corporation D.R. Horton San Diego No. 12, Inc., a California corporation D.R. Horton San Diego No. 13, Inc., a California corporation D.R. Horton San Diego No. 14, Inc., a California corporation D.R. Horton San Diego No. 15, Inc., a California corporation D.R. Horton San Diego No. 16, Inc., a California corporation D.R. Horton San Diego No. 17, Inc., a California corporation D. R. Horton - Texas, Ltd., a Texas limited partnership 7 together with each additional Restricted Subsidiary of Borrower as may from time to time deliver a Guaranty of the Revolving Loan (if such Guaranty is accepted by the Bank) and excluding such parties, if any, who as are released from their Guaranty obligations to the Bank, all pursuant to Section 2.10. 1.39 Guaranty or Guaranteed. As applied to an obligation (each a "primary obligation"), shall mean and include (a) any guaranty, direct or indirect, in any manner, of any part or all of such primary obligation, and (b) any agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such primary obligation, including, without limiting the foregoing, any reimbursement obligations as to amounts drawn down by beneficiaries of outstanding letters of credit and any obligation of such Person (the "primary obligor"), whether or not contingent, (i) to purchase any such primary obligation or any property or asset constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of such primary obligation or (2) to maintain working capital, equity capital or the net worth, cash flow, solvency or other balance sheet or income statement condition of any other Person, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner or holder of any primary obligation of the ability of the primary obligor with respect to such primary obligation to make payment thereof, or (iv) otherwise to assure or hold harmless the owner or holder of such primary obligation against loss in respect thereof. 1.40 Indebtedness. With respect to any specified Person, (a) all items, except items of (i) shareholders' and partners' equity, (ii) capital stock, (iii) surplus, (iv) general contingency or deferred tax reserves, (v) liabilities for deposits and (vi) deferred income, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, (b) all direct or indirect obligations secured by any Lien to which any property or asset owned by such Person is subject, whether or not the obligation secured thereby shall have been assumed and (c) all reimbursement obligations with respect to issued letters of credit. 1.41 Indebtedness for Money Borrowed. With respect to any specified Person, all money borrowed by such Person and Indebtedness represented by notes payable by such Person and drafts accepted representing extensions of credit to such Person, all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments, all Indebtedness of such Person upon which interest charges are customarily paid, and all Indebtedness of such Person issued or assumed as full or partial payment for property or services, whether or not any such notes, drafts, obligations or Indebtedness represent Indebtedness for money borrowed. For purposes of this definition, interest which is accrued but not paid on the original due date or within any applicable cure or grace period as provided by the underlying contract for such interest shall be deemed Indebtedness for Money Borrowed. 8 1.42 Interest Expense. In respect of any period, an amount equal to the sum of the interest incurred during such period based on a stated interest rate with respect to Indebtedness for Money Borrowed of the Borrower and its Restricted Subsidiaries on a consolidated basis. 1.43 Inventory. All real and personal property, improvements and fixtures owned by the Borrower or the Restricted Subsidiaries, including but not limited to all Land Parcels, Lots Under Development, Development Lots and Dwelling Lots. 1.44 Inventory Quarterly Report. The detailed quarterly written report with respect to the Loan Inventory, in substantially the form of Exhibit A attached hereto, to be prepared by the Borrower and submitted to the Bank in accordance with Section 3.1(c) hereof. 1.45 Inventory Summary Report. The monthly written summary of the Loan Inventory, in substantially the form of Exhibit B attached hereto, to be prepared by the Borrower and submitted to the Bank in accordance with Section 3.1(c) hereof. 1.46 Land Parcels. Parcels of land owned by the Borrower or any of its Restricted Subsidiaries which are, as of the date of determination, not scheduled for commencement of development into Developed Lots during the twelve (12) calendar months immediately following such date of determination and which the Borrower has designated as "Land Parcels." An individual Land Parcel is sometimes referred to as a "Land Parcel." 1.47 Lien. With respect to any property, any mortgage, lien, pledge, assignment, charge, security interest, title retention agreement, levy, execution, seizure, attachment, garnishment, or other encumbrance of any kind in the nature of any of the foregoing in respect of such property, whether or not choate, vested or perfected. 9 1.48 Loan Documents. This Agreement, the Revolving Loan Note and any and all other documents evidencing the Revolving Loan Note as the same may be amended, substituted, replaced, extended or renewed from time to time. 1.49 Loan Funding Availability. The amount available for advancement under the Revolving Loan Note to the Borrower established pursuant to Section 3.1 hereof, at any applicable time, by the Bank based on the Loan Inventory. 1.50 Loan Inventory Lots Under Development, Developed Lots and Dwelling Lots which are not encumbered by a Lien or Liens (other than any Permitted Encumbrance) and which have been designated by the Borrower and accepted by the Bank as "Loan Inventory" to be utilized for the purpose of calculating the Loan Funding Availability. 1.51 Lots Under Development. Land Parcels which are, as of the date of determination, being developed into Developed Lots or which are scheduled for the commencement of development into Developed Lots within twelve (12) calendar months after the date of determination, and which the Borrower has designated and the Bank has accepted to be included and are included as "Lots Under Development" in the calculation of the Loan Funding Availability. An individual Lot Under Development is sometimes referred to as a "Lot Under Development." 1.52 Models. A Dwelling Lot containing a dwelling unit which is designated by the Borrower as a model unit for use in marketing and promoting the sale of Dwelling Lots. 1.53 Multibank Loan Agreement. The Master Loan and Inter-Creditor Agreement among the Borrower, NationsBank, N.A. (South) as Administrative Agent and the "Banks" party thereto dated April 16, 1996, as amended, pursuant to which such "Banks" agreed to provide to the Borrower unsecured credit facilities aggregating up to $260,000,000. 1.54 [RESERVED] 1.55 Notes Payable. With respect to the Borrower and all Restricted Subsidiaries, all Indebtedness for Money Borrowed other than promissory notes issued as earnest money for contracts, non-recourse promissory notes for seller financing and notes payable for insurance premiums and capitalized lease obligations. 10 1.56 Obligations. (a) All payment and performance obligations of the Borrower and all other obligors to the Bank under this Agreement and the other Loan Documents, as they may be amended from time to time, or as a result of making the Revolving Loan, and (b) the obligation to pay an amount equal to the amount of any and all damages which the Borrower is obligated to pay pursuant to the Loan Documents to, or on behalf of, the Bank which it may suffer by reason of a breach by any of the Borrower or any other obligor of any obligation, covenant or undertaking with respect to this Agreement or any other Loan Document. 1.57 Permitted Encumbrances. Liens, encumbrances, easements and other matters which (a) are on real estate for real estate taxes not yet delinquent, (b) are for taxes, assessments, judgments, governmental charges or levies or claims, the non-payment of which is being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the Borrower's books (but only so long as no foreclosure, distraint sale or similar proceedings have been commenced with respect thereto and remain unstayed for a period of thirty (30) days after their commencement), (c) are in favor of carriers, warehousemen, mechanics, laborers and materialmen incurred in the ordinary course of business for sums not yet past due or being diligently contested in good faith (if adequate reserves are being maintained by the Borrower with respect thereto), (d) are incurred in the ordinary course of business in connection with workers' compensation and unemployment insurance, or (e) are easements, rights-of-way, restrictions or similar encumbrances on the use of real property which does not interfere with the ordinary conduct of business of the Borrower or materially detract from the value of such real property. 1.58 Person. An individual, corporation, partnership, limited liability company, trust or unincorporated organization, or a government or any agency or political subdivision thereof. 1.59 Plan. An employee benefit plan within the meaning of Section 3(3) of ERISA maintained by or contributed to by the Borrower or any ERISA Affiliate. 1.60 Reconciliation Date. Two (2) Business Days after the Borrower's receipt of notice from the Bank pursuant to Section 3.1(d) hereof that the outstanding principal balance of the Revolving Loan exceeds the Available Revolving Loan Commitment. 11 1.61 Reportable Event. Shall have the meaning set forth in Section 4043(b) of ERISA. 1.62 Request for Advance. Any certificate signed by an Authorized Signatory of the Borrower requesting an Advance hereunder which will increase the amount of the Revolving Loan outstanding, which certificate shall be denominated a "Request for Advance," and shall be in substantially the form of Exhibit C attached hereto. Each Request for Advance shall, among other things, (a) specify the date of the Advance, which shall be a Business Day, (b) specify the amount of the Advance, (c) state that there shall not exist, on the date of the requested Advance and after giving effect thereto, a Default or an Event of Default, and (d) state that all conditions precedent to the making of the Advance have been satisfied. 1.63 Restricted Subsidiary. Any Subsidiary of the Borrower which has been designated as a Restricted Subsidiary by the Borrower and from which the Bank is required to receive a duly executed Subsidiary Guaranty, including without limitation the Guarantors. 1.64 Revolving Loan. The revolving line of credit to be advanced by the Bank pursuant to the terms of this Agreement and evidenced by the Revolving Loan Note. 1.6 Revolving Loan Commitment. The obligation of the Bank to advance funds in the maximum sum of $20,000,000 to the Borrower pursuant to the terms hereof as such obligations may be reduced from time to time pursuant to the terms hereof. 1.66 Revolving Loan Maturity Date. September 16, 1997, or such earlier date as payment of the Revolving Loan shall be due (whether by acceleration or otherwise). 1.67 Revolving Loan Note. The promissory note by the Borrower in favor of the Bank evidencing the Revolving Loan, as well as any promissory note or notes issued by the Borrower in substitution, replacement, extension, amendment or renewal of such promissory note. 12 1.68 Revolving Loan Rate. At any time, the annual rate of interest, to be calculated daily, based on the Three-Month LIBOR as announced on each such day plus one hundred fifty basis points (1.5%). 1.69 Speculative Lot. Any Dwelling Lots having a fully or partially constructed dwelling unit thereon which Dwelling Lot is not subject to a bona fide contract for the sale of such Dwelling Lot to a third party, excluding Developed Lots containing Dwellings used as Models. 1.70 Subsidiary. As applied to any Person, (a) any corporation of which fifty percent (50%) or more of the outstanding stock (other than directors' qualifying shares) having ordinary voting power to elect a majority of its board of directors, regardless of the existence at the time of a right of the holders of any class or classes of securities of such corporation to exercise such voting power by reason of the happening of any contingency, or any partnership of which fifty percent (50%) or more of the outstanding partnership interests, is at the time owned by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, and (b) any other entity which is controlled or susceptible to being controlled by such Person, or by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person; provided, however, that for purposes of this Agreement and the other Loan Documents the term "Subsidiary" shall not include DRH Mortgage Company, Ltd., a Texas limited partnership. Unless the context otherwise requires, "Subsidiaries" as used herein shall mean the Subsidiaries of the Borrower. The Subsidiaries of the Borrower as of the Closing Date are set forth on Schedule 1.70 attached hereto. 1.71 Subsidiary Guaranty. A guaranty agreement in form and substance satisfactory to the Bank whereunder a Restricted Subsidiary guarantees the full and faithful payment and performance of all of the Obligations of the Borrower hereunder and under the other Loan Documents. 1.72 Tangible Assets. The difference between total assets of the Borrower and its Restricted Subsidiaries and all intangible assets of the Borrower and its Restricted Subsidiaries, all as determined in accordance with GAAP. 1.73 Tangible Net Worth. With respect to the Borrower and its Restricted Subsidiaries, (A) stockholders' equity on a consolidated basis less (B) (i) all "intangible assets" as defined under GAAP plus (ii) amounts invested in Unrestricted 13 Subsidiaries of such Person plus (iii) Guaranties of or in respect of the Indebtedness of Unrestricted Subsidiaries. 1.74 Third-Party Notes Payable. With respect to the Borrower and its Restricted Subsidiaries, all Indebtedness for Money Borrowed other than (a) publicly issued Indebtedness for Money Borrowed which is pari passu with the Obligations, (b) non-recourse Indebtedness, (c) Indebtedness owed to the seller of any Inventory acquired by the Borrower or its Restricted Subsidiaries, (d) Indebtedness which is structurally subordinate to the Obligations or which is convertible into equity at the option of the Borrowers, (e) Indebtedness for earnest money, (f) notes payable for insurance premiums and capitalized lease obligations and (g) the Borrower's obligations under the Multibank Loan Agreement. 1.75 Three-Month LIBOR. As of any date of determination, a rate of interest per annum equal to the three (3) month London Interbank Offered Rate for deposits in United States dollars (rounded to two decimal places) in amounts comparable to the outstanding principal amount of the Revolving Loan then outstanding, which interest rate is set forth in The Wall Street Journal (Eastern Edition) on the next Business Day; provided, however, if more than one such offered rate appears in The Wall Street Journal (Eastern Edition), the applicable rate shall be the average thereof. 1.76 Total Capital. The sum of the Tangible Net Worth of the Borrower and its Restricted Subsidiaries plus Notes Payable of the Borrower and its Restricted Subsidiaries. 1.77 Total Liabilities. All items required by GAAP to be set forth as "liabilities" on the Borrower's and its Restricted Subsidiaries' consolidated balance sheet. 1.78 Unrestricted Subsidiaries. Subsidiaries of the Borrower which are not Restricted Subsidiaries. 1.79 Working Capital. The total of the Borrower's and its Restricted Subsidiaries' assets minus the sum of the Borrower's and Restricted Subsidiaries' fixed assets, intangible assets, earnest monies for lot and land option contracts represented by promissory notes payable by the Borrower and Restricted Subsidiaries and the total of the Borrower's and Restricted Subsidiaries' liabilities. [Total Assets - (Fixed Assets + Intangible Assets + Earnest Monies Represented by Promissory Notes + Total Liabilities).] 14 Except where the context otherwise requires, definitions imparting the singular shall include the plural and vice versa. Except where otherwise specifically restricted, reference to a party to a Loan Document includes that party and its successors and assigns. All terms used herein which are defined in Article 9 of the Uniform Commercial Code in effect in the State of New Jersey on the date hereof and which are not otherwise defined herein shall have the same meanings herein as set forth therein. All accounting terms used herein without definition shall be used as defined under GAAP as of the Agreement Date. References presented in quotation marks in connection with the Multibank Loan Agreement refer to terms defined in the Multibank Loan Agreement. 2.LOANS 2.1 Extension of Credit. (a)Revolving Loan. Subject to the terms and conditions of, and in reliance upon the representations and warranties made in this Agreement and the other Loan Documents and upon the terms and subject to the conditions of this Agreement, the Bank agrees to lend and relend to the Borrower, prior to the Revolving Loan Maturity Date, amounts which in the aggregate at any one time outstanding do not exceed the Available Revolving Loan Commitment. Advances under the Revolving Loan Commitment may be repaid and reborrowed from time to time on a revolving basis as set forth herein. (b)Use of Loan Proceeds. The Bank and the Borrower agree that the proceeds of the Revolving Loan shall be used for general corporate purposes, including without limitation working capital support, home construction, lot acquisition, lot development, land acquisition, asset acquisitions and stock acquisitions. 2.2 Manner of Borrowing and Disbursement Under Revolving Loan. (a)Advances. The Borrower shall give the Bank irrevocable written notice for Advances under the Revolving Loan not later than 12:00 noon (Eastern time) on the day immediately preceding the date of the requested Advance in the form of a Request for Advance, or notice by telephone or telecopy followed immediately by a Request for Advance; provided, however, that the failure by the Borrower to confirm any notice by telephone or telecopy with a Request for Advance shall not invalidate any notice so given. Each Advance hereunder shall be in principal amounts of not less than $100,000 and in integral multiples of $100,000. Subsequent to the initial Advance(s) of the Revolving Loan made on the Agreement Date, the Borrower may not request, in the aggregate, more than (i) two (2) Advances in any calendar month plus (ii) four (4) additional Advances in any twelve (12) calendar month period. In any event, the Borrower may not request, in the aggregate, more than twenty-eight (28) Advances in any twelve (12) calendar month period. 15 (b)Disbursement. Prior to 2:00 p.m. (Eastern time) on the date of an Advance hereunder, the Bank shall, subject to the satisfaction of the conditions set forth in this Agreement, disburse funds representing such Advance in immediately available funds by transferring the amounts so made available by wire transfer pursuant to the instructions of the Borrower. 2.3 Interest on Revolving Loan. (a)Revolving Loan. Interest on the Revolving Loan shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed during each calendar month and shall be payable at a simple interest rate equal to the Revolving Loan Rate times the principal balance outstanding from time to time under the Revolving Loan Note for the number of days such principal amounts are outstanding during such calendar month. Interest then outstanding shall be due and payable in arrears as provided in Section 2.7 hereof. (b)Upon Default. Upon the occurrence and during the continuance of a Default, the Bank may accelerate the maturity of the Revolving Loan, exercise any other rights or remedies hereunder in connection with the exercise of this right) or charge interest on the outstanding principal balance of the Revolving Loan at the Default Rate from the date of such Default. Such interest shall be payable on the earliest of demand, the first (1st) Business Day of the next calendar month or the Revolving Loan Maturity Date and shall accrue until the earlier of (i) waiver or cure of the applicable Default, (ii) agreement by the Bank to rescind the charging of interest at the Default Rate, or (iii) payment in full of the Obligations. 2.4 Unused Fee on Revolving Loan. The Borrower agrees to pay to the Bank an unused fee for each calendar year on the difference between (i) the Revolving Loan Commitment and (ii) the daily sum of the outstanding Revolving Loan for each day during the applicable period at the rate of 25 basis points (.25%). Subject to Section 2.5, such unused fee shall be computed on the basis of a hypothetical year of 360 days for the actual number of days elapsed, shall be due and payable quarterly in arrears on the eighteenth (18th) day of each October, January, April and July and on the Revolving Loan Maturity Date for the period beginning on the first day of the then current calendar quarter through the Revolving Loan Maturity Date, commencing on October 18, 1996 (for the period from the Agreement Date through September 30, 1996), and on the Revolving Loan Maturity Date, and shall be fully earned when due and non-refundable when paid. 2.5 Termination of Revolving Loan Commitment. The Borrower may terminate the Revolving Loan Commitment in its entirety (but not in part) upon thirty (30) calendar days' notice to the Bank stating an intention so to terminate and by paying to the Bank all outstanding Obligations. Commencing as of the receipt such notice, the fee otherwise payable pursuant to Section 2.4 shall cease to accrue. 16 2.6 Note and Loan Account. (a)The Revolving Loan shall be repayable in accordance with the terms and provisions set forth herein and shall be evidenced by the Revolving Loan Note. The Revolving Loan Note shall be issued by the Borrower to the Bank and shall be duly executed and delivered by Authorized Signatories. (b)The Bank may open and maintain on its books in the name of the Borrower a loan account with respect to the Revolving Loan Note and interest thereon. The Bank shall credit such loan account for each payment on account of principal of or interest on the Revolving Loan. The records of the Bank with respect to the accounts maintained by it shall be prima facie evidence of the Revolving Loan and accrued interest thereon, but the failure to maintain such records shall not impair the obligation of the Borrower to repay Indebtedness hereunder. 2.7 Repayment of Loans. (a)Interest. The Borrower shall pay, on the eighteenth (18th) calendar day of each month, all interest on the Revolving Loan which has accrued as of the first (1st) calendar day of such month, commencing on the eighteenth (18th) calendar day of the first (1st) full calendar month following the Agreement Date. (b)Reconciliation of Loan Inventory. The Borrower shall repay certain portions of the outstanding principal of the Revolving Loan and accrued and unpaid interest thereon upon the reconciliation of the Loan Funding Availability against the outstanding principal balance under the Revolving Loan Note as provided in Section 3.1 hereof. (c)Maturity. In addition to the foregoing, a final payment of all Obligations then outstanding shall be due and payable by the Borrower on the Revolving Loan Maturity Date. 2.8 Manner of Payment. (a)Each payment (including any prepayment) by the Borrower on account of the principal of or interest on the Revolving Loan, fees and any other amount owed to the Bank under this Agreement, the Revolving Loan Note or the other Loan Documents shall be made not later than 3:00 p.m. (Eastern time) on the date specified for payment under this Agreement or such other Loan Document to the Bank an account designated by the Bank in lawful money of the United States of America in immediately available funds. Any payment received by the Bank after 3:00 p.m. (Eastern time) shall be deemed received on the next Business Day for purposes of interest accrual. (b)If any payment under this Agreement or the Revolving Loan Note shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day, and such extension of time shall in such case be included in computing interest and fees, if any, in connection with such payment. 17 (c)The Borrower may not make payments, in the aggregate, under this Agreement (excluding any payments specifically required pursuant to the terms of this Agreement) more than (i) two (2) times in any calendar month, plus (ii) four (4) additional times in any twelve (12) calendar month period. In any event, the Borrower may not make, in the aggregate, more than twenty-eight (28) payments (excluding any payments specifically required pursuant to the terms of this Agreement) under this Agreement in any twelve (12) calendar month period. (d)The Borrower agrees to pay principal, interest, fees, and all other amounts due hereunder or under the Revolving Loan Note without set-off or counterclaim or any deduction whatsoever. 2.9 Application of Payments. Unless otherwise specifically provided in this Agreement or the other Loan Documents, payments made to the Bank (as voluntary payments, upon the realization on collateral for the Obligations, or otherwise), shall be applied (subject to Section 2.2(b) hereof) in the following order to the extent such Obligations are then due and payable hereunder: First, to the costs and expenses, if any, incurred by the Bank in the collection of such amounts under this Agreement or any of the other Loan Documents, including without limitation any reasonable costs incurred in connection with the sale or disposition of any collateral for the Obligations; Second, all fees and commissions then due and payable by the Borrower to the Bank under this Agreement or any Loan Document; Third, to any due and unpaid interest which may have accrued on the Revolving Loan; Fourth, to any unpaid principal of the Revolving Loan; Fifth, to any other Obligations not otherwise referred to this Section 2.9 until all such Obligations are paid in full; Sixth, to actual damages incurred by the Bank by reason of any breach hereof or of any other Loan Documents by the Borrower or a Restricted Subsidiary; and Seventh, upon satisfaction in full of all Obligations, to the Borrower or as otherwise required by law. 2.10 Additions and Deletions of Guarantors (a)Addition of Restricted Subsidiary. Whenever the Borrower intends for a Person to become a Restricted Subsidiary and Guarantor, it shall deliver to the Bank (i) written notice stating such fact and making reference to this Agreement and this Section 2.10; (ii) a written description of (A) the stock or other equity ownership of such Person, (B) the principal business activity of such Person, (C) whether such Person is party to, or guarantor with respect to, the Multibank Loan Agreement or is maker of, or guarantor with respect to, a Third-Party Note Payable and (D) the date (which shall not be fewer than ten (10) Business Days after the receipt by the Bank of such notice) on which the Borrower intends such Person to become a Restricted Subsidiary and Guarantor; 18 (iii) a statement that no Default or Event of Default shall exist after such Person becomes a Restricted Subsidiary and Guarantor, and (iv) a fully executed Subsidiary Guaranty in the form delivered by the Guarantors on or about the date hereof (except for name and date changes). Such Person shall become a Restricted Subsidiary upon the satisfaction of all such conditions, effective on the date so specified by the Borrower in such notice, but only upon the delivery of the Bank of its written consent (which shall not be unreasonably withheld). (b)Deletion of Restricted Subsidiary. Whenever the Borrower intends for a Person to cease being a Restricted Subsidiary it shall deliver to the Bank (i) written notice stating such fact and making reference to this Agreement and this Section 2.10; and (ii) a statement (A) of the intended effective date of such cessation (which shall not be fewer than ten (10) Business Days after the receipt by the Bank of such notice) and (B) that no Default or Event of Default shall exist after such Person ceases to be a Restricted Subsidiary. Such Person shall cease to be a Restricted Subsidiary and Guarantor on the date specified by the Borrower in such notice, but only upon the delivery by the Bank of its written consent to such cessation (which shall not be unreasonably withheld). 3.INVENTORY AND FUNDING AVAILABILITY 3.1 Loan Funding Availability. At the designated times set forth herein, the Bank shall establish a Loan Funding Availability for the Loan Inventory. (a)Calculation of Loan Funding Availability. The Loan Funding Availability shall be equal to the sum of "A" plus "B" plus "C"; provided, that at no time may the sum of "A" and "B" exceed thirty percent (30%) of Loan Funding Availability. A = seventy-five percent (75%) of the sum of all Acquisition Costs for all Lots Under Development which are included in the Loan Inventory. If, after a parcel of land is designated a Lot Under Development, development of such parcel ceases for thirty (30) calendar days or more (other than by reason of a Force Majeure Delay), at the discretion of the Bank, the Loan Funding Availability for such parcel may be reduced to an amount determined by the Bank (which amount can be zero) until development of such Lot Under Development is resumed to the satisfaction of the Bank. B = seventy-five percent (75%) of the sum of all Acquisition Costs for all Developed Lots included in the Loan Inventory. C = one hundred percent (100%) of the sum of all Acquisition Costs and Construction Costs for all Dwelling Lots included in the Loan Inventory. (b)Designation of Land Parcels, Lots Under Development, Developed Lots and Dwelling Lots. On or before the fifteenth (15th) calendar day of each calendar month (other than a month following the end of a calendar quarter), the Borrower shall deliver to the Bank an Inventory Summary Report in the form attached hereto as Exhibit B and incorporated herein. On or before the fifteenth 19 (15th) calendar day of each month following the end of a calendar quarter, the Borrower shall deliver to the Bank an Inventory Quarterly Report in the form attached hereto as Exhibit A and incorporated herein which form shall have been completed and signed by the Borrower. The Inventory Summary Report and Inventory Quarterly Report shall reflect Inventory that the Borrower desires to have designated as Loan Inventory. Upon the Bank's receipt of the Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Bank may conduct inspections or reviews of the subject Inventory that the Bank deems appropriate, at the expense of the Bank except as hereinafter expressly provided. Based upon the information in the Inventory Summary Report or Inventory Quarterly Report, as the case may be, and the other information compiled by the Bank, the Bank shall determine, in its discretion, whether a Lot Under Development, Developed Lot or Dwelling Lot not previously designated as part of the Loan Inventory shall be designated part of the Loan Inventory and, if so, whether such Lot Under Development, Developed Lot or Dwelling Lot shall be designated a Lot Under Development, Developed Lot or Dwelling Lot. (c)Periodic Establishment of Loan Funding Availability. Within two (2) business days of the Bank's receipt of an Inventory Summary Report or Inventory Quarterly Report, as the case may be, the Bank shall establish the Loan Funding Availability based on the Report delivered to the Bank and information compiled by the Bank. In the event the Borrower does not submit the Inventory Summary Report or Inventory Quarterly Report in the time and manner set forth above or furnish sufficient information to the Bank to enable the Bank to establish a new Loan Funding Availability, the Bank will establish a Loan Funding Availability based on some or all of the previous information submitted to the Bank by the Borrower in the immediately preceding Inventory Summary Report or Inventory Quarterly Report and the information compiled by the Bank, as required hereunder, in connection therewith, as the case may be, or other information available to the Bank. (d)Reconciliation. In the event that the Loan Funding Availability for a particular Funding Period is less than the then-outstanding principal amount under the Revolving Loan, amounts due under the Multibank Loan Agreement and Third-Party Notes Payable (other than amounts due hereunder) and unpaid draws and other amounts due in respect of letters of credit issued under the Multibank Loan Agreement, the Bank shall notify the Borrower thereof. On or before the Reconciliation Date, the Borrower shall (i) (A) pay to the Bank a principal payment to be applied to the Revolving Loan and/or (B) provide to the Bank evidence that the principal amount of the Multibank Loan Agreement or the Third-Party Notes Payable (other than the Revolving Loan) has been reduced in an aggregate amount sufficient to eliminate the excess of the outstanding principal amount of the Revolving Loan, the Multibank Loan Agreement and Third-Party Notes Payable (other than the Revolving Loan) and unpaid draws and other amounts due in respect of letters of credit issued under the Multibank Loan Agreement over the Loan Funding Availability, together with any accrued and unpaid interest on such excess, or (ii) provide a revised Inventory Summary Report or Inventory Quarterly Report designating sufficient additional Inventory (which shall be acceptable to the Bank, in its discretion) as Loan Inventory to cause the Loan Funding Availability to equal or exceed the outstanding principal of the 20 Revolving Loan, the Multibank Loan Agreement and Third-Party Notes Payable (other than the Revolving Loan). (e)Removal/Disapproval of Inventory for Loan Funding Availability. If, at any time, the Bank determines, in its reasonable discretion, that any part of the Loan Inventory is not acceptable for inclusion in the calculation of the Loan Funding Availability as a result of an unforeseen material adverse change in the condition of such portion of the Loan Inventory or as a result of the existence of hazardous wastes or materials in or on any Inventory which are in violation of any warranty, representation or covenant of the Loan Documents regarding such hazardous wastes or materials, the Bank may exclude such portion of the Loan Inventory from the calculation of the Loan Funding Availability. If, after such exclusion, the then-outstanding principal amount under the Revolving Loan Note would exceed the Loan Funding Availability, the Borrower shall pay to the Bank on the Reconciliation Date immediately following the exclusion of such Loan Inventory, a principal payment on the Revolving Loan in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Revolving Loan over the Loan Funding Availability, together with accrued and unpaid interest on such excess. 4.LOAN DISBURSEMENTS 4.1 Prior to the First Disbursement. Prior to requesting the first disbursement under the Revolving Loan the Borrower shall deliver all of the following items to the Bank, in form and substance satisfactory to the Bank. The Bank shall have no obligation to make the first disbursement hereunder until all of these items have been so executed and/or delivered to the Bank. (a)Notes and Guaranties. A Revolving Loan Note by the Borrower payable to the order of the Bank and a Guaranty from each Guarantor in favor of the Bank. (b)Taxpayer Identification Number. The Borrower's federal taxpayer identification number. (c)Authority Documents of Borrower. Articles of Incorporation of the Borrower certified by the office of the Secretary of State in which the Borrower is incorporated; Bylaws of the Borrower certified by an officer of the Borrower; Certificate of Existence of the Borrower issued by the state in which the Borrower is incorporated; Incumbency Certificate of the Borrower reflecting the Authorized Signatories; Corporate resolutions of the Borrower certified by an officer of the Borrower and authorizing the Borrower to enter into this Agreement and execute all related documents and Loan Documents applicable to the Revolving Loan; and documentation evidencing the Borrower's qualification to do business for each state in which any part of the Loan Inventory owned by Borrower is located certified by the office of the Secretary of State of such state. 21 (d)Attorney's Opinion. The written opinion of the Borrower's and Guarantors' counsel in form and content acceptable to the Bank and which addresses the following matters: (i)Existence, Due Authorization and Execution. The Borrower and each guarantor is duly organized and existing as a corporation and is in good standing and qualified to do business under the laws of Borrower's and each Guarantor's, respectively, state of incorporation and the states in which Borrower and such Guarantor owns Loan Inventory and that the Loan Documents evidencing the Loans have been properly executed by the persons authorized to do so; (ii)Enforceability. The Loan Documents are enforceable against the Borrower and Guarantors in accordance with their terms; and (iii)Miscellaneous. As to such other matters as the Bank may reasonably request. Such opinions may be qualified to the extent of the knowledge of such counsel based upon reasonable investigation. (e)Inventory Quarterly Report. The Inventory Quarterly Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof, for the most recent calendar quarter. (f)Request for Advance. The Request for Advance that the Borrower is required to deliver pursuant to Section 2.2 hereof. (g)Other Documents. Other documents that the Bank may reasonably require. (h)Fees. Payment of all fees and expenses payable on the Agreement Date to the Bank. (i)Insurance. Certificate(s) of insurance required pursuant to Section 5.14 hereof. 4.2 Subsequent Disbursements. Prior to requesting subsequent disbursements under the Revolving Loan (subsequent to the first disbursement) the Borrower shall execute and deliver to the Bank all of the following items, in form and substance satisfactory to the Bank. The Bank shall have no obligation to make further disbursements until all of these items have been properly executed and delivered to the Bank. 22 (a)Inventory Summary Report. The Inventory Summary Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof. (b)Inventory Quarterly Report. The Inventory Quarterly Report that the Borrower is required to deliver pursuant to Section 3.1(b) hereof. (c)Request for Advance. The Request for Advance that the Borrower is required to deliver pursuant to Section 2.2 hereof. (d)Other Documents. Such other documents that the Bank may reasonably require. 5.BORROWER'S COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES The Borrower makes the following covenants, agreements, representations and warranties with respect to the Loan Documents and the obligations thereunder to the Bank: 5.1 Payment. The Borrower shall pay when due all sums owing under this Agreement, the Revolving Loan Note and the other Loan Documents executed by the Borrower. 5.2 Performance. The Borrower shall perform all Obligations under this Agreement, the Revolving Loan Note and the other Loan Documents executed by the Borrower. 5.3Additional Information. On request of the Bank, the Borrower shall deliver to the Bank any documents or information with respect to the Inventory that the Bank may reasonably require, including without limitation surveys and acquisition closing documentation. 5.4 Quarterly Financial Statements and Other Information. Within forty-five (45) days after the last day of each quarter in each fiscal year of the Borrower, except the last quarter in each such fiscal year of the Borrower, the Borrower shall deliver to the Bank the Form 10-Q of the Borrower as filed with the Securities and Exchange Commission. Within ten (10) days from the date of filing, the Borrower shall provide to the Bank a copy of every other report filed by the Borrower with the Securities and Exchange Commission under the Exchange Act and a copy of each registration statement filed by the Borrower with the Securities and Exchange Commission pursuant to the Securities Act of 1933. Together with information required hereby, the Borrower shall deliver to the Bank internally prepared consolidated financial statements of the Borrower and the Restricted Subsidiaries (and excluding 23 financial information relating to the Unrestricted Subsidiaries) for the same period in form and substance satisfactory to the Bank. 5.5 Compliance Certificates. Within forty-five (45) days from the end of each fiscal quarter of the Borrower, the Borrower shall provide to the Bank a certificate signed by an Authorized Signatory of the Borrower in the form attached hereto as Exhibit D setting forth such calculations required to establish whether the Borrower was in compliance with Section 5.7 hereof. 5.6 Annual Financial Statements and Information Certificate of No Default. Within one hundred (100) days after the end of each fiscal year of the Borrower, the Borrower shall deliver to the Bank the Form 10-K of the Borrower as filed with the Securities and Exchange Commission, together with the audited consolidated financial statements of the Borrower (which shall be prepared by an independent accounting firm of recognized standing). Together with information required hereby, the Borrower shall deliver to the Bank internally prepared consolidated financial statements of the Borrower and the Restricted Subsidiaries (and excluding financial information relating to the Unrestricted Subsidiaries) for the same period in form and substance satisfactory to the Bank. 5.7 Financial and Inventory Covenants. Until the obligations are repaid in full, the Borrower shall adhere to the following financial covenants (after giving effect to any Financial Covenant Carve Out), all on a consolidated basis with the Restricted Subsidiaries and determined as of the last day of each fiscal quarter of the Borrower: (a)The Borrower shall maintain at all times a ratio of Notes Payable to Tangible Net Worth of not greater than 1.75 to 1.0 on a consolidated basis. (b)The Borrower shall maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not more than 2.25 to 1. (c)The Borrower shall maintain at all times a ratio of (i) EBITDA to (ii) Fixed Charges of not less than 3.0 to 1.0. (d)The Borrower shall maintain at all times Working Capital of $100,000,000 on a consolidated basis. (e)The Borrower shall maintain at all times a minimum Tangible Net Worth of one hundred ten million and no/100 dollars ($110,000,000.00), plus fifty percent (50%) of annual net profits for such fiscal year, plus fifty percent (50%) of any capital paid into the Borrower (other than stock issued in connection with an employee stock ownership plan, an employee stock option plan, an employee stock purchase plan or for an acquisition), plus one hundred percent 24 (100%) of net losses with absolute minimum Tangible Net Worth of not less than one hundred ten million and no/100 dollars ($110,000,000.00), on a consolidated basis. (f)The Borrower shall not at any time permit Third-Party Notes Payable to be greater than thirteen percent (13%) of Tangible Assets on a consolidated basis. (g)The total number of Speculative Lots owned by the Borrower and its Restricted Subsidiaries at any given time shall not exceed sixty percent (60%) of all Dwelling Lots (completely or partially constructed) then owned by the Borrower and its Restricted Subsidiaries. Models shall not be considered "Speculative Lots" for purposes of this Section 5.7(g). (h)The Borrower shall not permit the total number of Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed two and one-half (2 1/2) times the number of Developed Lots containing Dwellings closed by the Borrower and all Restricted Subsidiaries during the immediately preceding twelve (12) calendar months. The Borrower shall not permit the aggregate cost of all Developed Lots and Lots Under Development, in each case, then owned by the Borrower and all Restricted Subsidiaries, at any given time to exceed forty percent (40%) of all Tangible Assets of the Borrower on a consolidated basis. (i)The cost of the land owned by Borrower and all Restricted Subsidiaries at any given time which has not been developed into Developed Lots and is not scheduled for commencement of development into Developed Lots within twelve (12) calendar months from the date of determination shall not exceed ten percent (10%) of all Tangible Assets of the Borrower and its Restricted Subsidiaries on a consolidated basis. In the event that the Borrower or any Restricted Subsidiary classifies certain undeveloped land as being scheduled for development within twelve (12) calendar months for the purpose of this provision and, as of the last day of such twelve (12) calendar month period, development of such land has not commenced, such land shall not be classified as scheduled for development within twelve (12) calendar months until such development is commenced. 5.8 Other Financial Documentation. The Borrower shall provide to the Bank such other financial information as the Bank may reasonably request from time to time to clarify or amplify the information required to be furnished to the Bank under this Agreement. 5.9 Relating to Multibank Loan Agreement. The Borrower represents and warrants to the Bank that: (a)As of the date hereof, there exists no "Default" or "Event of Default" under the Multibank Loan Agreement nor any default (or event which with 25 the passage of time or the giving of notice or both would cause or constitute a default) under any other Third Party Notes Payable; and (b)The Revolving Loan Note and the Obligations are "Third Party Notes Payable" under, and are otherwise permitted by, the Multibank Loan Agreement. 5.10 Payment of Contractors. The Borrower shall pay in a timely manner, and shall cause its Subsidiaries to pay in a timely manner, any and all contractors and subcontractors who conduct work in or on the Inventory, subject to the right of the Borrower to contest any amount in dispute, so long as the contesting of such amount is pursued diligently and in good faith. The Borrower will advise the Bank in writing immediately if the Borrower or any of its Subsidiaries receives any written notice from any contractor(s), subcontractor(s) or material furnisher(s) to the effect that said contractor(s) or material furnisher(s) have not been paid for any labor or materials furnished to or in the Inventory and such outstanding payment or payments are individually or collectively equal to or greater than two hundred thousand and no/100 dollars ($200,000.00) per subdivision or seven million and no/100 dollars ($7,000,000.00) in the aggregate. The Borrower will further make available to the Bank, for inspection and copying, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which the Borrower claims title to any materials, fixtures or articles used in the development of the Loan Inventory or construction of improvements on the Loan Inventory, including without limitation the Dwellings. 5.11 Inspection and Appraisal. The Borrower shall permit the Bank and its authorized agents to enter upon the Inventory during normal working hours and as often as they desire, for the purpose of inspecting or appraising the Loan Inventory or the construction of the Dwellings. 5.12 Fees and Expenses. The Borrower shall pay when due all commitment and renewal fees and external legal fees incurred by the Bank in connection with the making of the Revolving Loan. 5.13 Hazardous Substances. The Borrower warrants and represents to the Bank that to the best of its knowledge and belief and based on environmental assessments of the Inventory commissioned by the Borrower, except to the extent disclosed to the Bank in environmental assessments or other writings (on which the Bank is fully entitled to rely) or to the extent that it would not materially and adversely affect the use and marketability of any Inventory, the Inventory has not been and is not now being used in violation of any federal, state or local environmental law, ordinance or regulation, that no proceedings have been commenced, or notice(s) received, concerning any alleged violation of any such environmental law, ordinance or regulation, and that the Inventory is free of hazardous or toxic substances and wastes, contaminants, oil, radioactive or other materials, the 26 removal of which is required or the maintenance of which is restricted, prohibited or penalized by any federal, state or local agency, authority or governmental unit except as set forth in the site assessments delivered in connection with the Multibank Loan Agreement. The Borrower covenants that it shall neither permit any such materials to be brought on to the Inventory, nor shall it acquire real property to be added to the Loan Inventory upon which any such materials exist, except to the extent disclosed to the Bank in environmental assessments or other writings (on which the Bank is fully entitled to rely) or to the extent that it would not materially and adversely affect the use and marketability of any Inventory; and if such materials are so brought or found located thereon, such materials shall be immediately removed, with proper disposal, to the extent required by applicable environmental laws, ordinances and regulations, and all required environmental cleanup procedures shall be diligently undertaken pursuant to all such laws, ordinances and regulations. The Borrower further represents and warrants that the Borrower will promptly transmit to the Bank copies of any citations, orders, notices or other material governmental or other communications received with respect to any hazardous materials, substances, wastes or other environmentally regulated substances affecting the Inventory. Notwithstanding the foregoing, there shall not be a default of this provision should the Borrower store or use minimal quantities of the aforesaid materials, provided that: such substances are of a type and are held only in a quantity normally used in connection with the construction, occupancy or operation of comparable buildings or residential developments (such as cleaning fluids and supplies normally used in the day-to-day operation of residential developments), such substances are being held, stored and used in complete and strict compliance with all applicable laws, regulations, ordinances and requirements, and the indemnity set forth below shall always apply to such substances, and it shall continue to be the responsibility of the Borrower to take all remedial actions required under and in accordance with this Agreement in the event of any unlawful release of any such substance. 5.14 Insurance. The Borrower shall keep the Inventory comprising the Loan Inventory insured by responsible insurance companies in such amounts and against such risks as is customary for owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate or, to the customary extent (and in a manner approved by the Bank) the Borrower may be self-insured. All insurance herein provided for shall be in form and with companies reasonably approved by the Bank. The Borrower shall also maintain general liability insurance, workmen's compensation insurance, automobile insurance for all vehicles owned by them and any other insurance reasonably required by the Bank, to the extent commercially available at a reasonable cost. On the Agreement Date, the Borrower shall deliver to the Bank a copy of a certificate of insurance evidencing the insurance required hereunder. In addition, on the date of delivery of each report required by Section 3.1(b) hereof, the Borrower shall certify to the Bank that all insurance policies required to be maintained hereunder remain in full force and effect. 27 5.15 Litigation. The Borrower warrants and represents to the Bank that as of the Agreement Date, none of the Borrower nor any Restricted Subsidiary is a party to any litigation having a reasonable probability of being adversely determined to the Borrower or any Restricted Subsidiary which, if adversely determined, would impair the ability of the Borrower to carry on its business substantially as now conducted or contemplated or would materially adversely affect the financial condition, business or operations of the Borrower. 5.16 Reportable Event. Promptly after Borrower receives notice or otherwise becomes aware thereof, the Borrower shall notify the Bank of the occurrence of any Reportable Event with respect to any Plan as to which the Pension Benefit Guaranty Corporation has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified with thirty (30) days of the occurrence of such event (provided that the Borrower shall give the Bank notice of any failure to meet the minimum funding standards of Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code. 5.17 Secured Indebtedness. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, incur or permit to exist any Indebtedness which is secured in whole or in part by any of the Inventory (other than Permitted Encumbrances); except that the Borrower and its Restricted Subsidiaries may incur Indebtedness in favor of a seller of Inventory to the Borrower which is secured solely by the Inventory contemporaneously acquired from such seller and Indebtedness secured solely by the Borrower's headquarters building located in Arlington, Texas. 6.DEFAULT AND REMEDIES 6.1 Defaults. Each of the following shall constitute a Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule, or regulation of any governmental or non-governmental body: (a)Any representation or warranty made under this Agreement shall prove incorrect or misleading in any material respect when made or deemed to have been made; (b)The Borrower shall default in the payment of any principal, interest or other monetary amounts payable hereunder or under the Revolving Loan Note, or under the other Loan Documents (other than payments due on the Revolving Loan Maturity Date, on which date all outstanding Obligations to pay money shall be paid to the Bank without notice, cure or delay) which payment default is not 28 cured within thirty (30) calendar days of Borrower's receipt of notice from the Bank; (c)The Borrower shall default in the performance or observance of any other agreement or covenant contained in this Agreement not specifically referred to elsewhere in this Section 6.1, and such Event of Default shall not be cured to the Bank's satisfaction within a period of ninety (90) days from the date the Borrower receives notice from the Bank with respect thereto; (d)There shall occur any Event of Default in the performance or observance of any agreement or covenant or breach of any representation or warranty contained in any of the Loan Documents (other than this Agreement or as otherwise provided in this Section 6.1 of this Agreement) or any Subsidiary Guaranty, which shall not be cured to the Bank's satisfaction within the applicable cure period, if any, provided for in such Loan Document or ninety (90) days from the date the Borrower receives notice from the Bank with respect thereto if no cure period is provided in such Loan Document; (e)There shall be entered a decree or order for relief in respect of the Borrower or any of its Restricted Subsidiaries under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator, or similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or ordering the winding up or liquidation of the affairs of the Borrower or any of its Restricted Subsidiaries, or an involuntary petition shall be filed against the Borrower or any of its Restricted Subsidiaries, and a temporary stay entered, and (i) such petition and stay shall not be diligently contested, or (ii) any such petition and stay shall continue undismissed for a period of thirty (30) consecutive days; (f)The Borrower or any of its Restricted Subsidiaries shall file a petition, answer, or consent seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy law or other similar law, or the Borrower or any of its Restricted Subsidiaries shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment or taking of possession of a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other similar official of the Borrower or any of its Restricted Subsidiaries, or of any substantial part of their respective properties, or the Borrower or any of its Restricted Subsidiaries shall fail generally to pay their respective debts as they become due, or the Borrower or any of its Restricted Subsidiaries shall take any corporate or partnership action to authorize any such action; (g)A final judgment shall be entered by any court against the Borrower or any of its Restricted Subsidiaries for the payment of money which exceeds $500,000.00, which judgment is not covered by insurance or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or any of its Restricted Subsidiaries which, together 29 with all other such property of the Borrower or any of its Restricted Subsidiaries subject to other such process, exceeds in value $500,000.00 in the aggregate, and if, within thirty (30) days after the entry, issue, or levy thereof, such judgment, warrant, or process shall not have been paid or discharged or bonded or stayed pending appeal, or if, after the expiration of any such stay, such judgment, warrant, or process shall not have been paid or discharged; (h) (1) There shall be at any time any "accumulated funding deficiency," as defined in ERISA or in Section 412 of the Code, with respect to any Plan; or (2) a trustee shall be appointed by a United States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan; or (3) any of the Borrower and its ERISA Affiliates shall incur any liability to the Pension Benefit Guaranty Corporation in connection with the termination of any Plan; or (4) any Plan or trust created under any Plan of any of the Borrower and its ERISA Affiliates shall engage in a nonexempt "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which would subject the Borrower or any ERISA Affiliate to the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the Code; and by reason of any or all of the events described in clauses (1) through (4), as applicable, the Borrower shall have waived (and/or is likely to incur) and/or incurred liability in excess of $1,000,000.00 in the aggregate; (i)All or any portion of any Loan Document shall at any time and for any reason be declared by a court of competent jurisdiction in a suit with respect to such Loan Document to be null and void, or a proceeding shall be commenced by any governmental authority involving a legitimate dispute or by the Borrower or any of its Restricted Subsidiaries, having jurisdiction over the Borrower or any of its Restricted Subsidiaries, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or the Borrower or any of its Restricted Subsidiaries shall deny that it has any liability or obligation for the payment of principal or interest purported to be created under any Loan Document; (j)There shall occur any Change of Control; (k)Except for conveyances of all or any part of the Loan Inventory between the Borrower and the Guarantors, there occurs any sale, lease, conveyance, assignment, pledge, encumbrance, or transfer of all or any part of the Loan Inventory or any interest therein, voluntarily or involuntarily, whether by operation of law or otherwise, except (i) in accordance with the terms of this Agreement, (ii) for execution of contracts with prospective purchasers, (iii) for Permitted Encumbrances, and (iv) in the ordinary course of business. Notwithstanding anything contained herein to the contrary, the occurrence of any of the foregoing shall not be a Default or an Event of Default hereunder if: (i) the occurrence pertains only to specific parcel(s) within the Loan Inventory; and (ii) the affected parcel(s) is (are) removed from the Loan Inventory on or before ten (10) days in the case of a monetary occurrence and thirty (30) days in the case of a nonmonetary occurrence after the occurrence or, if the Borrower is entitled to notice and cure, within the applicable notice 30 and cure period. In the event that any such parcel is a Lot Under Development, Developed Lot or Dwelling Lot, then the Loan Funding Availability shall be immediately calculated excluding such parcel. If, as the result of such removal, the outstanding principal balance under the Revolving Loan would exceed the Loan Funding Availability, the Borrower shall pay (X) to the Bank on the Reconciliation Date immediately following the removal of such Inventory from the Loan Inventory, a principal payment on the Revolving Loan in an amount sufficient to eliminate such excess of the aggregate outstanding principal balance of the Revolving Loan over the Loan Funding Availability, together with any due and unpaid interest on such excess, or (Y) add additional Inventory to the Loan Inventory (which is acceptable to the Bank) in an amount sufficient to cause the Loan Funding Availability to equal or exceed the Revolving Loan. 6.2 Remedies. If a Default shall have occurred and shall be continuing: (a)With the exception of a Default specified in Sections 6.1(e), (f) or (g) hereof, the Bank may by notice to the Borrower (i) declare the Revolving Loan Note, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Revolving Loan Note, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, and (ii) terminate the Revolving Loan Commitment. (b)Upon the occurrence of a Default under Sections 6.1(e), (f) or (g) hereof, the Revolving Loan Commitment shall automatically terminate, and such principal, interest (including without limitation interest which would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws), and other amounts payable under this Agreement or the Revolving Loan Note shall thereupon and concurrently therewith become due and payable, all without any action by the Bank. (c)The Bank may exercise all of the post-default rights granted to it and to them under the Loan Documents or under Applicable Law. (d)The rights and remedies of the Bank hereunder shall be cumulative, and not exclusive. 6.3 Waivers. Neither a waiver of any Default or Event of Default by the Borrower hereunder nor any representation by the Bank as to the nonoccurrence or nonexistence thereof shall be implied from any delay or omission by the Bank to notify the Borrower thereof or to take action on account of such Default or Event of Default, and no express waiver shall affect any Default or Event of Default other than the matter specified in the waiver, and it shall be operative only for the time and to the extent therein stated. Waivers of any covenants, terms or conditions contained herein must be in writing and shall not be construed as a waiver of any subsequent breach of the same covenant, term or 31 condition. No consent or approval to or of any act by the Borrower requiring further consent or approval shall be deemed to waive or render unnecessary the consent or approval to or of any subsequent or similar act. Any exercise of any right or remedy of the Bank hereunder shall not in any way constitute a cure or waiver of a Default or an Event of Default, or invalidate any act done pursuant to any notice of the occurrence of a Default or an Event of Default, or prejudice the Bank in the exercise of any of its rights hereunder or under the Revolving Loan Note or any other Loan Documents, unless, in the exercise of said rights, the Bank realizes all amounts owed to it under the Revolving Loan Note and other Loan Documents. 6.4 Cross-Default. The Revolving Loan Note and other Loan Documents are "cross-defaulted" such that (a) the occurrence of an Event of Default under any one of the Loan Documents shall constitute an Event of Default under this Agreement and all of the Loan Documents, and (b) the occurrence of a Default under any one of the Loan Documents shall constitute a Default under this Agreement and all of the other Loan Documents. 6.5 No Liability of the Bank. (a)Construction and/or Development. The Bank shall not be liable to any party for (i) the development of or construction upon any of the Inventory, (ii) the failure to develop or construct or protect improvements on the Inventory, (iii) the payment of any expense incurred in connection with the development of or construction upon the Inventory, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Bank's exercise of any remedy available to them. In addition, the Bank shall not be liable to the Borrower or any third party for the failure of the Bank or its authorized agents to discover or to reject materials or workmanship during the course of the Bank's inspections of the Inventory. (b)Dwelling Lots. In addition to Section 6.5(a) above, the Bank shall not be liable to any party for (i) the construction or completion of the Dwellings, (ii) the failure to construct, complete or protect the Dwellings, (iii) the payment of any expense incurred in connection with the construction of the Dwellings, (iv) the performance or nonperformance of any other obligation of the Borrower, or (v) the Bank's exercise of any remedy available to it. In addition, the Bank shall not be liable to the Borrower or any third party for the failure of the Bank or its authorized agents to discover or to reject materials or workmanship during the course of the Bank's inspections of the Dwelling Lots. 7.REGARDING THE MULTIBANK LOAN AGREEMENT 7.1 Subsequent Amendment of Multibank Loan Agreement. No amendment, modification, replacement or termination of the Multibank Loan Agreement, nor any agreement with respect to Third-Party Notes Payable, nor 32 any repayment, refinancing or forgiveness of the "Obligations" thereunder nor the termination, cancellation, satisfaction or forgiveness of any Lien or security interest granted (or purported to be granted) in connection with such "Obligations" shall act so to affect this Agreement or the Loan Documents or obligate the Bank to agree to or provide any similar change in or with respect to this Agreement or the Loan Documents. 7.2 Notice of Amendment. The Borrower shall deliver to the Bank within ten (10) calendar days of the execution thereof, copies of any amendments, restatements, waivers, modifications of, or agreements relating to, the Multibank Loan Agreement or the "Loan Documents" executed in connection therewith. 7.3 Bank's Right to Subsequent Amendment. In the event the Borrower is party to any amendment modification or restatement of the Multibank Loan Agreement, the "Loan Documents" executed in connection therewith which has the effect of imposing, in the Bank's judgment, greater or more stringent or frequent obligations on the Borrower, then the Bank may, in its discretion, require that corresponding amendments, modifications or restatements be made to this Agreement or the Loan Documents. 8.GENERAL CONDITIONS 8.1 Benefit. This Agreement is made and entered into for the sole protection and benefit of the Bank and the Borrower, their successors and assigns, and no other person or persons other than the Borrower shall have any right of action hereon or rights to the Revolving Loan proceeds at any time. The Bank shall not (a) owe any duty whatsoever to any claimant for labor performed or material furnished in connection with the construction of any Dwelling or improvement on any Inventory, or (b) owe any duty to apply any undisbursed portion of the Revolving Loan to the payment of any claim, or (c) owe any duty to exercise any right or power of the Bank hereunder or arising from any Default by the Borrower. 8.2 Assignment. The terms hereof shall be binding upon and inure to the benefit of the heirs, successors, assigns, and personal representatives of the parties hereto; provided, however, that the Borrower shall not assign this Agreement or any of its rights, interests, duties or obligations hereunder or any Revolving Loan proceeds or other monies to be advanced hereunder in whole or in part without the prior written consent of the Bank and any such assignment (whether voluntary or by operation of law) without said consent shall be void and render automatically terminated any obligation of any Bank hereunder to advance any further monies pursuant to this Agreement or any other Loan Document. The Bank may assign its rights and obligations under this Agreement, the Revolving Loan Note and any other Loan Documents, in whole or in part, to any other Person, provided that all of the provisions hereof shall continue in full force and effect and, in the event of such assignment, the Bank shall thereafter be 33 relieved of all liability hereunder with respect to actions or omissions of the Bank occurring thereafter, but only to the extent of the interest so assigned and any Revolving Loan disbursements made by any assignee(s) shall be deemed made in pursuance and not in modification hereof and shall be evidenced by the Revolving Loan Note and any other Loan Documents. 8.3 Amendment and Waiver. Neither this Agreement nor any term hereof may be amended orally, nor may any provision hereof be waived orally but only by an instrument in writing signed by the Bank and, in the case of an amendment, also by the Borrower. 8.4 Additional Obligations and Amendments. Without limiting the scope of Section 7.1, the Bank shall be under no obligation to extend any loans to the Borrower other than as specifically set forth in this Agreement. This Agreement shall not be amended except by a written instrument signed by all parties hereto which instrument contains a specific reference to this Agreement. 8.5 [Reserved]. 8.6 Terms. Whenever the context and construction require, all words used in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter, and the neuter shall include the masculine and feminine. 8.7 Governing Law and Jurisdiction. This Agreement shall be construed in accordance with the laws of the State of New Jersey, and such laws shall govern the interpretation, construction and enforcement hereof. For the purposes of any legal action or proceeding brought by the Bank with respect to this Agreement or the Loan Documents, the Borrower hereby irrevocably submits to the jurisdiction and venue of the state courts of the State of New Jersey. The Borrower also hereby submits to the nonexclusive jurisdiction and venue of the United States District Court for the District of New Jersey for any action, suit or proceeding arising out of or relating to this Agreement or the Loan Documents. The Borrower hereby irrevocably waives any objection it might now or hereafter be entitled to make with respect to the venue of any suit, action or proceeding arising out of or relating to this Agreement and the Loan Documents which is brought in the State of New Jersey or, at the election of the Bank, in the United States District Court for the District of New Jersey, and the Borrower hereby irrevocably waives any right to claim that any such suit, action or proceeding brought in any such court has been brought in an incorrect forum. 34 8.8 [Reserved.] 8.9 Attorneys' Fees. The Borrower shall pay on demand all attorneys' fees and other costs and expenses actually incurred by the Bank in the enforcement of or preservation of the Bank's rights under this Agreement and the other Loan Documents. To the full extent permitted by applicable law, the Borrower agrees to pay interest on any fees, costs or expenses due to the Bank, under this Section 8.9 which are not paid when due at the Default Rate. In the event that any Loan Document contains a provision regarding enforcement or preservation of rights which is different from this Section 8.9, this Section 8.9 shall control. 8.10 Mandatory Arbitration. Any controversy or claim between or among the parties hereto arising out of or relating to this Agreement, the Loan Documents or any related instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or, if not applicable, the applicable state law), the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Endispute, Inc., doing business as J.A.M.S./Endispute ("J.A.M.S."), as amended from time to time, and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary judgment or expedited proceeding, to compel arbitration of any controversy or claim to which this provision applies in any court having jurisdiction over such action. (a)Special Rules. The arbitration shall be conducted in the City of Trenton, New Jersey and administered by J.A.M.S. who will appoint an arbitrator; if J.A.M.S. is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) days. (b)Reservation of Rights. Nothing in this Loan Agreement shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Loan Agreement; or (ii) be a waiver by the Bank of the protection afforded to it or them by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of a the Bank (A) to exercise self-help remedies such as (but not limited to) set-off, or (B) to obtain from a court provisional or ancillary remedies such as injunctive relief or the appointment of a receiver. The Bank may exercise such self-help remedies (including without limitation remedies under Section 6.2 hereof), or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Loan Agreement. Neither the exercise of self-help remedies nor the institution or maintenance of provisional or ancillary remedies shall constitute a waiver of 35 the right of any party, including the claimant in any such action to arbitrate the merits of the controversy or claim occasioning resort to such remedies. No provision in this Agreement or any Loan Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in this Agreement. 8.11 Invalidation of Provisions. In the event that any one or more of the provisions of this Agreement is deemed invalid by a court having jurisdiction over this Agreement or other similar authority, the Bank may, in its sole discretion, terminate this Agreement in whole or in part. 8.12 Execution in Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.13 Captions. The captions herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof. 8.14 Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall, unless other specifically provided in such other Loan Document, be deemed sufficiently given or furnished if (a) in writing and delivered by personal delivery, by courier, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified below (unless changed by similar notice in writing given by the particular party whose address is to be changed), (b) by facsimile to the facsimile number specified below with confirmation thereof in writing by sender pursuant to subsection (a) above, or (c) by oral communication with confirmation thereof in writing by the notifying party pursuant to subsection (a) above within three (3) business days after such oral communication. Any such notice or communication shall be deemed to have been given and to be effective either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein or, in the case of facsimile, upon receipt or, in the case of oral communication, upon the effectiveness of written confirmation as hereinabove provided. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason. 36 BORROWER: D.R. HORTON, INC. 1901 Ascension Boulevard,Suite 100 Arlington, Texas 76006 Attn.: David J. Keller and Ted I. Harbour Facsimile No.: (817) 856-8249 Telephone No.: (817) 856-8200 THE BANK: PNC BANK, NATIONAL ASSOCIATION Real Estate Group - 18th Floor Suite J2-JTTC-18-6 Two Tower Center East Brunswick, NJ 08816 Telephone No.: (908)220-3566 Facsimile No.: (908) 220-3755 8.15 Final Agreement. THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Agreement as of the date first above written. ATTEST:D.R. HORTON, INC., as the Borrower By:_/s/ Ted Harbour_______ By:__/s/ David J. Keller______ Title:_Asst. Vice President Title:___CFO______________________ [Corporate Seal] 37 PNC BANK, NATIONAL ASSOCIATION, as the Bank By:__/s/________________________ Title:_Vice President___________ 38 EX-21.1 5 LIST OF SIGNIFICANT SUBSIDIARIES D.R. Horton - Texas, Ltd. EX-23.1 6 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements pertaining to 1) the D.R. Horton, Inc. 1991 Stock Incentive Plan (Form S-8 No. 33-48874), 2) the D.R. Horton, Inc. Stock Tenure Plan (Form S-8 No. 33-83162) and 3) the D.R. Horton, Inc. Employee Stock Purchase Plan (Form S-8 No. 333-3570) of our report dated November 8, 1996 with respect to the consolidated financial statements of D.R. Horton, Inc. included in the Annual Report (Form 10-K) for the year ended September 30, 1996. /s/ Ernst & Young LLP Fort Worth, Texas December 16, 1996 EX-27 7 FDS FOR 1996 10-K
5 This Schedule Contains Summary Financial Information Extracted From The Consolidated Balance Sheet and Consolidated Statement of Income found on pages 14 and 15 of the Company's Form 10-K for the year ended September 30, 1996, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR SEP-30-1996 Oct-01-1995 SEP-30-1996 32,467 0 0 0 345,283 377,750 5,631 0 402,913 55,402 169,873 0 0 324 177,314 402,913 547,336 547,336 449,054 449,054 0 0 1,474 44,432 17,053 27,379 0 0 0 27,379 .87 0
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