-----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, Pnva36XN0TMUDLIW4g5UZAD1NIInAVbRD4YxUp8Ww9xOQfVxtzZ/Mb4QidRKuZYs lhuHsq4N0+vkii15IxNL9g== 0000950147-98-000712.txt : 19980914 0000950147-98-000712.hdr.sgml : 19980914 ACCESSION NUMBER: 0000950147-98-000712 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980911 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEL WEBB CORP CENTRAL INDEX KEY: 0000105189 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 860077724 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04785 FILM NUMBER: 98707965 BUSINESS ADDRESS: STREET 1: 2231 EAST CAMELBACK ROAD CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 6028088000 MAIL ADDRESS: STREET 1: 6001 NORTH 24 STREET CITY: PHOENIX STATE: AZ ZIP: 85016 FORMER COMPANY: FORMER CONFORMED NAME: WEBB DEL E CORP DATE OF NAME CHANGE: 19880728 10-K405 1 FORM 10-K OF DEL WEBB CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year JULY 1, 1997 TO JUNE 30, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from N/A to N/A . Commission File Number: 1-4785 DEL WEBB CORPORATION (Exact name of registrant as specified in its charter) Delaware 86-0077724 (State of Incorporation) (IRS Employer Identification Number) 6001 North 24th Street, Phoenix, Arizona 85016 (Address of principal executive offices) (Zip Code) (602) 808-8000 (Registrant's phone 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 ------------------- ----------------------------------------- New York Stock Exchange Common Stock (par value $.001 per share) Pacific Stock Exchange 9 3/4% Senior Subordinated Debentures due 2003 New York Stock Exchange 9 % Senior Subordinated Debentures due 2006 New York Stock Exchange 9 3/4% Senior Subordinated Debentures due 2008 New York Stock Exchange 9 3/8% Senior Subordinated Debentures due 2009 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Registrant's Common Stock outstanding at July 31, 1998 was 18,107,482 shares. At that date, the aggregate market value of Registrant's Common shares held by non-affiliates, based upon the closing price of the Common Stock on the New York Stock Exchange on that date, was approximately $450,400,000. Documents Incorporated by Reference Portions of Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on November 4, 1998 are incorporated herein as set forth in Part III of this Annual Report. DEL WEBB CORPORATION FORM 10-K ANNUAL REPORT For the Fiscal Year Ended June 30, 1998 TABLE OF CONTENTS PART I Items 1. PAGE and 2. Business and Properties The Company......................................................... 1 Communities......................................................... 1 Product Design...................................................... 4 Construction........................................................ 4 Sales Activities.................................................... 4 Competition......................................................... 4 Certain Factors Affecting the Company's Operations.................. 5 Forward Looking Information; Certain Cautionary Statements...........7 Executive Officers of the Company................................... 8 Employees............................................................9 Item 3. Legal Proceedings....................................................9 Item 4. Submission of Matters to a Vote of Security Holders..................9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.......................................10 Item 6. Selected Consolidated Financial Data................................11 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain Consolidated Financial and Operating Data...............13 Results of Operations...........................................16 Liquidity and Financial Condition of the Company................19 Market Risk for Financial Instruments...........................20 Year 2000 Issue.................................................20 Impact of Inflation.............................................21 Accounting Standards Not Yet Adopted by the Company.............22 Item 8. Financial Statements and Supplementary Data.........................22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................22 TABLE OF CONTENTS (continued) PAGE PART III Item 10. Directors and Executive Officers of the Registrant..................23 Item 11. Executive Compensation..............................................23 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................................23 Item 13. Certain Relationships and Related Transactions......................23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................................24 PART I Items 1. and 2. Business and Properties THE COMPANY Del Webb Corporation develops residential communities ranging from smaller-scale, non-amenitized communities within its conventional homebuilding operations to large-scale, master-planned communities with extensive amenities. The Company currently conducts its operations in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. The Company's primary activities involve the development of large-scale, master-planned communities with extensive amenities for active adults age 55 and over. The Company is one of the nation's leading developers of age-qualified active adult communities. It has extensive experience in the active adult community business, having built and sold more than 60,000 homes at ten Sun City communities over the past 38 years. The Company designs, develops and markets these communities, controlling all phases of the master plan development process from land selection through the construction and sale of homes. Within its communities, the Company is usually the exclusive developer of homes. The Company was incorporated in 1946 in Arizona and reincorporated in 1994 in Delaware. The Company's principal executive offices are located at 6001 North 24th Street, Phoenix, Arizona 85016 and its telephone number is (602) 808-8000. The Company conducts substantially all of its activities through subsidiaries and, as used in this Annual Report, the term the "Company" includes Del Webb Corporation and its subsidiaries unless the context indicates otherwise. Statements in this Annual Report as to acreage, mileage, number of home sites, square feet, employees and shareholders are approximations. COMMUNITIES The following table shows, at June 30, 1998, certain information concerning the operating and pre-operating communities at which the Company has planned home sites, substantially all of which are controlled by the Company.
Remaining Home Sites(1) Total Home ------------------------- First Planned Closings Under Home Total Home Through Option Closing Acres Sites 6/30/98 Planned Owned or Other --------------------------------------------------------------- Operating Communities: Sun Cities Phoenix 1978 10,859 26,139 17,559 8,580 8,580 -- Sun Cities Las Vegas 1989 3,064 10,290 8,359 1,931 1,931 -- Sun City Palm Desert 1992 1,225 3,375 1,688 1,687 1,687 -- Sun City Roseville 1995 1,200 3,110 2,311 799 799 -- Sun City Hilton Head 1995 5,600 8,500 1,062 7,438 3,147 4,291 Sun City Georgetown 1996 5,636 10,500 1,299 9,201 8,514 687 Florida communities 1996 1,600 2,922 466 2,456 2,456 -- Other communities 1998 711 1,701 106 1,595 1,420 175 Coventry Homes(2) 1991 N/A 9,750 5,944 3,806 3,806 -- -------------------------------------------- Total Operating Communities 76,287 38,794 37,493 32,340 5,153 -------------------------------------------- Pre-Operating Communities: Sun City Lincoln Hills N/A 2,300 5,600 -- 5,600 1,510 4,090 Anthem Las Vegas(3) N/A 4,700 11,900 -- 11,900 5,100 6,800 Anthem Phoenix N/A 5,600 14,500 -- 14,500 14,500 -- Sun City at Huntley N/A 1,800 5,000 -- 5,000 5,000 -- -------------------------------------------- Total Future Communities 37,000 -- 37,000 26,110 10,890 -------------------------------------------- Total 113,287 38,794 74,493 58,450 16,043 ============================================
1 (1) Material additional regulatory approvals are required to build on many of these home sites. (2) The Company's conventional subdivision homebuilding operations. (3) The Company owns 2,500 of the 4,700 acres for Anthem Las Vegas and is working toward completion of a land exchange with the owner of the remaining acres, the Bureau of Land Management, for the remaining land for this community. Operating Master-Planned Communities ------------------------------------ The Sun Cities Phoenix include Sun City West and Sun City Grand. These communities are located 25 miles northwest of downtown Phoenix, Arizona. The build-out of Sun City West has been coordinated with the development of Sun City Grand, where home closings began in February 1997. The Sun Cities Las Vegas include Sun City Summerlin and Sun City MacDonald Ranch. Sun City Summerlin is located eight miles northwest of downtown Las Vegas, Nevada. Sun City MacDonald Ranch is located in Henderson, Nevada, near Las Vegas. Sun City Palm Desert is located in the Coachella Valley 20 miles east of Palm Springs, California, and 130 miles east of downtown Los Angeles. Information in the above table is for phase one and part of phase two of that community. The Company also owns 400 adjacent acres for the balance of the second phase of development at Sun City Palm Desert. If developed, the balance of phase two is currently planned for 1,300 homes. Development of future phases at the Company's communities is dependent on, among other factors, the state of the economy and prospects for the community in question at the time the current phases near completion. Sun City Roseville is located 20 miles northeast of downtown Sacramento, California. Sun City Hilton Head is located inland 13 miles from Hilton Head Island, South Carolina. Sun City Georgetown is located 30 miles north of downtown Austin, Texas. The Florida communities consist of two communities -- the Spruce Creek communities -- located near Ocala, Florida. In January 1998 the Company entered the active adult community business in Florida by acquiring these two communities. The other communities represent three smaller-scale communities in Arizona and California at which net new order activity and home closings began in fiscal 1998. Two of these communities are age-qualified and one is not. Future and Pre-Operating Master-Planned Communities --------------------------------------------------- The Company believes that the demographic attributes of its active adult market segment of people age 55 and over present significant opportunities for future active adult communities. The Company's plan is to capitalize on those opportunities and its experience, expertise and reputation by developing active adult communities in strategically selected locations. The current business strategy of the Company includes conducting extensive market research on prospective areas, including consumer surveys and supply and demand analyses, in connection with its evaluation of sites for future active adult communities. To the extent the Company has had a successful community in an area, the Company generally strives to maintain a market presence in that area through development of a successor community as build-out of the former community approaches. At any given time, the Company may have a number of land acquisitions for potential communities under study and in various stages of investigation or negotiation. The Company is currently investigating the acquisition of land for communities to be located both in areas of the country where the Company has active adult communities and in other areas, including full four-season areas (i.e., areas which experience cold winters), where it does not yet have experience in developing communities. In making significant land acquisitions, the Company generally endeavors to acquire options on the land to mitigate risks and reduce holding costs during the detailed feasibility and entitlement process. However, under certain circumstances, the Company may acquire land at an earlier stage in the development process. 2 Set forth below is selected information concerning several pre-operating communities which the Company is currently developing. Sun City Lincoln Hills ---------------------- Sun City Lincoln Hills is located close to and is planned as the successor to Sun City Roseville. The Company broke ground at this community in April 1998 and anticipates beginning sales activities in the third quarter of fiscal 1999 and the first home closings in the first quarter of fiscal 2000. Anthem Las Vegas ---------------- The Company's Anthem Las Vegas project will include an active adult community, Sun City Anthem, planned as the successor to Sun City Summerlin. Sun City Anthem is planned for 9,000 homes to be located on 3,400 acres. The Company broke ground at this community in November 1997 and began sales activities in July 1998. The first home closings are anticipated in the second quarter of fiscal 1999. In addition to Sun City Anthem, Anthem Las Vegas is also planned for a non-age-qualified golf community, Anthem Country Club. The company broke ground at Anthem Country Club, which is planned for 1,500 homes on 950 acres, in November 1997 and began sales activities in July 1998. Anthem Las Vegas will also have a conventional homebuilding component, Coventry Anthem, currently planned for 1,400 homes on 300 acres. The first home closings at both Anthem Country Club and Coventry Anthem are anticipated in the third quarter of fiscal 1999. The entire Anthem Las Vegas project is planned for a total of 4,700 acres. The 2,500 acres owned by the Company for Anthem Las Vegas were acquired through a land exchange with the Bureau of Land Management ("BLM"). The Company continues to work toward completion of an exchange with the BLM for the remaining acres, substantially all of which will be used for Sun City Anthem. Anthem Phoenix -------------- Anthem Phoenix (formerly the Villages at Desert Hills), located near Phoenix, is planned to include a non-agequalified country club community and a conventional homebuilding component. The Company began offsite development in November 1997 and anticipates beginning sales activities in fiscal 1999 and home closings in fiscal 2000. Sun City at Huntley ------------------- Sun City at Huntley is located in Huntley, Illinois (near Chicago). The Company broke ground at this community in April 1998. Sales activities began in August 1998 and the first home closings are anticipated in the fourth quarter of fiscal 1999. Conventional Subdivision Communities ------------------------------------ The Company began its conventional subdivision homebuilding operations (conducted under the name "Coventry Homes") in the Phoenix area in 1991 and expanded these operations to Tucson in 1994, Las Vegas and southern California in 1995 and north-central Arizona in 1996. At June 30, 1998 the Company had a backlog of home sales orders at 24 communities -- 12 in the Phoenix area, 4 in the Tucson area, 7 in the Las Vegas area and 1 in north-central Arizona. The Company completed its conventional homebuilding operations in southern California in fiscal 1998. In order to capitalize on its market knowledge and organizational structure, the Company's conventional homebuilding activities are primarily conducted in metropolitan or market areas in which the Company is developing an active adult community. For the fiscal year ended June 30, 1998 conventional homebuilding operations generated 21 percent of the Company's homebuilding revenues. The Company currently expects that active adult community development will continue to be its primary business activity. 3 PRODUCT DESIGN The Company designs homes to suit its market and endeavors to respect popular home design characteristics in the particular geographic market involved. Home designs are periodically reviewed and refined or changed in response to customer feedback in each market. Homes at the Company's communities generally range in size from 1,000 square feet to 3,000 square feet. The Company offers an extensive program of interior/exterior upgrades and options to allow home buyers the ability to customize their homes. CONSTRUCTION The Company generally functions as its own general contractor. At all stages of production, the Company's management personnel and on-site superintendents coordinate the activities of contractors, consultants and suppliers and subject their work to quality and cost controls. Consulting firms assist in project planning and independent contractors are employed to perform almost all of the site development and construction work. The Company does not sell vacant lots to others for residential construction purposes. The time required for construction of the Company's homes depends on the weather, time of year, local labor situations, availability of materials and supplies and other factors. The Company strives to coordinate the construction of homes with home sales orders to control the costs and risks associated with completed but unsold inventory. An inventory of unsold homes is maintained for immediate sale to customers. SALES ACTIVITIES At each of its large-scale, master-planned communities the Company establishes a large and well-appointed sales pavilion and an extensive complex of furnished model homes. These models include a wide variety of single family homes, each of which is generally available in several exterior styles. The Company's homes are sold by its commissioned sales personnel, who are available to provide prospective home buyers with floor plans, price information, option selections and tours of models and lots. The communities also have co-brokerage programs with independent real estate brokers. Homes are sold through sales contracts, some of which allow customers to purchase homes for delivery up to one year or more in the future. The sales contracts generally require an initial deposit and an additional deposit prior to commencement of construction. The Company provides to all home buyers standardized warranties subject to specified limitations. While more than one factor may contribute to a given home sale, the Company's experience indicates that a substantial portion of the home sales at its active adult communities are attributable to follow-ups on referrals from residents of its communities and to the Company's "Vacation Getaway" program. This program enables prospective purchasers to visit an active adult community and stay (for a modest charge) in vacation homes for a few days to one week to experience the Sun City lifestyle prior to deciding whether to purchase a home. The Company's information indicates that most home buyers at its active adult communities generally visit the community in which they purchase on more than one occasion before buying. This may affect the success of the sales effort at those communities at which a higher proportion of the potential customers do not live within a several-hour driving distance from the community. The Company also markets its communities through billboards, television and radio commercials, local and national print advertising, direct mailings and telemarketing. The Company offers mortgage financing for the purchasers of homes at its communities. The Company sells the mortgages it generates to third parties. COMPETITION All of the Company's real estate operations are subject to substantial competition. The Company competes with numerous national, regional and local homebuilders and developers, some of which have greater financial resources than the Company. 4 With the exception of the recently acquired Spruce Creek Communities near Ocala, Florida, the Company believes that it maintains a leading position within the active adult community market in each of the metropolitan areas in which it has an active adult community currently generating revenues. For the Company's active adult communities, there are varying degrees of direct and increasing competition from businesses engaged exclusively or primarily in the sale of homes to buyers age 55 and older and from non-age-qualified, master-planned communities in these areas. The Company competes with new home sales and resales at these other communities as well as with resales of homes in its own communities. The Company believes there may be significant additional future competition in active adult community development, including competition from national homebuilders and conventional community developers. The Company believes the major competitive factors in home purchases include location, home quality, price, value, design, mortgage financing terms, builder reputation and (for its lage-scale, master-planned communities) lifestyle, recreational facilities and other amenities. CERTAIN FACTORS AFFECTING THE COMPANY'S OPERATIONS Set forth below is a brief description of certain matters that may affect the Company. FINANCING AND LEVERAGE. As a result of the company's May 1998 public offering of $200 million in principal amount of 9 3/8% Senior Subordinated Debentures due 2009 and anticipated future borrowings under the Company's senior unsecured revolving credit facility (the "Credit Facility"), the Company expects to be more highly leveraged than it has been in recent years. The Company's degree of leverage from time to time will affect its interest incurred and capital resources, which could limit its ability to capitalize on business opportunities or withstand adverse changes. If the Company is at any time unable to service its debt, refinancing or obtaining additional financing may be required and may not be available or available on terms acceptable to the Company. Real estate development is dependent on the availability and cost of financing. In periods of significant growth, the Company will require significant additional capital resources, whether from issuances of equity or by incurring additional indebtedness. The availability and cost of debt financing is dependent on governmental policies and other factors outside the control of the Company. The Credit Facility restricts, and the indentures for the Company's publicly-held debt contain provisions that may restrict, the indebtedness the Company may incur. If the Company cannot at any time obtain sufficient capital resources to fund its development and expansion expenditures, its projects may be delayed, resulting in cost increases, adverse effects on the Company's results of operations and possible material adverse effects on the Company. No assurance can be given as to the terms, availability or cost of any future financing the Company may need. FUTURE COMMUNITIES AND NEW GEOGRAPHIC MARKETS. The Company's communities will be built out over time. Therefore, the medium- and long-term future of the Company will be dependent on the Company's ability to develop and market future communities successfully. Acquiring land and committing the financial and managerial resources to develop a large-scale community on that land involve significant risks. Before these communities generate any revenues, they require material expenditures for, among other things, acquiring large tracts of land, obtaining development approvals and constructing project infrastructure (such as roads and utilities), large recreation centers, golf courses, model homes and sales facilities. It generally takes several years or more for these communities to recover these material expenditures. The Company incurs additional risks to the extent it develops communities in climates or geographic areas in which it does not have experience or develops a different size or style of community, including acquiring the necessary construction materials and labor in sufficient amounts and on acceptable terms, adapting the Company's construction methods to different geographies and climates and reaching acceptable sales levels at such communities. Among other things, the Company believes that a significant portion of the home sales at its large-scale active adult communities is attributable to referrals from, or sales to, residents of those communities. The extent of such referrals or sales at new communities, including communities developed in other areas of the country, may be less than the Company has enjoyed at the large-scale active adult communities where it currently sells homes, and there will be challenges attracting potential customers from areas and to a market in which the Company has not had significant experience. 5 The Company is in the early stages of developing an active adult community near Chicago, Illinois, the Company's first four-season active adult community, and commenced operations near Ocala, Florida in January 1998 through the acquisition of a local active adult community developer. GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATIONS. The Company's business is subject to extensive federal, state and local regulatory requirements, including with respect to development activities and land exchanges, the broad discretion that governmental agencies have in administering those requirements and "no growth" or "slow growth" political sentiments, which have been increasing in recent years, all of which can prevent, delay, make uneconomic or significantly increase the cost of its developments. Environmental concerns and related governmental requirements have affected and will continue to affect all of the Company's community development operations. If the land exchange for Anthem Las Vegas is not completed, that project would have to be reduced in scope and reconfigured, which could affect the timing and potential profitability of the project, and the Company may have to dispose of property it acquired for the exchange at less than its purchase price. In connection with the development of the Company's communities and other real estate projects, particularly those located in California, numerous governmental approvals and permits are required throughout the development process, and no assurance can be given as to the receipt (or timing of receipt) of these approvals or permits. In addition, third parties can file lawsuits challenging approvals or permits received, which could cause substantial uncertainties and material delays for the project and, if successful, could result in approvals or permits being voided. The occurrence of any of the above factors could have a material adverse effect on the Company. GEOGRAPHIC CONCENTRATION. The Company's primary business operations are particularly concentrated (in terms of both invested capital and profitability) in the Phoenix and Las Vegas metropolitan areas. Its entire operations are comprised of a limited number of communities in seven states. The Company's geographic concentration and limited number of projects may create increased vulnerability to regional economic downturns or other adverse project-specific matters. A significant number of purchasers at the Company's active adult communities in Arizona, Nevada and southern California are from southern California. Those communities have been and may in the future be affected by conditions in the southern California real estate market and the southern California economy generally. CYCLICAL NATURE OF REAL ESTATE OPERATIONS AND OTHER CONDITIONS GENERALLY. All of the Company's communities are subject to real estate market conditions (both where its communities are located and in areas where its potential customers reside), the cyclical nature of real estate operations, general national economic conditions and changing demographic conditions. The Company's communities are long-term projects. Sales activity at the Company's communities varies from period to period, and the ultimate success of any community cannot necessarily be judged by results in any particular period or periods. A community may generate significantly higher sales levels at inception (whether because of local pent-up demand in the area or other reasons) than it does during later periods over the life of the community. Revenues and earnings of the Company will also be affected by period-to-period fluctuations in the mix of product and home closings among the Company's communities and conventional homebuilding operations and by sales of commercial land and facilities at the Company's communities. The Company's real estate operations also depend upon the availability and cost of mortgage financing. An increase in interest rates, which may result from governmental policies and other factors outside the control of the Company, may adversely affect the buying decisions of potential home buyers and their ability to sell their existing homes. 6 CONSTRUCTION LABOR AND MATERIALS COSTS. The Company has from time to time experienced shortages of materials or qualified tradespeople or volatile increases in the cost of certain materials (particularly increases in the price of lumber and framing, which are significant components of home construction costs), resulting in longer than normal construction periods and increased costs not reflected in the prices of homes for which home sale contracts had been entered into up to one year in advance of scheduled closing. Generally, the Company's home sale contracts do not contain, or contain limited, provisions for price increases if the Company's costs of construction increase. The Company relies heavily on local contractors, who may be inadequately capitalized or understaffed. The inability or failure of one or more local contractors to perform may result in construction delays, increased costs and loss of some home sale contracts. NATURAL RISKS. Some of the Company's communities are subject to natural risks including earthquakes, floods, tornados, hurricanes and significant rainfall. Some of these conditions have had a significant impact on the Company's operations in the past. Such natural risks could have a material adverse impact on the development of and results of operations for the community affected and the Company in the future. YEAR 2000 ISSUE. For a discussion of the possible effects on the Company of the Year 2000 issue, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Issue." FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS Certain statements contained in this Annual Report that are not historical results are forward looking statements. These forward looking statements involve risks and uncertainties including but not limited to those referred to above. Actual results may differ materially from those projected or implied. Further, certain forward looking statements are based upon assumptions of future events, which may not prove to be accurate. 7 EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the names and ages of all executive officers of the Company and the offices held with the Company at July 31, 1998.
Years Years as an Employed Executive by the Name Age Position Officer Company - ----------------------------------------------------------------------------------------------------- P. J. Dion 53 Chairman of the Board and 16 16 Chief Executive Officer L. C. Hanneman, Jr. 51 President and Chief Operating Officer 9 26 R. C. Jones 53 Senior Vice President and 6 6 General Counsel A. L. Mariucci 41 Senior Vice President 12 14 J. A. Spencer 49 Senior Vice President and 13 19 Chief Financial Officer D. V. Mickus 52 Vice President, Treasurer and Secretary 12 15 D. E. Rau 41 Vice President and Controller 12 13
Mr. Dion has served as Chairman of the Board and Chief Executive Officer since November 1987. Mr. Hanneman has served as President and Chief Operating Officer since May 1998. Prior to that time he served as Executive Vice President, overseeing active adult community operations, from May 1996 to May 1998. Prior to that time he served as Senior Vice President from January 1994 to May 1996 and as Vice President from January 1989 to January 1994. From August 1987 to May 1996 he served as General Manager of Sun Cities Las Vegas. Mr. Jones as served as Senior Vice President and General Counsel since May 1998. Prior to that time he served as Vice President and General Counsel from January 1992 to May 1998. Ms. Mariucci has served as Senior Vice President since May 1996. Prior to that time she served as a Vice President from June 1986 (when she began serving as Vice President, Corporate Planning and Development) to May 1996. She has had responsibility for overseeing the Company's non-age qualified communites and operations since January 1998. Prior to that time she served as General Manager of Terravita from December 1992 to January 1998 and General Manager of Anthem Phoenix from July 1996 to January 1998. Mr. Spencer has served as Chief Financial Officer since April 1993. Since February 1991 he has served as Senior Vice President. Mr. Mickus has served as Vice President and Treasurer since November 1985 and as Secretary since June 1991. Mr. Rau has served as Vice President and Controller since February 1991. 8 EMPLOYEES At June 30, 1998 the Company had 3,200 employees. The Company currently has no unionized employees. The Company believes that its employee relations are generally satisfactory. Item 3. Legal Proceedings The Company is a party to various legal proceedings arising in the ordinary course of business. While it is not feasible to predict the ultimate disposition of these matters, it is the opinion of management that their outcome will not have a material adverse effect on the financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. 9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock is listed on the New York Stock Exchange and Pacific Stock Exchange under the trading symbol (WBB). The following table sets forth the high and low sales prices of the Company's common stock on the New York Stock Exchange for the two fiscal years ended June 30, 1998. Sales Price - -------------------------------------------------------------------------------- Fiscal Year 1998 Fiscal Year 1997 - -------------------------------------------------------------------------------- Quarter Ended High Low High Low - -------------------------------------------------------------------------------- September 30 21 3/8 16 3/8 19 3/4 16 1/4 December 31 27 3/8 17 7/8 17 3/4 15 1/4 March 31 34 7/8 24 5/16 17 7/8 15 1/4 June 30 30 1/2 23 17 14 3/4 - -------------------------------------------------------------------------------- As of July 31, 1998 there were 2,876 shareholders of record of the Company's common stock. The Company has paid regular quarterly dividends of $.05 Per share for each quarter in the last five fiscal years. The Company has announced that after the $.05 Per share dividend to be paid in September 1998, it has no current plans to make future dividend payments and that it may utilize the capital that would otherwise be paid as cash dividends to make opportunistic purchases of its common stock. The amount and timing of any future dividends is subject to the discretion of the Board of Directors. The Company is also party to a loan agreement and various indentures that contain covenants restricting the Company's ability to pay dividends and acquire its common stock. Under the most restrictive of these covenants, at June 30, 1998 $34.6 Million of the Company's retained earnings were available for payment of cash dividends or for the acquisition by the Company of its common stock. 10 Item 6. Selected Consolidated Financial Data (Not covered by report of independent auditors) The following tables set forth selected consolidated financial data of the Company as of and for each of the five fiscal years ended June 30, 1998. They should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Dollars In Thousands Except Per Share Data Year Ended June 30, - ---------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- Statement of operations information: Revenues: Home sales - communities $ 879,825 $ 906,523 $ 794,671 $620,012 $405,462 Home sales - conventional homebuilding 238,559 237,566 217,158 144,469 79,992 Land and facility sales and other 59,383 42,173 38,904 38,638 24,607 - ---------------------------------------------------------------------------------------------------------- Total revenues $1,177,767 $1,186,262 $1,050,733 $803,119 $510,061 ========================================================================================================== Earnings (loss): Before extraordinary item (1) $ 42,533 $ 39,686 $ (7,751) $ 28,491 $ 17,021 Total (2) 42,533 38,401 (7,751) 28,491 17,021 ========================================================================================================== Net earnings (loss) per share: Before extraordinary item (1) $ 2.39 $ 2.26 $ (.44) $ 1.92 $ 1.15 Total (2) 2.39 2.18 (.44) 1.92 1.15 ========================================================================================================== Net earnings (loss) per share-assuming dilution: Before extraordinary item (1) $ 2.30 $ 2.22 $ (.44) $ 1.87 $ 1.13 Total (2) 2.30 2.15 (.44) 1.87 1.13 ========================================================================================================== Cash dividends per share $ .20 $ .20 $ .20 $ .20 $ .20 ==========================================================================================================
(1) In fiscal 1996, in connection with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 121, the Company incurred a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million pre-tax ($42.3 million after tax) related to the valuation of its Sun City Palm Desert active adult community. Exclusive of the non-cash loss, the Company's net earnings for fiscal 1996 were $34.5 million ($2.01 per share or $1.96 per share - assuming dilution). (2) Earnings for fiscal 1997 include a $1.3 million extraordinary loss from the early extinguishment of debt. 11 Item 6. Selected Consolidated Financial Data (Continued) (Not covered by report of independent auditors)
Dollars in Thousands Year Ended June 30, - --------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- Balance sheet information at year-end: Total assets $1,310,462 $1,086,662 $1,024,795 $ 925,050 $ 758,424 Notes payable and senior debt 167,608 222,881 320,063 284,585 189,657 Subordinated debt 536,330 340,187 194,614 206,673 206,019 ---------- ---------- ---------- ---------- ---------- Total notes payable, senior and subordinated debt 703,938 563,068 514,677 491,258 395,676 Shareholders' equity $ 345,767 $ 299,830 $ 264,776 $ 229,342 $ 201,324 Total notes payable, senior and subordinated debt ("Debt") divided by Debt and shareholders' equity 67.1% 65.3% 66.0% 68.2% 66.3% =========================================================================================================
12 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of results of operations and financial condition should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements and Notes thereto. CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA - ------------------------------------------------- Set forth below is certain consolidated financial and operating data of the Company as of and for each of the three fiscal years ended June 30, 1998.
Year Ended Change Change June 30, 1998 vs 1997 1997 vs 1996 - ------------------------------------------------------------------ ---------------- ----------------- 1998 1997 1996 Amount Percent Amount Percent - ------------------------------------------------------------------ ---------------- ----------------- OPERATING DATA: Number of net new orders(1): Sun Cities Phoenix(2) 1,245 1,271 963 (26) (2.0%) 308 32.0% Sun Cities Las Vegas(3) 1,179 1,091 1,241 88 8.1% (150) (12.1%) Sun City Palm Desert 443 262 216 181 69.1% 46 21.3% Sun City Roseville 739 553 537 186 33.6% 16 3.0% Sun City Hilton Head 396 337 349 59 17.5% (12) (3.4%) Sun City Georgetown 437 440 491 (3) (0.7%) (51) (10.4%) Florida communities(4) 240 N/A N/A 240 N/A N/A N/A Other communities(5) 270 N/A N/A 270 N/A N/A N/A Coventry Homes 1,334 1,179 1,249 155 13.1% (70) (5.6%) - ---------------------------------------------------------------- -------------- ---------------- Total current communities 6,283 5,133 5,046 1,150 22.4% 87 1.7% Completed operations: Sun City Tucson(6) N/A 58 160 (58) (100.0%) (102) (63.8%) Terravita(7) N/A 226 431 (226) (100.0%) (205) (47.6%) Coventry Homes-Southern California(8) N/A 180 213 (180) (100.0%) (33) (15.5%) - ---------------------------------------------------------------- -------------- ---------------- Total 6,283 5,597 5,850 686 12.3% (253) (4.3%) ================================================================ ============== ================ Number of home closings: Sun Cities Phoenix(2) 1,268 1,132 912 136 12.0% 220 24.1% Sun Cities Las Vegas(3) 1,164 1,200 1,001 (36) (3.0%) 199 19.9% Sun City Palm Desert 304 248 251 56 22.6% (3) (1.2%) Sun City Roseville 637 650 731 (13) (2.0%) (81) (11.1%) Sun City Hilton Head 386 371 305 15 4.0% 66 21.6% Sun City Georgetown 448 616 235 (168) (27.3%) 381 162.1% Florida communities(4) 170 N/A N/A 170 N/A N/A N/A Other communities(5) 106 N/A N/A 106 N/A N/A N/A Coventry Homes 1,285 1,293 1,204 (8) (0.6%) 89 7.4% - ---------------------------------------------------------------- -------------- ---------------- Total current communities 5,768 5,510 4,639 258 4.7% 871 18.8% Completed operations: Sun City Tucson(6) N/A 103 264 (103) (100.0%) (161) (61.0%) Terravita(7) 120 410 425 (290) (70.7%) (15) (3.5%) Coventry Homes-Southern California(8) 20 183 203 (163) (89.1%) (20) (9.9%) - ---------------------------------------------------------------- -------------- ---------------- Total 5,908 6,206 5,531 (298) (4.8%) 675 12.2% ================================================================ ============== ================
13 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued) - -------------------------------------------------------------
Year Ended Change Change June 30, 1998 vs 1997 1997 vs 1996 - ------------------------------------------------------------------------- --------------- ---------------- 1998 1997 1996 Amount Percent Amount Percent - ------------------------------------------------------------------------- --------------- ---------------- BACKLOG DATA: Homes under contract at June 30: Sun Cities Phoenix(2) 669 692 553 (23) (3.3%) 139 25.1% Sun Cities Las Vegas(3) 548 533 642 15 2.8% (109) (17.0%) Sun City Palm Desert 265 126 112 139 110.3% 14 12.5% Sun City Roseville 382 280 377 102 36.4% (97) (25.7%) Sun City Hilton Head 169 159 193 10 6.3% (34) (17.6%) Sun City Georgetown 191 202 378 (11) (5.4%) (176) (46.6%) Florida communities(4) 275 N/A N/A 275 N/A N/A N/A Other communities(5) 164 N/A N/A 164 N/A N/A N/A Coventry Homes 507 458 572 49 10.7% (114) (19.9%) - ------------------------------------------------------------------------- --------------- ---------------- Total current communities 3,170 2,450 2,827 720 29.4% (377) (13.3%) Completed operations: Sun City Tucson(6) N/A N/A 45 N/A N/A (45) (100.0%) Terravita(7) N/A 120 304 (120) (100.0%) (184) (60.5%) Coventry Homes-Southern California(8) N/A 20 23 (20) (100.0%) (3) (13.0%) - ------------------------------------------------------------------------- --------------- ---------------- Total(9) 3,170 2,590 3,199 580 22.4% (609) (19.0%) ========================================================================= =============== ================ Aggregate contract sales amount (dollars in millions) $ 642 $ 514 $ 617 $ 128 24.9% $ (103) (16.7%) Aggregate contract sales amount per home (dollars in thousands) $ 203 $ 198 $ 193 $ 5 2.5% $ 5 2.6% ========================================================================= =============== ================ AVERAGE REVENUE PER HOME CLOSING: Sun Cities Phoenix(2) $157,400 $158,900 $160,300 $(1,500) (0.9%) $(1,400) (0.9%) Sun Cities Las Vegas(3) 202,400 182,900 171,000 19,500 10.7% 11,900 7.0% Sun City Palm Desert 234,000 221,100 224,100 12,900 5.8% (3,000) (1.3%) Sun City Roseville 219,200 215,800 217,800 3,400 1.6% (2,000) (0.9%) Sun City Hilton Head 173,100 168,100 159,200 5,000 3.0% 8,900 5.6% Sun City Georgetown 201,000 183,100 181,500 17,900 9.8% 1,600 0.9% Florida communities(4) 97,900 N/A N/A N/A N/A N/A N/A Other communities(5) 218,200 N/A N/A N/A N/A N/A N/A Coventry Homes 182,700 153,700 139,500 29,000 18.9% (14,200) (10.2%) Weighted average current communities 186,800 175,700 170,700 11,100 6.3% 5,000 2.9% Completed operations: Sun City Tucson(6) N/A 167,000 170,600 N/A N/A (3,600) (2.1%) Terravita(7) 310,200 292,100 295,600 18,100 6.2% (3,500) (1.2%) Coventry Homes-Southern California(8) 186,600 211,900 242,400 (25,300) (11.9%) (30,500) (12.6%) Weighted average $189,300 $184,400 $182,900 $ 4,900 2.7% $ 1,500 0.8% ========================================================================= =============== ================
14 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) CERTAIN CONSOLIDATED FINANCIAL AND OPERATING DATA (Continued) - -------------------------------------------------------------
Year Ended Change Change June 30, 1998 vs 1997 1997 vs 1996 - ----------------------------------------------------------------- --------------- --------------- 1998 1997 1996 Amount Percent Amount Percent - ----------------------------------------------------------------- --------------- --------------- OPERATING STATISTICS: Costs and expenses as a percentage of revenues: Home construction, land and other 76.3% 77.0% 76.9% (0.7%) (0.9%) 0.1% 0.1% Interest 3.9% 4.2% 4.0% (0.3%) (7.1%) 0.2% 5.0% Selling, general and administrative 14.1% 13.6% 14.0% 0.5% 3.7% (0.4%) (2.9%) Ratio of home closings to homes under contract in backlog at beginning of year 228.1% 194.0% 192.0% 34.1% 17.6% 2.0% 1.0% ================================================================== ============= ==============
(1) Net of cancellations. The Company recognizes revenue at close of escrow. (2) Includes Sun City West and Sun City Grand. The Company began taking new home sales orders at Sun City Grand in October 1996. Home closings began at Sun City Grand in February 1997. (3) Includes Sun City Summerlin and Sun City Macdonald Ranch. (4) In january 1998 the Company acquired certain assets and assumed certain liabilities at two operating age-qualified communities in central Florida. Included in this acquisition was a backlog of 205 homes at these two communities at the date of acquisition. (5) Represents three smaller-scale communities in Arizona and California at which net new order activity began in september, October and November 1997. Home closings began at these communities in March, April and May 1998. (6) The Company completed net new order activity at Sun City Tucson in February 1997. Home closings at Sun City Tucson were completed in April 1997. (7) The Company completed net new order activity at terravita in April 1997. Home closings at Terravita were completed in may 1998. (8) The Company completed net new order activity for its Coventry Homes southern California operations in June 1997. Home closings for these operations were completed in August 1997. (9) A majority of the backlog at June 30, 1998 is currently anticipated to result in revenues in the next 12 months. However, a majority of the backlog is contingent primarily upon the availability of financing for the customer and, in certain cases, sale of the customer's existing residence or other factors. Also, as a practical matter, in most cases the Company's ability to obtain damages for breach of contract by a potential home buyer is limited to retaining all or a portion of the deposit received. In the years ended June 30, 1998, 1997 and 1996, cancellations of home sales orders as a percentage of new home sales orders written during the year were 13.9 Percent, 17.1 Percent and 17.2 Percent, respectively. See "Business and Properties -- Forward Looking Information; Certain Cautionary Statements." 15 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS - --------------------- REVENUES. Revenues decreased slightly to $1.18 billion for the fiscal year ended June 30, 1998 from $1.19 billion for the fiscal year ended June 30, 1997. This decrease was due to the decreased closings at Terravita, Coventry Homes' southern California operations and Sun City Tucson, reflecting the completion of those operations. Largely offsetting the effect of these decreased closings were revenues from the commencement in fiscal 1998 of community operations in Florida and at three smaller-scale communities in Arizona and California, an increase in the average revenue per home closing and revenues from the sale of certain facilities (a shopping center and golf course) in connection with the completion of operations at Terravita. Revenues increased to $1.19 billion for fiscal 1997 from $1.05 billion for fiscal 1996. Increased home closings at Sun City Georgetown and Sun City Hilton Head (two communities at which the Company had home closings for only part of fiscal 1996) accounted for $69.2 million and $10.5 million, respectively, of the increase. Increased home closings at the Sun Cities Las Vegas (where the Company had home closings at Sun City MacDonald Ranch for only part of fiscal 1996), the Sun Cities Phoenix (where home closings did not begin at Sun City Grand until February 1997) and Coventry Homes (due mainly to the expansion of operations in the Las Vegas area) accounted for $34.0 million, $35.3 million and $10.6 million, respectively, of the increase in revenues. Decreased home closings at Sun City Roseville (reflecting the decrease in net new orders experienced at that community in the first quarter of fiscal 1997) and Sun City Tucson (reflecting the completion of that community) resulted in decreased revenues of $17.6 million and $27.5 million, respectively. An increase in the average revenue per home closing resulted in a $23.0 million increase in revenues from fiscal 1996 to fiscal 1997. This increase in average revenue per home closing was primarily due to changes in mix of product and home closings among the Company's communities and conventional homebuilding operations and to increases in lot premiums and optional upgrades in homes at certain communities. HOME CONSTRUCTION, LAND AND OTHER COSTS. The decrease in home construction, land and other costs to $898.8 million for fiscal 1998 compared to $913.9 million for fiscal 1997 was primarily due to the decrease in home closings. These costs as a percentage of revenues decreased to 76.3 percent for fiscal 1998 compared to 77.0 percent for fiscal 1997, with the decrease primarily due to improved margins on land and facility sales. The improved margins on land and facility sales were largely due to the declining volume of lower-margin land sales at a substantially complete residential land development project in Phoenix. A higher profit margin on home closings was also realized as a result of a change in mix of product and home closings among the Company's conventional homebuilding operations. The increase in home construction, land and other costs to $913.9 million for fiscal 1997 compared to $808.0 million for fiscal 1996 was due to the increase in home closings. As a percentage of revenues, these costs were 77.0 percent for fiscal 1997 and 76.9 percent for fiscal 1996. On a period-to-period basis, home construction, land and other costs as a percentage of revenues will vary due to, among other things, changes in product mix, differences between individual communities, lot premiums, optional upgrades, price increases and changes in construction costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenues, selling, general and administrative expenses increased to 14.1 percent for fiscal 1998 compared to 13.6 percent for the 1997 period. This increase was due primarily to increased corporate overhead to investigate new market opportunities and support an increased number of pre-operating communities. As a percentage of revenues, selling, general and administrative expenses decreased to 13.6 percent for fiscal 1997 compared to 14.0 percent for fiscal 1996. This decrease resulted from the spreading of corporate overhead over greater revenues. INTEREST. As a percentage of revenues, amortization of capitalized interest was 3.9 percent for fiscal 1998 compared to 4.2 percent for fiscal 1997. This decrease was primarily due to an increase in pre-operating communities, at which interest is being capitalized on qualified assets but at which interest amortization on home closings has not yet begun. 16 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) As a percentage of revenues, amortization of capitalized interest was 4.2 percent for fiscal 1997 compared to 4.0 percent for fiscal 1996. The increase was primarily due to the fiscal 1996 adoption of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which, after the writedown of certain assets, resulted in a new allocation of capitalized interest to remaining assets. This resulted in an increase in amortization of capitalized interest as a percentage of revenues. See "Loss From Impairment of Southern California Real Estate Inventories." LOSS FROM IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES. In connection with its adoption of SFAS No. 121 in fiscal 1996, the Company incurred a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million pre-tax ($42.3 million after tax) related to the valuation of its Sun City Palm Desert active adult community. Exclusive of the non-cash loss, the Company's net earnings for fiscal 1996 were $34.5 million ($2.01 per share or $1.96 per share - assuming dilution). In the first six months of fiscal 1996, net new orders at Sun City Palm Desert were substantially below both the comparable period of the prior fiscal year and the Company's expectations. Although the Company was encouraged by net new orders significantly greater in the first 45 days of the third quarter of fiscal 1996 than in the comparable period in the prior fiscal year, a lower than anticipated level of net new orders was expected in the remainder of fiscal 1996 and net new orders for all of fiscal 1996 were anticipated to be lower than in prior fiscal years. Additionally, a national home builder was developing an active adult community near Sun City Palm Desert which was expected to cause additional competitive pressures at that community. Based on these and other factors, the Company reduced its estimate with respect to net new orders and closings in the fiscal years ending June 30,1997 and beyond to below the levels achieved in the three fiscal years ended June 30, 1995. This resulted in expected future net cash flows (undiscounted and without interest charges) at Sun City Palm Desert being less than the book value of the asset. As required by SFAS No. 121, the Company therefore recorded in fiscal 1996 a non-cash loss from impairment of southern California real estate inventories to reflect Sun City Palm Desert at its estimated fair value. Fair value was estimated based upon an evaluation of comparable market prices and discounted expected future cash flows. Although the Company has experienced improvement in net new orders and home closings in fiscal 1998, restoration of previously recognized impairment losses on assets to be held and used is prohibited by SFAS No. 121. The Company owns additional land for a second phase of development at Sun City Palm Desert. The Company has recently decided to move forward with development of a portion of this second phase. Development of subsequent phases of large-scale real estate projects is assessed in light of conditions existing when construction of the phase is to begin. Any decision to develop the remainder of the second phase at this community will depend on the state of the economy and prospects for this community at the time the current phases are nearing completion. INCOME TAXES. The increase in income taxes to $23.9 million in fiscal 1998 compared to $22.3 million in fiscal 1997 was due to the increase in earnings before income taxes. The effective tax rate in both fiscal years was 36 percent. The increase in income taxes to a $22.3 million expense in fiscal 1997 compared to a $4.2 million benefit for fiscal 1996 was due to the change in earnings (loss) before income taxes and extraordinary item. The effective tax rate also increased to 36 percent from 35 percent. EXTRAORDINARY ITEM. In connection with the early redemption of all of the Company's $100 million of outstanding 107/8% Senior Notes at par on March 31, 1997, an extraordinary loss of $1.3 million was recognized in fiscal 1997. NET EARNINGS (LOSS). The increase in net earnings to $42.5 million for fiscal 1998 from $38.4 million for fiscal 1997 was primarily attributable to the increase in earnings from land and facility sales. Largely due to the sale of a golf course and shopping center at Terravita, earnings before income taxes attributable to land and facility sales increased to $15.0 million for fiscal 1998 compared to $5.2 million for fiscal 1997. Land and facility sales are a normal part of the Company's operations but occur irregularly and vary significantly in magnitude, complicating period-to-period comparisons. 17 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company had net earnings of $38.4 million in fiscal 1997 compared to a net loss of $7.8 million in fiscal 1996, primarily due to the non-cash loss with respect to southern California real estate inventories incurred by the Company in fiscal 1996. Excluding this non-cash loss in fiscal 1996, net earnings increased by $3.9 million (11.3 percent), while home closings increased by 675 units (12.2 percent) and revenues increased by $135.5 million (12.9 percent). The overall less-than-proportionate increase in net earnings was attributable to the extraordinary loss recognized by the Company in fiscal 1997. NET NEW ORDER ACTIVITY AND BACKLOG. Total net new orders in fiscal 1998 were 12.3 percent higher than in fiscal 1997. Net new orders at operations that were selling homes in both fiscal 1998 and fiscal 1997 increased 12.5 percent. The increase in total net new orders was largely due to the commencement of Florida community operations in January 1998 and net new order activity at three smaller-scale communities in Arizona and California in fiscal 1998. These increases were partially offset by declines attributable to the recently completed operations of Terravita, Coventry Homes' southern California operations and Sun City Tucson. The increase in net new orders at operations that were selling homes in both fiscal 1998 and fiscal 1997 was largely due to increases at Sun City Roseville and Sun City Palm Desert, which management believes may be attributable to continued improvement in the California real estate economy and its economy generally, as well as to the introduction of new models. Management believes that the increase in net new orders at the Sun Cities Las Vegas is due to the continued strength of the Las Vegas market. At Sun City Hilton Head, management believes that the increase in net new orders may be partially due to the fact that important commercial and service-related businesses have announced development plans for the area adjacent to Sun City Hilton Head. Coventry Homes' net new orders increased as a result of increases in Phoenix and Las Vegas. The number of homes under contract at June 30, 1998 was 22.4 percent higher than at June 30, 1997. Management believes that this backlog increase was largely due to the same factors that produced the increase in net new orders. Backlog decreases were experienced at the Sun Cities Phoenix (where Sun City West is approaching completion) and Sun City Georgetown (where management believes sales have leveled after satisfaction of initial local pent-up demand). Net new orders in fiscal 1997 were 4.3 percent lower than in fiscal 1996. A significant increase was realized at the Sun Cities Phoenix as a result of new order activity at Sun City Grand, which began taking new orders in October 1996. Net new orders at Sun City Tucson and Terravita declined 63.8 percent and 47.6 percent, respectively, from fiscal 1996, reflecting the completion or approaching completion of those communities. Net new orders at the Sun Cities Las Vegas declined 12.1 percent from a particularly strong fiscal 1996. Coventry Homes also experienced a 7.0 percent decrease in net new orders as a result of having fewer communities open in fiscal 1997 than in fiscal 1996. The number of homes under contract at June 30, 1997 was 19.0 percent lower than at June 30, 1996. This backlog decrease was due primarily to decreases at: Sun City Roseville (as a result of a decline in net new orders in the first quarter of fiscal 1997 and a high level of home closings in fiscal 1997); Sun City Georgetown and Coventry Homes (as their net new orders did not keep pace with home closings in fiscal 1997); and Sun City Tucson and Terravita (attributable to the completion or approaching completion of those communities). 18 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY AND FINANCIAL CONDITION OF THE COMPANY - ------------------------------------------------ The cash flow for each of the Company's communities can differ substantially from reported earnings, depending on the status of the development cycle. The initial years of development or expansion require significant cash outlays for, among other things, land acquisition, obtaining master plan and other approvals, construction of amenities (including golf courses and recreation centers), model homes, sales and administration facilities, major roads, utilities, general landscaping and interest. Since these costs are capitalized, this can result in income reported for financial statement purposes during those initial years significantly exceeding cash flow. However, after the initial years of development or expansion, when these expenditures are made, cash flow can significantly exceed earnings reported for financial statement purposes, as costs and expenses include amortization charges for substantial amounts of previously expended costs. During fiscal 1998 the Company generated $363.3 million of net cash from community sales activities, used $169.7 million of cash for land and lot and amenity development at operating communities, paid $162.9 million for costs related to communities in the pre-operating stage, generated $21.4 million of net cash from conventional homebuilding operations and used $122.7 million of cash for other operating activities. The resulting $70.6 million of net cash used for operating activities (which was primarily attributable to expenditures for communities not yet generating home sales revenues) was funded mainly by the net proceeds from the May 1998 public offering of $200 million in principal amount of 9 3/8% Senior Subordinated Debentures due 2009 (the "1998 Debt Offering"). The net proceeds from the 1998 Debt Offering were also used to repay a portion of the indebtedness outstanding under the Company's senior unsecured revolving credit facility (the "Credit Facility"). In January 1998 the amount of the Credit Facility was increased from $350 million to $400 million. In June 1998 the Credit Facility was amended to revise certain debt-related covenants and increase the amount of the Credit Facility to $450 million, all of which is available for borrowing, subject to compliance by the Company with the revised covenants. At June 30, 1998 the Company had $14.4 million of cash and short-term investments, $96.0 million outstanding under the Credit Facility and $15.2 million outstanding under its $25 million of short-term lines of credit. The Company is currently experiencing a period of substantial development. It has under development, among other projects: (i) Sun City Lincoln Hills, planned as the successor to Sun City Roseville; (ii) Anthem Las Vegas, which will include Sun City Anthem (planned as the successor to Sun City Summerlin), Anthem Country Club (a non-age-qualified golf course community) and a conventional home building component (Coventry Anthem); (iii) Anthem Phoenix, planned to include a non-age-qualified country club community and a conventional home building component and which may also include an active adult community at a later date; and (iv) Sun City at Huntley, located in Huntley, Illinois (near Chicago). The Company currently anticipates that it will incur material additional debt under the Credit Facility for development expenditures at these communities. As a result of the 1998 Debt Offering and anticipated future borrowings under the Credit Facility, the Company expects to be more highly leveraged than it has been in recent years. The Company's degree of leverage from time to time will affect its interest incurred and capital resources, which could limit its ability to capitalize on business opportunities or withstand adverse changes. If the Company cannot at any time obtain sufficient capital resources to fund its development and expansion expenditures, its projects may be delayed, resulting in cost increases, adverse effects on the Company's results of operations and possible material adverse effects to the Company. No assurance can be given as to the terms, availability or cost of any future financing the Company may need. If the Company is at any time unable to service its debt, refinancing or obtaining additional financing may be required and may not be available or available on terms acceptable to the Company. Management believes that the Company's current borrowing capacity, when combined with existing cash and short-term investments and currently anticipated cash flows from the Company's operating communities and conventional homebuilding activities, will provide the Company with adequate capital resources to fund the Company's currently anticipated operating requirements for the next 12 months. However, these operating requirements reflect some limitations on the timing and extent of new projects and activities that the Company may otherwise desire to undertake. 19 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) At June 30, 1998, under the most restrictive of the covenants in the Company's debt agreements, $34.6 million of the Company's retained earnings was available for payment of cash dividends or for the acquisition by the Company of its common stock. MARKET RISK FOR FINANCIAL INSTRUMENTS - ------------------------------------- The Company does not trade in derivative financial instruments and at June 30, 1998 had no significant derivative financial instruments. The Company does have other financial instruments, for purposes other than trading, in the form of notes payable, senior and subordinated debt. The Company's publicly held debt and some real estate and other notes are at fixed interest rates. The Company's Credit Facility, short-term lines of credit and some real estate and other notes are at variable interest rates and are thus subject to market risk in the form of fluctuations in interest rates. The following table provides interest rate sensitivity information about the Company's notes payable, senior and subordinated debt at June 30, 1998 (dollars in millions):
Amount by Scheduled Maturity for -------------------------------- Estimated Fiscal Years Ending June 30, Fair Value ---------------------------- at 1999 2000 2001 2002 2003 Thereafter Total June 30, 1998 ---- ---- ---- ---- ---- ---------- ----- ------------- Fixed Rate Debt - --------------- Amount $ 7.8 $2.9 $2.4 $ 3.3 $108.4 $444.6 $569.4 $583.3 Average Interest Rate 8.0% 8.0% 7.9% 8.1% 9.5% 9.4% 9.4% Variable Rate Debt - ------------------ Amount $38.2 -- -- $96.0 -- $ 0.3 $134.5 $134.5 Average Interest Rate 8.7% -- -- 8.5% -- 9.5% 8.6%
YEAR 2000 ISSUE - --------------- The Year 2000 issue is the result of computer programs being written using two digits (rather than four) to define the applicable year. Computer programs that have time-sensitive software may not recognize dates beginning in the year 2000, which could result in miscalculations or system failures. To date, the Company's Year 2000 remediation efforts have focused on its core business computer applications (i.e., those systems that the Company is dependent upon for the conduct of day-to-day business operations). Starting approximately two years ago, the Company initiated a comprehensive review of its core business applications to determine the adequacy of these systems to meet future business requirements. Year 2000 readiness was only one of many factors considered in this assessment. Out of this effort, a number of systems were identified for upgrade or replacement. In no case is a system being replaced solely because of Year 2000 issues, although in some cases the timing of system replacements is being accelerated. Thus, the Company does not believe the costs of these system replacements are specifically Year 2000 related. Additionally, while the Company may have incurred an opportunity cost for addressing the Year 2000 issue, it does not believe that any specific information technology projects have been deferred as a result of its Year 2000 efforts. 20 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) As of August 1998, the Company believes all of its core business systems are adequately Year 2000 capable for its purposes, except for its lead tracking and mortgage processing systems and some of its document imaging systems. Projects are currently underway to replace each of these systems, with implementations and testing scheduled for the remainder of calendar year 1998 and early 1999. As with systems that have already been replaced, the Company does not believe the costs of these replacements, which aggregate approximately $1 million, are specifically Year 2000 related. The Company has also purchased at a cost of approximately $100,000 a software product that, it believes, can identify personal computers and related equipment with imbedded software that is not adequately Year 2000 capable for the Company's purposes. The Company expects to incur costs to replace or repair such equipment, but it has not at this time determined the amount of these costs. Since some of the equipment would otherwise be replaced through normal attrition, lease expirations and scheduled upgrades in the ordinary course of business, it is possible that much of these costs would not be solely related to Year 2000 readiness. The Company is currently assessing other potential Year 2000 issues, including non-information technology systems. A broad-based Year 2000 Task Force has been formed and began meeting in August 1998 to identify areas of concern and develop action plans. The Company currently anticipates that testing of non-information technology systems will be completed by mid-1999. Also as part of the Task Force effort, the Company's relationships with vendors, contractors, financial institutions and other third parties will be examined to determine the status of the Year 2000 issue efforts on the part of the other parties to material relationships. The Year 2000 Task Force includes both internal and Company-external representation. The Company expects to incur Year 2000-specific costs in the future but does not at present anticipate that these costs will be material. The Company believes that the most reasonably likely worst-case scenario for the Year 2000 issue would be that the Company or the third parties with whom it has relationships would cease or not successfully complete their Year 2000 remediation efforts. If this were to occur, the Company would encounter disruptions to its business that could have a material adverse effect on its results of operations. The Company could be materially impacted by widespread economic or financial market disruption or by Year 2000 computer system failures at government agencies on which the Company is dependent for zoning, building permits and related matters. The Company has not at this time established a formal Year 2000 contingency plan but will consider and, if necessary, address doing so as part of its Year 2000 Task Force activities. The Company maintains and deploys contingency plans designed to address various other potential business interruptions. These plans may be applicable to address the interruption of support provided by third parties resulting from their failure to be Year 2000 ready. IMPACT OF INFLATION - ------------------- Operations of the Company can be impacted by inflation. Home and land sales prices can increase, but inflation can also cause increases in interest costs and the costs of land, raw materials and contract labor. Unless such increased costs are recovered through higher sales prices, operating margins will decrease. High mortgage interest rates may also make it more difficult for the Company's potential customers to sell their existing homes in order to move to one of the Company's communities or to finance the purchases of their new homes. 21 Items 7. and 7a. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY - --------------------------------------------------- The Financial Accounting Standards Board ("FASB") has issued several new pronouncements that have not yet been adopted by the Company. In June 1997 the FASB issued SFAS No. 130, Reporting Comprehensive Income, to establish standards for reporting and display of comprehensive income (all changes in equity during a period except those resulting from investments by and distributions to owners) and its components in financial statements. This new standard, which will be effective for the Company for its fiscal year ending June 30, 1999, is not currently anticipated to have a significant impact on the Company's consolidated financial statements based on the current financial structure and operations of the Company. In June 1997 the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, to establish standards for reporting information about operating segments in annual financial statements, selected information about operating segments in interim financial reports and disclosures about products and services, geographic areas and major customers. This new standard, which will be effective for the Company for its fiscal year ending June 30, 1999, will require the Company to report financial information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments, which is currently anticipated to result in more detailed information in the notes to the Company's consolidated financial statements than is currently required and provided. In February 1998 the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, to standardize such disclosure requirements. This new standard, which will be effective for the Company for its fiscal year ending June 30, 1999, is not expected to have a significant impact on the Company's consolidated financial statements. In June 1998 the FASB issued SFAS No. 133, Accounting for Derivatives and Similar Financial Instruments and for Hedging Activities, to establish accounting and reporting standards in this area. This new standard, which will be effective for the Company for its fiscal year ending June 30, 2000, is not expected to have a significant impact on the Company's consolidated financial statements since the Company does not have any significant derivative financial instruments. Item 8. Financial Statements and Supplementary Data The response to this item is submitted as a separate section of this report below. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 22 PART III Item 10. Directors and Executive Officers of the Registrant For information with respect to the Executive Officers of the Registrant, see "Item 1 -- Executive Officers of the Company" at the end of Part I of this report. Information with respect to the Directors of the Registrant is incorporated herein by reference to the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the most recent fiscal year covered by this Form 10-K. Item 11. Executive Compensation Information in response to this Item is incorporated herein by reference to the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the most recent fiscal year covered by this Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management Information in response to this Item is incorporated herein by reference to the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the most recent fiscal year covered by this Form 10-K. Item 13. Certain Relationships and Related Transactions Information in response to this Item is incorporated herein by reference to the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the most recent fiscal year covered by this Form 10-K. 23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. and 2. The response to this portion of Item 14 is submitted as a separate section of this report beginning on page 26. 3. Exhibits The Exhibit Index attached to this Report is hereby incorporated by reference. (b) In the quarter ended June 30, 1998 the Company filed three reports on Form 8-K dated: (1) April 27, 1998 to file certain financial and operating data for the three and nine months ended March 31, 1997 and 1998; (2) May 8, 1998 to file the Underwriting Agreement for the $200 million in principal amount of 9 3/8% Senior Subordinated Debentures due 2009 publicly issued by the Company in May 1998; and (3) May 11, 1998 to file the Indenture for the $200 million of 9 3/8% Senior Subordinated Debentures due 2009. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, who is duly authorized to do so, in Phoenix, Arizona on the 11th day of September, 1998. DEL WEBB CORPORATION (Registrant) By: /s/ Philip J. Dion ----------------------------------------- Philip J. Dion Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date - -------------------------------------------------------------------------------------------------------- /s/ Philip J. Dion Chairman and Chief Executive Officer September 11, 1998 - ------------------------------ (Principal Executive Officer) (Philip J. Dion) /s/ Leroy C. Hanneman, Jr. President, Chief Operating Officer and Director September 11, 1998 - ------------------------------ (Principal Operating Officer) (LeRoy C. Hanneman, Jr.) /s/ John A. Spencer Senior Vice President and September 11, 1998 - ------------------------------ Chief Financial Officer (John A. Spencer) (Principal Financial Officer) /s/ David E. Rau Vice President and Controller September 11, 1998 - ------------------------------ (Principal Accounting Officer) (David E. Rau) /s/ D. Kent Anderson Director September 11, 1998 - ------------------------------ (D. Kent Anderson) /s/ Michael O. Maffie Director September 11, 1998 - ------------------------------ (Michael O. Maffie) /s/ J. Russell Nelson Director September 11, 1998 - ------------------------------ (J. Russell Nelson) /s/ Peter A. Nelson Director September 11, 1998 - ------------------------------ (Peter A. Nelson) /s/ Michael E. Rossi Director September 11, 1998 - ------------------------------ (Michael E. Rossi) /s/ Glenn W. Schaeffer Director September 11, 1998 - ------------------------------ (Glenn W. Schaeffer) /s/ C. Anthony Wainwright Director September 11, 1998 - ------------------------------ (C. Anthony Wainwright) /s/ Sam Yellen Director September 11, 1998 - ------------------------------ (Sam Yellen)
25 DEL WEBB CORPORATION FORM 10-K Item 8, Item 14(a) (1) and (2) Index of Consolidated Financial Statements and Schedule The following financial statements required to be included in Item 8 and other disclosures by the Registrant are listed below:
PAGE Management's Report................................................................................ 27 Independent Auditors' Report....................................................................... 28 Consolidated Financial Statements: Balance Sheets as of June 30, 1998 and 1997................................................ 29 Statements of Operations for each of the years in the three-year period ended June 30, 1998............................................................... 30 Statements of Shareholders' Equity for each of the years in the three-year period ended June 30, 1998.................................................... 31 Statements of Cash Flows for each of the years in the three-year period ended June 30, 1998............................................................... 32 Notes to Consolidated Financial Statements................................................. 34
The following financial statement schedule of the Registrant and its subsidiaries is included in Item 14(a) (2):
PAGE Consolidated Financial Statement Schedule: II Valuation and Qualifying Accounts for each of the years in the three-year period ended June 30, 1998.................................................. 49
Information other than that contained in the schedule listed above is omitted because the conditions requiring filing do not exist or because the required information is given in the financial statements, including the notes thereto. 26 MANAGEMENT'S REPORT Financial Statements Del Webb Corporation is responsible for the preparation, integrity and fair presentation of its published financial statements. The consolidated financial statements that follow have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on judgments and estimates made by management. The Company also prepared the other information included in the annual report and is responsible for its accuracy and consistency with the consolidated financial statements. The consolidated financial statements have been audited by the independent accounting firm, KPMG Peat Marwick LLP, which was given access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The Company believes that all representations made to the independent auditors during their audit were valid and appropriate. KPMG Peat Marwick LLP's audit report is presented on the following page. Internal Control System The Company maintains a system of internal control over financial reporting and over safeguarding of assets against unauthorized acquisition, use or disposition which is designed to provide reasonable assurance to the Company's management and board of directors regarding the preparation of reliable published financial statements and such asset safeguarding. The system includes a documented organizational structure and division of responsibility, established policies and procedures (including a code of conduct) which are communicated throughout the Company, and the selection, training and development of employees. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the board of directors, and corrective actions are taken to correct deficiencies if and as they are identified. The board, operating through its audit committee which is composed of directors who are not officers or employees of the Company, provides oversight to the financial reporting and asset safeguarding process. Even an effective internal control system, no matter how well designed, has inherent limitations -- including the possibility of the circumvention or overriding of controls -- and therefore can provide only reasonable assurance with respect to financial statement preparation and asset safeguarding. Further, because of changes in conditions, internal control system effectiveness may vary over time. The Company assessed its internal control system as of June 30, 1998 in relation to criteria for effective internal control over financial reporting described in "Internal Control -- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, the Company believes that, as of June 30, 1998, its system of internal control over financial reporting and over safeguarding of assets against unauthorized acquisition, use or disposition met those criteria. /S/ PHILIP J. DION - ------------------------------------------------- Philip J. Dion Chairman and Chief Executive Officer /S/ JOHN A. SPENCER - ------------------------------------------------- John A. Spencer Senior Vice President and Chief Financial Officer June 30, 1998 27 Independent Auditors' Report ---------------------------- The Board of Directors and Shareholders Del Webb Corporation: We have audited the consolidated financial statements of Del Webb Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Del Webb Corporation and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Notes 1 and 13 to the consolidated financial statements, in fiscal 1996 the Company changed its method of accounting for impairment of long-lived assets in accordance with the adoption of Statement of Financial Accounting Standards No. 121. KPMG Peat Marwick LLP Phoenix, Arizona August 21, 1998 28 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1998 and 1997
In Thousands - ------------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------------ Assets - ------------------------------------------------------------------------------------------------------ Real estate inventories (Notes 2, 6 and 12) $ 1,113,297 $ 939,684 Cash and short-term investments 14,362 24,715 Receivables (Note 3) 41,498 28,892 Property and equipment, net (Note 4) 33,333 20,937 Deferred income taxes (Note 7) - 6,526 Other assets (Note 5) 107,972 65,908 - ------------------------------------------------------------------------------------------------------ $ 1,310,462 $ 1,086,662 ====================================================================================================== Liabilities and Shareholders' Equity - ------------------------------------------------------------------------------------------------------ Notes payable, senior and subordinated debt (Note 6) $ 703,938 $ 563,068 Contractor and trade accounts payable 78,114 70,827 Accrued liabilities and other payables 98,066 79,959 Home sale deposits 80,332 69,476 Deferred income taxes (Note 7) 4,245 - Income taxes payable (Note 7) - 3,502 - ------------------------------------------------------------------------------------------------------ Total liabilities 964,695 786,832 - ------------------------------------------------------------------------------------------------------ Shareholders' equity: Common stock, $.001 par value. Authorized 30,000,000 shares; issued 18,107,606 shares and 17,691,118 shares at June 30, 1998 and 1997, respectively (Notes 8 and 9) 18 18 Additional paid-in capital (Note 8) 166,328 160,308 Retained earnings (Note 6) 184,890 145,922 - ------------------------------------------------------------------------------------------------------ 351,236 306,248 Less cost of common stock in treasury, 124,509 shares at June 30, 1997 (Note 8) - (1,914) Less deferred compensation (Note 9) (5,469) (4,504) - ------------------------------------------------------------------------------------------------------ Total shareholders' equity 345,767 299,830 - ------------------------------------------------------------------------------------------------------ $ 1,310,462 $ 1,086,662 ======================================================================================================
See accompanying notes to consolidated financial statements. 29 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended June 30, 1998, 1997 and 1996
In Thousands Except Per Share Data - ------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Revenues (Note 11) $ 1,177,767 $ 1,186,262 $ 1,050,733 - ------------------------------------------------------------------------------------------------------- Costs and expenses (Note 11): Home construction, land and other 898,754 913,872 807,988 Selling, general and administrative 166,343 160,924 147,315 Interest (Note 12) 46,212 49,457 42,354 Loss from impairment of southern California real estate inventories (Notes 12 and 13) - - 65,000 - ------------------------------------------------------------------------------------------------------- 1,111,309 1,124,253 1,062,657 - ------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes and extraordinary item 66,458 62,009 (11,924) Income taxes (Note 7) (23,925) (22,323) 4,173 - ------------------------------------------------------------------------------------------------------- Earnings (loss) before extraordinary item 42,533 39,686 (7,751) Extraordinary item: Loss from extinguishment of debt (net of $700 tax) - 1,285 - - ------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 42,533 $ 38,401 $ (7,751) ======================================================================================================= Weighted average shares outstanding 17,829 17,580 17,425 ======================================================================================================= Weighted average shares outstanding - assuming dilution 18,458 17,862 17,425 ======================================================================================================= Earnings (loss) per share: Earnings (loss) before extraordinary item $ 2.39 $ 2.26 $ (0.44) Extraordinary item - (0.07) - - ------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 2.39 $ 2.18 $ (0.44) ======================================================================================================= Earnings (loss) per share - assuming dilution: Earnings (loss) before extraordinary item $ 2.30 $ 2.22 $ (0.44) Extraordinary item - (0.07) - - ------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 2.30 $ 2.15 $ (0.44) =======================================================================================================
See accompanying notes to consolidated financial statements. 30 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended June 30, 1998, 1997 and 1996
In Thousands - -------------------------------------------------------------------------------------------------------------------------- Additional Total Common Paid-in Retained Treasury Deferred Shareholders' Stock Capital Earnings Stock Compensation Equity - ------------------------------------------------------------------------------------------------------------------------ Balances at July 1, 1995 $ 16 $ 121,059 $ 122,153 $ (11,058) $ (2,828) $ 229,342 Shares issued and retired for stock option and restricted stock plans (178,463 shares of common stock issued, 2,200 shares net increase in treasury stock and 32,512 shares of common stock retired), net of amortization - 2,992 - (39) (1,639) 1,314 Proceeds from sale of 1,597,172 shares of common stock and 877,728 shares of treasury stock, less offering costs of $3.0 million (Note 8) 2 34,211 - 11,058 - 45,271 Treasury stock acquired, 1,551 shares - - - (31) - (31) Cash dividends ($ .20 per share) - - (3,369) - - (3,369) Net loss - - (7,751) - - (7,751) - ------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1996 18 158,262 111,033 (70) (4,467) 264,776 Shares issued and retired for stock option and restricted stock plans (186,717 shares of common stock issued, 16,500 shares net decrease in treasury stock and 37,371 shares of common stock retired), net of amortization - 2,046 - 261 (37) 2,270 Treasury stock acquired, 137,258 shares - - - (2,105) - (2,105) Cash dividends ($.20 per share) - - (3,512) - - (3,512) Net earnings - - 38,401 - - 38,401 - ------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1997 18 160,308 145,922 (1,914) (4,504) 299,830 Shares issued and retired for stock option restricted stock plans (489,756 shares of common stock issued, 124,710 net decrease in treasury stock and 73,091 shares of common stock retired), net of amortization and - 6,025 - 1,918 (965) 6,978 Shares repurchased (201 shares of treasury stock acquired and 177 shares of common stock retired) - (5) - (4) - (9) Cash dividends ($.20 per share) - - (3,565) - - (3,565) Net earnings - - 42,533 - - 42,533 - ------------------------------------------------------------------------------------------------------------------- Balances at June 30, 1998 $ 18 $ 166,328 $ 184,890 $ - $ (5,469) $ 345,767 ===================================================================================================================
See accompanying notes to consolidated financial statements. 31 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 1998, 1997 and 1996 (In Thousands)
1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers related to community home sales $ 880,670 $ 876,379 $ 792,835 Cash received from commercial land and facility sales 27,787 8,328 7,880 Cash paid for costs related to community home construction (545,137) (579,188) (509,315) - --------------------------------------------------------------------------------------------------------- Net cash provided by community sales activities 363,320 305,519 291,400 Cash paid for land acquisitions at operating communities (14,958) (11,885) (8,351) Cash paid for lot development at operating communities (108,927) (100,588) (96,863) Cash paid for amenity development at operating communities (45,776) (56,503) (63,853) - --------------------------------------------------------------------------------------------------------- Net cash provided by operating communities 193,659 136,543 122,333 Cash paid for costs related to communities in the pre-operating stage (162,910) (81,755) (92,668) Cash received from customers related to conventional homebuilding 245,758 248,488 222,513 Cash paid for land, development, construction and other costs related to conventional homebuilding (224,345) (229,830) (213,959) Cash received from residential land development project 5,195 7,110 8,834 Cash paid for corporate activities (59,871) (42,327) (34,280) Interest paid (53,118) (45,854) (47,444) Cash paid for income taxes (14,930) (14,879) (10,501) - --------------------------------------------------------------------------------------------------------- Net cash used for operating activities (70,562) (22,504) (45,172) - --------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchases of property and equipment (16,855) (4,284) (6,715) Investments in life insurance policies (4,568) (3,222) (3,554) - --------------------------------------------------------------------------------------------------------- Net cash used for investing activities (21,423) (7,506) (10,269) - --------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Borrowings 592,611 547,871 305,122 Repayments of debt (513,531) (506,990) (292,260) Proceeds from sale of common stock - - 45,271 Stock purchases (9) (2,105) (31) Proceeds from exercise of common stock options 6,126 1,121 148 Dividends paid (3,565) (3,512) (3,369) - --------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 81,632 36,385 54,881 - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and short-term investments (10,353) 6,375 (560) Cash and short-term investments at beginning of year 24,715 18,340 18,900 - --------------------------------------------------------------------------------------------------------- Cash and short-term investments at end of year $ 14,362 $ 24,715 $ 18,340 =========================================================================================================
See accompanying notes to consolidated financial statements. 32 DEL WEBB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years ended June 30, 1998, 1997 and 1996 (In Thousands)
1998 1997 1996 - -------------------------------------------------------------------------------------------------------- Reconciliation of net earnings (loss) to net cash used for operating activities: Net earnings (loss) $ 42,533 $ 38,401 $ (7,751) Allocation of non-cash common costs in costs and expenses, excluding interest 273,173 268,806 247,734 Amortization of capitalized interest in costs and expenses 46,212 49,457 42,354 Deferred compensation amortization 1,838 1,748 1,804 Depreciation and other amortization 6,725 6,425 8,740 Deferred income taxes on earnings (loss) before extraordinary item 10,771 6,086 (17,810) Non-cash loss from impairment of southern California real estate inventories - - 65,000 Extraordinary loss from extinguishment of debt (net of tax) - 1,285 - Net increase in home construction costs (152) (4,218) (35,445) Land acquisitions (69,482) (61,499) (37,176) Lot development (204,080) (155,348) (190,959) Amenity development (99,280) (89,063) (103,086) Pre-acquisition costs (13,776) (19,869) (8,732) Net change in other assets and liabilities (65,044) (64,715) (9,845) - -------------------------------------------------------------------------------------------------------- Net cash used for operating activities $ (70,562) $ (22,504) $ (45,172) ========================================================================================================
See accompanying notes to consolidated financial statements. 33 DEL WEBB CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998, 1997 and 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of Del Webb Corporation and its subsidiaries (the "Company"). All significant intercompany transactions and accounts have been eliminated in consolidation. Operations ---------- The Company develops residential communities ranging from smaller-scale, non-amenitized communities within its conventional homebuilding operations to large-scale, master-planned communities with extensive amenities. The Company designs, develops and markets these communities, controlling all phases of the master plan development process from land selection through the construction and sale of homes. Within its communities, the Company is usually the exclusive builder of homes. The Company currently conducts its operations in Arizona, California, Florida, Illinois, Nevada, South Carolina and Texas. The Company's operations are subject to a number of risks and uncertainties, including, but not limited to, risks associated with financing and leverage, the development of future communities (and new geographic markets), governmental regulation, including land exchanges with governmental entities, environmental considerations, competition, the geographic concentration of the Company's operations, the cyclical nature of real estate operations and other conditions generally, fluctuations in labor and material costs and natural risks that exist in certain of the Company's market areas. Real Estate Inventories ----------------------- Real estate inventories include undeveloped land, partially improved land, amenities and homes on finished lots, in various stages of completion. These assets include direct construction costs for homes and common costs. Common costs include land, general and subdivision land development costs, model and vacation home costs in excess of normal direct construction costs, costs of community sales centers, costs of assets (such as golf courses and recreation centers) contributed to certain of the community associations, costs of subsidizing the community associations, development period interest and other costs, all of which are capitalized. The capitalized costs and estimated future common costs are allocated, on a community by community basis, to residential and commercial lots based upon the estimated relative sales value that each lot has to the estimated aggregate sales value of all lots in the community. Home construction, land and other costs and expenses includes the direct construction costs of the home and an allocation of common costs. Sales commissions, advertising and other marketing expenses are included in selling, general and administrative expenses. The Company recognizes revenue at close of escrow. The Company values its real estate inventories to be developed or under development in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which the Company adopted in fiscal 1996. The Company has no significant completed real estate assets. 34 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) SFAS No. 121 requires that long-lived assets to be developed or under development, such as real estate inventories, be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. If the sum of the expected future net cash flows (undiscounted and without interest charges) from an asset to be held and used is less than the book value of the asset, an impairment loss must be recognized in the amount of the difference between the book value and fair value. For long-term assets like active adult communities, the determination of whether there is an impairment loss is dependent primarily on the Company's estimate of annual home closings over the life of the community, which involves numerous assumptions and judgements as to future events over a period of many years. In connection with its adoption of SFAS No. 121 in fiscal 1996, the Company incurred a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million pre-tax ($42.3 million after tax) related to the valuation of its Sun City Palm Desert active adult community (see Note 13). Cash and Short-Term Investments ------------------------------- The Company's policy is to invest its cash in high-grade, income-producing short-term investments. Accordingly, uninvested cash balances are generally kept at minimum levels. Short-term investments are valued at the lower of cost or market and principally include overnight repurchase agreements, certificates of deposit and commercial paper with an original maturity of less than 90 days. Depreciation ------------ Depreciation is computed using principally the straight-line method for financial statement purposes and accelerated methods for tax purposes, over the estimated useful lives of the assets. Income Taxes ------------ The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations as an adjustment to the effective income tax rate in the period that includes the enactment date. Earnings (Loss) Per Share ------------------------- The Company adopted SFAS No. 128, Earnings Per Share, during fiscal 1998. The Company's earnings (loss) per share for prior periods have been restated to conform with the provisions of SFAS No. 128. Earnings (loss) per share is determined by dividing net earnings (loss) by the weighted average number of common shares outstanding during the year. Earnings per share - assuming dilution is determined by dividing net earnings by the weighted average number of common and common equivalent shares (which reflect the effect of stock options) outstanding during the year. In calculating loss per share, the effect of stock options is excluded because their inclusion would be anti-dilutive. Consolidated Statements of Cash Flows ------------------------------------- In the Consolidated Statements of Cash Flows, the Company defines operating communities as communities generating revenues from home closings. Communities in the pre-operating stage are those not yet generating revenues from home closings. Warranty Costs -------------- Estimated future warranty costs are charged to home construction, land and other costs and expenses when the revenues from home closings are recognized. 35 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill -------- Goodwill is included in other assets and represents the unamortized excess of the purchase price of two age-qualified communities in central Florida over the fair value of net assets acquired in January 1998 (see Note 5). This goodwill is being amortized on a straight-line basis over a period of 15 years. Financial Instruments --------------------- In the normal course of business, the Company may invest in various financial assets and incurs various financial liabilities. The Company does not trade in derivative financial instruments, although it occasionally enters into agreements involving derivative financial instruments for purposes other than trading. At June 30, 1998 the Company had no significant derivative financial instruments. The fair value estimates of financial instruments presented in Note 6 have been determined by the Company using available market information and valuation methodologies deemed appropriate by the Company. Considerable judgement is required in interpreting market data to develop the estimates of fair value. Accordingly, these fair value estimates are not necessarily indicative of the amounts the Company might pay or receive in actual market transactions. Potential taxes and other transaction costs have not been considered in estimating fair value. The fair values of the Company's publicly held debt are estimated based on the quoted bid prices for these debt instruments on June 30, 1998. The carrying amounts of the Company's remaining debt approximate the estimated fair values because they are at interest rates comparable to rates currently available to the Company for debt with similar terms and remaining maturities. For all other financial instruments, the carrying amounts approximate the fair values because of the short maturity of these instruments and in some cases because they bear interest at market rates. As substantially all of the Company's assets (including real estate inventories, property and equipment and deferred income taxes) are not financial instruments, the disclosures in Note 6 do not reflect the value of the Company as a whole. Stock-Based Compensation ------------------------ In accordance with the provisions of Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to Employees, the Company measures stock-based compensation expense as the excess of the market price at the grant date over the amount the employee must pay for the stock. The Company's policy is to generally grant stock options at fair market value at the date of grant, so no compensation expense is recognized. As permitted, the Company has elected to adopt only the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation (see Note 9). Use of Estimates ---------------- The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, particularly those previously discussed for real estate inventories, that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. 36 (2) REAL ESTATE INVENTORIES The components of real estate inventories are as follows:
In Thousands at June 30, - ------------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------------ Home construction costs $ 182,170 $ 182,018 Unamortized improvement and amenity costs 603,390 489,142 Unamortized capitalized interest 61,455 46,121 Land held for housing 220,441 174,930 Land and facilities held for future development or sale 45,841 47,473 - ------------------------------------------------------------------------------------------------------ $ 1,113,297 $ 939,684 ======================================================================================================
At June 30, 1998, the Company had 436 completed homes and 395 homes under construction that were not subject to a sales contract. These homes represented $44.5 million of home construction costs at June 30, 1998. At June 30, 1997 the Company had 403 completed homes and 516 homes under construction (representing $48.6 million of home construction costs) that were not subject to a sales contract. Included in land and facilities held for future development or sale at June 30, 1998 were 481 acres of residential land, commercial land and worship sites that are currently being marketed for sale at the Company's communities and conventional homebuilding operations. During fiscal 1998 the Company acquired the initial portions of land for (i) a planned active adult community in the Chicago area town of Huntley, Illinois, (ii) a planned large-scale master-planned community in the southern Las Vegas valley and (iii) a planned smaller-scale, less-amenitized community in northern California. Accordingly, capitalized pre-acquisition costs previously classified as other assets for these communities are now classified as part of real estate inventories. In January 1998 the Company acquired certain assets and assumed certain liabilities at two operating age-qualified communities in central Florida for a total purchase price of approximately $45 million. (3) RECEIVABLES Receivables are summarized as follows: In Thousands at June 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Escrow funds from home and land sales $ 12,853 $ 8,254 Mortgage loans held for sale 15,020 8,629 Notes from sales of land and facilities 8,090 8,424 Other 5,535 3,585 - -------------------------------------------------------------------------------- $ 41,498 $ 28,892 ================================================================================ 37 (4) PROPERTY AND EQUIPMENT, NET Property and equipment, stated at cost, and related accumulated depreciation are summarized as follows: In Thousands at June 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Buildings and improvements $ 11,186 $ 6,803 Equipment 43,556 40,240 Land and improvements 7,965 - - -------------------------------------------------------------------------------- 62,707 47,043 Less accumulated depreciation 29,374 26,106 - -------------------------------------------------------------------------------- $ 33,333 $ 20,937 ================================================================================ (5) OTHER ASSETS Other assets are summarized as follows: In Thousands at June 30, - -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Pre-acquisition costs $ 51,655 $ 30,876 Cash surrender value of life insurance policies 24,260 20,083 Goodwill 9,694 - Utility costs and deposits 9,118 4,971 Prepaid expenses 6,373 5,903 Water right costs 3,263 - Other 3,609 4,075 - -------------------------------------------------------------------------------- $ 107,972 $ 65,908 ================================================================================ Substantially all of pre-acquisition costs at June 30, 1998 consists of costs incurred for the acquisition of an environmentally-sensitive property by the Company for the purpose of exchanging the property with the United States Bureau of Land Management for property in the Las Vegas area to be included in the Company's Anthem Las Vegas Project, substantially all of which would be for Sun City Anthem. Any exchange is subject to regulatory approvals and other conditions. If an exchange is effected, these costs will be reclassified to be part of real estate inventories. Cash surrender values of life insurance policies relate to policies acquired in connection with certain executive benefit plans. 38 (6) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT Notes payable, senior and subordinated debt consists of the following:
In Thousands at June 30, - ------------------------------------------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------------------------------------------- 9 3/4% Senior Subordinated Debentures due 2003, net $ 98,081 $ 97,670 9% Senior Subordinated Debentures due 2006, net 97,902 97,628 9 3/4% Senior Subordinated Debentures due 2008, net 145,370 144,889 9 3/8% Senior Subordinated Debentures due 2009, net 194,977 - Notes payable to banks under a revolving credit facility and short-term lines of credit 111,209 185,990 Real estate and other notes, variable interest rates from prime to prime plus 1% and fixed rates from 7.0% to 10.2%, maturities to 2005 56,399 36,891 - ------------------------------------------------------------------------------------------------------- $ 703,938 $ 563,068 =======================================================================================================
In March 1993 the Company completed a public offering of $100 million of Senior Subordinated Debentures, which are shown net of unamortized deferred financing costs and discount. These Debentures are due on March 1, 2003 and have a stated interest rate of 9 3/4 percent per year. Interest is payable semi-annually on March 1 and September 1. The annual effective interest rate of the Debentures, after giving effect to the amortization of deferred financing costs and discount, is 10.2 percent. The Debentures may be redeemed by the Company on or after March 1, 1998, 1999 and 2000 at 104.875, 102.4375 and 100 percent, respectively, of the principal amount of the Debentures redeemed, plus accrued and unpaid interest to the redemption date. In February 1994 the Company completed a public offering of $100 million of Senior Subordinated Debentures, which are shown net of unamortized deferred financing costs. These Debentures are due on February 15, 2006 and have a stated interest rate of 9 percent per year. Interest is payable semi-annually on February 15 and August 15. The annual effective interest rate of the Debentures, after giving effect to the amortization of deferred financing costs, is 9.3 percent. The Debentures may be redeemed by the Company on or after February 15, 1999, 2000, 2001, 2002 and 2003 at 104.500, 103.375, 102.250, 101.125 and 100 percent, respectively, of the principal amount of the Debentures redeemed, plus accrued and unpaid interest to the redemption date. In January 1997 the Company completed a public offering of $150 million of Senior Subordinated Debentures, which are shown net of unamortized deferred financing costs and discount. These Debentures are due on January 15, 2008 and have a stated interest rate of 9 3/4 percent per year. Interest is payable semi-annually on January 15 and July 15. The annual effective interest rate of the Debentures, after giving effect to the amortization of deferred financing costs and discount, is 10.1 percent. The Debentures may be redeemed by the Company on or after January 15, 2002, 2003, 2004 and 2005 at 104.875, 103.250, 101.625 and 100 percent, respectively, of the principal amount of the Debentures redeemed, plus accrued and unpaid interest to the redemption date. In May 1998 the Company completed a public offering of $200 million of Senior Subordinated Debentures, which are shown net of unamortized deferred financing costs. These Debentures are due on May 1, 2009 and have a stated interest rate of 9 3/8 percent per year. Interest is payable semi-annually on May 1 and November 1. The annual effective interest rate of the Debentures, after giving effect to the amortization of deferred financing costs, is 9.6 percent. The Debentures may be redeemed by the Company on or after May 1, 2003, 2004, 2005 and 2006 at 104.688, 103.125, 101.563 and 100 percent, respectively, of the principal amount of the Debentures redeemed, plus accrued and unpaid interest to the redemption date. 39 (6) NOTES PAYABLE, SENIOR AND SUBORDINATED DEBT (Continued) The Company has a $450 million senior unsecured revolving credit facility (increased from $350 million in January 1998 and $400 million in June 1998). If the revolving credit facility is not subsequently amended, it will mature in May 2002. Borrowings under this facility bear interest at the prime rate or, if the Company selects, at the London interbank offered rate plus 1.30 to 1.90 percent (depending on the Company's ratio of debt to tangible worth). The effective interest rate on borrowings outstanding under the senior unsecured revolving credit facility at June 30, 1998 and 1997 was 8.5 percent and 7.9 percent, respectively. The senior unsecured revolving credit facility and the indentures for the Company's publicly-held debt contain covenants which, taken together and among other things, limit investments in unentitled land and unsold homes, conventional homebuilding assets, dividends, stock repurchases, incurrence of indebtedness and certain acquisitions and which could, depending on the circumstances, affect the Company's ability to borrow in the future. At June 30, 1998 the Company had $96.0 million outstanding under its $450 million senior unsecured revolving credit facility and $15.2 million outstanding under its $25 million of short-term lines of credit. At June 30, 1998, under the most restrictive of the covenants in the Company's debt agreements, $34.6 million of the Company's retained earnings was available for payment of cash dividends or for the acquisition by the Company of its common stock. The estimated fair values at June 30, 1998 of the Company's 9 3/4% Senior Subordinated Debentures due 2003, 9% Senior Subordinated Debentures due 2006, 9 3/4% Senior Subordinated Debentures due 2008 and 9 3/8% Senior Subordinated Debentures due 2009 were $103.1 million, $99.5 million, $150.9 million and $196.8 million, respectively. The estimated fair values at June 30, 1997 of the Company's 9 3/4% Senior Subordinated Debentures due 2003, 9% Senior Subordinated Debentures due 2006 and 9 3/4% Senior Subordinated Debentures due 2008 were $98.8 million, $102.9 million and $154.5 million, respectively. The principal payment requirements (in thousands) on debt for the next five years ended June 30 are as follows: 1999 $ 46,054 2000 $ 2,934 2001 $ 2,450 2002 $ 99,286 2003 $ 108,407 40 (7) INCOME TAXES The components of income taxes on earnings before the extraordinary item are: In Thousands Year Ended June 30, - -------------------------------------------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------- Current: Federal $ 12,252 $ 14,029 $ 11,333 State 902 2,208 2,304 - -------------------------------------------------------------------------------- 13,154 16,237 13,637 - -------------------------------------------------------------------------------- Deferred: Federal 9,730 6,854 (15,084) State 1,041 (768) (2,726) - -------------------------------------------------------------------------------- 10,771 6,086 (17,810) - -------------------------------------------------------------------------------- $ 23,925 $ 22,323 $ (4,173) ================================================================================ In the year ended June 30, 1997, the Company also recognized a $0.7 million income tax benefit related to the extraordinary loss from extinguishment of debt. The components of deferred income taxes are as follows:
In Thousands Year Ended June 30, - ------------------------------------------------------------------------------------------------------ 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ Change in net operating loss carryforwards $ (441) $ (451) $ (201) Change in loss provisions for discontinued operations 968 2,982 1,854 Change in basis differences of real estate 6,019 2,802 (18,214) Deferred compensation 117 (1,422) (1,087) Amortization of short period loss - - 486 Accelerated depreciation 2,357 2,094 4,245 Change in tax credit carryforwards (621) 3,051 - Change in deferred tax asset valuation allowance - (473) - Other 2,372 (2,497) (4,893) - ------------------------------------------------------------------------------------------------------ $ 10,771 $ 6,086 $ (17,810) ======================================================================================================
The deferred income tax benefit for fiscal 1996, and the related deferred tax asset at June 30, 1996, resulted from the non-cash loss from impairment of southern California real estate inventories recognized by the Company in fiscal 1996 (see Note 13). The 1997 reduction in the deferred tax asset valuation allowance resulted from additional years of operating earnings generated by the Company, which increased the portion of the gross deferred tax asset that the Company believed would more likely than not be realized. 41 (7) INCOME TAXES (Continued) Deferred tax assets and liabilities have been recognized in the consolidated balance sheets due to temporary differences and carryforwards as follows:
In Thousands at June 30, - ------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------ Deferred tax assets: Net operating loss carryforwards $ 1,093 $ 652 Tax credit carryforwards 621 - Liabilities of discontinued operations, principally due to loss provisions 3,629 4,597 Property and equipment, principally due to differences in depreciation 2,773 5,130 State income taxes 1,709 2,586 Deferred compensation 6,679 6,796 Accruals 10,225 11,630 Other 2,110 1,141 - ------------------------------------------------------------------------------------ 28,839 32,532 Valuation allowance 3,389 3,389 - ------------------------------------------------------------------------------------ 25,450 29,143 - ------------------------------------------------------------------------------------ Deferred tax liabilities: Real estate, principally due to basis differences 27,106 21,087 Other 2,589 1,530 - ------------------------------------------------------------------------------------ 29,695 22,617 - ------------------------------------------------------------------------------------ Net deferred income taxes $ (4,245) $ 6,526 ====================================================================================
Income taxes differ from the amounts computed using the federal statutory income tax rate as a result of the following:
In Thousands Year Ended June 30, - ------------------------------------------------------------------------------------------------------ 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ Expected taxes at current federal statutory income tax rate $ 23,260 $ 21,703 $ (4,173) State income taxes, net of federal benefit 2,438 2,856 (274) Federal and state tax credits (1,798) (2,210) (2,580) Adjustments due to the settlement of audits and resolution of issues (351) 252 2,407 Change in deferred tax asset valuation allowance - (473) - Other 376 195 447 - ------------------------------------------------------------------------------------------------------ Income taxes $ 23,925 $ 22,323 $ (4,173) ======================================================================================================
At June 30, 1998 the Company had a state net operating loss carryforward of $21.9 million that expires in fiscal 2018. 42 (8) EQUITY TRANSACTION In August 1995 the Company publicly sold 2,474,900 shares of its common stock. The net proceeds of $45.3 million were used to repay a portion of the indebtedness then outstanding under the Company's senior unsecured revolving credit facility. (9) COMMON STOCK RESERVED The Company has five stock option plans: the 1981 Stock Option Plan (under which no grants can be made subsequent to December 31, 1991), the 1986 Stock Option and Stock Appreciation Rights (SAR) Plan (under which no grants can be made subsequent to December 31, 1995) and the 1991, 1993 and 1995 Executive Long-Term Incentive Plans (1991 ELTIP, 1993 ELTIP and 1995 ELTIP, which cover both options and restricted stock grants). Options under each of these plans are granted to key employees to purchase shares of the Company's common stock at a price not less than the current market price at the date of the grant. The options are exercisable over a ten-year period from the date of the grant. Shares authorized for grant under the 1991 ELTIP total 750,000. Shares authorized for grant under the 1993 ELTIP total 1,200,000, of which no more than 450,000 may be used for restricted stock grants. Shares authorized for grant under the 1995 ELTIP total 1,200,000, of which no more than 100,000 may be used for restricted stock grants. The Company has the 1991 Directors' Stock Plan and the 1995 Director Stock Plan, under which options may be granted to the Directors of the Company to purchase shares of the Company's common stock at a price not less than the current market price at the date of grant. Under these plans the Directors may elect to defer some or all of their annual retainers and receive restricted stock or stock options at prices that, when combined with the amounts of deferred retainers, equal the current market price at the date of the grant. Shares authorized under these plans total 75,000 per plan. Effective in fiscal 1997 the Company adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. As permitted under SFAS No. 123, the Company will continue to measure stock-based compensation expense as the excess of the market price at the grant date over the amount the employee must pay for the stock. SFAS No. 123 requires disclosure of pro forma net earnings and pro forma net earnings per share as if the fair value based method had been applied in measuring compensation expense for awards granted in fiscal 1998, 1997 and 1996. Management believes that the fiscal 1998, 1997 and 1996 pro forma amounts may not be representative of the effects of stock-based awards on future pro forma net earnings and pro forma net earnings per share because, among other reasons, those pro forma amounts exclude the pro forma compensation expense related to unvested stock options granted before fiscal 1996. 43 (9) COMMON STOCK RESERVED (CONTINUED) Reported and pro forma net earnings (loss), in thousands, and net earnings (loss) per share amounts for the years ended June 30, 1998, 1997 and 1996 are set forth below:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Reported: Net earnings (loss) $ 42,533 $ 38,401 $ (7,751) Net earnings (loss) per share 2.39 2.18 (0.44) Net earnings (loss) per share - assuming dilution 2.30 2.15 (0.44) Pro forma: Net earnings (loss) 41,588 37,777 (8,056) Net earnings (loss) per share 2.33 2.15 (0.46) Net earnings (loss) per share - assuming dilution 2.25 2.11 (0.46) - -------------------------------------------------------------------------------------------------------
The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option pricing model based on the following weighted average assumptions:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------ Risk free interest rate 5.65% 6.26% 5.84% Expected life (in years) 7.5 7.4 7.4 Expected volatility 29% 27% 32% Expected dividend yield 1.08% 1.17% 1.16% - ------------------------------------------------------------------------------------------------------
Stock option activity for the years ended June 30, 1998, 1997 and 1996 is summarized as follows:
1998 1997 1996 ---------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - ------------------------------------------------------------------------------------------------------- Options outstanding, beginning of year 1,981,613 $ 15.12 1,801,288 $ 14.82 1,438,470 $ 13.19 Granted 372,750 20.97 339,665 16.39 388,201 20.83 Exercised (460,506) 13.30 (94,017) 11.93 (12,883) 11.52 Canceled (86,225) 19.06 (65,323) 17.89 (12,500) 17.68 - ------------------------------------------------------------------------------------------------------- Options outstanding, end of year 1,807,632 $ 16.61 1,981,613 $ 15.12 1,801,288 $ 14.82 ======================================================================================================= Options exercisable at end of year 1,050,291 $ 14.47 1,287,530 $ 13.49 1,145,236 $ 12.70 ======================================================================================================= Weighted average fair value of options granted during the year $8.32 $ 6.46 $ 8.73 =======================================================================================================
44 (9) COMMON STOCK RESERVED (Continued) Stock options outstanding at June 30, 1998 were as follows:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------------------------------ Range of Weighted Average Weighted Weighted Exercise Price Options Remaining Contractual Average Options Average Life Exercise Price Exercise Price - ------------------------------------------------------------------------------------------------------ $ 8.00 - $ 9.89 144,319 2.6 years $ 8.65 144,319 $ 8.65 $10.13 - $14.75 431,636 3.5 13.04 431,636 13.04 $15.71 - $17.69 580,337 6.9 16.38 351,025 16.38 $20.56 - $25.09 651,340 8.4 20.93 123,311 20.85 ------------- ------------ 1,807,632 6.3 years $ 16.61 1,050,291 $ 14.47 ======================================================================================================
Shares granted, net of cancellations, under the Company's restricted stock plans during the years ended June 30, 1998, 1997 and 1996 aggregated 128,070 shares, 109,200 shares and 163,380 shares, respectively. The Company recognized compensation expense of $1.8 million, $1.7 million and $1.8 million related to shares granted under the restricted stock plans for the years ended June 30, 1998, 1997 and 1996, respectively. (10) DEFINED CONTRIBUTION PLAN The Company sponsors a defined contribution retirement savings plan that covers substantially all employees of the Company after completion of six months of service. Company contributions to this plan, which can include amounts based on a percentage of employee contributions as well as discretionary contributions, were $1.7 million, $2.6 million and $2.0 million for the years ended June 30, 1998, 1997 and 1996, respectively. 45 (11) REVENUES AND COSTS AND EXPENSES The components of revenues and costs and expenses:
In Thousands Year Ended June 30, - ------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------------------------------------------- Revenues: Homebuilding: Communities $ 879,825 $ 906,523 $ 794,671 Conventional 238,559 237,566 217,158 - ------------------------------------------------------------------------------------------------------- Total homebuilding 1,118,384 1,144,089 1,011,829 Land and facility sales 48,522 31,289 29,525 Other 10,861 10,884 9,379 - ------------------------------------------------------------------------------------------------------- $ 1,177,767 $ 1,186,262 $ 1,050,733 ======================================================================================================= Costs and expenses: Home construction and land: Communities $ 661,534 $ 682,873 $ 597,014 Conventional 200,159 202,054 184,532 - ------------------------------------------------------------------------------------------------------- Total homebuilding 861,693 884,927 781,546 Cost of land and facility sales 33,479 26,051 23,227 Other cost of sales 3,582 2,894 3,215 - ------------------------------------------------------------------------------------------------------- Total home construction, land and other 898,754 913,872 807,988 Selling, general and administrative 166,343 160,924 147,315 Interest 46,212 49,457 42,354 Loss from impairment of southern California real estate inventories - - 65,000 - ------------------------------------------------------------------------------------------------------- $ 1,111,309 $ 1,124,253 $ 1,062,657 =======================================================================================================
(12) INTEREST The following table shows the components of interest:
In Thousands Year Ended June 30, - ------------------------------------------------------------------------------------------------------ 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ Interest incurred and capitalized $ 61,546 $ 51,917 $ 52,022 ====================================================================================================== Amortization of capitalized interest in costs and expenses $ 46,212 $ 49,457 $ 42,354 ====================================================================================================== Unamortized capitalized interest included in real estate inventories at year end $ 61,455 $ 46,121 $ 43,661 ====================================================================================================== Interest income $ 1,072 $ 1,510 $ 1,017 ======================================================================================================
Unamortized capitalized interest included in real estate inventories at June 30, 1996 was reduced by $21.8 million, the portion of the non-cash loss from impairment of southern California real estate inventories allocated to unamortized capitalized interest (see Note 13). Interest income is included in other revenues. 46 (13) IMPAIRMENT OF SOUTHERN CALIFORNIA REAL ESTATE INVENTORIES In connection with its adoption of SFAS No. 121 in fiscal 1996, the Company incurred a non-cash loss from impairment of southern California real estate inventories in the amount of $65.0 million ($42.3 million after tax) related to the valuation of its Sun City Palm Desert active adult community (see Note 1). In the first six months of fiscal 1996, net new orders at Sun City Palm Desert were substantially below both the comparable period of the prior fiscal year and the Company's expectations. Although the Company was encouraged by net new orders significantly greater in the first 45 days of the third quarter of fiscal 1996 than in the comparable period in the prior fiscal year, a lower than anticipated level of net new orders was expected in the remainder of fiscal 1996 and net new orders for all of fiscal 1996 were anticipated to be lower than in prior fiscal years. Additionally, a national home builder was developing an active adult community near Sun City Palm Desert, which was expected to cause additional competitive pressures at that community. Based on these and other factors, the Company reduced its estimate with respect to net new orders and closings in the fiscal years ending June 30, 1997 and beyond to below the levels achieved in the three fiscal years ended June 30, 1995. This resulted in expected future net cash flows (undiscounted and without interest charges) at Sun City Palm Desert being less than the book value of the asset. As required by SFAS No. 121, the Company therefore recorded in fiscal 1996 a non-cash loss from impairment of southern California real estate inventories to reflect Sun City Palm Desert at its estimated fair value. Fair value was estimated based upon an evaluation of comparable market prices and discounted expected future cash flows. (14) CONTINGENT LIABILITIES AND COMMITMENTS The Company is a party to various legal proceedings arising in the ordinary course of business. While it is not feasible to predict the ultimate disposition of these matters, it is the opinion of management that their outcome will not have a material adverse effect on the financial condition of the Company. The Company has issued surety bonds and standby letters of credit aggregating $175.0 million at June 30, 1998. The Company leases from third parties, under operating leases, office space, models, apartment units which it rents to prospective customers at its large-scale active adult communities, automobiles and certain other equipment. The leases are generally renewable at the Company's option for additional periods. Total rent expense incurred by the Company was $10.5 million, $7.5 million and $6.9 million for the years ended June 30, 1998, 1997 and 1996, respectively. Minimum lease payments (in thousands) to be made by the Company under non-cancelable lease agreements are as follows: 1999 $ 6,999 2000 4,696 2001 3,062 2002 2,260 2003 2,085 Later years 5,854 ------------ $ 24,956 ============ 47 (15) QUARTERLY FINANCIAL INFORMATION (Unaudited) Quarterly financial information for the years ended June 30, 1998 and 1997 is presented below. The sum of the individual quarterly data may not equal the annual data due to rounding and fluctuations in weighted average shares outstanding on a quarter-to-quarter basis.
In Thousands Except Per Share Data Three Months Ended - ------------------------------------------------------------------------------------------------------- June 30, March 31, December 31, September 30, 1998 1998 1997 1997 - ------------------------------------------------------------------------------------------------------- Revenues $ 396,075 $ 254,714 $ 278,935 $ 248,043 Net earnings 17,622 7,520 11,266 6,125 Net earnings per share .97 .42 .64 .35 Net earnings per share - assuming dilution .94 .40 .62 .34 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- June 30, March 31, December 31, September 30, 1997 1997 1996 1996 - ------------------------------------------------------------------------------------------------------- Revenues $ 347,968 $ 280,317 $ 293,682 $ 264,295 Earnings before extraordinary item 13,319 9,576 10,799 5,992 Net earnings 13,319 8,291 10,799 5,992 Earnings per share before extraordinary item .76 .54 .61 .34 Earnings per share before extraordinary item - assuming dilution .75 .54 .60 .33 Net earnings per share .76 .47 .61 .34 Net earnings per share - assuming dilution .75 .46 .60 .33 - -------------------------------------------------------------------------------------------------------
48 DEL WEBB CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS ----------- Years ended June 30, 1998, 1997 and 1996
In Thousands - --------------------------------------------------------------------------------------------------------------------- Additions Additions Balance at Charged to Charged to Beginning of Costs and Other Balance at Year Expenses Accounts Deductions End of Year - --------------------------------------------------------------------------------------------------------------------- 1998 - ---- Reserve for residential land development project $ 7,491 $ - $ 407 $ - $ 7,898 Reserves for disposal costs of discontinued operations 10,382 - - 679 9,703 - --------------------------------------------------------------------------------------------------------------------- $ 17,873 $ - $ 407 $ 679 $ 17,601 ===================================================================================================================== 1997 - ---- Reserve for residential land development project $ 7,126 $ 365 $ - $ - $ 7,491 Reserves for disposal costs of discontinued operations 12,209 - - 1,827 10,382 - --------------------------------------------------------------------------------------------------------------------- $ 19,335 $ 365 $ - $ 1,827 $ 17,873 ===================================================================================================================== 1996 - ---- Reserve for residential land development project $ 8,264 $ - $ - $ 1,138 $ 7,126 Reserves for disposal costs of discontinued operations 27,855 - - 15,646 12,209 - --------------------------------------------------------------------------------------------------------------------- $ 36,119 $ - $ - $ 16,784 $ 19,335 =====================================================================================================================
49 DEL WEBB CORPORATION Report on Form 10-K For The Year Ended June 30, 1998 10-K EXHIBIT INDEX ------------------ NON-FINANCIAL STATEMENT EXHIBITS -------------------------------- Exhibits Filed Exhibit No. - ----------- 10.1 Form of Change of Control Agreement between Registrant and certain of its officers. 10.2 Second Amended and Restated Revolving Loan Agreement by and among Del Webb Corporation and Bank of America National Trust and Savings Association as Agent, and Bank One Arizona, NA, as Co-Agent, dated June 5, 1998. 10.3 Current list of participants to the Del Webb Corporation Supplemental Executive Retirement Plan No. 2. 10.4 Del Webb Corporation Management Incentive Plan Fiscal 1999 (July 1, 1998 - June 30, 1999). 10.5 1998/99 Executive Management Incentive Plan Award Agreement between the Registrant and Philip J. Dion dated July 23, 1998. 10.6 1998/99 Executive Management Incentive Plan Award Agreement between the Registrant and LeRoy C. Hanneman, Jr. dated July 23, 1998. 21.0 Subsidiaries of the Registrant. 23.0 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule. 27.1 Restated June 30, 1997 Financial Data Schedule. In addition to those Exhibits shown above, the Company hereby incorporates the following Exhibits* pursuant to Exchange Act Rule 12b-32 and Regulation ss.229.10(d) by reference to the fillings set forth below: Exhibit No. - ----------- 3.0 Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 99.0 to Registrant's Report on Form 10-Q for the quarter ended September 30, 1994. 3.1 The Bylaws of the Registrant effective November 1, 1994, as amended on February 13, 1996, incorporated by reference to Exhibit 3.1 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 4.1 Indenture dated as of May 11, 1998 between Registrant and State Street Bank and Trust Company, as Trustee, defining the rights of holders of the 9 3/8% Senior Subordinated Debentures due 2009, incorporated by reference to Exhibit 1.1 to Registrant's Report on Form 8-K dated May 11, 1998. 4.2 Indenture dated as of March 8, 1993 between Registrant and Fidelity Trust Company, New York, as Trustee, defining the rights of the holders of the 9 3/4% Senior Subordinated Debentures due 2003, incorporated by reference to Exhibit 4.1 to Registrant's Report on Form 8-K dated March 8, 1993. 4.3 Indenture dated as of February 11, 1994, between Registrant and The Bank of New York, as Trustee, defining the rights of the holders of the 9% Senior Subordinated Debentures due 2006, incorporated by reference to Exhibit 4.1 to Registrant's Report on Form 8-K dated February 11, 1994. 4.4 Indenture dated as of January 21, 1997, between Registrant, State Street Bank and Trust Company, as Trustee, defining the rights of the holders of the 9 3/4% Senior Subordinated Debentures due 2008, incorporated by reference to Exhibit 1.1 to Registrant's Report on Form 8-K dated January 21, 1997. 2 10.7 Office Lease Agreement between Western Plaza Investors, L.P. and Registrant dated April 20, 1994, incorporated by reference to Exhibit 10.6 to Registrant's Report on Form 10-K for the year ended June 30, 1994; as amended by the First Amendment to Lease dated February 29, 1996, incorporated by reference to Exhibit 10.6 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.8 Del Webb Corporation Deferred Compensation Plan effective June 1, 1993, incorporated by reference to Exhibit 10.7 to Registrant's Report on Form 10-K for the year ended June 30, 1993. 10.9 1981 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.18 to Registrant's Report on Form 10-K for the year ended June 30, 1993. 10.10 1986 Stock Option and SAR Plan of the Del Webb Corporation, as amended, incorporated by reference to Exhibit 10.19 to Registrant's Report on Form 10-K for the year ended June 30, 1993. 10.11 Del Webb Corporation Executive Long-Term Incentive Plan adopted November 20, 1991, as amended, incorporated by reference to Exhibit 10.10 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.12 Del Webb Corporation 1993 Executive Long Term Incentive Plan dated March 17, 1994, as amended, incorporated by reference to Exhibit 10.11 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.13 Del Webb Corporation 1995 Executive Long-Term Incentive Plan adopted July 13, 1995, as amended, incorporated by reference to Exhibit 10.25 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.14 Del Webb Corporation Director Stock Plan dated November 20, 1991, incorporated by reference to Exhibit 10.13 to Registrant's Report on Form 10-K for the year ended June 30, 1993. 10.15 Del Webb Corporation 1995 Director Stock Plan adopted July 13, 1995, incorporated by reference to Exhibit 10.26 to Registrant's Report on Form 10-K for the year ended June 20, 1995. 10.16 Del E. Webb Corporation Umbrella Trust dated June 11, 1987, as amended, incorporated by reference to Exhibit 10.23 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 3 10.17 Del Webb Corporation 1995 Executive Management Incentive Plan adopted July 13, 1995, incorporated by reference to Exhibit 10.27 to Registrant's Report on Form 10-K for the year ended June 30, 1995. 10.18 Key Executive Life Insurance Plan dated May 15, 1991, incorporated by reference to Exhibit 10.10 to Registrant's Report on Form 10-K for the year ended June 30, 1991; as amended on November 18, 1994, incorporated by reference to Exhibit 10.9 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.19 Key Executive Life Insurance Plan II dated April 1, 1992, incorporated by reference to Exhibit 10.8 to Registrant's Report on Form 10-K for the year ended June 30, 1992; as amended on November 8, 1994, incorporated by reference to Exhibit 10.8 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.20 Key Executive Life Plan Plus dated August 23, 1995, incorporated by reference to Exhibit 10.32 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.21 Key Executive Life Plan 1995 dated October 5, 1995, incorporated by reference to Exhibit 10.33 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.22 Senior Officer Medical and Dental Reimbursement Plan, as amended and restated November 16, 1992, incorporated by reference to Exhibit 10.17 to Registrant's Report on Form 10-K for the year ended June 30, 1993. 10.23 Group Term Carve-Out Plan dated November 18, 1994, incorporated by reference to Exhibit 10.34 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.24 Del Webb Corporation Supplemental Executive Retirement Plan No. 1, as amended and restated April 20, 1993, incorporated by reference to Exhibit 10.12 to Registrant's Report on Form 10-K for the year ended June 30, 1993; as amended by First Amendment to the Del Webb Corporation Supplemental Executive Retirement Plan No. 1 effective July 1, 1995, incorporated by reference to Exhibit 10.13 to Registrant's Report on Form 10-K for the year ended June 30, 1995. 10.25 Supplemental Executive Retirement Plan No. 1 Participation Agreement between the Registrant and Philip J. Dion, amended and restated effective 4 July 25, 1996, incorporated by reference to Exhibit 10.30 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.26 Supplemental Executive Retirement Plan No. 1 Participation Agreement as of April 11, 1997 between the Registrant and John H. Gleason, incorporated by reference to Exhibit 10.40 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.27 Supplemental Executive Retirement Plan No. 1 Participation Agreement as of April 11, 1997 between the Registrant and LeRoy C. Hanneman., incorporated by reference to Exhibit 10.41 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.28 Supplemental Executive Retirement Plan No. 1 Participation Agreement as of April 11, 1997 between the Registrant and Anne L. Mariucci, incorporated by reference to Exhibit 10.42 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.29 Employment and Consulting Agreement dated July 10, 1996, between the Registrant and Philip J. Dion, incorporated by reference to Exhibit 10.2 to Registrant's Report on Form 10-K for the year ended June 30, 1996. 10.30 Employment Agreement dated April 11, 1997 between the Registrant and John H. Gleason, incorporated by reference to Exhibit 10.36 to Registrant's Report on Form 10-K for the year ended June 10, 1997. 10.31 Employment Agreement dated April 11, 1997 between the Registrant and LeRoy C. Hanneman, incorporated by reference to Exhibit 10.37 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.32 Employment Agreement dated April 11, 1997 between the Registrant and Anne L. Mariucci, incorporated by reference to Exhibit 10.38 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.33 Form of Directors and Officers Indemnification Agreement between Registrant and its directors and officers, incorporated by reference to Exhibit 10.24 to Registrant's Report on Form 10-K for the year ended June 30, 1997. 10.34 Asset Acquisition Agreement, dated December 22, 1997 by and among Del Webb Communities, Inc. and Spruce Creek Golf and Country Club, Inc., Spruce Creek Golf and Country Club Homeowners' Association, Inc. and Spruce Creek Preserve Homeowners' Association, Inc. incorporated by reference to Exhibit 99.1 to Registrant's Report on Form 10-Q dated May 14, 1998. 10.35 Agreement of Purchase and Sale between Del Webb Conservation Holding Corp. and American Land Conservancy for acquisition of Dreyfus property located on the eastern shore of Lake Tahoe in Washoe County, Nevada, incorporated by reference to Exhibit 10.1 to Registrant's Report on Form 10-Q dated February 9, 1998. 10.36 Del Webb Corporation Supplemental Executive Retirement Plan No. 2, as amended and restated April 20, 1993, incorporated by reference to Exhibit 10.16 to Registrant's Report on Form 10-K for the year ended June 30, 1993; as amended by First Amendment to the Del Webb Corporation Supplemental Executive Retirement Plan No. 2 effective July 1, 1995, incorporated by reference to Exhibit 10.16 to Registrant's Report on Form 10-K for the year ended June 30, 1995. * Reports filed under File No. 1-4785 were filed in the office of the Security and Exchange Commission located in Washington, D.C. 5 EX-10.1 2 FORM OF CHANGE OF CONTROL AGREEMENT Exhibit 10.1 Sample Change of Control Agreement Date Name Address Dear _____: The Board of Directors of Del Webb Corporation (the "Corporation") and the Human Resources Committee (the "Committee") of the Board have determined that it is in the best interest of the Corporation and its shareholders for the Corporation to agree, as provided herein, to pay you termination compensation in the event you should leave the employ of the Corporation or a Subsidiary under the circumstances described below. Reference in this letter to your employment by or with the Corporation shall be deemed to include employment by or with a Subsidiary. The Board and Committee recognize that the continuing possibility of a change in the control of the Corporation is unsettling to you and other senior executives of the Corporation. Therefore, these arrangements are being made to help assure a continuing dedication by you to your duties to the Corporation notwithstanding the occurrence or potential occurrence of a change in control. In particular, the Board and the Committee believe it important, should the Corporation receive proposals from third parties with respect to its future, to enable you, without being influenced by the uncertainties of your own situation, to assess and to take such other action regarding such proposals as the Board might determine to be appropriate. The Board and the Committee also wish to demonstrate to executives of the Corporation and its Subsidiaries that the Corporation is concerned with the welfare of its executives and intends to see that loyal executives are provided with the benefits stated herein. In view of the foregoing and in further consideration of your continued employment with the Corporation, the Corporation agrees with you as follows: 1. LIMITED RIGHT TO RECEIVE SEVERANCE BENEFITS. In the event that within twenty-four (24) months after a change of control of the Corporation (as defined herein) your employment with the Corporation is terminated, you shall be entitled to the severance benefits provided in Section 3 hereof unless: (a) at that time your employment is terminated by the Corporation, you have a written employment contract with the Corporation extending at least _______ Name - 2 - Date months from the date written Notice of Termination is given you and the Corporation acknowledges its breach of that agreement and offers you, in cash, an amount equal to all future payments called for thereunder, plus all other damages suffered by you as a result of such termination; or (b) such termination is (i) because of your death or retirement, (ii) by the Corporation for cause or your permanent disability, or (iii) by you, other than for good reason in accordance with Section 2(e) hereof. 2. CERTAIN DEFINITIONS. For purposes of this Agreement: (a) CHANGE IN CONTROL. "Change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing twenty-five percent (25%) or more of the combined voting power of the Corporation's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors, or (ii) within two (2) years of a tender offer or exchange offer for the voting stock of the Corporation (other than by the Corporation) or as a result of a merger, consolidation, sale of assets or contested election or any combination of the foregoing, the persons who were directors of the Corporation immediately prior thereto shall cease to constitute a majority of the Board of Directors of the Corporation or of its successor by merger, consolidation or sale of assets. (b) RETIREMENT. Termination by the Corporation or you of your employment based on "Retirement" shall mean (i) voluntary retirement by you from active full-time employment with any person or corporation on and after the attainment of sixty-five (65) years, (ii) voluntary separation because of retirement from active employment in accordance with the Corporation's retirement policy in effect as of the date of Change in Control (including early retirement at your option) generally applicable to its salaried employees, or (iii) in accordance with any written retirement policy established by the Corporation for you with your written consent. (c) PERMANENT DISABILITY. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from your duties with the Corporation or a Subsidiary on a full-time basis for six (6) months or more Name - 3 - Date and you apply for and are approved for long-term disability payments under the Corporation's long-term disability plan, the Corporation may terminate this Agreement for "Permanent Disability". Notwithstanding the foregoing, this Agreement may not be terminated pursuant to this Section 2(c) unless the incapacity giving rise to such Permanent Disability occurs prior to the occurrence of an event which might cause amounts to be payable to you under this Agreement. Once payments have begun pursuant to any provision of this Agreement, this Agreement may not be terminated pursuant to this Section 2(c) and such payment shall not cease or diminish on account of your Permanent Disability. (d) CAUSE. The Corporation shall have "Cause" to terminate your employment upon (i) the breach by you of any employment contract between you and the Corporation, or (ii) the adjudication that you are bankrupt, or (iii) your conviction of a felony or crime involving moral turpitude (meaning a crime that necessarily includes the commission of an act of gross depravity, dishonesty or bad morals). (e) GOOD REASON. You may terminate your employment for Good Reason, and receive the benefits provided in Section 3 hereof, only if you do so within one hundred twenty (120) days following the occurrence of any of the events specified in (i)-(iv) below. Termination of your employment by you for "Good Reason" shall mean: (i) without your express written consent, the assignment to you of any duties that are inconsistent with your positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, or a demotion, or a change in your titles or offices as in effect immediately prior to a Change in Control, or any removal of you from or any failure to re-elect you to any of such positions, except in connection with the termination of your employment for Cause, Permanent Disability or as a result of your death or by other than for Good Reason; (ii) a reduction by the Corporation in your base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) the failure by the Corporation to continue in effect any thrift, incentive or compensation plan, or any pension, life insurance, health and accident Name - 4 - Date or disability plan in which you are participating at the time of a Change in Control of the Corporation (or plans providing you with substantially similar benefits), the taking of any action by the Corporation which would adversely affect your participation in or materially reduce your benefits under any of such plans or deprive you of any material fringe benefit enjoyed by you at the time of the change in control, or the failure by the Corporation to provide you with the number of paid vacation days to which you are then entitled on the basis of years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect on the date hereof; (iv) you are assigned to, or the Corporation's office at which you are principally employed immediately prior to the date of the Change in Control of the Corporation are relocated to, a location which would require a round-trip commute to work from your present residence of more than one hundred twenty (120) miles per day: (v) the failure of the Corporation to obtain an agreement satisfactory to you from any successor to the business, or substantially all the assets, of the Corporation to assume this Agreement or issue a substantially similar agreement; (vi) your termination by the Corporation, purportedly for Cause, if it is thereafter determined that cause did not exist under this Agreement with respect to your termination. (f) NOTICE OF TERMINATION. Any termination by the Corporation or you shall be communicated by written notice to the other party ("Notice of Termination"). With respect to any termination by the Corporation for Cause, Retirement or Disability, or any termination by you for Good Reason, the Notice of Termination shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. (g) SUBSIDIARY. "Subsidiary" shall mean any corporation, partnership, joint venture or other entity in which the Corporation has a twenty percent (20%) or greater equity interest. 3. EFFECT OF TERMINATION. If you are entitled to receive severance benefits pursuant to Section 1 hereof, such severance benefits shall be as follows: (a) you will be entitled to a cash payment in lump sum (or, if you make an irrevocable election prior to a Change in Control, payable in equal semi- monthly installments without interest) equal to ___________ times the highest annual base salary in effect at any time during the twelve (12) months prior to the date the Notice of Termination is given ("Termination Salary"), plus an amount equal to the greater of the value of all bonuses paid Name - 5 - Date to you during the twelve (12) month period prior to the giving of such Notice of Termination, or ________________ of the Termination Salary; (b) any stock options to purchase common stock of the Corporation or stock appreciation rights held by you on the date the Notice of Termination is given, which are not at that date currently exercisable, shall on that date automatically become exercisable; and be exercisable for three (3) months after termination of employment; (c) all shares of common stock of the Corporation held by you under the Corporation's Restricted Stock Plans which are still subject to restrictions on the date the Notice of Termination is given shall, as of that date, automatically become free of all restrictions; (d) a payment of twenty percent (20%) of your Termination Salary in lieu of fringe benefits. The Corporation shall be obligated to amend, if necessary, its Restricted Stock Plans and its plans pursuant to which you have been or may be granted stock options or stock appreciation rights, or grant instruments, to be consistent with Section 3(b) and 3(c) of this Agreement. Should you, at any time, take legal action, including arbitration, against the Corporation for breach of this Agreement, the Corporation shall reimburse you for all amounts spent by you to pursue such legal action, regardless of the outcome, unless a court of competent jurisdiction finds your action to have been frivolous and without merit. 4. EFFECT ON OTHER BENEFITS. Except to the extent specified in Section 3 hereof, this Agreement shall not affect your participation in, distributions from and vested rights under any pension, profit sharing or other employee benefit plan of the Corporation or any of its Subsidiaries, which will be governed by the terms of those respective plans. Any forfeitures you experience under any pension, profit sharing or stock bonus plans due to your termination shall be paid to you by the Corporation in cash in the event any payment is made to you pursuant to Section 3. In the event that on the date your employment with the Corporation is terminated (and provided you are entitled to severance benefits pursuant to Section 3 hereof) you are provided or are entitled to the use of an automobile under the Corporation's executive automobile policy, you shall have the use of such automobile for one (1) year after the date of such termination of employment, on terms no less favorable than those contained in such policy prior to such termination of employment. In addition, for a twelve (12) month period after any termination entitling you to benefits under Section 3 hereof, the Corporation shall arrange to provide you with life, disability, Name - 6 - Date accident and group health benefits and coverages substantially similar to those which you were receiving immediately prior to the Notice of Termination. The cost to you of such coverage shall be not more than the cost to you of similar coverage immediately prior to the Notice of Termination. Your right to continued life, disability, accident and health benefits shall be in addition to and not in lieu of your rights under the Consolidated Omnibus Reconciliation Act of 1986 ("COBRA"). 5. CONTINUATION OF EMPLOYMENT. This Agreement shall not be construed to confer upon you any right to continue in the employ of the Corporation or the Operating Company, and shall not limit any right of the Corporation or the Operating Company to terminate your employment at any time in its sole discretion. 6. ENTIRE AGREEMENT. This Agreement supersedes all other agreements and understandings between us with respect to benefits due to you in connection with a Change in Control. In the event of the termination of your employment under circumstances entitling you to the termination payments hereunder, the arrangements provided for by this Agreement, together with any written employment contract between you and the Corporation and any applicable benefit plan of the Corporation or any of its subsidiaries in effect at the time (as modified by this Agreement), would constitute the entire obligation of the Corporation to you and performance thereof would constitute full settlement of any claim that you might otherwise assert against the Corporation on account of such termination. 7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of you, your estate and the Corporation and any successor of the Corporation, but neither this Agreement nor any rights arising hereunder may be assigned or pledged by you. 8. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by you and such officer as may be specifically designated by the Board of Directors of the Corporation. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. No agreements or Name - 7 - Date representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Arizona. 9. TERMINATION OF THIS AGREEMENT. Prior to a Change in Control of the Corporation, this Agreement may be unilaterally terminated by the Corporation upon twelve (12) months prior written notice to you. 10. ARBITRATION AND LITIGATION. In the event that following a Change in Control of the Corporation, the Corporation terminates you by reason of your Permanent Disability or for Cause and you dispute the accuracy of such assertion of Permanent Disability or Cause, or in the event you terminate your employment for Good Reason, and the Corporation disputes the accuracy of such assertion of Good Reason, the accuracy of such assertion shall be submitted to arbitration in accordance with the then current commercial arbitration rules of the American Arbitration Association ("Association") or its successor, provided you or the Corporation file a written demand for arbitration at a regional office of the Association within thirty (30) calendar days following the date of termination. The Corporation shall continue to pay all benefits due to you under this Agreement during arbitration until a final, binding determination has been entered relieving the Corporation of its duty to provide benefits hereunder. In the event the Corporation shall elect to insure all or part of its liability for providing health and long-term disability benefits under this paragraph, you shall submit to such reasonable physical examination as the Company may request. Arbitration shall be the sole remedy hereunder and the decision of the arbitrator shall be final and binding. 11. SEVERABILITY. If any one (1) or more of the provisions or parts of a provision contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity or enforceability shall not affect any other provision or part of a provision of this Agreement, but this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein and such provisions or part thereof shall be reformed so that it would be valid, legal and enforceable to the maximum extent permitted by law. Any such reformation shall be read as narrowly as possible to give the maximum effect to our mutual intentions. 12. MITIGATION. In the event that your employment is terminated and payments become due pursuant to this Agreement, you shall have no duty to mitigate damages or to become re-employed by another employer. Name - 8 - Date If you are in agreement with the foregoing, please so indicate by signing and returning to the Corporation the enclosed copy of this letter, whereupon this letter shall constitute a binding agreement between you and the Corporation in accordance with its terms. Very truly yours, PJD/sd Enclosure AGREED: -------------------------------- Name Date: --------------------------- ELECTION FOR RECEIPT OF INSTALLMENT PAYMENTS Pursuant to the terms of the Change in Control Agreement dated ________, 19__ between Del Webb Corporation and the undersigned, I elect to have the payments due me under Section 3(a) of this letter agreement paid to me in equal semi-monthly installments over a period of eighteen (18) months. -------------------------------- Name Date: --------------------------- State of Arizona ) ) ss. County of Maricopa ) The foregoing instrument was acknowledged before me this _______ day of ____________________, 19___, by [Name]. My Commission Expires . ------------------- ------------------------------------ Notary EXHIBIT 10.1 Sample Change of Control Agreements for certain officers. Schedule of differences: 1. LIMITED RIGHT TO RECEIVE SEVERANCE BENEFITS. In the event that within twenty-four (24) months after a change of control of the Corporation (as defined herein) your employment with the Corporation in terminated, you shall be entitled to the severance benefits provided in Section 3 hereof unless: (a) at that time your employment is terminated by the Corporation,you have a written employment contract with the Corporation extending at least ________ months (SEE DIFFERENCES ATTACHED HERETO AS #1) from the date written Notice of Termination is given you and the Corporation acknowledges it s breach of that agreement and offers you, in cash, an amount equal to all future payments called for thereunder, plus all other damages suffered by you as a result of such termination; 3. EFFECT OF TERMINATION. If you are entitled to receive severance benefits pursuant to Section 1 hereof, such severance benefits shall be as follows: (a) you will be entitled to a cash payment in lump sum (or, if you make an irrevocable election prior to a Change in Control, payable in equal semi- monthly installments without interest) equal to __________ times (SEE DIFFERENCES ATTACHED HERETO AS #2) the highest annual base salary in effect at any time during the twelve (12) months prior to the date the Notice of Termination is given ("Termination Salary"), plus an amount equal to the greater of the value of all bonuses paid to you during the twelve (12) month period prior to the giving of such Notice of Termination, or __________ percent (SEE DIFFERENCES ATTACHED HERETO AS #3)of the Termination Salary; Contract OR PLUS Date of Extension Base Salary Bonus Name Agreement in Months (1) in Years (2) Computation (3) - ---- --------- ------------- ------------ --------------- John Spencer 5-20-88 24 2 35% Don Mickus 5-20-88 24 2 35% Frank Pankratz 5-20-88 18 1.5 40% Anne Mariucci 5-20-88 18 1.5 35% Dave Rau 5-20-88 18 1.5 35% Chuck Roach 5-17-89 18 1.5 35% Jack Gleason 2-01-90 18 1.5 35% Rob Jones 11-16-92 18 1.5 35% Dave Schreiner 12-21-92 18 1.5 35% Lynn Schuttenberg 4-29-93 18 1.5 35% Bob Wagoner 1-26-94 18 1.5 35% John Murray 9-25-95 18 1.5 35% Larry Beckner 11-1-95 18 1.5 35% Rich Vandermeer 11-4-96 18 1.5 35% EX-10.2 3 SECOND AMENDED AND RESTATED REV. LOAN AGR. $450,000,000 REVOLVING CREDIT FACILITY SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT among DEL WEBB CORPORATION, THE BANKS NAMED HEREIN, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent, and BANK ONE, ARIZONA, NA, as Co-Agent Dated as of June 5, 1998 TABLE OF CONTENTS ----------------- Page ---- Article 1 DEFINITIONS AND ACCOUNTING TERMS...............................1 1.1 Defined Terms...........................................1 1.2 Use of Defined Terms...................................28 1.3 Accounting Terms.......................................28 1.4 Rounding...............................................28 1.5 Exhibits and Schedules.................................28 1.6 References to "Borrower and its Subsidiaries"..........28 1.7 Miscellaneous Terms....................................28 Article 2 LOANS.........................................................30 2.1 Loans-General..........................................30 2.2 Reference Rate Loans...................................31 2.3 Eurodollar Rate Loans..................................32 2.4 Voluntary Reduction of Commitments.....................32 2.5 Extension of Maturity Date/Reduction of Commitments....32 2.6 Optional Termination of Commitments....................34 2.7 Automatic Termination of Commitments...................34 2.8 Agent's Right to Assume Funds Available for Advances...34 2.9 Adjusting Purchase Payments............................34 2.10 Substitute Credit Facility.............................35 2.11 Senior Debt............................................35 2.12 Letters of Credit......................................35 Article 3 PAYMENTS AND FEES.............................................40 3.1 Principal and Interest.................................40 3.2 Arrangement, Agency and Co-Agency Fees.................41 3.3 Underwriting Fee.......................................41 3.4 Facility and Commitment Fees...........................41 3.5 Increased Commitment Costs.............................42 3.6 Eurodollar Costs and Related Matters...................43 3.7 Late Payments..........................................46 3.8 Computation of Interest and Fees.......................47 3.9 Non-Banking Days.......................................47 3.10 Manner and Treatment of Payments.......................47 3.11 Funding Sources........................................48 3.12 Failure to Charge Not Subsequent Waiver................48 3.13 Agent's Right to Assume Payments Will be Made by Borrower......................................48 3.14 Fee Determination Detail...............................49 i 3.15 Survivability.........................................49 3.16 Accruals Under Pre-Existing Loan Documents............49 Article 4 REPRESENTATIONS AND WARRANTIES................................50 4.1 Existence and Qualification; Power; Compliance With Laws.............................................50 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations................50 4.3 No Governmental Approvals Required.....................51 4.4 Subsidiaries...........................................51 4.5 Financial Statements...................................52 4.6 No Other Liabilities; No Material Adverse Changes......52 4.7 Title to Property......................................52 4.8 Intangible Assets......................................52 4.9 Public Utility Holding Company Act.....................53 4.10 Litigation.............................................53 4.11 Binding Obligations....................................53 4.12 No Default.............................................53 4.13 ERISA..................................................53 4.14 Regulations G, T, U and X; Investment Company Act......54 4.15 Disclosure.............................................54 4.16 Tax Liability..........................................54 4.17 Strategic Plan.........................................54 4.18 Hazardous Materials. ..................................54 4.19 Year 2000 Compliance...................................55 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS).......................................56 5.1 Payment of Taxes and Other Potential Liens.............56 5.2 Preservation of Existence..............................56 5.3 Maintenance of Properties..............................56 5.4 Maintenance of Insurance...............................57 5.5 Compliance With Laws...................................57 5.6 Inspection Rights......................................57 5.7 Keeping of Records and Books of Account................57 5.8 Compliance With Agreements.............................57 5.9 Use of Proceeds........................................57 5.10 New Guarantor Subsidiaries; Release of Certain Guaranties............................................58 5.11 Hazardous Materials Laws...............................58 Article 6 NEGATIVE COVENANTS............................................59 6.1 Prepayment of Indebtedness.............................59 ii 6.2 Payment of Subordinated Obligations....................59 6.3 Mergers and Sale of Assets.............................60 6.4 Hostile Tender Offers..................................60 6.5 Distributions..........................................60 6.6 ERISA..................................................61 6.7 Change in Nature of Business...........................61 6.8 Liens..................................................61 6.9 Indebtedness...........................................63 6.10 Transactions with Affiliates...........................64 6.11 Tangible Net Worth.....................................64 6.12 Consolidated Fixed Charge Coverage.....................64 6.13 Debt to Net Worth......................................65 6.14 Adjusted Senior Debt to Net Worth......................65 6.15 Liquidity..............................................65 6.16 Investments............................................66 6.17 Unentitled Land........................................67 6.18 Unsold Homes in Production.............................67 6.19 Coventry Assets........................................68 Article 7 INFORMATION AND REPORTING REQUIREMENTS........................69 7.1 Financial and Business Information.....................69 7.2 Compliance Certificates................................71 Article 8 CONDITIONS....................................................73 8.1 Initial Advances, Etc..................................73 8.2 Any Increasing Advance.................................74 8.3 Any Advance............................................75 8.4 Return of Pre-Existing Notes...........................75 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT..........76 9.1 Events of Default......................................76 9.2 Remedies Upon Event of Default.........................78 Article 10 THE AGENT.....................................................81 10.1 Appointment and Authorization.........................81 10.2 Agent and Affiliates..................................81 10.3 Proportionate Interest in any Collateral..............81 10.4 Banks' Credit Decisions...............................81 10.5 Action by Agent.......................................82 10.6 Liability of Agent....................................82 iii 10.7 Indemnification.......................................83 10.8 Successor Agent.......................................84 10.9 No Obligations of Borrower............................84 Article 11 MISCELLANEOUS.................................................86 11.1 Cumulative Remedies; No Waiver........................86 11.2 Amendments; Consents..................................86 11.3 Costs, Expenses and Taxes.............................87 11.4 Nature of Banks' Obligations..........................87 11.5 Survival of Representations and Warranties............88 11.6 Notices...............................................88 11.7 Execution of Loan Documents...........................88 11.8 Binding Effect; Assignment............................89 11.9 Sharing of Setoffs....................................90 11.10 Indemnity by Borrower.................................91 11.11 Nonliability of the Banks.............................92 11.12 No Third Parties Benefited............................93 11.13 Further Assurances....................................93 11.14 Integration...........................................93 11.15 Governing Law.........................................94 11.16 Severability of Provisions............................94 11.17 Headings..............................................94 11.18 Time of the Essence...................................94 11.19 Foreign Banks.........................................94 11.20 Hazardous Material Indemnity..........................94 11.21 Reference to Arbitration..............................95 11.22 Confidentiality.......................................96 11.23 Co-Agent..............................................97 Schedules 1.1 Bank Group Commitments 2.9 Adjusting Purchase Payments 3.3 Allocation of Underwriting Fee 4.3 Governmental Approvals 4.4 Subsidiaries 4.6 Outstanding Indebtedness 4.10 Litigation 6.8 Existing Liens 6.9 Certain Outstanding Credit Commitments 6.16 Existing Investments iv Exhibits A - Commitment Assignment and Acceptance B - Compliance Certificate C - Line A Note D - Line B Note E - Loan Compliance Certificate F-1 - Opinion of Counsel (Inside) F-2 - Opinion of Counsel (Outside) G - Request for Letter of Credit H - Request for Loan I - Subsidiary Guaranty v SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT ---------------------------------------------------- Dated as of June 5, 1998 This SECOND AMENDED AND RESTATED REVOLVING LOAN AGREEMENT ("Agreement") is entered into by and among Del Webb Corporation, a Delaware corporation ("Borrower"), each bank whose name is set forth on the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8 (collectively, the "Banks" and individually, a "Bank"), Bank of America National Trust and Savings Association, a national banking association, as Agent (the "Agent") and Bank One, Arizona, NA, as Co-Agent (the "Co-Agent"). This Agreement is intended by the parties hereto as an amendment and restatement of the First Amended Loan Agreement as of the effective date of this Agreement. Amounts outstanding and committed under the First Amended Loan Agreement and evidenced by the Pre-Existing Notes shall, upon the effectiveness of this Agreement, be deemed to be outstanding and committed hereunder and evidenced by the Notes, subject, however, to all terms and conditions hereunder and under the other Loan Documents, including without limitation the allocation of the Commitments among the Banks as provided herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: Article 1 DEFINITIONS AND ACCOUNTING TERMS -------------------------------- 1.1 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below: "9-3/4% Senior Subordinated Debt Due 2003" means the Indebtedness outstanding under Borrower's Indenture, dated March 8, 1993 with respect to $100,000,000 of 9-3/4% Senior Subordinated Debentures due 2003. "9.00% Senior Subordinated Debt Due 2006" means the Indebtedness outstanding under Borrower's Indenture, dated February 11, 1994 with respect to $100,000,000 of 9.00% Senior Subordinated Debentures due 2006. "9-3/4% Senior Subordinated Debt Due 2008" means the Indebtedness outstanding under Borrower's Indenture, dated January 21, 1997 with respect to $150,000,000 of 9-3/4% Senior Subordinated Debentures due 2008. -1- "9-3/8% Senior Subordinated Debt Due 2009" means the Indebtedness outstanding under Borrower's Indenture, dated May 11, 1998, 1998 with respect to $200,000,000 of 9-3/8% Senior Subordinated Debentures due 2009. "Adjusted EBITDA" means, for any Fiscal Year, EBITDA for that Fiscal Year plus net cash proceeds to Borrower from the issuance of capital stock of Borrower (other than Disqualified Stock) during such Fiscal Year plus 50% of net cash proceeds to Borrower from new borrowings constituting Subordinated Obligations during such Fiscal Year minus any amount paid by Borrower during such Fiscal Year for the acquisition or cancellation of capital stock of Borrower and minus any amount paid by Borrower during such Fiscal Year for the repayment or otherwise on account of the principal portion of any Subordinated Obligations, provided that the dollar-for -dollar refinancing of Subordinated Obligations with new Subordinated Obligations during a single Fiscal Year shall not be treated as resulting in either net cash proceeds to Borrower nor a repayment of Subordinated Obligations for these purposes. For purposes of this definition, the proceeds of the 9-3/8% Senior Subordinated Debt due 2009 shall be treated as having arisen in Borrower's Fiscal Year ending June 30, 1999. "Adjusted Senior Debt" means, as of any date of determination, Senior Debt as of that date minus (to the extent included in Senior Debt, and without duplication) Non-Recourse Debt as of that date. "Adjusted Total Indebtedness" means, as of any date of determination, Total Indebtedness as of that date minus the aggregate outstanding principal balance (but not in excess of $30,000,000) of Non-Recourse Debt for which a corresponding Lien is permitted pursuant to Section 6.8(d). "Adjusting Purchase Payment(s)" has the meaning given that term in Section 2.9. "Advance" means any advance made or to be made by any Bank to Borrower as provided in Article 2, and includes each Reference Rate Advance and Eurodollar Rate Advance. "Affiliate" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (and the correlative terms, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided that, in any event, any Person that owns, directly or indirectly, 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation that has more than 100 record holders of such securities, or 10% or more of the partnership or other ownership interests of any other Person that has more than 100 -2- record holders of such interests, will be deemed to control such corporation or other Person. "Agent" means Bank of America National Trust and Savings Association, when acting in its capacity as the Agent under any of the Loan Documents, or any successor Agent. "Agent's Office" means the Agent's address as set forth on the signature pages of this Agreement, or such other address as the Agent hereafter may designate by written notice to Borrower and the Banks. "Aggregate Effective Amount" means, as of any date of determination, the sum of (a) the aggregate drawable face amount of all Letters of Credit then outstanding plus (b) the aggregate amount paid by the Issuing Bank under Letters of Credit that has not yet been reimbursed to the Issuing Bank by Borrower pursuant to Section 2.12(d) or by way of Advances made pursuant to Section 2.12(e). "Agreement" means this Second Amended and Restated Revolving Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended. "Anniversary Date" means any annual anniversary date of the date of this Agreement that is at least eleven (11) months prior to the then existing Maturity Date. "Applicable Eurodollar Spread" means, as of any date of determination, the interest rate spread set forth below opposite the Applicable Pricing Level as of such date: Applicable Pricing Level Eurodollar Spread ------------- ----------------- I 1.30% II 1.45% III 1.60% IV 1.70% V 1.90% "Applicable Pricing Level" means, for any day during a Pricing Period, the pricing level set forth below opposite the Leverage Ratio as of the last day of the Fiscal Quarter most recently ended prior to the commencement of that Pricing Period: -3- Leverage Ratio Applicable to ---------------------------- Applicable Pricing Level Pricing Period ------------------------ -------------- I Leverage Ratio of less than or equal to 1.50 to 1.00 II Leverage Ratio of higher than 1.50 to 1.00, but less than or equal to 1.75 to 1.00 III Leverage Ratio of higher than 1.75 to 1.00, but less than or equal to 2.00 to 1.00 IV Leverage Ratio of higher than 2.00 to 1.00, but less than or equal to 2.25 to 1.00 V Leverage Ratio of higher than 2.25 to 1.00. provided that (a) for the period from the effective date of this Agreement through August 31, 1998, the Applicable Pricing Level shall be Pricing Level III and (b) if any Compliance Certificate delivered on or about August 31 is subsequently shown by the Compliance Certificate delivered on or about the following October 31 to be in error with respect to its calculation of the Leverage Ratio, then the resulting change in the Applicable Pricing Level shall be made retroactively to the beginning of the relevant Pricing Period. "Bank of America" means Bank of America National Trust and Savings Association. "Banking Day" means any Monday, Tuesday, Wednesday, Thursday or Friday, other than a day on which banks are authorized or required to be closed in Arizona, California, Massachusetts, New York, Texas or North Carolina. "Borrower" means Del Webb Corporation, a Delaware corporation, and its successors and permitted assigns. "Capital Expenditure" means any expenditure that is considered a capital expenditure under Generally Accepted Accounting Principles, including any amount which is required to be treated as an asset subject to a Capital Lease Obligation. "Capital Lease Obligations" means all monetary obligations of a Person under any leasing or similar arrangement which, in accordance with Generally Accepted Accounting Principles, is classified as a capital lease. -4- "Cash" means, when used in connection with any Person, all monetary and non-monetary items owned by that Person that are treated as cash in accordance with Generally Accepted Accounting Principles, consistently applied. "Cash Equivalents" means, when used in connection with any Person, that Person's Investments in: (a) Government Securities due within one year after the date of the making of the Investment; (b) readily marketable direct obligations of any State of the United States of America given on the date of such Investment a credit rating of at least Aa by Moody's Investors Service, Inc. or AA by Standard & Poor's Ratings Group, in each case due within one year from the making of the Investment; (c) certificates of deposit issued by, bank deposits in, Eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by, any bank incorporated under the Laws of the United States of America or any State thereof and having on the date of such Investment combined capital, surplus and undivided profits of at least $250,000,000, or total assets of at least $5,000,000,000, in each case due within one year after the date of the making of the Investment; (d) certificates of deposit issued by, bank deposits in, Eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by, any branch or office located in the United States of America of a bank incorporated under the Laws of any jurisdiction outside the United States of America having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000, or total assets of at least $15,000,000,000 in each case due within one year after the date of the making of the Investment; (e) repurchase agreements covering Government Securities executed by a broker or dealer registered under Section 15(b) of the Securities Exchange Act of 1934, as amended, having on the date of the Investment capital of at least $100,000,000, due within 30 days after the date of the making of the Investment; provided that the maker of the Investment receives written confirmation of the transfer to it of record ownership of the Govern ment Securities on the books of a registered broker or dealer, as soon as practicable after the making of the Investment; (f) readily marketable commercial paper of corporations doing business in and incorporated under the Laws of the United States of America or -5- any State thereof or of any corporation that is the holding company for a bank described in clauses (c) or (d) above given on the date of such Investment a credit rating of at least P-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Ratings Group, in each case due within 90 days after the date of the making of the Investment; (g) "money market preferred stock" issued by a corporation incorporated under the Laws of the United States of America or any State thereof given on the date of such Investment a credit rating of at least Aa by Moody's Investors Service, Inc. and AA by Standard & Poor's Ratings Group, in each case having an investment period not exceeding 50 days; provided that (i) the amount of all such Investments issued by the same issuer does not exceed $5,000,000 and (ii) the aggregate amount of all such Investments does not exceed $15,000,000; and (h) a readily redeemable "money market mutual fund" sponsored by a bank described in clauses (c) or (d) hereof, or a registered broker or dealer described in clause (e) hereof, that has and maintains an investment policy limiting its investments primarily to instruments of the types described in clauses (a) through (g) hereof and having on the date of such Investment total assets of at least $1,000,000,000. "Cash Land Acquisition Costs" means, for any fiscal period, cash paid by Borrower and its Subsidiaries for land acquisitions during such fiscal period, calculated in a manner consistent with that used in the calculation of "Land acquisitions" as shown under the heading "Reconciliation of net earnings to net cash used for operating activities" in the financial statements delivered to Banks for the Fiscal Quarter ending September 30, 1993. "Certificate of a Responsible Official" means a certificate signed by a Responsible Official of the Person providing the certificate. "Change in Control" means any transaction or series of related transactions (a) in which any Unrelated Person or two or more Unrelated Persons acting in concert acquire beneficial ownership (within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 50% or more of the Common Stock, (b) in which any such Unrelated Person or Unrelated Persons acting in concert acquire the concurrent beneficial ownership of 20% or more of the Common Stock subsequent to the Closing Date if, while they continue to hold such 20% ownership, (i) at the first election for the board of directors of Borrower subsequent to such acquisition, individuals who prior to such election were directors of Borrower cease for any reason (other than death or incapacity) to constitute 50% or more of the board of directors of Borrower or (ii) if the terms of all directors of Borrower do not expire at the date of such first election, then at the second election for -6- the board of directors of Borrower subsequent to such acquisition, individuals who prior to such first election were directors of Borrower cease for any reason (other than death or incapacity) to constitute 50% or more of the board of directors of Borrower or (c) constituting a "change in control" or other similar occurrence under documentation evidencing or governing any Indebtedness of Borrower of $25,000,000 or more which results in an obligation of Borrower to prepay, purchase, offer to purchase, redeem or defease such Indebtedness. For purposes of the foregoing, the term "Unrelated Person" means any Person other than (a) a Subsidiary of Borrower or (b) an employee stock ownership plan or other employee benefit plan covering the employees of Borrower and its Subsidiaries. "Closing Date" means the time and Banking Day on which the conditions set forth in Section 8.1 are satisfied or waived. The Agent shall notify Borrower and the Banks of the date that is the Closing Date. "Co-Agent" means Bank One, Arizona, NA, when acting in its capacity as the Co-Agent under any of the Loan Documents, or any successor Co-Agent. "Code" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. "Commitments" means, collectively, the Line A Commitment and the Line B Commitment. The respective Pro Rata Shares of the Banks with respect to the Commitments are set forth in Schedule 1.1. "Commitment Assignment and Acceptance" means a commitment assignment and acceptance substantially in the form of Exhibit A. "Common Stock" means the common stock of Borrower or its successor by merger. "Compliance Certificate" means a certificate in the form of Exhibit B (or such modified form as the Agent may reasonably request), properly completed and signed by a Senior Officer of Borrower. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any date of determination, the least of such value as calculated in the manner specified for such term in any of the Indentures. Should the manner of any such calculation become subject to dispute between Borrower and the Banks due to questions of interpretation of such indenture and the incorporation of such terms herein, the reasonable interpretation of the manner of calculation made by the Banks shall be binding on the parties with respect to Sections 8.2(c) and 8.2(d) unless and until the Agent shall have received written advice from the then current independent auditors of Borrower, in -7- form reasonably acceptable to the Agent, stating their opinion as to the calculation of such amount. "Consolidated Total Assets" means, as of any date of determination, the amount of the consolidated total assets that should be reflected as such on a consolidated balance sheet of Borrower and its Subsidiaries on that date, prepared in accordance with Generally Accepted Accounting Principles, plus any amount by which such assets may have theretofore been written down to reflect a perceived decrease in market value other than customary depreciation or amortization. "Contractual Obligation" means, as to any Person, any provision of any outstanding security issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its Property is bound. "Coventry Assets" means, as of any date of determination, the amount of the total assets that should be reflected on a consolidated balance sheet prepared solely for the Coventry Subsidiaries on that date, prepared in accordance with Generally Accepted Accounting Principles, plus any amount by which such assets may have theretofore been written down to reflect a perceived decrease in market value other than customary depreciation or amortization. "Coventry Homes Projects" means, as of any date of determination, all land purchase and home building projects of the Coventry Subsidiaries on that date. "Coventry Land Assets" means, as of any date of determination, the amount of the Land Assets that should be reflected on a consolidated balance sheet prepared solely for the Coventry Subsidiaries on that date, prepared in accordance with Generally Accepted Accounting Principles, plus any amount by which such assets may have theretofore been written down to reflect a perceived decrease in market value other than customary depreciation or amortization. "Coventry Subsidiaries" means Del Webb's Coventry Homes, Inc., Del Webb Homes, Inc. and Coventry of California, Inc., and their Subsidiaries from time to time which, on the date of this Agreement, are Del Webb's Coventry Homes Construction of Tucson Co., Del Webb's Coventry Homes of Tucson, Inc., Del Webb's Coventry Homes Construction Co., Trovas Company and Trovas Construction Co. Each Subsidiary of any Coventry Subsidiary from time to time shall be a Coventry Subsidiary. "Current Operating Projects" means collectively (a) Del Webb Construction, Inc.'s, Del E. Webb Development Co., L.P.'s and Del Webb Communities, Inc.'s approximately 6,575 acre residential community development located near Phoenix, Arizona and commonly known as Sun City West, (b) Del Webb Communities, Inc.'s -8- approximately 1,000 acre residential community development located near Tucson, Arizona and commonly known as Sun City Tucson, (c) Del Webb Communities, Inc.'s approximately 1,892 acre residential community development located near Las Vegas, Nevada and commonly known as Sun City Las Vegas, (d) Del Webb California Corp.'s approximately 1,574 acre residential community development located near Palm Springs, California and commonly known as Sun City Palm Springs, (e) the Coventry Homes Projects, (f) Terravita Corp.'s and Terravita Homes Construction Co.'s approximately 803 acre master planned residential land development located in Scottsdale, Arizona, (g) Del E. Webb Foothill Corp.'s approximately 4,140 acre land development project located in Phoenix, Arizona, (h) Del Webb California Corp.'s approximately 1,200 acre residential community development located in Roseville, California and commonly known as Sun City Roseville, (i) Del Webb Home Construction Inc.'s approximately 4,000 acre (including interests in acres) residential community development located in Surprise, Arizona and commonly known as Sun City Grand, (j) Del E. Webb Development Co., L.P.'s approximately 5,300 acre residential community development located near Austin, Texas and commonly known as Sun City Georgetown, (k) Del Webb Communities, Inc.'s approximately 560 acre residential community development located in Henderson, Nevada and commonly known as Sun City MacDonald Ranch and (l) Del Webb Communities, Inc.'s approximately 5,500 acre residential community development located near Hilton Head Island, South Carolina and commonly known as Sun City Hilton Head. Also, Current Operating Projects shall include a replacement for one of the foregoing projects if such project is located within the same general metropolitan area as the replaced project and if construction of such project is commenced at a time that the replaced project has less than a three year expected sell-out term based upon its current absorption rate. "Debtor Relief Laws" means the Bankruptcy Code of the United States of America, as amended from time to time, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "Default" means any event that, with the giving of any applicable notice or passage of time specified in Section 9.1, or both, would be an Event of Default. "Default Rate" means the interest rate prescribed in Section 3.7. "Designated Deposit Account" means a deposit account to be maintained by Borrower with Bank of America, as from time to time designated by Borrower by written notification to Bank of America. -9- "Designated Eurodollar Market" means, with respect to any Eurodollar Rate Loan, (a) the London Eurodollar Market, or (b) if prime banks in the London Eurodollar Market are at the relevant time not accepting deposits of Dollars, the Cayman Islands Eurodollar Market or (c) if prime banks in the London and Cayman Islands Eurodollar Markets are at the relevant time not accepting deposits of Dollars, such other Eurodollar Market as may from time to time be selected by the Agent. "Disposition" means the sale, transfer or other disposition ("Transfer") of any asset of Borrower or any of its Subsidiaries other than (a) a Transfer constituting an Investment or a Distribution, (b) a Transfer of inventory or other assets in the ordinary course of business of Borrower or a Subsidiary on terms Borrower reasonably believes are fair market terms, (c) a Transfer of assets constituting all or part of the Spring Creek Project or Glen Harbor Project, (d) in the case of a residential community development being developed by Borrower (i) a Transfer of, or the payment for, common amenities and common areas made to or for the benefit of the community association of such development or (ii) a Transfer of, or the payment for, roads, sewers, utilities, and other on- and off-site improvements, infrastructure items and/or other assets associated with such development made to or for the benefit of a governmental entity or utility in connection with such development, in either such case provided that such disposition is reasonably necessary or appropriate for the development or betterment of such development and whether or not Borrower may at some future date receive total or partial reimbursement (with or without interest) of the cost (or value) of such Transfer or payment, or (e) a Transfer of the capital stock of a Subsidiary that holds solely the assets of the Spring Creek Project or the Glen Harbor Project. "Disqualified Stock" means any capital stock, warrants, options or other rights to acquire capital stock (but excluding any debt security which is convertible, or exchangeable, for capital stock), which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is or may be redeemable at the option of the holder thereof, in whole or in part. "Distribution" means, with respect to any shares of capital stock or any warrant or option to purchase an equity security or other equity security issued by a Person, (i) the retirement, redemption, purchase, or other acquisition for Cash or for Property (except capital stock that is not Disqualified Stock) by such Person of any such security, (ii) the declaration or (without duplication) payment by such Person of any dividend in Cash or in Property (except capital stock that is not Disqualified Stock) on or with respect to any such security, (iii) any Investment by such Person in the holder of 5% or more of any such security if a purpose of such Investment is to avoid characterization of the transaction as a Distribution and (iv) any other payment in -10- Cash or Property (except capital stock that is not Disqualified Stock) by such Person constituting a distribution under applicable Laws with respect to such security. "Dollars" or "$" means United States dollars. "EBITDA" means, for any fiscal period, the sum of (a) Net Income for that period, without taking into account any extraordinary loss reflected in such Net Income, minus (b) any extraordinary gain reflected in such Net Income, plus (c) depreciation, amortization and all other non-cash expenses of Borrower and its Subsidiaries for that period, plus (d) Interest Expense for that period, plus (e) the aggregate amount of federal and state taxes on or measured by income of Borrower and its Subsidiaries for that period (whether or not payable during that period), in each case as determined in accordance with Generally Accepted Accounting Principles and, in the case of items (c), (d) and (e), only to the extent deducted in the determination of Net Income for that period. "Eligible Assignee" means any commercial bank having a combined capital and surplus of $100,000,000 or more that is (a) organized under the Laws of the United States of America or any State thereof or (b) organized under the Laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, provided that (i) such bank is acting through a branch or agency located in the United States of America and (ii) is otherwise exempt from withholding of tax on interest and delivers Form 1001 or Form 4224 pursuant to Section 11.19 at the time of any assignment pursuant to Section 11.8. "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as amended or replaced and as in effect from time to time. "Eurodollar Banking Day" means any Banking Day on which dealings in Dollar deposits are conducted by and among banks in the Designated Eurodollar Market. "Eurodollar Base Rate" means, with respect to any Eurodollar Rate Loan, the average of the interest rates per annum (rounded upward to the nearest 1/100 of 1%) at which deposits in Dollars are offered by the Eurodollar Reference Bank to prime banks in the Designated Eurodollar Market at or about 11:00 a.m., local time in the locale of the Designated Eurodollar Market, two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period in an aggregate amount approximately equal to the amount of the Advance made by the Eurodollar Reference Bank with respect to such Eurodollar Rate Loan and for a period of time comparable to the number of days in the applicable Eurodollar Period. The determination of the Euro dollar Base Rate by the Agent shall be conclusive in the absence of manifest error. -11- "Eurodollar Lending Office" means, as to each Bank, its office or branch so designated by written notice to Borrower and the Agent as its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a Bank, its Eurodollar Lending Office shall be its office at its address for purposes of notices hereunder. "Eurodollar Market" means a regular established market located outside the United States of America by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. "Eurodollar Obligations" means eurocurrency liabilities, as defined in Regulation D. "Eurodollar Period" means, as to each Eurodollar Rate Loan, the period commencing on the date specified by Borrower pursuant to Section 2.1(b) and ending 1, 2, 3 or 6 months (or, with the written consent of all of the Banks, any other period) thereafter, as specified by Borrower in the applicable Request for Loan; provided that: (a) The first day of any Eurodollar Period shall be a Eurodollar Banking Day; (b) Any Eurodollar Period that would otherwise end on a day that is not a Eurodollar Banking Day shall be extended to the next succeeding Eurodollar Banking Day unless such Eurodollar Banking Day falls in another calendar month, in which case such Eurodollar Period shall end on the next preceding Eurodollar Banking Day; (c) No Eurodollar Period with respect to a Loan requested under the Line A Commitment or Line B Commitment, as applicable, shall extend beyond the next date on which such Commitment is to be reduced in accordance with Section 2.5 unless the principal amount of the corresponding Eurodollar Rate Loan plus the principal amount of all then outstanding Eurodollar Rate Loans under such Commitment having a Eurodollar Period ending after said reduction date is less than the amount to which such Commitment is expected to be reduced on said reduction date; and (d) No Eurodollar Period shall extend beyond the Maturity Date. "Eurodollar Rate" means, with respect to any Eurodollar Rate Loan, an interest rate per annum (rounded upward to the nearest 1/100 of one percent) determined pursuant to the following formula: Eurodollar Eurodollar Base Rate Rate = -------------------- 1.00 - Eurodollar Reserve Percentage -12- "Eurodollar Rate Advance" means an Advance made hereunder and specified to be a Eurodollar Rate Advance in accordance with Article 2. "Eurodollar Rate Loan" means a Loan made hereunder and specified to be a Eurodollar Rate Loan in accordance with Article 2. "Eurodollar Reference Bank" means Bank of America. "Eurodollar Reserve Percentage" means, with respect to any Eurodollar Rate Loan, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date the Eurodollar Base Rate for that Eurodollar Rate Loan is determined (whether or not applicable to any Bank) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") having a term comparable to the Interest Period for such Eurodollar Rate Loan. The determination by the Agent of any applicable Eurodollar Reserve Percentage shall be conclusive in the absence of manifest error. "Event of Default" shall have the meaning provided in Section 9.1. "Federal Funds Rate" means, as of any date of determination, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such date opposite the caption "Federal Funds (Effective)". If for any relevant date such rate is not yet published in H.15(519), the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotations") for such date under the caption "Federal Funds Effective Rate". If on any relevant date the appropriate rate for such date is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. For purposes of this Agreement, any change in the Federal Funds Rate shall be effective as of the opening of business on the effective date of such change. "First Amended Loan Agreement" means that certain Amended and Restated Revolving Loan Agreement, by and among Borrower, certain of the Banks, the Agent and the Co-Agent, dated as of June 27, 1995, as amended by that certain First Amendment to Amended and Restated Revolving Loan Agreement, dated as of December 15, 1995, that certain Second Amendment to Amended and Restated Revolving Loan Agreement, dated as of July 22, 1996, that certain Third Amendment -13- to Amended and Restated Revolving Loan Agreement, dated as of March 31, 1997, that certain Fourth Amendment to Amended and Restated Revolving Loan Agreement, dated April 29, 1997, that certain Fifth Amendment to Amended and Restated Revolving Loan Agreement, dated October 1, 1997, that certain Sixth Amendment to Amended and Restated Revolving Loan Agreement, dated as of December 1, 1997, and that certain Seventh Amendment to Amended and Restated Revolving Loan Agreement, dated as of January 15, 1998, pursuant to which certain of the Banks agreed to make revolving loans to Borrower in the original aggregate principal amount of up to $400,000,000, as such First Amended Loan Agreement existed immediately prior to the effectiveness of this Agreement. "Fiscal Quarter" means the fiscal quarter of Borrower consisting of a three month fiscal period ending on each September 30, December 31, March 31 and June 30. "Fiscal Year" means the fiscal year of Borrower consisting of a twelve month fiscal period ending on each June 30. "Generally Accepted Accounting Principles" means, as of any date of determination, accounting principles (a) set forth as generally accepted in then currently effective Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, (b) set forth as generally accepted in then currently effective Statements of the Financial Accounting Standards Board or (c) that are then approved by such other entity as may be approved by a significant segment of the accounting profession in the United States of America. The term "consistently applied," as used in connection therewith, means that the accounting principles applied are consistent in all material respects to those applied at prior dates or for prior periods. "Glen Harbor Project" means the approximately 416 acre industrial business park located in Glendale, Arizona held in joint venture by Del E. Webb Cactus Development Corp. and Del E. Webb Glen Harbor Development Corporation. "Government Securities" means readily marketable (a) direct full faith and credit obligations of the United States of America or obligations guaranteed by the full faith and credit of the United States of America and (b) obligations of an agency or instrumentality of, or corporation owned, controlled or sponsored by, the United States of America that are generally considered in the securities industry to be implicit obligations of the United States of America. "Governmental Agency" means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, or (c) any court or administrative tribunal. -14- "Guarantor Subsidiary" means, as of any date of determination, each Subsidiary of Borrower (a) that had on the last day of the Fiscal Quarter then most recently ended total assets (determined in accordance with Generally Accepted Accounting Principles) of $2,000,000 or more; or (b) with respect to whose obligations any guaranty has been given by Borrower or any other Subsidiary. "Hazardous Materials" means substances defined as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., or as hazardous, toxic or pollutant pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq., the Hazardous Waste Control Law, California Health & Safety Code ss. 25100, et seq., or in any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "Hazardous Materials Laws" means all federal, state or local laws, ordinances, rules or regulations governing the disposal of Hazardous Materials applicable to any of the Real Property. "Indebtedness" means, as to any Person, without duplication, (a) indebtedness of such Person for borrowed money or for the deferred purchase price of Property or services (excluding trade and other accounts payable incurred in the ordinary course of business and in accordance with Borrower's or the Subsidiary's in question customary trade terms and further excluding obligations with respect to home-buyer deposits and obligations for local governmental assessments for local services based upon real property ownership), including any guaranty for any such indebtedness, (b) indebtedness of such Person of the nature described in clause (a) that is non-recourse to the credit of such Person but is secured by assets of such Person, to the extent of the value of such assets, (c) Capital Lease Obligations of such Person, (d) indebtedness of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person but not contingent reimbursement obligations of such Person associated with surety bonds issued in the ordinary course of such Person's business and (e) any direct or contingent obligations of such Person under letters of credit issued for the account of such Person. "Indentures" means, collectively, the Indenture for the 9-3/4% Senior Subordinated Debt Due 2003, the Indenture for the 9-3/4% Senior Subordinated Debt Due 2008, the Indenture for the 9.00% Senior Subordinated Debt Due 2006 and the Indenture for the 9-3/8% Senior Subordinated Debt Due 2009. "Intangible Assets" means assets that are considered intangible assets under Generally Accepted Accounting Principles, including customer lists, goodwill, computer software, copyrights, trade names, trademarks and patents. -15- "Interest Differential" means, with respect to any prepayment of a Eurodollar Rate Loan on a day other than the last day of the applicable Interest Period and with respect to any failure to borrow a Eurodollar Rate Loan on the date or in the amount specified in any Request for Loan, (a) the per annum interest rate payable pursuant to Section 3.1(c) with respect to the Eurodollar Rate Loan minus (b) the Eurodollar Rate on, or as near as practicable to the date of the prepayment or failure to borrow for a Eurodollar Rate Loan commencing on such date and ending on the last day of the Interest Period of the Eurodollar Rate Loan so prepaid or which would have been borrowed on such date. "Interest Expense" means, with respect to any fiscal period, the sum of (a) all interest, fees, charges and related expenses paid or payable by Borrower and its Subsidiaries (without duplication) for that fiscal period to a lender or seller in connection with borrowed money or the deferred purchase price of assets that are considered "interest expense" under Generally Accepted Accounting Principles, plus (b) the portion of rent paid or payable (without duplication) by Borrower and its Subsidiaries for that fiscal period under Capital Lease Obligations that should be treated as interest in accordance with Financial Accounting Standards Board Statement No. 13, in each case determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, consistently applied. "Interest Period" means, with respect to any Eurodollar Rate Loan, the related Eurodollar Period. "Investment" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of any other Person or by means of a loan, advance creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person, including any partnership and joint venture interests of such Person. Unless otherwise specified, the amount of any Investment shall be the amount actually invested (or fair value thereof), without adjustment for subsequent increases or decreases in the value of such Investment. Notwithstanding the foregoing, the provision of credit to support a surety bond issued to secure the performance of real estate development work in the ordinary course of Borrower's or its Subsidiaries' business, for the benefit of any Subsidiary of Borrower, shall not be considered an Investment, although the payment by a Person providing credit on such a surety bond shall be considered an Investment, nor shall any transaction which is excluded from the definition of Disposition by virtue of clause (d) thereof be considered an Investment. "Issuing Bank" means Bank of America. "Land Assets" means assets of a nature as have been historically included by Borrower in the line items "Unamortized improvement and amenity costs", -16- "Unamortized capitalized interest", "Land held for housing" and "Land held for future development or sale" in the notes to its consolidated financial statements, provided that in any measurement of Land Assets, only 75% of the amount of assets in the category "Unamortized capitalized interest" shall be considered. "Laws" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. "Letters of Credit" means the standby letters of credit issued by the Issuing Bank under the Line A Commitment pursuant to Section 2.12 (including letters of credit outstanding on the effective date hereof that were issued under Section 2.12 of the First Amended Loan Agreement) either as originally issued or as the same may be supplemented, modified, amended, renewed, extended or supplanted. "Leverage Ratio" means, as of the end of any Fiscal Quarter, the ratio of (a) Adjusted Total Indebtedness to (b) [Tangible Net Worth plus the aggregate principal balance of all Subordinated Obligations (but not in excess of the lesser of $100,000,000 or 25% of Tangible Net Worth)] in each case as of the last day of such Fiscal Quarter. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, claim, option, lien or charge of any kind, whether voluntarily incurred or arising by operation of Law or otherwise, affecting any Property, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of or agreement to give any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the Uniform Commercial Code or comparable Law of any jurisdiction with respect to any Property. "Line A Commitment" means, subject to Sections 2.4 and 2.5, $357,000,000. The respective Pro Rata Shares of the Banks with respect to the Line A Commitment are set forth in Schedule 1.1. "Line B Commitment" means, subject to Sections 2.4 and 2.5, $93,000,000. The respective Pro Rata Shares of the Banks with respect to the Line B Commitment are set forth in Schedule 1.1. "Line A Note" means a promissory note made by Borrower to a Bank evidencing the Advances under that Bank's Pro Rata Share of the Line A Commitment, substantially in the form of Exhibit C, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. -17- "Line B Note" means a promissory note made by Borrower to a Bank evidencing the Advances under that Bank's Pro Rata Share of the Line B Commitment, substantially in the form of Exhibit D, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Loan" means the aggregate of the Advances made at any one time by the Banks pursuant to Article 2. "Loan Compliance Certificate" means a certification by a Senior Officer of Borrower or by C. Patrick Dempsey, as Assistant Treasurer of Borrower, in the form of Exhibit E, or such other form as may reasonably be required by the Agent from time to time, that is delivered in connection with a Request for Loan in accordance with Section 8.2(g). "Loan Documents" means, collectively, this Agreement, the Notes, the Subsidiary Guaranty, any Request for Loan, any Compliance Certificate and any other agreements of any type or nature hereafter executed and delivered by Borrower or any of its Subsidiaries or Affiliates to the Agent or to any Bank in any way relating to or in furtherance of this Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. "Lot and Amenity Development Costs" means, for any fiscal period, cash paid by Borrower and its Subsidiaries for lot development and amenity development during such fiscal period, calculated in a manner consistent with that used in the calculation of "Lot development" and "Amenity development" as shown under the heading "Reconciliation of net earnings to net cash used for operating activities" in the financial statements delivered to Banks for the Fiscal Quarter ending September 30, 1993. "Majority Banks" means (a) as of any date of determination if a Commitment is then in effect, Banks having in the aggregate 66-2/3% or more of the Commitments then in effect and (b) as of any date of determination if the Commitments have then been terminated, Banks holding Notes evidencing in the aggregate 66-2/3% or more of the aggregate Indebtedness then evidenced by the Notes. "Margin Stock" means "margin stock" as such term is defined in Regulation G or U. "Material Adverse Effect" means any set of circumstances or events which (a) has or could reasonably be expected to have a material adverse effect upon the validity or enforceability of any material Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or -18- business operations of Borrower and its Subsidiaries, taken as a whole, or (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower and its Guarantor Subsidiaries, taken as a whole, to perform the Obligations. "Maturity Date" means May 31, 2002, subject to extension as provided in Section 2.5. "Monthly Interest Period" means the first calendar day of each month to the first calendar day of each succeeding month, calculated from, and including, the first calendar day of each month to, but not including, first calendar day of each succeeding month. "Monthly Payment Date" means the fifth Banking Day of each calendar month. "Multiemployer Plan" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA. "Negative Pledge" means a Contractual Obligation that contains a covenant binding on Borrower or any of its Subsidiaries that prohibits Liens on any of its or their Property, other than (a) any such covenant contained in a Contractual Obligation granting a Lien permitted under Section 6.8 which affects only the Property that is the subject of such permitted Lien and (b) any such covenant that does not apply to Liens securing the Obligations. "Net Change in Housing Inventory" means, for any fiscal period, the net change in homes in production of Borrower and its Subsidiaries during such fiscal period, calculated in a manner consistent with that used in the calculation of "Net change in homes in production" as shown under the heading "Reconciliation of net earnings to net cash used for operating activities" in the financial statements delivered to Banks for the Fiscal Quarter ending September 30, 1993. "Net Income" means, with respect to any fiscal period, the consolidated net income of Borrower and its Subsidiaries for that period, determined in accordance with Generally Accepted Accounting Principles, consistently applied. "Non-Recourse Debt" means, as of any date of determination (without duplication), any Indebtedness of Borrower or any of its Subsidiaries on that date that is secured by a Lien on Property to the extent the liability for such Indebtedness, and interest thereon, is limited to the security of such Property, without the liability of any Person for any such deficiency. "Note" means any of the Line A Notes or Line B Notes. -19- "Obligations" means all present and future obligations of every kind or nature of Borrower or any Party at any time and from time to time owed to the Agent or the Banks or any one or more of them, under any one or more of the Loan Documents, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, including obligations of performance as well as obligations of payment, and including interest that accrues after the commencement of any proceeding under any Debtor Relief Law by or against Borrower or any Subsidiary or Affiliate of Borrower. "Opinions of Counsel" means the favorable written legal opinions of (a) Robertson C. Jones and (b) Gibson, Dunn & Crutcher, counsel to Borrower and its Guarantor Subsidiaries, substantially in the form of Exhibits F-1 and F-2, respectively, together with copies of all factual certificates and legal opinions upon which such counsel has relied. "Pre-Existing Loan Documents" mean the First Amended Loan Agreement and the Pre-Existing Notes and the Subsidiary Guaranty delivered thereunder, as existing immediately prior to the effectiveness of this Agreement. "Pre-Existing Notes" means those certain promissory notes delivered under the First Amended Loan Agreement, as existing immediately prior to the effectiveness of this Agreement. "Party" means any Person other than the Agent, the Co-Agent and the Banks, which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereof established under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, which is subject to Title IV of ERISA and is maintained by Borrower or any of its Subsidiaries or to which Borrower or any of its Subsidiaries contributes or has an obligation to contribute. "Permitted Encumbrances" means: (a) inchoate Liens incident to construction or maintenance of Real Property; or Liens incident to construction or maintenance of Real Property now or hereafter filed of record for which adequate reserves have been set aside (or deposits made pursuant to applicable Law) and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that no such Real Property is subject to a material risk of loss or forfeiture; -20- (b) Liens for taxes and assessments on Real Property which are not yet past due; or Liens for taxes and assessments on Real Property for which adequate reserves have been set aside and are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that no such Real Property is subject to a material risk of loss or forfeiture; (c) minor defects and irregularities in title to any Real Property which in the aggregate do not materially impair the fair market value or use of the Real Property for the purposes for which it is or may reasonably be expected to be held; (d) easements, exceptions, reservations, or other agreements of any nature that are reasonable and appropriate for the development of the Real Property of Borrower or a Subsidiary which in the aggregate do not materially burden or impair the fair market value or use of such Real Property (or the project to which it is related) for the purposes for which it is or may reasonably be expected to be held; (e) easements, dedications, assessment district or similar liens in connection with municipal financing and other similar encumbrances or charges, in each case reasonably necessary or appropriate for the development of Real Property of Borrower or a Subsidiary, and which are granted in the ordinary course of the business of such Borrower or Subsidiary, and which in the aggregate do not materially burden or impair the fair market value or use of such Real Property (or the project to which it is related) for the purposes for which it is or may reasonably be expected to be held; (f) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of property in or adjacent to a commercial Real Property project affecting Real Property which in the aggregate do not materially burden or impair the fair market value or use of such property for the purposes for which it is or may reasonably be expected to be held; (g) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, the use of any Real Property; (h) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, any right, power, franchise, grant, license, or permit; (i) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of Real Property; (j) statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are -21- not delinquent or are being contested in good faith, provided that, if delinquent, appropriate reserves have been set aside with respect thereto and no property is subject to a material risk of loss or forfeiture; (k) covenants, conditions, and restrictions affecting the use of Real Property which in the aggregate do not materially impair the fair market value or use of the Real Property for the purposes for which it is or may reasonably be expected to be held; (l) rights of tenants under leases and rental agreements covering Real Property entered into in the ordinary course of business of the Person owning such Real Property; (m) Liens consisting of pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable; (n) Liens consisting of pledges or deposits of property to secure performance in connection with operating leases made in the ordinary course of business to which Borrower or a Subsidiary is a party as lessee, provided the aggregate value of all such pledges and deposits in connection with any such lease does not at any time exceed 20% of the annual fixed rentals payable under such lease; (o) Liens consisting of deposits of property to secure bids made with respect to, or performance of, contracts (other than contracts creating or evidenc ing an extension of credit to the depositor) in the ordinary course of business; (p) Liens consisting of any right of offset, or statutory bankers' lien, on bank deposit accounts maintained in the ordinary course of business so long as such bank deposit accounts are not established or maintained for the purpose of providing such right of offset or bankers' lien; (q) Liens consisting of deposits of property to secure statutory obligations of Borrower or a Subsidiary of Borrower in the ordinary course of its business; (r) Liens, other than Liens for which the underlying obligation calls for the payment of money, that were in existence with respect to a parcel of Real Property prior to its acquisition by Borrower or one of its Subsidiaries and that do not materially impair the intended use of such Real Property; (s) Liens created by or resulting from any litigation or legal proceeding involving Borrower or a Subsidiary of Borrower in the ordinary course of its business which is currently being contested in good faith by appropriate -22- proceedings, provided that adequate reserves have been set aside and no material property is subject to a material risk of loss or forfeiture; (t) other non-consensual Liens incurred in the ordinary course of business but not in connection with an extension of credit, which do not in the aggregate, when taken together with all other Liens, materially impair the value or use of the Property of Borrower and its Subsidiaries, taken as a whole; and (u) an interest, including an option, held by a Person under a contract to purchase Real Property, the sale of which is not prohibited under this Agreement. "Person" means an individual or any entity, whether trustee, corporation, general partnership, limited partnership, joint stock company, trust, estate, unincorpo rated organization, business association, firm, joint venture, Governmental Agency, or otherwise. "Plant Expenditures" means, for any fiscal period, Borrower and its Subsidiaries' aggregate cash expenditures made during such fiscal period for the acquisition of furniture, fixtures and equipment. "Pricing Period" means the three month periods of (a) June 1 through August 31, (b) September 1 through November 30, (c) December 1 through the last day of February, and (d) March 1 through May 31, and the Leverage Ratio applicable to any Pricing Period shall be the one that is calculated as of the Fiscal Quarter end that falls approximately 61 days prior to the beginning of such Pricing Period. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Pro Rata Share" means, with respect to each Bank, the percentage of the Commitments set forth opposite the name of that Bank on Schedule 1.1. "Quarterly Payment Date" means the fifth Banking Day of each January, April, July and October. "Quarterly Period" means a period from the Closing Date until the earlier of the next following June 30 or September 30 and each subsequent three (3) month period commencing on the first calendar day of each April, July, October and January thereafter. "Real Property" means, as of any date of determination, all real property then or theretofore owned, leased or occupied by Borrower or any of its Subsidiaries. -23- "Reference Rate" means the rate of interest publicly announced from time to time by Bank of America as its "reference rate." It is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the Reference Rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Reference Rate Advance" means an Advance made hereunder and specified to be a Reference Rate Advance in accordance with Article 2. "Reference Rate Loan" means a Loan made hereunder and specified to be a Reference Rate Loan in accordance with Article 2. "Regulation D" means Regulation D, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulation in substance substituted therefor. "Regulations G, T, U and X" means Regulations G, T, U and X, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulations in substance substituted therefor. "Request for Letter of Credit" means a Request for Loan accompanied by a written request for a Letter of Credit substantially in the form of Exhibit G, signed by a Responsible Official of Borrower, on behalf of Borrower, and properly completed to provide all information required to be included therein. "Request for Loan" means a written request for a Loan substantially in the form of Exhibit H, signed by a Responsible Official of Borrower, on behalf of Borrower, and properly completed to provide all information required to be included therein. "Required Banks" means as of any date of determination, Banks having in the aggregate 80% or more of the Commitments then in effect. "Requirement of Law" means, as to any Person, the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any Law, or judgment, award, decree, writ or determination of a Governmental Agency, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Official" means (a) when used with reference to a Person other than an individual, any corporate officer of such Person, general partner of such -24- Person, corporate officer of a corporate general partner of such Person, or corporate officer of a corporate general partner of a partnership that is a general partner of such Person, or any other responsible official thereof duly acting on behalf thereof, and (b) when used with reference to a Person who is an individual, such Person. Any document or certificate hereunder that is signed or executed by a Responsible Official of another Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such other Person. "Senior Debt" means, as of any date of determination, Total Indebtedness as of that date, other than Subordinated Obligations. "Senior Officer" means Borrower's (a) chief executive officer, (b) president, (c) chief financial officer, (d) treasurer or (e) vice president and controller. "Special Eurodollar Circumstance" means the adoption, on or after the date of this Agreement, of any Law or interpretation, or any change therein or thereof, or any change in the interpretation or administration thereof by any Governmental Agency, central bank or comparable authority charged with the interpretation or administration thereof, or compliance by any Bank or its Eurodollar Lending Office with any request or directive (whether or not having the force of Law) of any such Governmental Agency, central bank or comparable authority, or the existence or occurrence of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Banks. "Specified Charges" means, as of the end of any Fiscal Quarter, the sum of (a) Plant Expenditures for the four (4) Fiscal Quarters then ending plus (b) Total Development Expenditures as of such date plus (c) Interest Expense for the four (4) Fiscal Quarters then ending plus (d) the aggregate amount of federal and state taxes on or measured by income of Borrower and its Subsidiaries paid in Cash during the four (4) Fiscal Quarters then ending. "Spring Creek Project" means the approximately 473 acre mixed use/industrial park in Colorado Springs, Colorado held by Del E. Webb Spring Creek Corporation. "Stockholders' Equity" means, as of any date of determination and with respect to any Person, the consolidated stockholders' equity of the Person as of that date determined in accordance with Generally Accepted Accounting Principles; provided that there shall be excluded from Stockholders' Equity any amount attributable to Disqualified Stock. "Strategic Plan" means Borrower's 1995 Strategic Plan, delivered to the Agent by Borrower under letter dated March 8, 1995. -25- "Subordinated Obligations" means, as of any date of determination (without duplication), (a) the 9-3/4% Senior Subordinated Debt Due 2003 outstanding as of such date, (b) the 9.00% Senior Subordinated Debt Due 2006 outstanding as of such date, (c) the 9-3/4% Senior Subordinated Debt Due 2008 outstanding as of such date, (d) the 9-3/8% Senior Subordinated Debt Due 2009 outstanding as of such date, and (e) any other Indebtedness of Borrower or any of its Subsidiaries on that date which has been subordinated in right of payment to the Obligations in a manner reasonably satisfactory to the Banks and does not require any principal repayment thereunder (other than through acceleration) on a date prior to the Maturity Date and contains such other protective terms with respect to senior debt (such as payment blockage) as the Banks may reasonably require. Subordination provisions and protective terms with respect to senior debt under Indebtedness issued publicly or pursuant to Securities and Exchange Commission Rule 144A shall be deemed to be acceptable to the Banks if they include all of those protections given to "Designated Senior Debt", as that term is used in the Indentures for the 9-3/4% Senior Subordinated Debt Due 2003 and the 9.00% Senior Subordinated Debt Due 2006. "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations or limited liability companies), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. "Subsidiary Guaranty" means the continuing guaranty of the Obligations to be executed and delivered by the Guarantor Subsidiaries pursuant to Section 8.1(a)(3), in the form of Exhibit I, either as originally executed or as it may from time to time be supplemented, modified, amended, extended or supplemented. "Substituted Credit Facilities" means (a) the Senior Credit Agreement between Borrower and the Valley National Bank of Arizona, as agent for certain lenders, dated July 17, 1989, as amended, and (b) the Revolving Loan Agreement between Del Webb Communities Inc. and First Interstate Bank of Nevada, as agent for certain lenders, dated June 23, 1988, as amended. "Tangible Net Worth" means, as of any date of determination, the Stockholders' Equity of Borrower and its Subsidiaries on that date minus the aggregate Intangible Assets (not including the value of any intangible deferred tax assets that have been included in the calculation of Intangible Assets for this purpose) of Borrower and its Subsidiaries on that date. "Total Development Expenditures" means, as of the last day of any four (4) Fiscal Quarter period, Net Change in Housing Inventory plus Lot and Amenity -26- Development Costs plus Cash Land Acquisition Costs for such four (4) Fiscal Quarter period, but in no event less than zero. "Total Indebtedness" means, as of any date of determination (without duplication), all Indebtedness of Borrower or any of its Subsidiaries on that date. "to the best knowledge of" means, when modifying a representation, warranty or other statement of any Person, that the fact or situation described therein is known by the Person (or, in the case of a Person other than a natural Person, known by a Responsible Official of that Person) making the representation, warranty or other statement, or with the exercise of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person in similar circumstances would have done) should have been known by the Person (or, in the case of a Person other than a natural Person, should have been known by a Responsible Official of that Person). "type", when used with respect to any Loan or Advance, means the designation of whether such Loan or Advance is a Reference Rate Loan or Advance, or a Eurodollar Rate Loan or Advance. "Unentitled Land" means Real Property (other than Real Property used and reasonably necessary for the general corporate and administrative purposes of Borrower and its Subsidiaries) that does not meet all of the following conditions: (a) its intended use is permissible under the applicable General Plan, (b) its intended use is permissible under the applicable Specific Plan, development agreement or by applicable zoning, (c) the environmental impact report for the intended use, if required, has been certified by the applicable Governmental Agency, (d) the time to file any challenge to the environmental impact report under the California Environmental Quality Act has passed without such a lawsuit being filed or such a lawsuit has been finally resolved successfully, and (e) in states other than California, a status comparable to each of the foregoing, to the extent required, has been met under applicable local Laws. "Unsold Home" means a housing unit owned by Borrower or a Guarantor Subsidiary with respect to which construction has begun (measured by the laying of a foundation for such housing unit) and for which a sales contract has not been entered into with, and a cash deposit received from, a consumer purchaser of such housing unit. 1.2 Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. -27- 1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, Generally Accepted Accounting Principles applied on a consistent basis, except as otherwise specifically prescribed herein. In the event that Generally Accepted Accounting Principles change during the term of this Agreement such that the covenants contained in Sections 6.11 through 6.15 would then be calculated in a different manner or with different components, (a) Borrower and the Banks agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Borrower's financial condition to substantially the same criteria as were effective prior to such change in Generally Accepted Accounting Principles and (b) Borrower shall be deemed to be in compliance with the covenants contained in the aforesaid Sections during the 90 day period following any such change in Generally Accepted Accounting Principles if and to the extent that Borrower would have been in compliance therewith under Generally Accepted Accounting Principles as in effect immediately prior to such change. 1.4 Rounding. Any financial ratios required to be maintained or achieved by Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.5 Exhibits and Schedules. All Exhibits and Schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.6 References to "Borrower and its Subsidiaries". Any reference herein to "Borrower and its Subsidiaries" or the like shall refer solely to Borrower during such times, if any, as Borrower shall have no Subsidiaries. 1.7 Miscellaneous Terms. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. Unless otherwise specified, reference to any document or agreement shall mean such document or agreement as it may be amended or restated from time to time. -28- Article 2 LOANS ----- 2.1 Loans-General. (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through and including the Banking Day prior to the Maturity Date, each Bank shall, pro rata according to that Bank's Pro Rata Share of the then applicable Commitments, make Advances to Borrower in such amounts as Borrower may request that do not exceed in the aggregate at any one time outstanding the amount of that Bank's Pro Rata Share of the Commitments; provided that, giving effect to the Loan of which such Advance is a part, (i) the then outstanding principal indebtedness evidenced by the Line A Notes plus the Aggregate Effective Amount shall not exceed the Line A Commitment and (ii) the then outstanding principal indebtedness evidenced by the Line B Notes shall not exceed the Line B Commitment. Subject to the limitations set forth herein, Borrower may borrow, repay and reborrow under the Commitments without premium or penalty. (b) Subject to the next sentence, each Loan shall be made pursuant to a Request for Loan which shall specify the requested (i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan, (iv) in the case of a Eurodollar Rate Loan, the Interest Period for such Loan and (v) whether such Loan is to be made under the Line A or Line B Commitment. Unless the Agent has notified, in its sole and absolute discretion, Borrower to the contrary, a Loan may be requested by telephone by a Responsible Official of Borrower, in which case Borrower shall confirm such request by promptly delivering a Request for Loan in person or by telecopier conforming to the preceding sentence to the Agent. Borrower and the Agent may enter into a memorandum of understanding setting forth specific procedures for such telephonic requests; if the Agent complies with such procedures (or if no such memorandum is entered into), Agent shall incur no liability whatsoever hereunder in acting upon any telephonic request for loan purportedly made by a Responsible Official of Borrower, which hereby agrees to indemnify the Agent from any loss, cost, expense or liability as a result of so acting. (c) Promptly following receipt of a Request for Loan, the Agent shall notify each Bank by telephone or telecopier (and if by telephone, promptly confirmed by telecopier) of the date and type of the Loan, the applicable Interest Period, the applicable Commitment, and that Bank's Pro Rata Share of the Loan. Not later than 11:00 a.m., San Francisco time, on the date specified for any Loan (which must be a Banking Day), each Bank shall make its Pro Rata Share of the Loan in immediately available funds available to the Agent at the Agent's Office. Upon satisfaction or waiver of the applicable conditions set forth in Article 8, all Advances -29- shall be credited on that date in immediately available funds to the Designated Deposit Account. (d) Unless the Majority Banks otherwise consent, each Reference Rate Loan shall be an integral multiple of $1,000,000 and shall be not less than $1,000,000 and each Eurodollar Loan shall be an integral multiple of $1,000,000 and shall be not less than $10,000,000. (e) The Advances made by each Bank shall be evidenced by that Bank's Line A Note or Line B Note, as applicable. (f) A Request for Loan shall be irrevocable upon the Agent's first notification thereof. (g) If no Request for Loan (or telephonic request for loan referred to in the second sentence of Section 2.1(b), if applicable) has been made within the requisite notice periods set forth in Sections 2.2 or 2.3 in connection with a Loan which, if made and giving effect to the application of the proceeds thereof, would not increase the outstanding principal Indebtedness evidenced by the Line A Notes or Line B Notes, as applicable, then Borrower shall be deemed to have requested, as of the date upon which the related then outstanding Loan is due pursuant to Sec tion 3.1(e)(i), a Reference Rate Loan under the Line A Commitment or Line B Commitment, as applicable, in an amount equal to the amount necessary to cause the outstanding principal Indebtedness evidenced by the Notes to remain the same and the Banks shall make the Advances necessary to make such Loan notwithstanding Sections 2.1(b) and 2.2. (h) If a Loan is to be made on the same date that another Loan is due and payable, Borrower or the Banks, as the case may be, shall make available to the Agent the net amount of funds giving effect to both such Loans and the effect for purposes of this Agreement shall be the same as if separate transfers of funds had been made with respect to each such Loan, provided that no such netting of payments shall be made of a Loan under the Line A Commitment against the repayment of a Loan under the Line B Commitment. 2.2 Reference Rate Loans. Each request by Borrower for a Reference Rate Loan shall be made pursuant to a Request for Loan, with a concurrent telephone notification, received by the Agent, at the Agent's Office (and such additional office of the Agent as it may designate from time to time), not later than 1:00 p.m. San Francisco time, at least one (1) Banking Day before the date of the requested Reference Rate Loan. All Loans shall constitute Reference Rate Loans unless properly designated or redesignated as a Eurodollar Rate Loan pursuant to Section 2.3. -30- 2.3 Eurodollar Rate Loans. (a) Each request by Borrower for a Eurodollar Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable) received by the Agent, at the Agent's Office (and such additional office of the Agent as it may designate from time to time), not later than 9:00 a.m., San Francisco time, at least three (3) Eurodollar Banking Days before the first day of the applicable Eurodollar Period. (b) On the date which is two (2) Eurodollar Banking Days before the first day of the applicable Eurodollar Period, the Agent shall confirm its determination of the applicable Eurodollar Rate (which determination shall be conclusive in the absence of manifest error) and promptly shall give notice of the same to Borrower and the Banks by telephone or telecopier (and if by telephone, promptly confirmed by telecopier). (c) Unless the Agent and the Majority Banks otherwise consent, no more than four (4) Eurodollar Rate Loans shall be outstanding at any one time. (d) Unless the Agent and the Majority Banks otherwise consent, no Eurodollar Rate Loan may be requested during the existence of a Default or Event of Default. (e) Nothing contained herein shall require any Bank to fund any Eurodollar Rate Advance in the Designated Eurodollar Market. 2.4 Voluntary Reduction of Commitments. Borrower shall have the right, at any time and from time to time, without penalty or charge, upon at least three (3) Banking Days prior written notice by a Responsible Official of Borrower to the Agent, voluntarily to reduce, permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 but not less than $5,000,000, or to terminate, all of the then undisbursed portion of the Line A Commitment or Line B Commitment, provided that any such reduction or termination shall be accompanied by payment of all accrued and unpaid commitment fees with respect to the portion of the Commitments being reduced or terminated. The Agent shall promptly notify the Banks of any reduction of a Commitment under this Section 2.4. 2.5 Extension of Maturity Date/Reduction of Commitments (a) No earlier than 120 days nor later than 60 days prior to any Anniversary Date, and so long as no Default or Event of Default then exists hereunder, Borrower may make a written request to the Agent to extend the then existing Maturity Date (the "Prior Maturity Date") for a period of an additional one (1) year. If written consent to such extension request is given by the Required Banks to the Agent within 45 days of such request by Borrower, then the Maturity Date shall be -31- so extended subject to the payment by Borrower to the Agent, within 10 days following notice of such consent to Borrower, of an extension fee as may be determined by such consenting Banks. Each such extension fee shall be for the account of the consenting Banks, based upon their pro-rata shares of the Commitments. If written consent is not so given by the Required Banks, no extension of the Maturity Date shall occur, but the request therefor can be renewed at any future Anniversary Date. (b) In the event that a request to extend a Maturity Date under clause (a), above, is approved by the Required Banks but less than all of the Banks, then, subject to clause (c), below, the portion of the Commitments attributable to the Banks that did not grant consent to such extension (each, a "Non-Consenting Bank") shall terminate on the Prior Maturity Date. (c) In the event that a portion of the Commitments are to be terminated on a Prior Maturity Date pursuant to the terms of clause (b), above, Borrower may, at any time until six (6) months prior to the Prior Maturity Date, have the right to arrange for one or more Persons that are either existing Banks or Eligible Assignees (each, for these purposes, a "New Bank") and that (if not an existing Bank) are approved by the Agent (which approval shall not be unreasonably withheld) purchase all (but not part) of any Non-Consenting Bank's then outstanding Advances, its Notes and its participation interest in outstanding Letters of Credit, and assume its Pro Rata Share of the Commitments and its obligations hereunder. Upon the agreement in writing by one or more New Banks, the Non-Consenting Bank shall be required to assign its Pro Rata Share of the Commitments, together with the Indebtedness then evidenced by its Notes and its participation interest in outstanding Letters of Credit, to the New Bank or New Banks in accordance with Section 11.8. On the date of any such assignment, the Non-Consenting Bank which is being so replaced shall cease to be a "Bank" for all purposes of this Agreement and shall receive (i) from the New Bank or New Banks the principal amount of its Advances then outstanding and (ii) from Borrower all interest and fees accrued and then unpaid with respect to such Advances, together with any other amounts then payable to such Bank by Borrower. In the event the Non-Consenting Bank is also the Issuing Bank, then the New Bank shall become the Issuing Bank for all purposes of this Agreement and shall either (at the Non-Consenting Bank's election, subject to the approval of Borrower, the Agent and the New Bank (which approvals shall not be unreasonably withheld) and, in the case of clause (A) below, the approval of the applicable Letter of Credit beneficiaries) (A) issue new letters of credit to replace the outstanding Letters of Credit issued by the Non-Consenting Bank, or (B) issue new letters of credit to the Non-Consenting Bank in support of the outstanding Letters of Credit issued by the Non-Consenting Bank, whereupon such outstanding Letters of Credit shall no longer be considered "Letters of Credit" under this Agreement, and such new letters of credit shall be considered Letters of Credit for all purposes of this Agreement (including the participation therein by the other Banks pursuant to Section 2.12). Any such purchase -32- by a New Bank pursuant to this clause (c) shall be further evidenced by a revised version of Schedule 1.1 hereto prepared by the Agent and delivered to Borrower and each of the Banks and replacement Notes delivered by Borrower to the Agent for distribution to the applicable Banks in exchange for the corresponding existing Notes. 2.6 Optional Termination of Commitments. Following the occurrence of a Change in Control, the Majority Banks may in their sole and absolute discretion elect, at any time until sixty (60) days immediately subsequent to the later of (a) such occurrence and (b) receipt of Borrower's written notice to the Agent of such occurrence, to terminate the Commitments, in which case the Commitments shall be terminated and reduced to zero effective on the date of such election. 2.7 Automatic Termination of Commitments. The Commitments shall automatically terminate and be reduced to zero upon the occurrence of a Disposition consisting of (a) all or substantially all of the assets of Borrower, or (b) all or substantially all of the capital stock of any Guarantor Subsidiary (except a Guarantor Subsidiary holding solely the assets of the Glen Harbor Project or the Spring Creek Project), or (c) all or substantially all of the assets of any Guarantor Subsidiary (not including those assets constituting the Glen Harbor Project or Spring Creek Project). 2.8 Agent's Right to Assume Funds Available for Advances. Unless the Agent shall have been notified by any Bank no later than the Banking Day or Eurodollar Banking Day, as applicable, prior to the funding by the Agent of any Loan that such Bank does not intend to make available to the Agent such Bank's portion of the total amount of such Loan, the Agent may assume that such Bank has made such amount available to the Agent on the date of the Loan and the Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount. If the Agent has made funds available to Borrower based on such assumption and such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent promptly shall notify Borrower and Borrower shall pay such corresponding amount to the Agent. The Agent also shall be entitled to recover from such Bank interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to Borrower to the date such corres ponding amount is recovered by the Agent, at a rate per annum equal to the daily Federal Funds Rate. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its share of the Commitments or to prejudice any rights which the Agent or Borrower may have against any Bank as a result of any default by such Bank hereunder. 2.9 Adjusting Purchase Payments. Principal amounts outstanding under the Line A Commitment or the Line B Commitment of the First Amended Loan Agreement on the effective date of this Agreement (the "Carryover Principal Balance") remain outstanding under the Line A Commitment or Line B Commitment, as applicable, hereunder. Concurrently with the effectiveness of this Agreement and the making of the initial Loan as -33- provided in Section 8.1, the Banks agree to purchase and sell undivided interests in the Carryover Principal Balance by making or receiving Adjusting Purchase Payments as specified in Schedule 2.9 (the "Adjusting Purchase Payment(s)") so that the Carryover Principal Balance will be properly allocated and owing to the Banks under the Notes in accordance with the Pro-Rata Shares specified in Schedule 1.1. Each Bank making an Adjusting Purchase Payment shall deliver it to the Agent together with its funding of its initial Advance, and the Agent shall forward such Adjusting Purchase Payments to the Banks entitled thereto promptly after receipt in accordance with the allocations specified in Schedule 2.9. On the effective date of this Agreement, in addition to any other Advances that may be made, each Bank shall be deemed as having made an Advance in the amount of its Pro-Rata Share of the Carryover Principal Balance. The Aggregate Effective Amount with respect to Letters of Credit outstanding hereunder as of the effective date hereof is $9,013,765. As of the effective date hereof, the Banks shall hold participations in such Letters of Credit as provided in Section 2.12 in accordance with their Pro Rata Shares as specified in Schedule 1.1 hereof. 2.10 Substitute Credit Facility. Borrower hereby requests, and the parties hereto agree, that the Line B Commitment constitutes a restatement of the Line B Commitment under the First Amended Loan Agreement. 2.11 Senior Debt. Without limitation, all outstanding principal and interest under the Notes constitutes "Senior Debt", as that term is defined in each or any of the Indentures. 2.12 Letters of Credit. (a) Subject to the terms and conditions hereof, at any time and from time to time from the Closing Date through the Maturity Date, the Issuing Bank shall issue such Letters of Credit under the Line A Commitment as Borrower may request by a Request for Letter of Credit; provided that (i) giving effect to all such Letters of Credit, the sum of (A) the aggregate principal amount outstanding under the Line A Notes plus (B) the Aggregate Effective Amount does not exceed the then applicable Line A Commitment and (ii) the Aggregate Effective Amount shall not exceed $20,000,000. Each Letter of Credit shall be in a form acceptable to the Issuing Bank. The expiry date of any Letter of Credit shall not extend more than one (1) year beyond its issuance date (unless otherwise agreed by the Issuing Bank) nor, in any event, beyond the Maturity Date. A Request for Letter of Credit shall be irrevocable absent the consent of the Issuing Bank. (b) Each Request for Letter of Credit shall be submitted to the Issuing Bank, with a copy to the Agent, at least five (5) Banking Days prior to the date upon which the related Letter of Credit is proposed to be issued. The Agent shall promptly notify the Issuing Bank whether such Request for Letter of Credit, and the issuance of a Letter of Credit pursuant thereto, conforms to the requirements of this -34- Agreement. Upon receipt of favorable notice from the Agent, and promptly after issuing each Letter of Credit, the Issuing Bank shall promptly notify the Agent, and the Agent shall promptly notify the Banks, of the amount and terms thereof. (c) Upon the issuance of a Letter of Credit, each Bank shall be deemed to have purchased a participation in such Letter of Credit from the Issuing Bank in a proportion of the total equal to that Bank's Pro Rata Share. Without limiting the scope and nature of each Bank's participation in any Letter of Credit, to the extent that the Issuing Bank has not been reimbursed by Borrower for any payment required to be made by the Issuing Bank under any Letter of Credit, each Bank shall, pro rata according to its Pro Rata Share, reimburse the Issuing Bank through the Agent promptly upon demand for the amount of such payment. The obligation of each Bank to so reimburse the Issuing Bank shall be absolute and unconditional and shall not be affected by the occurrence of an Event of Default or any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to reimburse the Issuing Bank for the amount of any payment made by the Issuing Bank under any Letter of Credit together with interest as hereinafter provided. Each Bank that has reimbursed the Issuing Bank pursuant to this Section 2.12(c) for its Pro-Rata Share of any payment made by the Issuing Bank under a Letter of Credit shall thereupon acquire a pro-rata participation, to the extent of such reimbursement, in the claim of the Issuing Bank against Borrower under Section 2.12(d) and shall share, in accordance with that pro-rata participation, in any payment made by Borrower with respect to such claim. (d) Borrower agrees to pay to the Issuing Bank through the Agent an amount equal to any payment made by the Issuing Bank with respect to each Letter of Credit no later than one (1) Banking Day after demand made by the Issuing Bank therefor, together with interest on such amount from the date of any payment made by the Issuing Bank. Interest on such amount shall accrue at the Reference Rate until the second Banking Day following the payment made by the Issuing Bank with respect to the Letter of Credit, and at the Default Rate thereafter. The principal amount of any such payment by Borrower shall be used to reimburse the Issuing Bank for the pay ment made by it under the Letter of Credit. Should Borrower request a Loan under the Line A Commitment for the purpose of making such payment and make written request to the Agent to pay the proceeds of the Loan directly to the Issuing Bank, then the amount to be so paid shall be deducted from the Aggregate Effective Amount for purposes of Section 2.1(a) in connection with such Request for Loan. (e) If Borrower fails to make the payment required by Section 2.12(d) within the time period therein set forth, in lieu of the reimbursement to the Issuing Bank under Section 2.12(c) the Issuing Bank may (but is not required to), without notice to or the consent of Borrower, instruct the Agent to cause Advances to be made by the Banks under the Line A Commitment in an aggregate amount equal to the amount paid by the Issuing Bank with respect to that Letter of Credit and, for this -35- purpose, the conditions precedent set forth in Articles 2 and 8 shall not apply. The proceeds of such Advances shall be paid to the Issuing Bank to reimburse it for the payment made by it under the Letter of Credit. (f) The issuance of any supplement, modification, amendment, renewal, or extension to or of any Letter of Credit shall be subject to such preconditions as the Issuing Bank may establish. (g) The obligation of Borrower to pay to the Issuing Bank the amount of any payment made by the Issuing Bank under any Letter of Credit shall be absolute, unconditional, and irrevocable, subject only to performance by the Issuing Bank of its obligations to Borrower under California Uniform Commercial Code Section 5109. Without limiting the foregoing, subject to California Uniform Commercial Code Section 5109, Borrower's obligations shall not be affected by any of the following circumstances: (1) any lack of validity or enforceability of the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto; (2) any amendment or waiver of or any consent to departure from the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, with the consent of Borrower; (3) the existence of any claim, setoff, defense, or other rights which Borrower may have at any time against the Issuing Bank, the Agent, the Co-Agent or any Bank, any beneficiary of the Letter of Credit (or any persons or entities for whom any such beneficiary may be acting) or any other Person, whether in connection with the Letter of Credit, this Agreement, or any other agreement or instrument relating thereto, or any unrelated transactions; (4) any demand, statement, or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever so long as any such document appeared to comply with the terms of the Letter of Credit; (5) payment by the Issuing Bank in good faith under the Letter of Credit against presentation of a draft or any accompanying document which does not strictly comply with the terms of the Letter of Credit; (6) the existence, character, quality, quantity, condition, packing, value or delivery of any property purported to be represented by documents presented in connection with any Letter of Credit or for any -36- difference between any such property and the character, quality, quantity, condition, or value of such property as described in such documents; (7) the time, place, manner, order or contents of shipments or deliveries of property as described in documents presented in connection with any Letter of Credit or the existence, nature and extent of any insurance relative thereto; (8) the solvency or financial responsibility of any party issuing any documents in connection with a Letter of Credit; (9) any failure or delay in notice of shipments or arrival of any property; (10) any error in the transmission of any message relating to a Letter of Credit not caused by the Issuing Bank, or any delay or interruption in any such message; (11) any error, neglect or default of any correspondent of the Issuing Bank in connection with a Letter of Credit; (12) any consequence arising from acts of God, war, insurrection, civil unrest, disturbances, labor disputes, emergency conditions or other causes beyond the control of the Issuing Bank; (13) so long as the Issuing Bank in good faith determines that the contract or document appears to comply with the terms of the Letter of Credit, the form, accuracy, genuineness or legal effect of any contract or document referred to in any document submitted to the Issuing Bank in con nection with a Letter of Credit; and (14) where the Issuing Bank has acted in good faith and observed general banking usage, any other circumstances whatsoever. (h) The Issuing Bank shall be entitled to the protection accorded to the Agent pursuant to Section 10.7. (i) The Uniform Code of Practice for Documentary Credits, as published in its most current version by the International Chamber of Commerce, shall be deemed a part of this Section and shall apply to all Letters of Credit to the extent not inconsistent with applicable Law. (j) Concurrently with the issuance of each Letter of Credit, Borrower shall pay a letter of credit origination fee to the Issuing Bank, for the sole -37- account of the Issuing Bank, in an amount established from time to time by the Issuing Bank. Borrower shall also pay to the Agent for the ratable account of the Banks in accordance with their Pro Rata Shares, a standby letter of credit fee in an amount equal to 1.25% per annum times the face amount of such Letter of Credit, which fee shall be payable quarterly in arrears on each Quarterly Payment Date after the issuance of the Letter of Credit and on the termination or expiration of such Letter of Credit. The Agent shall promptly make available to the Banks in immediately available funds, pro-rata according to their Pro Rata Shares, the standby letter of credit fees which are for the account of the Banks. Borrower shall also pay transfer fees, check fees, foreign currency exchange fees and costs, and such other fees as the Issuing Bank normally charges in connection with standby letters of credit and activity pursuant thereto, which fees shall be solely for the account of the Issuing Bank. (k) To the extent of any inconsistency between the provisions of this Agreement regarding Letters of Credit and those of Exhibit G, the provisions of this Agreement shall govern, provided that the grant of additional (though not contrary) rights or remedies to the Issuing Bank under Exhibit G shall not be construed as inconsistent with the provisions of this Agreement. -38- Article 3 PAYMENTS AND FEES ----------------- 3.1 Principal and Interest. (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Advance from the date thereof until payment in full is made and shall accrue and be payable at the rates set forth or provided for herein before and after default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law, with interest on overdue interest to bear interest at the Default Rate to the fullest extent permitted by applicable Laws. (b) Unless previously paid as provided in this Agreement, interest accrued during each Monthly Interest Period on each Reference Rate Loan shall be due and payable on the next succeeding Monthly Payment Date and on the Maturity Date. Except as otherwise provided in Section 3.7, the unpaid principal amount of any Reference Rate Loan shall bear interest at a fluctuating rate per annum equal to the Reference Rate. Each change in the interest rate under this Section 3.1(b) due to a change in the Reference Rate shall take effect simultaneously with the corresponding change in the Reference Rate. (c) Unless previously paid as provided in this Agreement, interest accrued during each Monthly Interest Period on each Eurodollar Rate Loan shall be due and payable on the next succeeding Monthly Payment Date and on the Maturity Date. Except as otherwise provided in Sections 3.1(d) and 3.7, the unpaid principal amount of any Eurodollar Rate Loan shall bear interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar Rate Loan plus the Applicable Eurodollar Spread. (d) During the existence of a Default or Event of Default, the Majority Banks may determine that any or all then outstanding Eurodollar Rate Loans shall be converted to Reference Rate Loans. Such conversion shall be effective upon notice to Borrower from the Majority Banks (or from the Agent on behalf of the Majority Banks) and shall continue so long as such Default or Event of Default continues to exist. (e) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be payable as follows: (i) the principal amount of each Eurodollar Rate Loan shall be payable on the last day of the Interest Period for such Loan; -39- (ii) the amount, if any, by which (A) the outstanding principal Indebtedness evidenced by the Line A Notes plus the Aggregate Effective Amount at any time exceeds the Line A Commitment or (B) the outstanding principal Indebtedness evidenced by the Line B Notes at any time exceeds the Line B Commitment, shall be payable immediately, and shall be applied to the applicable Notes or, if no amount is then outstanding under the applicable Notes, shall be applied and held in a manner specified in Section 9.2(a)(2); and (iii) the principal Indebtedness evidenced by the Notes shall in any event be payable on the Maturity Date. (f) The principal Indebtedness under the Notes may, at any time and from time to time, voluntarily be paid or prepaid in whole or in part without premium or penalty, except that with respect to any voluntary prepayment under this Section 3.1(f), (i) any partial prepayment shall be in an integral multiple of $1,000,000, (ii) the Agent shall have received written notice of any prepayment by 9:00 a.m. San Francisco time on a Banking Day on the date of prepayment in the case of a Reference Rate Loan, and three (3) Banking Days, in the case of a Eurodollar Rate Loan, before the date of prepayment, which notice shall identify the date and amount of the prepayment and the Loan(s) being prepaid, and (iii) any payment or prepayment of all or any part of any Eurodollar Rate Loan on a day other than the last day of the applicable Interest Period shall be subject to Section 3.6(d). 3.2 Arrangement, Agency and Co-Agency Fees. Borrower shall pay to Bank of America arrangement and agency fees in amounts heretofore agreed upon in one or more letter agreements between Borrower and Bank of America. Such fees are solely for the account of Bank of America and are fully earned and nonrefundable upon the applicable due dates. Borrower shall pay to the Co-Agent co-agency fees in amounts heretofore agreed upon by letter agreement between Borrower and the Co-Agent. Such fees are solely for the account of the Co-Agent and are fully earned and nonrefundable upon the applicable due dates. 3.3 Underwriting Fee. On the Closing Date, Borrower shall pay to the Agent, for the account of the Banks, allocated as indicated on Schedule 3.3 hereof, an underwriting fee equal to $190,000.00. This underwriting fee is fully earned on the Closing Date and is nonrefundable. 3.4 Facility and Commitment Fees. (a) Facility Fee. From and after the Closing Date, Borrower shall pay to the Agent, for the respective accounts of the Banks, pro rata according to their Pro Rata Shares of the Commitments, a facility fee equal to the percentage shown below, per annum, times the average daily amount of the Commitments. The facility -40- fee shall be payable quarterly in arrears on each Quarterly Payment Date and on the Maturity Date. Applicable Pricing Level On Applicable Date I II III IV V - -- --- -- - 0.10% 0.125% 0.15% 0.15% 0.20% (b) Commitment Fees. From and after the Closing Date, Borrower shall pay to the Agent, for the respective accounts of the Banks, pro rata according to their Pro Rata Shares of the Commitments, a commitment fee equal to the following indicated percentage per annum times the average daily amount by which the Commitments exceed the sum of the aggregate principal Indebtedness evidenced by the Notes plus the Aggregate Effective Amount. The commitment fee shall be pay able quarterly in arrears on each Quarterly Payment Date and on the Maturity Date.
Applicable Pricing Level on Applicable Date I II III IV V For such days that the aggregate - -- --- -- - principal indebtedness evidenced by 0.10% 0.125% 0.125% 0.1875% 0.1875% the Notes plus the Aggregate Effective Amount exceeds 66% of the Commitments. For such days that the aggregate 0.15 0.2125 0.2125 0.25 0.25 principal indebtedness evidenced by the Notes plus the Aggregate Effective Amount is less than or equal to 66% but greater than 33% of the Commitments. For such days that the aggregate 0.20 0.30 0.30 0.325 0.325 principal indebtedness evidenced by the Notes plus the Aggregate Effective Amount is equal to or less than 33% of the Commitments.
3.5 Increased Commitment Costs. If any Bank shall determine that the introduction after the Closing Date of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Agency charged with the interpretation or administration thereof, or compliance by such Bank (or its Eurodollar -41- Lending Office) or any corporation controlling the Bank, with any request, guidelines or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other authority, affects or would affect the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased, or the rate of return on capital is reduced, as a consequence of its obligations under this Agreement, then, within five (5) Banking Days after demand of such Bank, Borrower shall pay to such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank in light of such circumstances, to the extent reasonably allocable to such obligations under this Agreement. Each Bank agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will cause it to make a demand hereunder. 3.6 Eurodollar Costs and Related Matters. (a) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance: (1) shall subject any Bank or its Eurodollar Lending Office to any tax, duty or other charge or cost with respect to any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances, or shall change the basis of taxation of payments to any Bank of the principal of or interest on any Eurodollar Rate Advance or any other amounts due under this Agreement in respect of any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances, excluding, in the case of each Bank, the Agent, and each Eligible Assignee, and any Affiliate or Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its overall net income, gross income or gross receipts or capital and franchise taxes imposed on it, by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" (unless it would not be doing business in such jurisdiction (or political subdivision thereof) absent the transactions contemplated hereby), (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America (other than withholding taxes and taxes based on gross income resulting from or attributable to any change in any law, rule or regulation or any change in the interpretation or administration of any law, rule or regulation by any Governmental Agency after the date of this Agreement) or (iii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrower with the appropriate form or forms -42- required by Section 11.19, to the extent such forms are then required by applicable Laws; (2) shall impose, modify or deem applicable any reserve not applicable or deemed applicable on the date hereof (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, but excluding the Eurodollar Reserve Percentage taken into account in calculating the Eurodollar Rate), special deposit, capital or similar requirements against assets of, deposits with or for the account of, or credit extended by, any Bank or its Eurodollar Lending Office; or (3) shall impose on any Bank or its Eurodollar Lending Office or the Designated Eurodollar Market any other condition affecting any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans, its obligation to make Eurodollar Rate Advances or this Agreement, or shall otherwise affect any of the same; and the result of any of the foregoing, as determined by such Bank, increases the cost to such Bank or its Eurodollar Lending Office of making or maintaining any Eurodollar Rate Advance or in respect of any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances or reduces the amount of any sum received or receivable by such Bank or its Eurodollar Lending Office with respect to any Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate Loans or its obligation to make Eurodollar Rate Advances (assuming such Bank's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market), then, within five (5) Banking Days after demand by such Bank (with a copy to the Agent), Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction (determined as though such Bank's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market). Borrower hereby indemnifies each Bank against, and agrees to hold each Bank harmless from and reimburse such Bank within five (5) Banking Days after demand for (without duplication) all costs, expenses, claims, penalties, liabilities, losses, legal fees and damages incurred or sustained by each Bank in connection with this Agreement, or any of the rights, obligations or transactions provided for or contemplated herein, as a result of the existence or occurrence of any Special Eurodollar Circumstance. A statement of any Bank claiming compensation under this subsection and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. Each Bank agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Bank to compensation pursuant to this Section, and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the judgment of such Bank, otherwise be materially disadvantageous -43- to such Bank. If any Bank claims compensation under this Section, Borrower may at any time, upon at least four (4) Eurodollar Banking Days' prior notice to the Agent and such Bank and upon payment in full of the amounts provided for in this Section through the date of such payment plus any prepayment fee required by Section 3.6(d), pay in full the affected Eurodollar Rate Advances of such Bank or request that such Eurodollar Rate Advances be converted to Reference Rate Advances. (b) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall, in the opinion of any Bank, make it unlawful, impossible or impracticable for such Bank or its Eurodollar Lending Office to make, maintain or fund its portion of any Eurodollar Rate Loan, or materially restrict the authority of such Bank to purchase or sell, or to take deposits of, Dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the Eurodollar Rate, and such Bank shall so notify the Agent, then such Bank's obligation to make Eurodollar Rate Advances shall be suspended for the duration of such illegality, impossibility or impracticability and the Agent forthwith shall give notice thereof to the other Banks and Borrower. Upon receipt of such notice, the outstanding principal amount of such Bank's Eurodollar Rate Advances, together with accrued interest thereon, automatically shall be converted to Reference Rate Advances with Interest Periods corresponding to the Eurodollar Loans of which such Eurodollar Rate Advances were a part on either (1) the last day of the Eurodollar Period(s) applicable to such Eurodollar Rate Advances if such Bank may lawfully continue to maintain and fund such Eurodollar Rate Advances to such day(s) or (2) immediately if such Bank may not lawfully continue to fund and maintain such Eurodollar Rate Advances to such day(s), provided that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.6(d). Each Bank agrees to endeavor promptly to notify Borrower of any event of which it has actual knowledge, occurring after the Closing Date, which will cause that Bank to notify the Agent under this Section 3.6(b), and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for such notice and will not, in the judgment of such Bank, otherwise be disadvantageous to such Bank. In the event that any Bank is unable, for the reasons set forth above, to make, maintain or fund its portion of any Eurodollar Rate Loan, such Bank shall fund such amount as a Reference Rate Advance for the same period of time, and such amount shall be treated in all respects as a Reference Rate Advance. Any Bank whose obligation to make Eurodollar Rate Advances has been suspended under this Section 3.6(b) shall promptly notify the Agent and Borrower of the cessation of the Special Eurodollar Circumstance which gave rise to such suspension. (c) If, with respect to any proposed Eurodollar Rate Loan: (1) the Agent reasonably determines that, by reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Banks, deposits in Dollars (in the -44- applicable amounts) are not being offered to any Bank in the Designated Eurodollar Market for the applicable Eurodollar Period; or (2) the Majority Banks advise the Agent that the Eurodollar Rate as determined by the Agent (i) does not represent the effective pricing to such Banks for deposits in Dollars in the Designated Eurodollar Market in the relevant amount for the applicable Eurodollar Period, or (ii) will not adequately and fairly reflect the cost to such Banks of making the applicable Eurodollar Rate Advances; then the Agent forthwith shall give notice thereof to Borrower and the Banks, whereupon until the Agent notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Banks to make any future Eurodollar Rate Advances shall be suspended. If at the time of such notice there is then pending a Request for Loan that specifies a Eurodollar Rate Loan, such Request for Loan shall be deemed to specify a Reference Rate Loan. (d) Upon payment or prepayment of any Eurodollar Rate Advance, (other than as the result of a conversion required under Section 3.6(b)), on a day other than the last day in the applicable Eurodollar Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrower (for a reason other than the failure of a Bank to make an Advance) to borrow on the date or in the amount specified for a Eurodollar Rate Loan in any Request for Loan, Borrower shall pay to the appropriate Bank within five (5) Banking Days after demand a prepayment fee or failure to borrow fee, as the case may be, (determined as though 100% of the Eurodollar Rate Advance had been funded in the Designated Eurodollar Market) equal to the sum of: (1) principal amount of the Eurodollar Rate Advance prepaid or not borrowed, as the case may be, times [number of days between the date of prepayment or failure to borrow, as applicable, and the last day in the applicable Eurodollar Period], divided by 360, times the applicable Interest Differential (provided that the product of the foregoing formula must be a positive number); plus (2) all out-of-pocket expenses incurred by the Bank reasonably attributable to such payment, prepayment or failure to borrow. Each Bank's determination of the amount of any prepayment fee payable under this Section 3.6(d) shall be conclusive in the absence of manifest error. 3.7 Late Payments. If any installment of principal or interest or any fee or cost or other amount payable under any Loan Document to the Agent or any Bank is not paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times -45- equal to the sum of the Reference Rate plus 3%, to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by applicable Laws. 3.8 Computation of Interest and Fees. Computation of interest on Eurodollar Rate Loans, Reference Rate Loans and all fees under this Agreement shall be calculated on the basis of a year of 360 days and the actual number of days elapsed. Borrower acknowledges that such latter calculation method will result in a higher yield to the Banks than a method based on a year of 365 or 366 days. Interest shall accrue on each Loan for the day on which the Loan is made. Interest shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, except that any Loan that is repaid on the same day on which it is made shall bear interest for one day. 3.9 Non-Banking Days. If any payment to be made by Borrower or any other Party under any Loan Document shall come due on a day other than a Banking Day, payment shall instead be considered due on the next succeeding Banking Day and the extension of time shall be reflected in computing interest and fees. 3.10 Manner and Treatment of Payments. (a) Each payment hereunder (except payments pursuant to Sections 3.5, 3.6, 11.3, 11.10 and 11.20) or on the Notes or under any other Loan Document shall be made to the Agent, at the Agent's Office, for the account of each of the Banks or the Agent, as the case may be, in immediately available funds (for which evidence may be given by notification of a Fed Funds reference number) not later than 11:00 a.m., San Francisco time, on the day of payment (which must be a Banking Day). All payments received after 11:00 a.m., San Francisco time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. The amount of all payments received by the Agent for the account of each Bank shall be immediately paid by the Agent to the applicable Bank in immediately available funds and, if such payment was received by the Agent by 11:00 a.m., San Francisco time, on a Banking Day and not so made available to the account of a Bank on that Banking Day, the Agent shall reimburse that Bank for the cost to such Bank of funding the amount of such payment at the Federal Funds Rate. All payments shall be made in lawful money of the United States of America. (b) Each payment or prepayment on account of any Loan shall be applied pro rata according to the outstanding Advances made by each Bank comprising such Loan. (c) Each payment of any amount payable by Borrower or any other Party under this Agreement or any other Loan Document shall be made free and clear of, and without reduction by reason of, any taxes, assessments or other charges -46- imposed by any Governmental Agency, central bank or comparable authority, excluding, in the case of each Bank, the Agent, the Co-Agent and each Eligible Assignee, and any Affiliate or Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its overall net income, gross income or gross receipts or capital and franchise taxes imposed on it, by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" (unless it would not be doing business in such jurisdiction (or political subdivision thereof) absent the transactions contemplated hereby), (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America (other than withholding taxes and taxes based on gross income resulting from or attributable to any change in any law, rule or regulation or any change in the interpretation or administration of any law, rule or regulation by any Governmental Agency after the date of this Agreement) or (iii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrower with the appropriate form or forms required by Section 11.19, to the extent such forms are then required by applicable Laws, (all such non-excluded taxes, assessments or other charges being hereinafter referred to as "Taxes"). To the extent that Borrower is obligated by applicable Laws to make any deduction or withholding on account of Taxes from any amount payable to any Bank under this Agreement, Borrower shall (i) make such deduction or withholding and pay the same to the relevant Governmental Agency and (ii) pay such additional amount to that Bank as is necessary to result in that Bank's receiving a net after-Tax amount equal to the amount to which that Bank would have been entitled under this Agreement absent such deduction or withholding. If and when receipt of such payment results in an excess payment or credit to that Bank on account of such Taxes, that Bank shall promptly refund such excess to Borrower. 3.11 Funding Sources. Nothing in this Agreement shall be deemed to obligate any Bank to obtain the funds for any Loan or Advance in any particular place or manner or to constitute a representation by any Bank that it has obtained or will obtain the funds for any Loan or Advance in any particular place or manner. 3.12 Failure to Charge Not Subsequent Waiver. Any decision by the Agent or any Bank not to require payment of any interest (including interest arising under Section 3.7), fee, cost or other amount payable under any Loan Document, or to calculate any amount payable by a particular method, on any occasion shall in no way limit or be deemed a waiver of the Agent's or such Bank's right to require full payment of any interest (including interest arising under Section 3.7), fee, cost or other amount payable under any Loan Document, or to calculate an amount payable by another method that is not inconsistent with this Agreement, on any other or subsequent occasion. 3.13 Agent's Right to Assume Payments Will be Made by Borrower. Unless the Agent shall have been notified by Borrower prior to the date on which any payment to be -47- made by Borrower hereunder is due that Borrower does not intend to remit such payment, the Agent may, in its discretion, assume that Borrower has remitted such payment when so due and the Agent may, in its discretion and in reliance upon such assumption, make available to each Bank on such payment date an amount equal to such Bank's share of such assumed payment. If Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank, together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at the Federal Funds Rate. 3.14 Fee Determination Detail. The Agent, and any Bank, shall provide reasonable detail to Borrower regarding the manner in which the amount of any payment to the Agent and the Banks, or that Bank, under Article 3 has been determined, concurrently with demand for such payment. 3.15 Survivability. All of Borrower's obligations under Sections 3.5 and 3.6 shall survive for ninety (90) days following the date on which the Commitments are terminated and all Loans hereunder are fully paid. Following such termination and repayment, and the expiration of any bankruptcy preference or similar period, each Bank shall cancel and return its Notes to Borrower. 3.16 Accruals Under Pre-Existing Loan Documents. The accrual of interest and fees payable by Borrower under the Pre-Existing Loan Documents shall be calculated as provided therein through the effective date of this Agreement. Such fees include, without limitation, those specified in Sections 3.2, 3.3 and 3.4 of the First Amended Loan Agreement. All such accrued interest and fees through the effective date of this Agreement shall, notwithstanding any provision of the Pre-Existing Loan Documents or hereunder to the contrary, be due on the effective date of this Agreement and shall be payable immediately upon submission of an invoice therefor to Borrower by the Agent. Upon receipt by the Agent, all such amounts shall be promptly distributed by the Agent in accordance with the terms of the Pre-Existing Loan Documents. -48- Article 4 REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants to the Banks, as of the date hereof and as of the Closing Date, that: 4.1 Existence and Qualification; Power; Compliance With Laws. Borrower is a corporation duly formed, validly existing and in good standing under the Laws of Delaware. Borrower is duly qualified or registered to transact business and is in good stand ing in each other jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, except where the failure so to qualify or register and to be in good standing would not constitute a Material Adverse Effect. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute and deliver each Loan Document to which it is a Party and to perform its Obligations. All outstanding shares of capital stock of Borrower are duly authorized, validly issued, fully paid, non-assessable and no holder thereof has any enforceable right of rescission under any applicable state or federal securities Laws. Borrower is in compliance with all Laws and other legal requirements applicable to its busi ness, has obtained all authorizations, consents, approvals, orders, licenses and permits from, and has accomplished all filings, registrations and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure so to comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations. The execution, delivery and performance by Borrower and each Guarantor Subsidiary of the Loan Documents to which it is a Party have been duly authorized by all necessary corporate and/or partnership action, and do not and will not: (a) Require any consent or approval not heretofore obtained of any partner, director, stockholder, security holder or creditor of such Party; (b) Violate or conflict with any provision of such Party's charter, articles of incorporation or bylaws, as applicable; (c) Result in or require the creation or imposition of any Lien upon or with respect to any Property now owned or leased or hereafter acquired by such Party; (d) Violate any Requirement of Law applicable to such Party, subject to obtaining the authorizations from, or filings with, the Governmental Agencies described in Schedule 4.3; -49- (e) Result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other Contractual Obligation to which such Party is a party or by which such Party or any of its Property is bound or affected; and none of Borrower or any Guarantor Subsidiary is in violation of, or default under, any Requirement of Law or Contractual Obligation, or any indenture, loan or credit agreement described in Section 4.2(e), in any respect that constitutes a Material Adverse Effect. 4.3 No Governmental Approvals Required. Except as set forth in Schedule 4.3 or previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Agency is or will be required to authorize or permit under applicable Laws the execution, delivery and performance by Borrower and the Guarantor Subsidiaries of the Loan Documents to which it is a Party. All authorizations from, or filings with, any Governmental Agency described in Schedule 4.3 will be accomplished as of the Closing Date or such other date as is specified in Schedule 4.3. 4.4 Subsidiaries. (a) Schedule 4.4 hereto correctly sets forth the names, form of legal entity, number of shares of capital stock issued and outstanding, number of shares owned by Borrower or a Subsidiary (specifying such owner) and jurisdictions of organization of all Subsidiaries and specifies which thereof, as of the Closing Date, are Guarantor Subsidiaries. Except as described in Schedule 4.4, Borrower does not own any capital stock, equity interest or debt security which is convertible, or exchangeable, for capital stock or equity interests in any Person. Unless otherwise indicated in Schedule 4.4, all of the outstanding shares of capital stock, or all of the units of equity interest, as the case may be, of each Subsidiary are owned of record and beneficially by Borrower, there are no outstanding options, warrants or other rights to purchase capital stock of any such Subsidiary, and all such shares or equity interests so owned are duly authorized, validly issued, fully paid, non-assessable, and were issued in compliance with all applicable state and federal securities and other Laws, and are free and clear of all Liens, except for Permitted Encumbrances. (b) Each Subsidiary is a corporation or limited partnership duly formed, validly existing and in good standing under the Laws of its jurisdiction of organization, is duly qualified to do business as a foreign organization and is in good standing as such in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary (except where the failure to be so duly qualified and in good standing does not constitute a Material Adverse Effect), and has all requisite power and authority to conduct its business and to own and lease its Properties. -50- (c) Each Subsidiary is in compliance with all Laws and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, and permits from, and each such Subsidiary has accomplished all filings, registrations, and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, except where the failure to be in such compliance, obtain such authorizations, consents, approvals, orders, licenses, and permits, accomplish such filings, registrations, and qualifications, or obtain such exemptions, does not con stitute a Material Adverse Effect. 4.5 Financial Statements. Borrower has furnished to the Banks (a) the audited consolidated financial statements of Borrower and its Subsidiaries for the Fiscal Year ended June 30, 1997 and (b) the unaudited consolidated financial statements of Borrower and its Subsidiaries for the Fiscal Quarter ended March 31, 1998. The financial statements des cribed in clauses (a) and (b) fairly present in all material respects the financial condition, results of operations and changes in financial position of Borrower and its Subsidiaries as of such dates and for such periods, in conformity with Generally Accepted Accounting Principles, consistently applied. 4.6 No Other Liabilities; No Material Adverse Changes. Borrower and its Subsidiaries do not have any material liability or material contingent liability not reflected or disclosed in the financial statements described in Section 4.5(b), other than liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements. Neither Borrower nor any of its Subsidiaries has, as of the Closing Date, any Indebtedness other than under the Loan Documents or as described on Schedule 4.6. As of the Closing Date, no circumstance or event has occurred that constitutes a Material Adverse Effect since June 30, 1997, or, as of any date subsequent to the Closing Date, since the Closing Date. 4.7 Title to Property. Borrower and its Subsidiaries have valid title to the Property reflected in the financial statements described in Section 4.5(b), other than immaterial items of Property and Property subsequently sold or disposed of in the ordinary course of business, free and clear of all Liens, other than Liens described in Schedule 6.8 or otherwise permitted by Section 6.8. Schedule 6.8 identifies, without limitation, all Liens on Property of Borrower or any of its Subsidiaries securing an obligation to pay money. 4.8 Intangible Assets. Borrower and its Guarantor Subsidiaries own, or possess the right to use to the extent necessary in their respective businesses, all material trademarks, trade names, copyrights, patents, patent rights, computer software, licenses and other Intangible Assets that are used in the conduct of their businesses as now operated, and no such Intangible Asset, to the best knowledge of Borrower, conflicts with the valid trademark, trade name, copyright, patent, patent right or Intangible Asset of any other Person to the extent that such conflict constitutes a Material Adverse Effect. -51- 4.9 Public Utility Holding Company Act. Neither Borrower nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.10 Litigation. Except for (a) any matter fully covered as to subject matter and amount (subject to applicable deductibles and retentions) by insurance for which the insurance carrier has not asserted lack of subject matter coverage or reserved its right to do so, (b) any matter, or series of related matters, involving a claim against Borrower or any of its Subsidiaries of less than $1,000,000, (c) matters of an administrative nature not involving a claim or charge against Borrower or any of its Subsidiaries and (d) matters set forth in Sched ule 4.10, there are no actions, suits, proceedings or investigations pending as to which Borrower or any of its Subsidiaries have been served or have received notice or, to the best knowledge of Borrower, threatened against or affecting Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Agency. 4.11 Binding Obligations. Each of the Loan Documents to which Borrower or any of its Guarantor Subsidiaries is a Party will, when executed and delivered by such Party, constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, except as enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.12 No Default. No event has occurred and is continuing that is a Default or Event of Default. 4.13 ERISA. (a) With respect to each Pension Plan: (i) such Pension Plan complies in all material respects with ERISA and any other applicable Laws to the extent that noncompliance could reasonably be expected to have a Material Adverse Effect; (ii) such Pension Plan has not incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA) that could reasonably be expected to have a Material Adverse Effect; (iii) no "reportable event" (as defined in Section 4043 of ERISA) has occurred that could reasonably be expected to have a Material Adverse Effect; and -52- (iv) neither Borrower nor any of its Subsidiaries has engaged in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code) that could reasonably be expected to have a Material Adverse Effect. (b) Neither Borrower nor any of its Subsidiaries has incurred or expects to incur any withdrawal liability to any Multiemployer Plan that could reasonably be expected to have a Material Adverse Effect. 4.14 Regulations G, T, U and X; Investment Company Act. No part of the proceeds of any Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any Margin Stock in violation of Regulations G, T, U and X. Neither Borrower nor any of its Subsidiaries is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 4.15 Disclosure. No written statement made by a Senior Officer to the Agent or any Bank in connection with this Agreement, or in connection with any Loan, as of the date thereof contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. 4.16 Tax Liability. Borrower and its Subsidiaries have filed all tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by Borrower or any of its Subsidiaries, except (a) such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained and (b) immaterial taxes so long as no material item or portion of Property of Borrower or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited. 4.17 Strategic Plan. The Strategic Plan was prepared in accordance with Borrower's customary procedures therefor and, in the case of the first year's budget, was approved by Borrower's board of directors and, in the case of subsequent years, represents the final version thereof for such years that was reviewed by Borrower's board of directors. 4.18 Hazardous Materials. To the best knowledge of Borrower, no condition exists that violates any Hazardous Material Law affecting any Real Property except for such violations that would not individually or in the aggregate have a Material Adverse Effect. No Real Property now owned by Borrower or any of its Subsidiaries, or any portion thereof, is or has been utilized by Borrower or any of its Subsidiaries as a site for the manufacture of any Hazardous Materials. To the extent that any Hazardous Materials are used, generated or stored by Borrower or any of its Subsidiaries on any Real Property, or transported to or from such Real Property by Borrower or any of its Subsidiaries, such use, generation, storage and transportation are in compliance in all material respects with all Hazardous Materials Laws. -53- 4.19 Year 2000 Compliance. Borrower has adopted a plan (the "Year 2000 Plan") which, in the judgment of senior management of Borrower, will adequately address the operational and financial issues (the "Year 2000 Issues") arising from data in Borrower's computer-based data processing and information systems respecting dates subsequent to December 31, 1999 (and, to the extent relevant, arising from such data in the data processing systems of its material customers and vendors). The Year 2000 Plan is in the process of implementation. Borrower believes that it will be implemented in all material respects by December 31, 1999 and, as a result thereof, in the judgement of senior management of Borrower, Year 2000 Issues are not expected to result in a Material Adverse Effect. -54- Article 5 AFFIRMATIVE COVENANTS --------------------- (OTHER THAN INFORMATION AND --------------------------- REPORTING REQUIREMENTS) ----------------------- So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of a Commitment remains in force, Borrower shall, and shall cause each of its Subsidiaries to, unless the Agent (with the written approval of the Majority Banks) otherwise consents: 5.1 Payment of Taxes and Other Potential Liens. Pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon any of them, upon their respective Property or any part thereof and upon their respective income or profits or any part thereof, except that Borrower and its Subsidiaries shall not be required to pay or cause to be paid (a) any tax, assessment, charge or levy that is not yet past due, or is being contested in good faith by appropriate proceedings so long as the relevant entity has established and maintains adequate reserves for the payment of the same or (b) any immaterial tax, assessment, governmental charge or levy so long as (i) no material item or portion of Property of Borrower and any of its Subsidiaries, taken as a whole, is in jeopardy of being seized, levied upon or forfeited and (ii) the failure to make such payment would not constitute a Material Adverse Effect. 5.2 Preservation of Existence. Preserve and maintain their respective existences in the jurisdiction of their formation and all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Agency that are necessary for the transaction of their respective business ("Authorizations"), except where the failure to so preserve and maintain the existence of any Subsidiary and such Authorizations would not constitute a Material Adverse Effect and except that a merger permitted by Section 6.3 shall not constitute a violation of this covenant; and qualify and remain qualified to transact business in each jurisdiction in which such qual ification is necessary in view of their respective business or the ownership or leasing of their respective Properties except where the failure to so qualify or remain qualified would not constitute a Material Adverse Effect. 5.3 Maintenance of Properties. Maintain, preserve and protect all of their then owned respective depreciable Properties in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of their respective Properties, except that the failure to maintain, preserve and protect a particular item of depreciable Property that is not of significant value, either intrinsically or to the operations of Borrower and its Subsidiaries, taken as a whole, shall not constitute a violation of this covenant. -55- 5.4 Maintenance of Insurance. Maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which Borrower and its Subsidiaries operate. 5.5 Compliance With Laws. Comply, within the time period, if any, given for such compliance by the relevant Governmental Agency or Agencies with enforcement authority, with all Requirements of Law noncompliance with which constitutes a Material Adverse Effect, except that Borrower and its Subsidiaries need not comply with a Require ment of Law then being contested by any of them in good faith by appropriate proceedings. 5.6 Inspection Rights. Upon reasonable notice, at any time during regular business hours and as often as requested (but not so as to materially interfere with the business of Borrower or any of its Subsidiaries), permit the Agent or any Bank, or any authorized employee, agent or representative thereof, to examine, audit and make copies and abstracts from the records and books of account of, and to visit and inspect the Properties of, Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of Borrower and its Subsidiaries with any of their officers, key employees or accountants and, upon request, furnish promptly to the Agent or any Bank true copies of all financial information made available to the board of directors or audit committee of the board of directors of Bor rower. 5.7 Keeping of Records and Books of Account. Keep adequate records and books of account reflecting all financial transactions in conformity with Generally Accepted Accounting Principles, consistently applied, and in material conformity with all applicable requirements of any Governmental Agency having regulatory jurisdiction over Borrower or any of its Subsidiaries. 5.8 Compliance With Agreements. Promptly and fully comply with all Contractual Obligations under all material agreements, indentures, leases and/or instruments to which any one or more of them is a party, whether such material agreements, indentures, leases or instruments are with a Bank or another Person, except for any such Contractual Obligations (a) the performance of which would cause a Default or (b) then being contested by any of them in good faith by appropriate proceedings or if the failure to comply with such agreements, indentures, leases or instruments does not constitute a Material Adverse Effect. 5.9 Use of Proceeds. Use the proceeds of Loans solely for (a) retirement of outstanding Indebtedness under the Substituted Credit Facilities and (b) general working capital and corporate purposes of Borrower and its Subsidiaries, provided that in no event shall the proceeds of a Loan under the Line A Commitment be used to repay an outstanding Loan under the Line B Commitment. -56- 5.10 New Guarantor Subsidiaries; Release of Certain Guaranties. Cause each of its Subsidiaries which hereafter becomes a Guarantor Subsidiary to immediately execute and deliver to the Agent an instrument of joinder of the Subsidiary Guaranty. Should the stock of a Subsidiary holding only the assets of the Glen Harbor Project or the Spring Creek Project be transferred or such a Subsidiary be disposed of by merger in accordance herewith to an entity that is not an Affiliate of Borrower, then, subject to receipt of reaffirmations of other Guarantor Subsidiaries and such other documentation as the Agent may reasonably request, the Banks will release such Subsidiary from the Subsidiary Guaranty. 5.11 Hazardous Materials Laws. Keep and maintain all Real Property and each portion thereof in compliance in all material respects with all applicable Hazardous Materials Laws and promptly notify the Agent in writing of (a) any and all material enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened in writing by a Governmental Agency pursuant to any applicable Hazardous Materials Laws, (b) any and all material claims made or threatened in writing by any Person against Borrower relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials and (c) discovery by any Senior Officer of Borrower of any material occurrence or condition on any real property adjoining or in the vicinity of such Real Property that could reasonably be expected to cause such Real Property or any part thereof to be subject to any restrictions on the ownership, occupancy, trans ferability or use of such Real Property under any applicable Hazardous Materials Laws. -57- Article 6 NEGATIVE COVENANTS ------------------ So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of a Commitment remains in force, Borrower shall not, and shall not permit any of its Subsidiaries to, unless the Agent (with the written approval of the Majority Banks or, if required by Section 11.2, of all of the Banks) otherwise consents: 6.1 Prepayment of Indebtedness. Pay any principal or interest on any Indebtedness of Borrower or any of its Subsidiaries (other than Indebtedness under the Notes) prior to the date when due, or make any payment or deposit with any Person that has the effect of providing for the satisfaction of any Indebtedness of Borrower or any of its Subsidiaries prior to the date when due, in each case if an Event of Default then exists or would result therefrom. 6.2 Payment of Subordinated Obligations. Pay any (a) principal (including sinking fund payments) or any other amount (other than scheduled interest payments) with respect to any Subordinated Obligation except as expressly permitted in the last sentence of this Section 6.2, or (b) scheduled interest on any Subordinated Obligation, if an Event of Default described in Sections 9.1(a) or 9.1(b) then exists or would result therefrom; provided, however, that this Section 6.2 is in no way in limitation of any additional rights the Banks may have to block payments with respect to any Subordinated Obligation. The principal amount of Subordinated Obligations may be prepaid or redeemed but only (A) if (i) an Event of Default does not then exist and would not result therefrom and (ii) Borrower has not received written notice from the Agent or a Bank that a Default has occurred and such Default remains uncured; and (B) to the extent of an amount equal to the sum of (x) the net cash proceeds from the issuance by Borrower of its capital stock (that is not Disqualified Stock) after January 1, 1994 plus (y) the following percentages of new cash Subordinated Obligation borrowings by Borrower after January 1, 1994, provided that such borrowings have a maturity no earlier than one (1) year after the Maturity Date. Principal Amount Percentage Borrowed in Cash ---------- ---------------- -0- first $50,000,000 50% next $50,000,000 100% amounts over $100,000,000 -58- 6.3 Mergers and Sale of Assets. (a) Merge or consolidate with or into any Person, except mergers and consolidations of a Subsidiary of Borrower (other than a Coventry Subsidiary) into Borrower or a Guarantor Subsidiary (other than a Coventry Subsidiary) with, if applicable, Borrower as the surviving entity, provided that Borrower and each of its Subsidiaries has executed such amendments to the Loan Documents as the Agent may reasonably determine are appropriate as a result of such merger. This Section 6.3(a) shall not restrict a merger implemented solely to effect a Disposition specified in clause (e) of the definition of "Disposition." (b) Make any Disposition of its Property other than the sale of Property for cash and/or other Property which in the aggregate have the fair equivalent value to the Property sold; provided, however, that no Property shall be sold by way of Disposition (nor shall there be any related sales of Property) if the value of the Property sold is in excess of $5,000,000. (c) Notwithstanding the foregoing provisions of this Section 6.3 or any other provision of this Agreement, the following Transfers of Property (including Cash) for reasonably equivalent value are not restricted: (i) by and among Borrower and any of its wholly-owned Subsidiaries that are not Coventry Subsidiaries; or (ii) by and among the Coventry Subsidiaries. Notwithstanding the foregoing provisions of this Section 6.3 or any other provision of this Agreement, Transfers of Property (including Cash) by any directly or indirectly wholly-owned Subsidiary of Borrower to its parent corporation(s) are not restricted. 6.4 Hostile Tender Offers. Make any offer to purchase or acquire, or consummate a purchase or acquisition of, 5% or more of the capital stock of any corporation or other business entity if the board of directors or management of such corporation or business entity has notified Borrower that it opposes such offer or purchase and such notice has not been withdrawn or superseded. 6.5 Distributions. As to Borrower and any Subsidiaries of Borrower which are not wholly-owned Subsidiaries of Borrower, make any Distribution, whether from capital, income or otherwise, and whether in Cash or other Property, unless (a) such Distribution could have been made on the last day of the most recently ended Fiscal Quarter without causing a violation of Section 6.11 as of such last day of such Fiscal Quarter and (b) in the case of a Distribution by Borrower (i) an Event of Default does not then exist and would not result therefrom and (ii) Borrower has not theretofore received written notice from the Agent or a Bank that a Default has occurred and such Default remains uncured, provided however -59- that a Distribution may be made if such Distribution constitutes a dividend on capital stock of Borrower that was otherwise permissible to be made at the time it was declared payable by Borrower's board of directors and that is in fact paid within 60 days after such declaration. 6.6 ERISA. (a) At any time, permit any Pension Plan to: (i) engage in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code); (ii) fail to comply with ERISA or any other applicable Laws to the extent that noncompliance could reasonably be expected to have a Material Adverse Effect; (iii) incur any material "accumulated funding deficiency" (as defined in Section 302 of ERISA); or (iv) terminate in any manner, which, with respect to each event listed above, could reasonably be expected to result in a Material Adverse Effect. (b) Withdraw, completely or partially, from any Multiemployer Plan if to do so could reasonably be expected to result in a Material Adverse Effect. 6.7 Change in Nature of Business. Make any material change in the nature of the business of Borrower and its Subsidiaries, taken as a whole. In addition, Borrower shall not (except through a Subsidiary) engage, in any material respect, in business activities other than acting as a holding company for its Subsidiaries. In addition, no Coventry Subsidiary shall engage, in any material respect, in business activities other than conventional single-family residential home development and related activities (not to include age-restricted planned community residential development). 6.8 Liens. Create, incur, assume or suffer to exist any Lien of any nature upon or with respect to any of their respective Properties, whether now owned or hereafter acquired, except: (a) Permitted Encumbrances; (b) Liens that may exist from time to time under the Loan Documents; -60- (c) existing Liens disclosed in Schedule 6.8 and any renewals or extensions thereof; provided that the obligations secured or benefited thereby are not increased; (d) Liens on Real Property acquired (whether before or after the Closing Date) by Borrower or any of its Subsidiaries that both (i) secure solely Non-Recourse Debt and (ii) (A) secure solely purchase money indebtedness with respect to the Real Property (which indebtedness, within the limitations set out below, may include a profit or a revenue sharing component arising from such Real Property for the benefit of the seller) or (B) encumbered the Real Property at the time of its acquisition by Borrower or its Subsidiary or were placed thereon to refinance or borrow an amount up to the purchase price within 90 days after the acquisition (which indebtedness, within the limitations set out below, may include a profit or a revenue sharing component arising from such Real Property for the benefit of the seller). Profit or revenue sharing rights in favor of a seller of Real Property shall be permissible hereunder only if the aggregate of Borrower's Real Property purchase cost and direct construction costs for all Real Property then subject to such rights does not, when added to any amount calculated under Sections 6.8(e),(g) and (h), at any time exceed 10% of Tangible Net Worth; (e) Liens on Administrative Property owned by Borrower or any of its Subsidiaries that (i) secure solely Non-Recourse Debt, (ii) each secure a loan of no more than 150% of the direct costs of construction of constructing non-residential improvements located on the applicable Administrative Property, which loan is procured within three (3) months following the issuance of the final occupancy permits for such improvements, provided that any amounts secured by such Liens, together with amounts calculated under the last sentence of Section 6.8(d), under Section 6.8(g) and under Section 6.8(h), do not, in the aggregate, exceed 10% of Tangible Net Worth at any time. Administrative Property shall mean a building or buildings (and a reasonable amount of Real Property under each such building not to exceed ten (10) acres) used primarily for the administrative purposes of Borrower and it Subsidiaries in the ordinary course of the their business. (f) [Intentionally Left Blank] (g) Liens that may exist on property of Borrower or one of its Subsidiaries that has been used in the construction of improvements on real property that is not then owned by Borrower or one of its Subsidiaries, or Liens on such real property, provided that (i) Borrower or a Guarantor Subsidiary holds a written contractual or other legal right to acquire title to such real property (or to direct the acquisition of such title) and intends to do so and (ii) the cost to Borrower or the Subsidiary of any and all such improvements, together with the amounts calculated under the last sentence of Section 6.8(d) and under Sections 6.8(e) and (h), do not, in the aggregate, exceed 10% of Tangible Net Worth at any time; and -61- (h) Liens otherwise permissible under Section 6.8(d) with respect to Real Property owned by Borrower or one of its Subsidiaries on which Real Property improvements have been constructed by Borrower or a Subsidiary, provided that the cost to Borrower or a Subsidiary of such improvements, together with the amounts calculated under the last sentence of Section 6.8(d) and under Sections 6.8(e) and (g) do not, in the aggregate, exceed 10% of Tangible Net Worth at any time. 6.9 Indebtedness. Create, incur or assume any Indebtedness (other than accrual of interest) except the following but only if a Default or Event of Default does not then exist and would not result therefrom: (a) Non-Recourse Debt for which the corresponding Lien is otherwise permissible under Section 6.8(d) (e), (g) or (h), provided that such Indebtedness is in compliance with the requirements of such Section, (b) [Intentionally Left Blank], (c) Indebtedness incurred pursuant to commitments and proposed commitments therefor that are identified on Schedule 6.9 (including replacements of such commitments), but only to the maximum amount available shown on such Schedule, (d) Indebtedness that constitutes Subordinated Obligations so long as no principal repayment (or any nature of reserve therefor) is due until at least one (1) year after the Maturity Date, (e) Indebtedness outstanding under the Notes, (f) Indebtedness constituting a refinancing on not materially less favorable terms of Indebtedness permitted under this Section 6.9, (g) Indebtedness constituting reimbursement obligations incurred with respect to standby letters of credit issued in the ordinary course of Borrower's and its Subsidiaries real estate development business, (h) Indebtedness by and among Borrower and its Subsidiaries, so long as such Indebtedness is not otherwise restricted hereunder (such as under Section 6.16(d) with respect to certain Investments), and (i) Unsecured Indebtedness incurred by Borrower (and any guaranty of such Indebtedness by a Subsidiary), provided that any such unsecured Indebtedness having an initial maturity of one (1) year or less and outstanding under either a working capital facility or a bid line of credit shall be limited to an aggregate -62- principal amount outstanding at any one time of $25,000,000 and, provided further, that a guaranty of any such unsecured Indebtedness by one or more Subsidiaries shall be permissible only if such unsecured Indebtedness constitutes a loan of money (or a reimbursement obligation under a letter of credit) and only if the credit instrument evidencing such unsecured Indebtedness expressly states that the funds loaned thereunder are being made available to Borrower solely for the general working capital and corporate purposes of Borrower and its Subsidiaries, without any portion thereof being required to be used for any particular purpose. 6.10 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of Borrower other than (a) salary, bonus, employee stock option and other compensation arrangements and indemnification arrangements with directors or officers in the ordinary course of business, (b) transactions between or among Borrower and its Guarantor Subsidiaries (other than Coventry Subsidiaries), (c) Investments in Subsidiaries specifically permitted in Section 6.16(d)(ii) and (d) transactions on overall terms at least as favorable to Borrower and its Guarantor Subsidiaries as would be the case in an arm's-length transaction between unrelated parties of equal bargaining power. 6.11 Tangible Net Worth. Permit Tangible Net Worth, as of the last day of any Fiscal Quarter ending on or after December 31, 1997, to be less than the sum of (a) $282,620,000 plus (b) an amount equal to 75% of the cumulative Net Income earned in all Fiscal Quarters ending after December 31, 1997 (with no deduction for a net loss in any such Fiscal Quarter), plus (c) an amount equal to 50% of the aggregate cumulative increases in Stockholders' Equity after December 31, 1997 by reason of the issuance and sale of capital stock by Borrower (including upon any conversion or exchange of debt securities of Borrower into such capital stock). 6.12 Consolidated Fixed Charge Coverage. (a) Permit the Consolidated Fixed Charge Coverage Ratio, as of the last day of any Fiscal Quarter ending on or after June 30, 1995, to be less than 1.75:1.00, or (b) Permit, as of the last day of any two consecutive Fiscal Quarters, both (i) the Leverage Ratio to be greater than 2.00 to 1.00 and (ii) the Consolidated Fixed Charge Coverage Ratio to be less than 2.50 to 1.00, or (c) Permit, as of the last day of any two consecutive Fiscal Quarters, both (i) the Leverage Ratio to be greater than 2.25 to 1.00 and (ii) the Consolidated Fixed Charge Coverage Ratio to be less than 2.75 to 1.00. 6.13 Debt to Net Worth. Permit the Leverage Ratio, as of any Fiscal Quarter ending on or after March 31, 1998, to be greater than the ratio set forth below opposite the period during which such Fiscal Quarter ends: -63- Leverage Period Ratio ------ ----- Jan. 1, 1998 through 2.50:1.00 March 31, 1999 April 1, 1999 through 2.35:1.00 March 31, 2000 April 1, 2000 and thereafter 2.15:1.00 6.14 Adjusted Senior Debt to Net Worth. Permit the ratio of Adjusted Senior Debt to Tangible Net Worth, each as of any Fiscal Quarter ending on or after March 31, 1998, to be greater than the ratio set forth below opposite the period during which such Fiscal Quarter ends: Period Ratio ------ ----- Jan. 1, 1998 through 1.50:1.00 March 31, 1999 April 1, 1999 through 1.40:1.00 March 31, 2000 April 1, 2000 and 1.30:1.00 thereafter 6.15 Liquidity. Permit, as of the last day of any Fiscal Year, beginning June 30, 1995, the ratio of Adjusted EBIDTA for such Fiscal Year to Specified Charges for such Fiscal Year to be less than (a) 0.50:1.00 for the Fiscal Year ending June 30, 1995, (b) 0.75:1.00 for the Fiscal Years ending June 30, 1996 and 1997, (c) 0.65:1.00 for the Fiscal Years ending June 30, 1998 and 1999 or (d) 0.75:1.00 for the Fiscal Years ending June 30, 2000 or thereafter, provided that any such failing shall not constitute an Event of Default under Section 9.1(c) unless and until Borrower shall also permit, as of the last day of the immediately succeeding Fiscal Quarter, the ratio of Adjusted EBIDTA for the four (4) Fiscal Quarter period then ending to Specified Charges for such four (4) Fiscal Quarter period to also be less than said specified ratio. 6.16 Investments. Make or suffer to exist any Investment, other than: (a) Investments in existence on the Closing Date and disclosed on Schedule 6.16; -64- (b) Investments consisting of Cash and Cash Equivalents; (c) Investments consisting of or evidencing the extension of credit to customers of Borrower and its Subsidiaries in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof; (d) Investments of Borrower in any of its Subsidiaries and Investments of any Subsidiary in Borrower or another Subsidiary provided that (i) the book value of Investments in Subsidiaries that engage in activities other than the acquisition, development, construction or financing of residential real estate as a material portion of their business activities shall not exceed, in the aggregate at any date of determination, more than 10% of Tangible Net Worth as of the end of the then most recently ended Fiscal Quarter and (ii) the book value of Investments in Subsidiaries that are not Guarantor Subsidiaries shall not exceed, in the aggregate at any date of determination, $5,000,000. All references to "Investments" in clauses (i) and (ii) shall specifically include guaranties, as provided in the definition of "Investments". The termination or release (in whole or in part) of any such guaranty that is treated as an Investment (in the absence of payment thereunder) shall thereupon result in a corresponding reduction in the measured amount of such Investment; (e) Investments received in connection with the settlement of a bona fide dispute with another Person; and (f) Investments representing all or a portion of the sales price for Property sold to another Person. (g) Investments (i) consisting of readily marketable securities actively traded on a public exchange or (ii) in Persons (other than Subsidiaries), each of which Persons does not, as a material portion of its business, engage in activities other than those related to the acquisition, development, construction or financing of residential real estate, provided that (A) the cumulative dollar amount of Investments under clause (i) (net of cumulative cash payments in respect of such Investments) shall at no time exceed $2,000,000 and (B) the cumulative dollar amount of Investments under clauses (i) and (ii) (net of cumulative cash payments in respect of such Investments) shall at no time exceed $10,000,000. 6.17 Unentitled Land. (a) Permit the total amount of Borrower's and its Subsidiaries' Cash investment in Unentitled Land that (i) is part of Current Operating Projects other than Coventry Homes Projects or (ii) is part of a Coventry Homes Project for which home sale closings have commenced (including in either case, without limitation, all Cash expenditures reasonably allocated to the acquisition, development, maintenance and -65- holding of such Unentitled Land) to exceed 25% of Tangible Net Worth at any time on or after June 30, 1995; or (b) Permit the total amount of Borrower's and its Subsidiaries Cash investment in Unentitled Land that (i) is not part of Current Operating Projects or (ii) is part of a Coventry Homes Project for which home sale closings have not yet commenced (including in either case, without limitation, all Cash expenditures reasonably allocated to the acquisition, development, maintenance and holding of such Unentitled Land) to exceed 10% of Tangible Net Worth at any time on or after June 30, 1995. 6.18 Unsold Homes in Production. For any two (2) consecutive Fiscal Quarters, beginning with the Fiscal Quarter ending March 31, 1995: (a) Permit the number of Unsold Homes (other than (i) Unsold Homes that are part of the Coventry Homes Projects, (ii) Unsold Homes included in development projects with respect to which, on the date of determination, 12 months has not elapsed since the closing of the sale of the first housing unit and (iii) Unsold Homes within any Current Operating Project that are then being used as sales models or as vacation apartments for marketing purposes (collectively, "Excluded Unsold Homes")), as of the end of such Fiscal Quarters to exceed the applicable percentage shown below of the number of housing unit sale closings of Borrower and its Guarantor Subsidiaries (other than sale closings of housing units that are Excluded Unsold Homes) that occurred in the twelve (12) months immediately prior to each such Fiscal Quarter end: Applicable Any Fiscal Quarter Ending Percentage ------------------------- ---------- September 30th 35% December 31st 35% March 31st 30% June 30th 25%; or (b) Permit the number of Unsold Homes that are part of the Coventry Homes Projects as of the end of such Fiscal Quarters to exceed 25% of the number of housing unit sale closings in the Coventry Homes Projects that occurred in the twelve (12) months immediately prior to each such Fiscal Quarter end. 6.19 Coventry Assets. Permit, as of the last day of any Fiscal Quarter, beginning June 30, 1995, the ratio of Coventry Assets to Consolidated Total Assets to be -66- greater than 0.20:1.00 or the ratio of Coventry Land Assets to Consolidated Total Assets to be greater than 0.15:1.00. -67- Article 7 INFORMATION AND REPORTING REQUIREMENTS -------------------------------------- 7.1 Financial and Business Information. So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of a Commitment remains in force, Borrower shall, unless the Agent (with the written approval of the Majority Banks) otherwise consents, deliver to the Agent and the Banks, at Borrower's sole expense: (a) As soon as practicable, and in any event within 60 days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter in any Fiscal Year), (i) the consolidated balance sheet of Borrower and its Subsidiaries as at the end of such Fiscal Quarter and the consolidated statement of operations for each Fiscal Quarter, and its statement of cash flows for the portion of the Fiscal Year ended with such Fiscal Quarter and (ii) the consolidating (in accordance with past consolidating practices of Borrower) balance sheets and statements of operations as at and for the portion of the Fiscal Year ended with such Fiscal Quarter, all in reasonable detail. Such financial statements shall be certified by a Senior Officer of Borrower as fairly presenting the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with Generally Accepted Accounting Principles (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year-end accruals and audit adjustments; (b) As soon as practicable, and in any event within 120 days after the end of each Fiscal Year (including the Fiscal Year ending June 30, 1995), (i) the con solidated balance sheet of Borrower and its Subsidiaries as at the end of such Fiscal Year and the consolidated statements of operations, shareholders' equity and cash flows, in each case of Borrower and its Subsidiaries for such Fiscal Year and (ii) consolidating (in accordance with past consolidating practices of Borrower) balance sheets and statements of operations, in each case as at and for the Fiscal Year, all in reasonable detail. In the case of clause (i), such financial statements shall be prepared in accordance with Generally Accepted Accounting Principles, consistently applied, and such consolidated balance sheet and consolidated statements shall be accompanied by a report and opinion of KPMG Peat Marwick or other independent public accountants of recognized standing selected by Borrower and reasonably satisfactory to the Majority Banks, which report and opinion shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any other qualification or exception reasonably determined by the Majority Banks in their good faith business judgment to be adverse to the interests of the Banks. Such accountants' report and opinion shall be accompanied by a certificate stating that, in making the examination pursuant to gener ally accepted auditing standards necessary for the certification of such financial statements and such report, such accountants have obtained no knowledge of any -68- Default or, if, in the opinion of such accountants, any such Default shall exist, stating the nature and status of such Default, and stating that such accountants have reviewed Borrower's financial calculations as at the end of such Fiscal Year (which shall accompany such certificate) under Sections 6.11 through 6.15, have read such Sections (including the definitions of all defined terms used therein) and that nothing has come to the attention of such accountants in the course of such examination that would cause them to believe that the same were not calculated by Borrower in the manner prescribed by this Agreement. In the case of clause (ii), such financial statements shall be certified by a Senior Officer of Borrower as fairly presenting the financial condition, results of operations and cash flows of Borrower and its Subsidiaries in accordance with Generally Accepted Accounting Principles (other than footnote disclosures), consistently applied, as at such date and for such periods; (c) As soon as practicable, and in any event within 60 days after the commencement of each Fiscal Year (including the Fiscal Year beginning July 1, 1995), a budget by Fiscal Quarter for that Fiscal Year and a strategic plan by Fiscal Year for the three Fiscal Years following the budgeted year, including for the Fiscal Year just commenced, projected consolidated balance sheets, statements of operations and statements of cash flow and, for the next three succeeding Fiscal Years, projected consolidated condensed balance sheets and statements of operations and cash flow, of Borrower and its Subsidiaries, all in reasonable detail; (d) Promptly after request by the Agent or any Bank, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of Borrower by independent accountants in connection with the accounts or books of Borrower or any of its Subsidiaries, or any audit of any of them; (e) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the shareholders of Borrower, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Securities and Exchange Commission under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and not otherwise required to be delivered to the Banks pursuant to other provisions of this Section 7.1; (f) Except as prohibited by Law, promptly after request by the Agent or any Bank, copies of any other report or other document that was filed by Borrower or any of its Subsidiaries with any Governmental Agency; (g) Promptly upon a Senior Officer becoming aware, and in any event within five (5) Banking Days after becoming aware, of the occurrence of any (i) "report able event" (as such term is defined in Section 4043 of ERISA) or (ii) "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the -69- Code) in connection with any Pension Plan or any trust created thereunder, telephonic notice specifying the nature thereof, and, no more than five (5) Banking Days after such telephonic notice, written notice again specifying the nature thereof and specifying what action Borrower or any of its Subsidiaries is taking or proposes to take with respect thereto, and, when known, any action taken by the Internal Revenue Service with respect thereto; (h) As soon as practicable, and in any event within two Banking Days after a Senior Officer becomes aware of the existence of any condition or event which constitutes a Default, telephonic notice specifying the nature and period of existence thereof, and, no more than two Banking Days after such telephonic notice, written notice again specifying the nature and period of existence thereof and specifying what action Borrower or any of its Subsidiaries are taking or propose to take with respect thereto; (i) Promptly upon a Senior Officer becoming aware that (i) any Person commenced a legal proceeding with respect to a claim against Borrower or any of its Subsidiaries that is $500,000 or more in excess of the amount thereof that is fully covered by insurance, (ii) any creditor or lessor under a written credit agreement or material lease has asserted a default thereunder on the part of Borrower or any of its Subsidiaries, (iii) any Person commenced a legal proceeding with respect to a claim against Borrower or any of its Subsidiaries under a contract that is not a credit agreement or material lease in excess of $500,000 or which otherwise may reasonably be expected to result in a Material Adverse Effect, or (iv) any labor union has notified Borrower of its intent to strike Borrower or any of its Subsidiaries on a date certain and such strike would involve more than 100 employees of Borrower and its Subsidiaries, a written notice describing the pertinent facts relating thereto and what action Borrower or its Subsidiaries are taking or propose to take with respect thereto; (j) No later than 7 days prior to its creation, written notice of any Lien to be created pursuant to Section 6.8(e) or (f), together with a reasonably detailed description of such Lien and the Indebtedness to be secured thereby; and (k) Such other data and information as from time to time may be reasonably requested by the Agent, any Bank (through the Agent) or the Majority Banks. 7.2 Compliance Certificates. So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of a Commitment remains outstanding, Borrower shall deliver to the Agent and the Banks, at Borrower's sole expense, (a) a Compliance Certificate concurrently with each financial statement required pursuant to Sections 7.1(a) and 7.1(b), and (b) a Compliance Certificate (limited to showing the calculation of the Leverage Ratio as of the previous June 30) on or before each August 29. In the case of the Compliance Certificates delivered on or before each August 29, calculations -70- shall be based on the preliminary unaudited financial statements of Borrower and its Subsidiaries for such Fiscal Quarter. -71- Article 8 CONDITIONS ---------- 8.1 Initial Advances, Etc.. The effectiveness of this Agreement as an amendment and restatement of the First Amended Loan Agreement, and the effectiveness of the other Loan Documents as amendments and restatements of the other Pre-Existing Loan Documents, and the obligation of each Bank to make the initial Advance to be made by it and, if applicable, to make or accept an Adjusting Purchase Payment, and the obligation of the Issuing Bank to issue any Letter of Credit are subject to the following conditions precedent, each of which must be satisfied unless all of the Banks, in their sole and absolute discretion, shall agree otherwise: (a) The Agent shall have received all of the following, each of which shall be originals unless otherwise specified, each properly executed by a Responsible Official of each party thereto, each dated as of the Closing Date and each in form and substance satisfactory to the Agent and its legal counsel (unless otherwise specified or, in the case of the date of any of the following, unless the Agent otherwise agrees or directs): (1) at least one (1) executed counterpart of this Agreement, together with arrangements satisfactory to the Agent for additional executed counterparts, sufficient in number for distribution to the Banks and Borrower; (2) a Line A Note and a Line B Note executed by Borrower in favor of each Bank, each such Note in a principal amount equal to that Bank's Pro Rata Share of the applicable Commitment; (3) the Subsidiary Guaranty executed by each Guarantor Subsidiary; (4) with respect to Borrower and each Guarantor Subsidiary, such documentation as may be required to establish the due organization, valid existence and good standing of Borrower and each such Subsidiary, its qualification to engage in business in each material jurisdiction in which it is engaged in business or required to be so qualified, its authority to execute, deliver and perform any Loan Documents to which it is a Party, the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, including certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing and/or qualification to engage in business, tax clearance certificates, certificates of corporate resolutions, incumbency certificates, Certificates of Responsible Officials, and the like; -72- (5) the Opinions of Counsel; (6) a Certificate of a Responsible Official certifying that the copies of the Indentures attached thereto are true, current and complete copies; (7) a Certificate of a Responsible Official signed by a Senior Officer certifying that the conditions specified in Sections 8.1(a)(8), 8.1(d) and 8.1(e) have been satisfied; and (8) such other assurances, certificates, documents, consents or opinions as the Agent reasonably may require. (b) The fees payable pursuant to Sections 3.2 and 3.3 shall have been paid and any accrued interest and fees under the Pre-Existing Loan Documents shall have been paid as specified in Section 3.16. (c) The reasonable costs and expenses of the Agent in connection with the preparation of the Loan Documents payable pursuant to Section 11.3, and invoiced to Borrower prior to the Closing Date, shall have been paid. (d) The representations and warranties of Borrower contained in Article 4 shall be true and correct. (e) Borrower and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and giving effect to the initial Advance no Default or Event of Default shall have occurred and be continuing. (f) The Consolidated Fixed Charge Coverage Ratio shall be no less than 3.00:1.00. (g) The applicable Banks shall have made the Adjusting Purchase Payments as specified in Section 2.9 hereof. 8.2 Any Increasing Advance. The obligation of each Bank to make any Advance which would increase the principal amount outstanding under the Notes and the obligation of the Issuing Bank to issue a Letter of Credit are subject to the following condi tions precedent: (a) except (i) for representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is permitted by this Agreement or (ii) as disclosed by Borrower and approved in writing by the Majority Banks, the representations and warranties contained in Article 4 (other than Sections 4.4(a), 4.6 (first sentence), and 4.10), shall be true and complete on and as of the date of the Advance as though made on that date; -73- (b) other than matters described in Schedule 4.10 or not required as of the Closing Date to be therein described, there shall not be then pending or threatened any action, suit, proceeding or investigation against or affecting Borrower or any of its Subsidiaries or any Property of any of them before any Governmental Agency that constitutes a Material Adverse Effect; (c) the Consolidated Fixed Charge Coverage Ratio shall be no less than 2.25:1.00; (d) in the case of any Letter of Credit or any Advance with respect to the Line A Commitment, the Consolidated Fixed Charge Coverage Ratio shall be no less than 3.00:1.00; (e) the Agent shall have timely received a Request for Loan in compliance with Article 2 (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable) and the Issuing Bank shall, in the case of a Letter of Credit, have received a Request for Letter of Credit in compliance with Article 2; (f) the Agent shall have received, in form and substance satisfactory to the Agent, such other assurances, certificates, documents or consents related to the fore going as the Agent or Majority Banks reasonably may require; and (g) the Agent shall have received, concurrently with the corresponding Request for Loan (or, if applicable, the telephonic notice thereof, under Section 2.1(b)), a fully and accurately completed Loan Compliance Certificate, dated the date the Loan is to be made, and, on the date of the Loan, Borrower and its Subsidiaries shall be in compliance with all requirements specified thereon with respect to the nature and amount of the requested Loan. 8.3 Any Advance. The obligation of each Bank to make any Advance is subject to the condition precedent that, except as provided for in Section 2.1(g), the Agent shall have timely received a Request for Loan in compliance with Article 2 (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable). 8.4 Return of Pre-Existing Notes. Upon the effectiveness of this Agreement, including the delivery by Borrower of all documents required under Section 8.1, the Banks holding the Pre-Existing Notes shall return them to Borrower, in each case marked "Canceled and Replaced." -74- Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT ---------------------------------------------------- 9.1 Events of Default. The existence or occurrence of any one or more of the following events, whatever the reason therefor and under any circumstances whatsoever, shall constitute an Event of Default: (a) Borrower fails to pay any principal Indebtedness on any Note on the date when due or fails to pay to the Issuing Bank the amount drawn under any Letter of Credit as required under Section 2.12(d); or (b) Borrower fails to pay any interest on any Note, or any fees under Sections 3.2, 3.3 or 3.4 or any portion thereof, within five (5) Banking Days after the date when due; or fails to pay any other fee or amount payable to the Banks under any Loan Document, or any portion thereof, within five (5) Banking Days after written notice of such failure; or (c) Borrower fails to comply with any of the covenants contained in Sections 5.2, 5.9, 6.1, 6.2, 6.3, 6.4, 6.5, 6.7, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.18, or 7.1(h), and, in the case of Sections 6.4, 6.7 or 6.16 only, ten (10) days have elapsed without cure after either a Senior Officer of Borrower has actual knowledge of such failing or the Agent shall have given Borrower notice of such failing; or (d) Borrower, any of its Guarantor Subsidiaries or any other Party fails to perform or observe any other covenant or agreement (not specified in clauses (a), (b) or (c) above) contained in any Loan Document on its part to be performed or observed within ten (10) days after the giving of notice by the Agent on behalf of the Majority Banks of such Default; or (e) Any representation or warranty of Borrower or any of its Subsidiaries made in any Loan Document, or in any certificate or other writing delivered by Borrower pursuant to any Loan Document, proves to have been incorrect when made or reaffirmed in any material respect; or (f) Borrower or any of its Guarantor Subsidiaries (i) fails to pay the principal, or any principal installment, of any present or future Indebtedness for borrowed money of $1,500,000 or more (other than Non-Recourse Debt specified in Section 6.8(d)), or any guaranty of present or future Indebtedness for borrowed money of $1,500,000 or more, on its part to be paid, when due (or within any stated grace period), whether at the stated maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event to occur, in connection with any present or future indebtedness for borrowed money of $1,500,000 -75- or more (other than Non-Recourse Debt specified in Section 6.8(d)), or of any guaranty of present or future indebtedness for borrowed money of $1,500,000 or more, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare such indebtedness due before the date on which it otherwise would become due; or (g) Any event occurs which gives the holder or holders of any Subordinated Obligation (or an agent or trustee on its or their behalf) the right to declare such indebtedness due before the date on which it otherwise would become due, or the right to require the issuer thereof to redeem or purchase, or offer to redeem or purchase, all or any portion of any Subordinated Obligation; or (h) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of the Banks or satisfaction in full of all the Obligations ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect which, in any such event in the reasonable opinion of the Majority Banks, is materially adverse to the interests of the Banks; or any Party thereto denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind same; or (i) A final judgment against Borrower or any of its Guarantor Subsidiaries is entered for the payment of money in excess of $1,000,000 and, absent procurement of a stay of execution, such judgment remains unsatisfied for thirty (30) calendar days after the date of entry of judgment, or in any event later than five (5) days prior to the date of any proposed sale thereunder; or any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the Property of any such Person and is not released, vacated or fully bonded within thirty (30) calendar days after its issue or levy; or (j) Borrower or any of its Guarantor Subsidiaries (other than a Guarantor Subsidiary that holds as its principal assets the Spring Creek Project or the Glen Harbor Project) institutes or consents to the institution of any proceeding under a Debtor Relief Law relating to it or to all or any part of its Property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its Property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its Property is instituted without the consent of that Person and continues undismissed or unstayed for sixty (60) calendar days; or -76- (k) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or (l) Any determination is made by a court of competent jurisdiction that the 9-3/4% Senior Subordinated Debt Due 2003, the 9-3/4% Senior Subordinated Debt Due 2008, the 9.00% Senior Subordinated Debt Due 2006, the 9-3/8% Senior Subordinated Debt Due 2009 or any other Subordinated Obligation is not subordinated in accordance with its terms to the principal or interest under the Notes; or (m) Any Pension Plan maintained by Borrower or any of its Subsidiaries is determined to have a material "accumulated funding deficiency" as that term is defined in Section 302 of ERISA and the result is a Material Adverse Effect. 9.2 Remedies Upon Event of Default. Without limiting any other rights or remedies of the Agent or the Banks provided for elsewhere in this Agreement, or the Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence, and during the continuance, of any Event of Default other than an Event of Default described in Section 9.1(j): (1) the commitment to make Advances and all other obligations of the Agent or the Banks and all rights of Borrower and any other Parties under the Loan Documents shall be suspended without notice to or demand upon Borrower, which are expressly waived by Borrower, except that all of the Banks or the Majority Banks (as the case may be, in accordance with Section 11.2) may waive an Event of Default or, without waiving, determine, upon terms and conditions satisfactory to the Banks or Majority Banks, as the case may be, to reinstate the Commitments and make further Advances, which waiver or determination shall apply equally to, and shall be binding upon, all the Banks; (2) the Issuing Bank may, with the approval of the Majority Banks, demand immediate payment by Borrower of an amount equal to the aggregate drawable face amount of all then outstanding Letters of Credit to be held by the Issuing Bank in an interest-bearing cash collateral account as collateral hereunder, and Borrower hereby grants to the Agent, on behalf of the Banks, a security interest in such funds and any such account to secure the Obligations; and (3) the Majority Banks may request the Agent to, and the Agent thereupon shall, terminate the Commitments and/or declare all or any part of the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without -77- protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower. (b) Upon the occurrence of any Event of Default described in Section 9.1(j): (1) the commitment to make Advances and all other obligations of the Agent or the Banks and all rights of Borrower and any other Parties under the Loan Documents shall terminate without notice to or demand upon Borrower, which are expressly waived by Borrower; (2) an amount equal to the aggregate drawable face amount of all then outstanding Letters of Credit shall be immediately due and payable to the Issuing Bank without notice to or demand upon Borrower, which are expressly waived by Borrower, to be held by the Issuing Bank in an interest-bearing cash collateral account as collateral hereunder, and Borrower hereby grants to the Agent, on behalf of the Banks, a security interest in such funds and any such account to secure the Obligations; and (3) the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Borrower. (c) Upon the occurrence of any Event of Default, the Agent or (but only upon directive of the Majority Banks) any of the Banks, without notice to (except as expressly provided for in any Loan Document) or demand upon Borrower, which are expressly waived by Borrower (except as to notices expressly provided for in any Loan Document), may proceed to protect, exercise and enforce the rights and remedies of the Agent and the Banks under the Loan Documents against Borrower and any other Party and such other rights and remedies as are provided by Law or equity. (d) The order and manner in which the Banks' rights and remedies are to be exercised shall be determined by the Majority Banks in their sole discretion, and all payments received by the Agent and the Banks, or any of them, shall be applied first to the costs and expenses (including attorneys' fees and disbursements and the allocated costs of attorneys employed by the Agent) of the Agent and of the Banks, and thereafter paid pro rata to the Banks in the same proportions that the aggregate Obligations owed to each Bank under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Banks, without priority or preference among the Banks. Regardless of how each Bank may treat payments for the purpose of its own accounting, for the purpose of computing Borrower's Obligations hereunder and under the Notes, payments shall be applied first, to the costs and expenses of the Agent and the Banks, as -78- set forth above, second, to the payment of accrued and unpaid interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and third, to the payment of all other amounts (including principal and fees) then owing to the Agent or the Banks under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued accel eration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of the Banks hereunder or thereunder or at Law or in equity. -79- Article 10 THE AGENT --------- 10.1 Appointment and Authorization. Subject to Section 10.8, each Bank hereby irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof or are reasonably incidental, as determined by the Agent, thereto. This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Loans and does not constitute appointment of the Agent as trustee for any Bank or as representative of any Bank for any other purpose and, except as specifically set forth in the Loan Documents to the contrary, the Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 Agent and Affiliates. Bank of America (and each successor Agent) has the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it was not the Agent, and the term "Bank" or "Banks" includes Bank of America in its individual capacity. Bank of America (and each successor Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Borrower, any Subsidiary thereof, or any Affiliate of Borrower or any Subsidiary thereof, as if it was not the Agent and without any duty to account therefor to the Banks. Bank of America (and each successor Agent) need not account to any other Bank for any monies received by it for reimbursement of its costs and expenses as Agent hereunder, or (except as expressly provided elsewhere herein) for any monies received by it in its capacity as a Bank hereunder. The Agent shall not be deemed to hold a fiduciary relationship with any Bank and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. 10.3 Proportionate Interest in any Collateral. The Agent, on behalf of all the Banks, shall hold in accordance with the Loan Documents all items of any collateral or inter ests therein received or held by the Agent. Subject to the Agent's and the Banks' rights to reimbursement for their costs and expenses hereunder (including attorneys' fees and disburse ments and other professional services and the allocated costs of attorneys employed by the Agent or a Bank) and subject to the application of payments in accordance with Sec tion 9.2(d), each Bank shall have an interest in the Banks' interest in any collateral or interests therein in the same proportions that the aggregate Obligations owed such Bank under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Banks, without priority or preference among the Banks. 10.4 Banks' Credit Decisions. Each Bank agrees that it has, independently and without reliance upon the Agent, any other Bank or the directors, officers, agents, employees or attorneys of the Agent or of any other Bank, and instead in reliance upon information supplied to it by or on behalf of Borrower and upon such other information as it has deemed -80- appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Bank also agrees that it shall, independently and without reliance upon the Agent, any other Bank or the directors, officers, agents, employees or attorneys of the Agent or of any other Bank, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents. 10.5 Action by Agent. (a) The Agent may assume that no Default has occurred and is continuing, unless the Agent has received notice from Borrower stating the nature of the Default or has received notice from a Bank stating the nature of the Default and that such Bank considers the Default to have occurred and to be continuing. (b) The Agent has only those obligations under the Loan Documents as are expressly set forth therein. (c) Both before and after any Default, the Agent shall be required to act or not act upon the instructions of the Majority Banks (or all of the Banks, to the extent required by Section 11.2) and those instructions shall be binding upon the Agent and all the Banks, provided that the Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Agent, in a risk of liability to the Agent. The Agent may, without the consent of the Majority Banks, take such actions and exercise such discre tion as is specified herein. In addition, should the Agent propose a course of conduct with respect to the administration of the Loan Documents in writing to the Banks and should the Majority Banks (or any of the Banks, if unanimous approval of such action is required under Section 11.2) fail, for five (5) Banking Days after the receipt of notice from the Agent of the proposed course of action, to instruct the Agent to the contrary, then the Agent, in its sole discretion, may act or not act as the Agent deems advisable pursuant to such course of conduct. (d) The Agent shall have no liability to any Bank for acting, or not acting, as instructed by the Majority Banks (or all the Banks, if required under Section 11.2) or as permitted under clause (c), above, notwithstanding any other provision hereof. 10.6 Liability of Agent. Neither the Agent nor any of its directors, officers, agents, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, except for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Agent and its directors, officers, agents, employees and attorneys: (a) May treat the payee of any Note as the holder thereof until the Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Agent, -81- signed by the payee, and may treat each Bank as the owner of that Bank's interest in the Obligations for all purposes of this Agreement until the Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Agent, signed by that Bank. (b) May consult with legal counsel (including in-house legal counsel), accountants (including in-house accountants) and other professionals or experts selected by it, or with legal counsel, accountants or other professionals or experts for Borrower and/or its Subsidiaries or the Banks, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts. (c) Shall not be responsible to any Bank for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents. (d) Except to the extent expressly set forth in the Loan Documents, shall have no duty to ask or inquire as to the performance or observance by Borrower or its Subsidiaries of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or the Property, books or records of Borrower or its Subsidiaries. (e) Will not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any collateral. (f) Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. (g) Will not incur any liability for any arithmetical error in computing any amount paid or payable by Borrower or any Subsidiary or Affiliate thereof or paid or payable to or received or receivable from any Bank under any Loan Document, including, without limitation, principal, interest, commitment fees, Advances and other amounts; provided that, promptly upon discovery of such an error in computation, the Agent, the Banks and (to the extent applicable) Borrower and/or its Subsidiaries or Affiliates shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. 10.7 Indemnification. Each Bank shall, ratably in accordance with its Pro Rata Share of the Commitments, indemnify and hold the Agent and its directors, officers, agents, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, -82- penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including, without limitation, attorneys' fees and disbursements and allocated costs of attorneys employed by the Agent) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of Borrower to pay the indebtedness represented by the Notes) or any action taken or not taken by it as Agent thereunder, except such as result from its own gross negligence or willful misconduct. Without limitation on the foregoing, each Bank shall reimburse the Agent upon demand for that Bank's Pro Rata Share of any out-of-pocket cost or expense incurred by the Agent in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (including a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that Borrower or any other Party is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. If payment is made by Borrower or another Party to the Agent for such cost or expense after reimbursement to the Agent by a Bank, the Agent shall reimburse such Bank, as applicable. Nothing in this Section 10.7 shall entitle the Agent to recover any amount from the Banks if and to the extent that such amount has theretofore been recovered from Borrower or any of its Subsidiaries. 10.8 Successor Agent. The Agent may, and at the request of the Majority Banks shall, resign as Agent upon thirty (30) days notice to the Banks and Borrower. If the Agent shall resign as Agent under this Agreement, the Majority Banks shall appoint from among the Banks a successor managing agent for the Banks, which successor managing agent shall be approved by Borrower (and such approval shall not be unreasonably withheld). If no successor managing agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and Borrower, a successor managing agent from among the Banks. Upon the acceptance of its appointment as successor managing agent hereunder, such successor managing agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor managing agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 10, and Sections 11.3, 11.10 and 11.20, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 10.9 No Obligations of Borrower. Nothing contained in this Article 10 shall be deemed to impose upon Borrower any obligation in respect of the due and punctual performance by the Agent of its obligations to the Banks under any provision of this Agreement, and Borrower shall have no liability to the Agent or any of the Banks in respect of any failure by the Agent or any Bank to perform any of its obligations to the Agent or the Banks under this Agreement. Without limiting the generality of the foregoing, where any provision of this Agreement relating to the payment of any amounts due and owing under the Loan Documents provides that such payments shall be made by Borrower to the Agent for the account of the Banks, Borrower's obligations to the Banks in respect of such payments shall be deemed to be satisfied upon the making of such payments to the Agent in the manner provided by this Agreement. -83- Article 11 MISCELLANEOUS ------------- 11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and remedies of the Agent and the Banks provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, privilege or remedy provided by Law or equity. No failure or delay on the part of the Agent or any Bank in exercising any right, power, privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, privilege or remedy preclude any other or further exercise of the same or any other right, power, privilege or remedy. The terms and conditions of Article 8 hereof are inserted for the sole benefit of the Agent and the Banks; the same may be waived in whole or in part, with or without terms or conditions, in respect of any Loan without prejudicing the Agent's or the Banks' rights to assert them in whole or in part in respect of any other Loan. 11.2 Amendments; Consents. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by Borrower or any other Party therefrom, may in any event be effective unless in writing signed by the Majority Banks (and, in the case of any amendment, modification or supplement of or to any Loan Document to which Borrower is a Party, signed by Borrower), and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Banks, no amendment, modification, supplement, termination, waiver or consent may be effective: (a) To amend or modify (i) the amount or payment terms of principal or interest payable on the Notes, (ii) the amount of the Commitments, (iii) the amount or payment terms of any commitment or other fee or amount payable to the Banks generally under the Loan Documents; (b) To extend the term of the Commitments or to release a guarantor under the Subsidiary Guaranty (except as provided in Section 5.10); (c) To amend the provisions of the definition of "Majority Banks", Section 9.2(d), 10.3, 11.2, 11.9 or 11.10; or (d) To amend any provision of this Agreement that expressly requires the consent or approval of all the Banks. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 shall apply equally to, and shall be binding upon, all the Banks and the Agent. The provisions of Article 10 and the provisions of the Loan Documents dealing with the rights and responsibilities of the Agent may not be amended without the consent of the Agent. -84- 11.3 Costs, Expenses and Taxes. Borrower shall pay within five (5) Banking Days after demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Agent in connection with the negotiation, preparation, syndication, execution and delivery of the Loan Documents and any amendment thereto or waiver thereof. Borrower shall also pay on demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Agent and the Banks in connection with the refinancing, restructuring, reorganization (including a bankruptcy reorganization) and enforcement or attempted enforcement of the Loan Documents, and any matter related thereto. The foregoing costs and expenses shall include filing fees, recording fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any legal coun sel (including allocated costs of in-house legal counsel employed by the Agent or any Bank), independent public accountants and other outside experts retained by the Agent or any Bank, whether or not such costs and expenses are incurred or suffered by the Agent or any Bank in connection with or during the course of any bankruptcy or insolvency proceedings of Borrower or any Subsidiary thereof. Such costs and expenses shall also include, in the case of any amendment or waiver of any Loan Document requested by Borrower, the administrative costs of the Agent reasonably attributable thereto. Borrower shall pay any and all documentary and other taxes, excluding, in the case of each Bank, the Agent, and each Eligible Assignee, and any Affiliate or Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its overall net income, gross income or gross receipts or capital and franchise taxes imposed on its by (A) any jurisdiction (or political subdivision thereof) in which it is organized or maintains its principal office or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision thereof) in which it is "doing business" (unless it would not be doing business in such jurisdiction (or political subdivision thereof) absent the transactions contemplated hereby), (ii) any withholding taxes or other taxes based on gross income imposed by the United States of America (other than withholding taxes and taxes based on gross income resulting from or attributable to any change in any law, rule or regulation or any change in the interpretation or administration of any law, rule or regulation by any governmental authority) or (iii) any withholding taxes or other taxes based on gross income imposed by the United States of America for any period with respect to which it has failed to provide Borrower with the appropriate form or forms required by Section 11.19, to the extent such forms are then required by applicable Laws, and all costs, expenses, fees and charges payable or determined to be payable in connection with the filing or recording of this Agreement, any other Loan Document or any other instrument or writing to be delivered here under or thereunder, or in connection with any transaction pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify the Agent and the Banks from and against any and all loss, liability or legal or other expense with respect to or resulting from any delay in paying or failure to pay any such tax, cost, expense, fee or charge or that any of them may suffer or incur by reason of the failure of any Party to perform any of its Obligations. Any amount payable to the Agent or any Bank under this Section 11.3 shall bear interest from the tenth day following the date of demand for payment at the Default Rate. 11.4 Nature of Banks' Obligations. The obligations of the Banks hereunder are several and not joint or joint and several. Nothing contained in this Agreement or any other -85- Loan Document and no action taken by the Agent or the Banks or any of them pursuant hereto or thereto may, or may be deemed to, make the Banks a partnership, an association, a joint venture or other entity, either among themselves or with Borrower or any Affiliate of Borrower. Each Bank's obligation to make any Advance pursuant hereto is several and not joint or joint and several. A default by any Bank will not increase the Pro Rata Share of the Commitments attributable to any other Bank. Any Bank not in default may, if it desires, assume in such proportion as the nondefaulting Banks agree the obligations of any Bank in default, but is not obligated to do so. The Agent agrees that it will use its best efforts either to induce the other Banks to assume the obligations of a Bank in default or to obtain another Bank, reasonably satisfactory to Borrower, to replace such a Bank in default. 11.5 Survival of Representations and Warranties. All representations and warranties contained herein or in any other Loan Document, or in any certificate or other writing delivered by or on behalf of any one or more of the Parties to any Loan Document, will survive the making of the Loans hereunder and the execution and delivery of the Notes, and have been or will be relied upon by the Agent and each Bank, notwithstanding any investigation made by the Agent or any Bank or on their behalf. 11.6 Notices. Except as otherwise expressly provided in the Loan Documents, all notices, requests, demands, directions and other communications provided for hereunder or under any other Loan Document must be in writing and must be mailed, telegraphed, telecopied or delivered to the appropriate party at the address set forth on the signature pages of this Agreement or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section 11.6. Except as otherwise expressly provided in any Loan Document, if any notice, request, demand, direc tion or other communication required or permitted by any Loan Document is given by mail it will be effective on the earlier of receipt or the third calendar day after deposit in the United States mail with first class or airmail postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by telecopier, when sent; or if given by personal delivery (including delivery by courier), when delivered. If a notice is being given of the occurrence of a Default or Event of Default, the Person giving the notice shall use reasonable efforts to either give or supplement such notice with a notice by telecopy. 11.7 Execution of Loan Documents. Unless the Agent otherwise specifies with respect to any Loan Document, (a) this Agreement and any other Loan Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, when taken together will be deemed to be but one and the same instrument and (b) execution of any such counterpart may be evidenced by a telecopier transmission of the signature of such party. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. -86- 11.8 Binding Effect; Assignment. (a) This Agreement and the other Loan Documents to which Borrower is a Party will be binding upon and inure to the benefit of Borrower, the Agent, the Co-Agent, each of the Banks, and their respective successors and assigns, except that Borrower may not assign its rights or responsibilities hereunder or thereunder or any interest herein or therein without the prior written consent of all the Banks. Each Bank represents that it is not acquiring its Note with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (subject to any requirement that disposition of such Note must be within the control of such Bank). Any Bank may at any time pledge its Note or any other instrument evidencing its rights as a Bank under this Agreement to a Federal Reserve Bank, but no such pledge shall release that Bank from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Bank hereunder absent foreclosure of such pledge. (b) From time to time following the Closing Date, each Bank may assign to one or more Eligible Assignees a portion of its Pro Rata Share of the Commitments; provided that (i) in no event shall an assignment be made that would reduce the remaining Pro Rata Share of the Commitment held by the assigning Bank below $10,000,000 (ii) such Eligible Assignee shall be subject to the prior reasonable approval of the Agent and Borrower, (iii) such assignment shall be evidenced by a Commitment Assignment and Acceptance, a copy of which shall be furnished to the Agent as hereinbelow provided, (iv) the assignment shall not assign a Pro Rata Share of the Commitments equivalent to less than $10,000,000, (v) any such assignment must be made pro-rata with respect to the Line A and Line B Commitments, and (vi) the effective date of any such assignment shall be as specified in the Commitment Assignment and Acceptance, but not earlier than the date which is five (5) Banking Days after the date the Agent has received the Commitment Assignment and Accep tance. Upon the effective date of such Commitment Assignment and Acceptance, the Eligible Assignee named therein shall be a Bank for all purposes of this Agreement, with the Pro Rata Share of the Commitments therein set forth and, to the extent of such Pro Rata Share, the assigning Bank shall be released from its further obligations under this Agreement. Borrower agrees that it shall execute and deliver (against delivery by the assigning Bank to Borrower of its Notes) to such assignee Bank, Notes evidencing that assignee Bank's Pro Rata Share of the Line A and Line B Commitments, and to the assigning Bank, Notes evidencing the remaining balance Pro Rata Share retained by the assigning Bank. Other than as specifically permitted under Sections 11.8(a), 11.8(b), or 11.8(e), or as may be approved by the Majority Banks, no Bank shall be permitted to assign or otherwise transfer (including by participation) its interest in the Commitments, any Loan or any of the Loan Documents. (c) By executing and delivering a Commitment Assignment and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i) other -87- than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share of the Commitments being assigned thereby free and clear of any adverse claim, the assigning Bank has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Bank has made no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance by Borrower of the Obligations; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Commitment Assignment and Acceptance; (iv) it will, independently and without reliance upon the Agent, the Co-Agent or any Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes the Agent to take such action and to exercise such powers under this Agreement as are delegated to the Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (d) The Agent shall maintain at the Agent's Office a copy of each Commitment Assignment and Acceptance delivered to it. After receipt of a completed Commitment Assignment and Acceptance executed by any Bank and an Eligible Assignee, and receipt of an assignment fee of $2,500 from such Eligible Assignee, Agent shall, promptly following the effective date thereof, provide to Borrower and the Banks a revised Schedule 1.1 giving effect thereto. (e) Each Bank may from time to time grant participations to a commercial bank Affiliate of such Bank in a portion of its Pro-Rata Share of the Commitments; provided, however, that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Bank hereunder for any purposes except, if the participation agreement so provides, for the purposes of Sections 3.5, 3.6, 11.10 and 11.21, (iv) Borrower, the Agent and the other Banks shall continue to deal solely and directly with such Bank in connection such Bank's rights and obligations under this Agreement and (v) the holder of such participation shall not be provided under its participation agreement with consent or approval rights with respect to any matters concerning the Loan Documents or the Loans except for those matters designated as requiring the consent or approval of all of the Banks under Section 11.2. 11.9 Sharing of Setoffs. Each Bank severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against Borrower, or otherwise, receives payment of the Obligations held by it that is ratably more than any other Bank, -88- through any means, receives in payment of the Obligations held by that Bank, then, subject to applicable Laws: (a) The Bank exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from the other Bank a participation in the Obligations held by the other Bank and shall pay to the other Bank a purchase price in an amount so that the share of the Obligations held by each Bank after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) Such other adjustments and purchases of participations shall be made from time to time as shall be equitable to ensure that all of the Banks share any payment obtained in respect of the Obligations ratably in accordance with each Bank's share of the Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Bank by Borrower or any Person claiming through or succeeding to the rights of Borrower, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Bank that purchases a participation in the Obligations pursuant to this Section 11.9 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agree ment with respect to the portion of the Obligations purchased to the same extent as though the purchasing Bank were the original owner of the Obligations purchased. 11.10 Indemnity by Borrower. Borrower agrees to indemnify, save and hold harmless the Agent, the Co-Agent and each Bank and their directors, officers, agents, and employees (collectively the "Indemnitees") from and against: (a) Any and all claims, demands, actions or causes of action (except a claim, demand, action, or cause of action for any amount excluded from the definition of "Taxes" in Section 3.10(c)) if the claim, demand, action or cause of action arises out of or relates to any act or omission (or alleged act or omission) of Borrower, its Affiliates or any of its officers, directors or shareholders relating to the Commitments, the use or contemplated use of proceeds of any Loan, or the relationship of Borrower and the Banks under this Agreement; (b) Any administrative or investigative proceeding by any Governmental Agency arising out of or related to a claim, demand, action or cause of action described in clause (a) above; and (c) Any and all liabilities, losses, costs or expenses (including attorneys' fees and the allocated costs of attorneys employed by any Indemnitee and disbursements of such attorneys and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action or cause of action; provided that no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. If any claim, demand, action or cause of action is asserted against any Indemnitee, such Indemnitee shall promptly notify Borrower, but the failure to so promptly notify Borrower shall not affect Borrower's obligations under this Section unless such failure materially prejudices Borrower's right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. Such Indemnitee may (and shall, if requested by Borrower in writing) contest the validity, applicability and amount of such -89- claim, demand, action or cause of action and shall permit Borrower to participate in such contest. Any Indemnitee that proposes to settle or compromise any claim or proceeding for which Borrower may be liable for payment of indemnity hereunder shall give Borrower written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain Borrower's prior consent (which shall not be unreasonably withheld). In connection with any claim, demand, action or cause of action covered by this Section 11.10 against more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel (which may be a law firm engaged by the Indemnitees or attorneys employed by an Indemnitee or a combination of the foregoing) selected by the Indemnitees and reasonably acceptable to Borrower; provided, that if such legal counsel determines in good faith that representing all such Indemnitees would or could result in a conflict of interest under Laws or ethical principles applicable to such legal counsel or that a defense or counterclaim is available to an Indemnitee that is not available to all such Indemnitees, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each Indemnitee shall be entitled to separate representation by legal counsel selected by that Indemnitee and reasonably acceptable to Borrower, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees; and further provided that the Agent (as an Indemnitee) shall at all times be entitled to representation by separate legal counsel (which may be a law firm or attorneys employed by the Agent or a combination of the foregoing). Any obligation or liability of Borrower to any Indemnitee under this Section 11.10 shall survive the expiration or termination of this Agreement and the repayment of all Loans and the payment and performance of all other Obligations owed to the Banks. 11.11 Nonliability of the Banks. Borrower acknowledges and agrees that: (a) Any inspections of any Property of Borrower made by or through the Agent or the Banks are for purposes of administration of the Loan only and Borrower is not entitled to rely upon the same (whether or not such inspections are at the expense of Borrower); (b) By accepting or approving anything required to be observed, performed, fulfilled or given to the Agent or the Banks pursuant to the Loan Documents, neither the Agent nor the Banks shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by the Agent or the Banks; (c) The relationship between Borrower, on the one hand, and the Agent, the Co-Agent and/or any of the Banks, on the other, is, and shall at all times remain, solely that of a borrower and lenders; neither the Agent, the Co-Agent nor the Banks shall under any circumstance be construed to be partners or joint venturers of Borrower or its Affiliates; neither the Agent, the Co-Agent nor the Banks shall under any circumstance be deemed to be in a relationship of confidence (other than as specified in -90- Section 11.22) or trust or a fiduciary relationship with Borrower or its Affiliates, or to owe any fiduciary duty to Borrower or its Affiliates; neither the Agent, the Co-Agent nor the Banks undertake or assume any responsibility or duty to Borrower or its Affiliates to select, review, inspect, supervise, pass judgment upon or inform Borrower or its Affiliates of any matter in connection with their Property or the operations of Borrower or its Affiliates; Borrower and its Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by the Agent, the Co-Agent or the Banks in connection with such matters is solely for the protection of the Agent, the Co-Agent and the Banks and neither Borrower nor any other Person is entitled to rely thereon; and (d) Neither the Agent, the Co-Agent nor the Banks shall be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to Property caused by the actions, inaction or negligence of Borrower and/or its Affiliates and Borrower hereby indemnifies and holds the Agent, the Co-Agent and the Banks harmless from any such loss, damage, liability or claim. 11.12 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrower, the Agent, the Co-Agent and the Banks in connection with the Loans, and is made for the sole benefit of Borrower, the Agent, the Co-Agent and the Banks, and the Agent's, the Co-Agent's and the Banks' successors and assigns. Except as provided in Sections 11.8 and 11.10, no other Person shall have any rights of any nature hereunder or by reason hereof. 11.13 Further Assurances. Borrower and its Subsidiaries shall, at their expense and without expense to the Banks or the Agent, do, execute and deliver such further acts and documents as any Bank or the Agent from time to time reasonably requires for the assuring and confirming unto the Banks or the Agent of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 11.14 Integration. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Docu ment, the provisions of this Agreement shall control and govern; provided that the inclusion of supplemental rights or remedies in favor of the Agent or the Banks in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. -91- 11.15 Governing Law. Except to the extent otherwise provided therein, each Loan Document shall be governed by, and construed and enforced in accordance with, the local Laws of California. 11.16 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid as to any party or in any jurisdiction shall, as to that party or jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions or the operation, enforceability or validity of that provision as to any other party or in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.17 Headings. Article and Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 11.18 Time of the Essence. Time is of the essence of the Loan Documents. 11.19 Foreign Banks. Each Bank that is incorporated under the Laws of a jurisdiction other than the United States of America or any state thereof shall deliver to Borrower (with a copy to the Agent), within twenty days after the Closing Date (or after accepting an assignment interest herein pursuant to Section 11.8, if applicable) two duly completed copies, signed by a Responsible Official, of either Form 1001 (relating to such Person and entitling it to a complete exemption from withholding on all payments to be made to such Person by Borrower pursuant to this Agreement) or Form 4224 (relating to all payments to be made to such Person by Borrower pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence (including, if reasonably necessary, Form W-9) satisfactory to Borrower and the Agent that no withholding under the federal income tax laws is required with respect to such Person. Thereafter and from time to time, each such Person shall (a) promptly submit to Borrower (with a copy to the Agent), such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to Borrower and the Agent of any available exemption from, United States withholding taxes in respect of all payments to be made to such Person by Borrower pursuant to this Agreement and (b) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Bank, and as may be reasonably necessary (including the re-designation of its Eurodollar Lending Office, if any) to avoid any requirement of applicable laws that Borrower make any deduction or withholding for taxes from amounts payable to such Person. 11.20 Hazardous Material Indemnity. Borrower hereby agrees to indemnify, hold harmless and defend (by counsel reasonably satisfactory to the Agent) the Agent, the Co-Agent and each of the Banks and their respective directors, officers, employees, agents, successors and assigns from and against any and all claims, losses, damages, liabilities, fines, -92- penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including but not limited to reasonable attorneys' fees and the allocated costs of attorneys employed by the Agent, the Co-Agent or any Bank, and expenses to the extent that the defense of any such action has not been assumed by Borrower), arising directly or indirectly, in whole or in part, out of (i) the presence on or under any Real Property of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under or from any Real Property and (ii) any activity carried on or undertaken on or off any Real Property by Borrower or any of its predecessors in title, whether prior to or during the term of this Agreement, and whether by Borrower or any predecessor in title or any employees, agents, contractors or subcontractors of Borrower or any predecessor in title, or any third persons at any time occupying or present on any Real Property, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials at any time located or present on or under any Real Property. The foregoing indemnity shall further apply to any residual contamination on or under any Real Property, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable Laws, but the foregoing indemnity shall not apply to Hazardous Materials on any Real Property, the presence of which is caused solely by the Agent, the Co-Agent or the Banks. Borrower hereby acknowledges and agrees that, notwithstanding any other provision of this Agreement or any of the other Loan Documents to the contrary, the obligations of Borrower under this Section shall be unlimited personal corporate obligations of Borrower and shall not be secured by any deed of trust on any Real Property. 11.21 Reference to Arbitration. (a) Mandatory Arbitration. Any controversy or claim between any Party or group of Parties, on the one hand, and the Agent, the Co-Agent or any Bank, or any group thereof, on the other hand, including but not limited to those arising out of or relating to this Agreement or any agreements or instruments relating hereto or delivered in connection herewith and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrators shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrators. Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief. -93- (b) Real Property Collateral. Should real property collateral hereafter be taken by the Banks to secure the Obligations, then, notwithstanding the provisions of Section 11.21(a), no controversy or claim shall be submitted to arbitration without the consent of all parties if, at the time of the proposed submission, such controversy or claim arises from or relates to an obligation to the Bank which is secured by such real property collateral. If all parties do not consent to submission of such a controversy or claim to arbitration, the controversy or claim shall be determined as provided in Section 11.21(c). (c) Judicial Reference. A controversy or claim which is not submitted to arbitration as provided and limited in Sections 11.21(a) and (b) shall, at the request of any party, be determined by a reference in accordance with California Code of Civil Procedure Sections 638 et seq. If such an election is made, the parties shall designate to the court a referee or referees selected under the auspices of the AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings. The presiding referee of the panel, or the referee if there is a single referee, shall be an active attorney or retired judge. Judgment upon the award rendered by such referee or referees shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (d) Provisional Remedies, Self-Help and Foreclosure. No provision of this Section 11.21 shall limit the right of any party to this Agreement to exercise self-help remedies such as setoff, to foreclose against collateral or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of a remedy does not waive the right of any party to resort to arbitration or reference. Should real property collateral hereafter be taken by the Banks to secure the Obligations, then, at the Banks' option, foreclosure under any deed of trust or mortgage may be accomplished either by exercise of power or sale under the deed of trust or mortgage or by judicial foreclosure. 11.22 Confidentiality. Each Bank agrees to hold any confidential information that it may receive from Borrower or Agent pursuant to this Agreement in confidence, except for disclosure: (a) To other Banks; (b) To legal counsel and accountants or other professional advisors to Borrower or any Bank, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.22; (c) To regulatory officials having jurisdiction over that Bank; (d) As required by Law or legal process or in connection with any legal proceeding to which that Bank is involved and that relates in some manner to the Loan Documents; and (e) To another financial institution in connection with a disposition or proposed disposition to that financial institution of all or part of that Bank's interests hereunder or a participation interest in one of its Notes, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.22. For purposes of the foregoing, "confidential information" shall mean the Strategic Plan, the information provided pursuant to -94- Section 7.1(c) and any other written information respecting Borrower or its Subsidiaries provided to the applicable Bank and designated thereon to be confidential, other than (i) information previously filed with any Governmental Agency and available to the public, (ii) information previously published in any public medium from a source other than, directly or indirectly, that Bank, and (iii) information disclosed by Borrower to any Person not associated with Borrower without a confidentiality agreement substantially similar to this Section 11.22. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Agent or the Banks to Borrower. 11.23 Co-Agent. Each Bank acknowledges that it has not relied, and will not rely, upon the Co-Agent in deciding to enter into this Agreement or in taking or not taking any action hereunder. The Co-Agent shall have no right, power, obligation, liability, responsibility or duty under this Agreement or the other Loan Documents other than those applicable to all Banks and in its capacity as such. 11.24 Purported Oral Amendments. BORROWER EXPRESSLY ACKNOWLEDGES THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. BORROWER AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN -95- AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. DEL WEBB CORPORATION BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ John A. Spencer ------------------------------- John A. Spencer By: /s/ Kelly M. Allred Senior Vice President --------------------------------- Kelly M. Allred, Vice President --------------------------------- Address: Printed Name and Title Del Webb Corporation Address: 6001 North 24th Street Phoenix, Arizona 85016 Bank of America National Trust and Attn: Treasurer Savings Association CRESG-L.A. - Unit #1357 Telephone: (602) 808-8000 555 South Flower Street, 6th Floor Telecopier: (602) 808-8097 Los Angeles, California 90071 Attn: Mr. Kelly Allred With a copy to: Vice President Del Webb Corporation Telephone: (213) 228-4027 6001 North 24th Street Telecopier: (213) 228-3802 Phoenix, Arizona 85016 Attn: General Counsel Telephone: (602) 808-8000 Telecopier: (602) 808-8097 -96- BANK ONE, ARIZONA, NA, as the BANK OF AMERICA NATIONAL Co-Agent TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Jennifer Pescatore Vice Pres. --------------------------------- By: /s/ Kelly M. Allred, Vice Pres. Jennifer Pescatore Vice Pres. -------------------------------- --------------------------------- Kelly M. Allred, Vice Pres. Printed Name and Title -------------------------------- Printed Name and Title Address: Address: Bank One, Arizona, NA Bank One Center Bank of America National Trust and 201 North Central Avenue, 19th Floor Savings Association Mail Code A21-1321 CRES Homebuilder-L.A. Unit #1357 Phoenix, Arizona 85004-2267 555 South Flower Street, 6th Floor Attn: Ms. Jennifer Pescatore Los Angeles, California 90071 Vice President Attn: Mr. Kelly Allred Vice President Telephone: (602) 221-2402 Telecopier: (602) 221-4435 Telephone: (213) 228-4027 Telecopier: (213) 228-5390 BANK ONE, ARIZONA, NA, as a Bank GUARANTY FEDERAL BANK, F.S.B. By: /s/ Jennifer Pescatore Vice Pres. ---------------------------------- By:/s/ Randall S. Reid Jennifer Pescatore Vice Pres. -------------------------------- --------------------------- Randall S. Reid/ Vice President Printed Name and Title -------------------------------- Printed Name and Title Address: Address: Bank One, Arizona, NA Bank One Center Guaranty Federal Bank, F.S.B. 201 North Central Avenue, 19th Floor Residential Real Estate Lending Mail Code A21-1321 8333 Douglas Avenue, 10th Floor Phoenix, Arizona 85004-2267 Dallas, Texas 75225 Attn: Ms. Jennifer Pescatore Attn: Randall S. Reid Vice President Vice President Telephone: (602) 221-2402 Telephone: (214) 360-2877 Telecopier: (602) 221-4435 Telecopier: (214) 360-1661 -97- BANKBOSTON, N.A. (formerly known as FIRST UNION NATIONAL BANK The First National Bank of Boston) (formerly known as First Union National Bank of North Carolina) By: /s/ Nicholas Whiting -------------------------- By: /s/ R. Steven Hall Nicholas Whiting Vice Pres. --------------------------- -------------------------- R. Steven Hall/Vice Pres. Printed Name and Title --------------------------- Printed Name and Title Address: Address: BankBoston, N.A. Real Estate Development First Union National Bank 115 Perimeter Center Place, NE Suite 500 One First Union Center Atlanta, Georgia 30346 301 South College Street, TW-6 Attn: Mr. Nicholas Whiting Charlotte, North Carolina 28288-0166 Vice President Attn: Mr. R. Steven Hall Vice President Telephone: (770) 390-6580 Telecopier: (770) 390-8434 Telephone: (704) 374-4180 Telecopier: (704) 383-8121 CREDIT LYONNAIS LOS ANGELES BRANCH BANK OF HAWAII By: /s/ Dianne M. Scott By: /s/ Brenda K. Testerman ---------------------------- ------------------------------- Dianne M. Scott VP & Manager Brenda K. Testerman, Vice Pres. ---------------------------- ------------------------------- Printed Name and Title Printed Name and Title Address: Address: Credit Lyonnais Los Angeles Branch Bank of Hawaii, Arizona 515 South Flower Street, Suite 2200 c/o Pacific Century Bank Los Angeles, California 90071 1850 N. Central Avenue, Suite 400 Attn: Mr. Michael Jackson Phoenix, Arizona 85004-4541 Attn: Ms. Brenda K. Testerman Telephone: (213) 362-5952 Vice President Telecopier: (213) 623-3437 Telephone: (602) 257-2489 Telecopier: (602) 257-2235 -98- FLEET NATIONAL BANK M&I THUNDERBIRD BANK By: /s/ Patrick T. Burns By: /s/ Paul V. Brodt ---------------------------- --------------------------- Patrick T. Burns, V.P. Paul V. Brodt ---------------------------- Executive Vice President Printed Name and Title --------------------------- Printed Name and Title Address: Fleet National Bank By: /s/ Theodore H. Treat 111 Westminister Street, Suite 800 --------------------------- Providence, Rhode Island 02903 Theodore H. Treat Attn: Mr. Patrick T. Burns Vice President --------------------------- Telephone: (401) 278-5961 Printed Name and Title Telecopier: (401) 278-3674 Address: NATIONSBANK, N.A. (formerly known M&I Thunderbird Bank as NationsBank, N.A. (Carolinas)) One East Camelback Road Phoenix, Arizona 85012 Attn: Mr. Ted Treat By: /s/ Stephen G. Earle Vice President ----------------------------- Stephen G. Earle, SVP Telephone: (602) 241-6588 ----------------------------- Telecopier: (602) 241-6553 Printed Name and Title Address: NationsBank, N.A. 6610 Rockledge Drive, 6th Floor Bethesda, Maryland 20817 Attn: Mr. Steve Earle Senior Vice President Telephone: (301) 493-7048 Telecopier: (301) 493-2885 -99- NORWEST BANK ARIZONA, National Association By: /s/ Rick Williams COMERICA BANK ---------------------------- Rick Williams Vice President ---------------------------- By: /s/ Leslie A. Vogel Printed Name and Title --------------------------------- Address: Leslie A. Vogel, Acctount Officer --------------------------------- Norwest Bank Arizona, Printed Name and Title National Association Address: 3300 North Central M.S. 9008 Phoenix, Arizona 85012 Comerica Bank Attn: Mr. Rick Williams 500 Woodward Avenue, 7th Floor Vice President Detroit, Michigan 48226-3256 Attn: Mr. David J. Campbell Telephone: (602) 248-3654 Telecopier: (602) 248-3661 Telephone: (313) 222-9306 Telecopier: (313) 222-9295 PNC BANK, N.A. By: /s/ Andrew P. Siwulec --------------------------- Andrew P. Siwulec Senior Vice President --------------------------- Printed Name and Title Address: PNC Bank, N.A. Two Tower Center Real Estate Banking Group, 18th Floor Suite J3-JTTC-18-6 East Brunswick, New Jersey 08816 Attn: Mr. Douglas G. Paul Telephone: (732) 220-3566 Telecopier: (732) 220-3744 -100- EX-10.3 4 SUPPLEMENTAL EXEC. RETIREMENT PLAN #2 Exhibit 10.3 DEL WEBB CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN NO. 2 LIST OF PARTICIPANTS Larry W. Beckner Kimball Bannister, III Joseph F. Contadino John H. Gleason LeRoy C. Hanneman, Jr. Robertson C. Jones Anne L. Mariucci Helen M. McEnerney Donald V. Mickus John M. Murray Frank D. Pankratz Scott J. Peterson David E. Rau Charles T. Roach David G. Schreiner M. Lynn Schuttenberg John A. Spencer Richard L. Vandermeer Robert R. Wagoner EX-10.4 5 DEL WEBB MANAGEMENT INCENTIVE PLAN Exhibit 10.4 DEL WEBB CORPORATION MANAGEMENT INCENTIVE PLAN Fiscal 1999 (July 1, 1998 - June 30, 1999) Plan Objectives - --------------- o To motivate key management personnel to achieve or exceed Corporate financial goals and to contribute to the short and longer term interest of shareholders. o To provide a competitive bonus program necessary to attract, retain and motivate high quality management. Administration - -------------- 1. Bonuses may be paid in cash or in stock, less applicable tax deductions and subject to prior deferral agreements as soon as practicable after the end of the Fiscal Year. 2. In order to receive a bonus, the participant must be on the active payroll at the time the bonus is paid unless approval for a pro rata bonus is granted by the Chairman/Chief Executive Officer (CEO). 3. At the discretion of the CEO and upon approval of the Human Resources Committee, financial objectives may be adjusted upward or downward as a result of significant windfalls or disasters beyond the control of management. In addition, the Human Resources Committee can revise financial objectives during the year if significant events occur that were not included in the budget. Total incentives payable under the MIP will not exceed 11 1/2% of pre-tax, pre-incentive earnings of the Company for the 1999 fiscal year. 4. Bonuses are computed under the plan criteria for corporate earnings, community earnings and cash flow approved by the Human Resources Committee of the Board. Bonus calculations are reviewed by the CEO and the Human Resources Department, and presented to the Human Resources Committee of the Board for final approval. 5. All terms and conditions of the Plan and its very existence are at the sole discretion of the Human Resources Committee of the Board of Directors. Eligibility - ----------- Key Management personnel: o whose duties and responsibilities can materially affect the growth, development and profitability of the Company and, o who are nominated by a subsidiary or Company officer and are approved by the CEO, and o who are assigned to an eligible position on or before July 1st unless otherwise approved by the CEO. Bonus Opportunity Levels - ------------------------ Each participant will have a Target Bonus which will be the amount earned for meeting the Plan objectives. The Target Bonus will be expressed as a percentage of actual base salary earned throughout the 1998/1999 fiscal year and will be established by the CEO and the Human Resources Department based on competitive compensation data and internal equity. Target Bonuses - -------------- Target bonus levels will range from 10% to 75% of salary based on the participant's salary grade and organizational level and recommendation of the CEO. No bonuses will be payable until the minimum acceptable threshold earnings target is achieved unless specifically approved by the Human Resources Committee of the Board of Directors. A bonus of 100% of the target bonus will be payable for achieving 100% of Plan objectives. A maximum bonus of 200% of Target Bonus will be payable for attaining the maximum expected performance. Bonus Objectives - ---------------- Bonus objectives will be comprised of the financial and cash flow objectives relating to the participant's area of responsibility for participants in operating entities and Corporate, and on project milestone achievements for communities in start-up prior to initiation of sales and closings. o Depending upon the business unit of the company involved, financial objectives for a participant may be based on Corporate net after-tax earnings, budgeted Group or Project operating earnings before interest and cash discounts and/or operations cash flow. The minimum acceptable threshold, target and maximum expected earnings levels will be determined by the CEO based on the degree of difficulty and the level of acceptability of the budget. o Project milestone objectives are the most significant non-financial goals which the individual participant is expected to accomplish during the Plan year in conjunction with the project start-up schedule. Corporate Start-up After Tax Operating Cash Project Milestone Earnings Earnings(1) Flow Objectives -------- ----------- ---- ---------- I. Target Bonus 35% and above (Corporate officers, Coventry Division Managers Associate GMS & Fairmount Operations VP) A. Headquarters 85% 0 15% 0 B. Operating Sun City Communities 20% 60% 20% 0 Coventry/Coventry Tucson Coventry Las Vegas Bellasera Clover Springs Fairmount Spruce Creek II. Target Bonus below 35% A. Headquarters 85% 0 15% 0% B. Operating Sun City Communities 20% 60% 20% 0% Coventry Coventry Tucson/Las Vegas Bellasera Clover Springs Fairmount Coventry Verde Valley Spruce Creek Anthem Country Club Las Vegas C. Anthem Phoenix 20% 0 80%
(1) Operating earnings are the pre-tax, pre-interest, pre-cash discounts earnings achieved at the operation where the individual is assigned. Financial Objectives - -------------------- A minimum bonus will be paid upon the corporation or operation achieving the threshold earnings forecast as shown on the income schedules included as part of this Management Incentive Plan. For results between a threshold and maximum expected earnings, the bonus percent will increase incrementally to a maximum of 200% of target bonus based upon operating earnings and the achievement of the other formula targets. (See attached for net after-tax earnings and operating income schedules.) Cash Flow Component - ------------------- As the fiscal year unfolds, cash flow will vary from budget and previous indicated actuals based upon sales and housing deposits collected, closings, land development and housing needs within each operation, and decisions made on the timing of phases and amenities of some projects. The ultimate recommendation of cash flow component awards which will, of necessity, be subjective, will be made by the chief executive officer with input from the corporate chief financial officer and corporate controller. The recommendation will be based upon how well cash flow is being managed and reported acknowledging the business decisions by Webb's executive management team affecting cash throughout the year and cash flow estimates for subsequent years. The cash flow element of the Plan works independently of all other Plan components, including the earnings component. Plan participants can earn up to 200% of target based upon overall cash management. Project Milestone Performance Objectives - ---------------------------------------- Non-financial performance objectives will be established at the beginning of the fiscal year for each participant whose primary responsibility is in a start-up community. These objectives, which will be submitted to the CEO for final approval, will reflect the project milestones which must be successfully met in order for the community to open for sales on time and on budget. Objectives must be specific, realistic, quantifiable and time-limited before they will be approved and will be mutually agreed to by the participant and management. In the event circumstances or directions change, affecting any participant's pre-established project milestone objectives, the senior vice president overseeing the start-up project and the chief operating officer are responsible for revising them or establishing new objectives during the year. The achievement of performance objectives is measured by the participant's immediate superior based upon documented evaluation of results. Accomplishments will be evaluated using the following scale:
Threshold Target Maximum --------- ------ ------- Overall Rating Poor Good Excellent Superior Percent of Target 0 - 49 50 - 75 76 - 125 126 - 200
Evaluation of results should take into account the difficulty the objective, the timeliness of accomplishment, the effectiveness of results and the overall impact on the individual's organizational unit. Achievement of overall Corporate operating earnings is paramount in the bonus computation formula; project milestone objectives are reviewed and evaluated only if minimum earnings objectives have been met or if specifically approved by the Human Resources Committee. Rating Definitions - ------------------ Maximum A "superior" rating is achieved if the participant ------- accomplishes highly challenging objectives resulting in significant contribution to the Company or business unit. This rating incorporates superior reaction to crisis and superior exploitation of unanticipated opportunities. Target An "excellent" rating is achieved if the participant ------ accomplishes all objectives in a timely and effective manner and overall performance for the year is considered standard or, if the participant accomplished most of a number of significant and highly challenging objectives and overall performance is considered above standard. Threshold A "good" rating is achieved if the participant --------- accomplished most of the objectives in an acceptable manner or all of a group of objectives that were minimally challenging. Overall performance of the year is considered standard. 5 EX-10.5 6 EXECUTIVE MANAGEMENT INCENTIVE PLAN Exhibit 10.5 July 23, 1998 Philip J. Dion Chairman of the Board and Chief Executive Officer Del Webb Corporation RE: 1998/99 Executive Management Incentive Plan Award Agreement Dear Phil: Del Webb Corporation (the "Company") has adopted the Del Webb Corporation 1995 Executive Management Incentive Plan (the "Plan"). Under the Plan, the Human Resources Committee (the "Committee") of the Company's Board of Directors is authorized to make awards of performance-based compensation to you. The Committee has decided to make an award to you pursuant to which you may become entitled to receive performance-based compensation. The payment of the performance-based compensation is subject to the terms and provisions of the Plan and this letter, which is the "Award Agreement". 1. Performance Compensation: The maximum amount of your Performance Compensation will depend on the level at which the Performance Goals are satisfied. For fiscal year 1999 ("Performance Period"), this amount will not exceed the lesser of 2,000,000 or 2 1/2 % of pre-tax, pre-incentive earnings. The Committee will evaluate performance under one or more of three specific performance elements: after tax net earnings, net margin, and return on equity relative to return of the comparator peer group. The Performance Compensation and Performance Goals under which the 1998/99 Performance Award will be made are set forth in Exhibit A. If the Performance Goal or Goals are satisfied during the Performance Period, you will be entitled to receive the Performance Compensation provided by this paragraph, subject to the discretionary adjustment provisions of paragraph 2. If the Performance Goal evaluation is not satisfied at the minimum level, you will not be entitled to receive any performance-based compensation. Your Performance Compensation, if any, will be paid to you as soon as administratively feasible following the date the Committee certifies that the Performance Goals for the Performance Period have been satisfied. 2. Target Bonus: Solely for purposes of limitation under SERP, your bonus target is deemed to be 120% of base salary. Mr. Philip J. Dion July 23, 1998 Page 2 3. Discretionary Adjustments: We have set the Performance Compensation that could be payable to you upon attainment of the Performance Goals at an intentionally high level. We have followed this approach because under the terms of the Plan the Committee has the discretion to reduce or eliminate (but not increase) the amount of your Performance Compensation on the basis of subjective factors the Committee determines to be appropriate. The Committee reserves this right. 4. Status of Plan: This Award Agreement is made pursuant to the provisions of the Plan. The Plan is incorporated herein and a copy is attached as Exhibit B. In the event of any conflict between the provisions of the Plan and this Award Agreement, the provisions of the Plan control. 5. Deferral of Payments: You may elect to defer all or a portion of the Performance Compensation payable to you pursuant to the terms and provisions of the Del Webb Corporation Deferred Compensation Plan. Any such election must be made on or before December 15, 1998. 6. Amendments: This Award Agreement may be amended only by a written agreement executed by the Company and you. Any changes required in order to qualify the Performance Compensation as performance-based compensation for the purposes of Section 162(m) of the Internal Revenue Code of 1986, however, may be unilaterally adopted by the Company without your consent. Please execute the acknowledgment in the enclosed extra copy of this letter and return it in the enclosed self-addressed, stamped envelope. DEL WEBB CORPORATION By: _________________________________ Chairman, Human Resources Committee ACKNOWLEDGMENT -------------- I acknowledge receipt of a copy of the Del Webb Corporation 1995 Executive Management Incentive Plan. I also acknowledge that no amounts will be payable to me pursuant to the Plan or this Award Agreement if the Performance Goals referred to above are not attained within the Performance Period. I also acknowledge that the Committee has the right to reduce the Performance Compensation in the exercise of its discretion. I accept the terms and provisions of this Award Agreement and the Plan. DATED: ____________________, 1998 ____________________________________ Your signature EX-10.6 7 EXECUTIVE MANAGEMENT INCENTIVE PLAN Exhibit 10.6 July 23, 1998 Mr. LeRoy C. Hanneman, Jr. President and Chief Operating Officer Del Webb Corporation RE: 1998/99 Executive Management Incentive Plan Award Agreement Dear LeRoy: Del Webb Corporation (the "Company") has adopted the Del Webb Corporation 1995 Executive Management Incentive Plan (the "Plan"). Under the Plan, the Human Resources Committee (the "Committee") of the Company's Board of Directors is authorized to make awards of performance-based compensation to you. The Committee has decided to make an award to you pursuant to which you may become entitled to receive performance-based compensation. The payment of the performance-based compensation is subject to the terms and provisions of the Plan and this letter, which is the "Award Agreement". 1. Performance Compensation: The maximum amount of your Performance Compensation will depend on the level at which the Performance Goals are satisfied. For fiscal year 1999 ("Performance Period"), this amount will not exceed the lesser of 750,000 or 1% of pre-tax, pre-incentive earnings. The Committee will evaluate performance under one or more of three specific performance elements: after tax net earnings, net margin, and return on equity relative to return of the comparator peer group. The Performance Compensation and Performance Goals under which the 1998/99 Performance Award will be made are set forth in Exhibit A. If the Performance Goal or Goals are satisfied during the Performance Period, you will be entitled to receive the Performance Compensation provided by this paragraph, subject to the discretionary adjustment provisions of paragraph 2. If the Performance Goal evaluation is not satisfied at the minimum level, you will not be entitled to receive any performance-based compensation. Your Performance Compensation, if any, will be paid to you as soon as administratively feasible following the date the Committee certifies that the Performance Goals for the Performance Period have been satisfied. 2. Target Bonus: Solely for purposes of limitation under SERP, your bonus target is deemed to be 75% of base salary. Mr. LeRoy C. Hanneman July 23, 1998 Page 2 3. Discretionary Adjustments: We have set the Performance Compensation that could be payable to you upon attainment of the Performance Goals at an intentionally high level. We have followed this approach because under the terms of the Plan the Committee has the discretion to reduce or eliminate (but not increase) the amount of your Performance Compensation on the basis of subjective factors the Committee determines to be appropriate. The Committee reserves this right. 4. Status of Plan: This Award Agreement is made pursuant to the provisions of the Plan. The Plan is incorporated herein and a copy is attached as Exhibit B. In the event of any conflict between the provisions of the Plan and this Award Agreement, the provisions of the Plan control. 5. Deferral of Payments: You may elect to defer all or a portion of the Performance Compensation payable to you pursuant to the terms and provisions of the Del Webb Corporation Deferred Compensation Plan. Any such election must be made on or before December 15, 1998. 6. Amendments: This Award Agreement may be amended only by a written agreement executed by the Company and you. Any changes required in order to qualify the Performance Compensation as performance-based compensation for the purposes of Section 162(m) of the Internal Revenue Code of 1986, however, may be unilaterally adopted by the Company without your consent. Please execute the acknowledgment in the enclosed extra copy of this letter and return it in the enclosed self-addressed, stamped envelope. DEL WEBB CORPORATION By: _________________________________ Chairman, Human Resources Committee ACKNOWLEDGMENT -------------- I acknowledge receipt of a copy of the Del Webb Corporation 1995 Executive Management Incentive Plan. I also acknowledge that no amounts will be payable to me pursuant to the Plan or this Award Agreement if the Performance Goals referred to above are not attained within the Performance Period. I also acknowledge that the Committee has the right to reduce the Performance Compensation in the exercise of its discretion. I accept the terms and provisions of this Award Agreement and the Plan. DATED: ____________________, 1998 ____________________________________ Your signature EX-21.0 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.0 SUBSIDIARIES OF THE REGISTRANT* as of June 30, 1998 Anthem Arizona, L.L.C. Marina Operations Corp. Asset One Corp. New Mexico Asset Corporation Asset Four Corp. New Mexico Asset Limited Partnership Asset Five Corp. Sun City Sales Corporation, a Michigan corporation Bellasera Corp. Sun City Title Agency Co. Coventry of California, Inc. Sun State Insulation Co., Inc. Del Webb Architectural Services, Inc. Terravita Commercial Corp. Del Webb California Corp. Terravita Corp. Del Webb Commercial Properties Corporation Terravita Home Construction Co. Del Webb Communities, Inc. Terravita Marketplace L.L.C. Del Webb Communities of Nevada, Inc. Trovas Company Del Webb Community Management Co. Trovas Construction Co. Del Webb Conservation Holding Corp. Del Webb Construction Services Co. Del Webb Home Construction, Inc. Del Webb Homes, Inc. Del Webb Limited Holding Co. Del Webb Midatlantic Corp. Del Webb Property Corp. Del Webb Southwest Co. Del Webb Texas Limited Partnership Del Webb Texas Title Agency Co. Del Webb Title Company of Nevada, Inc. Del Webb's Contracting Services, Inc. Del Webb's Contracting Services of Tucson, Inc. Del Webb's Coventry Homes Construction Co. Del Webb's Coventry Homes, Inc. Del Webb's Coventry Homes of Nevada, Inc. Del Webb's Coventry Homes Construction of Tucson Co. Del Webb's Coventry Homes of Tucson, Inc. Del Webb's Spruce Creek Communities, Inc. Del Webb's Stetson Hills, Inc. Del Webb's Sun City Realty, Inc. Del Webb's Sunflower of Tucson, Inc. Del E. Webb Cactus Development Corp. Del E. Webb Development Co., L.P., a Delaware limited partnership Del E. Webb Finance Company, a Nevada corporation Del E. Webb Financial Corporation Del E. Webb Foothills Corporation Del E. Webb Glen Harbor Development Corporation DW Aviation Co. Fairmount Mortgage, Inc.
* All subsidiaries are Arizona corporations or limited liability companies except the following: Del Webb Texas Limited Partnership, an Arizona limited partnership Del Webb Title Company of Nevada, Inc., a Nevada corporation Del E. Webb Development Co., L.P., a Delaware limited partnership Del E. Webb Finance Company, a Nevada corporation New Mexico Asset Limited Partnership, an Arizona limited partnership Sun City Sales Corporation, a Michigan corporation EX-23.0 9 CONSENT OF INDEPENDENT ACCOUNTANTS KPMG Peat Marwick LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Del Webb Corporation: We consent to incorporation by reference in the Registration Statements (Nos. 33-12023, 2-78336, 33-32309, 33-10228, 33-46720, 33-46704, 33-6564, 33-52725, 33-65161 and 33-65163 on Forms S-8 and No. 33-60089 on Form S-3) of Del Webb Corporation of our report dated August 21, 1998, relating to the consolidated balance sheets of Del Webb Corporation and subsidiaries as of June 30, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity and cash flows and related schedule for each of the years in the three-year period ended June 30, 1998 which appears in the June 30, 1998 annual report on Form 10-K of Del Webb Corporation. Our report refers to a change in the method of accounting for impairment of long-lived assets. KPMG Peat Marwick LLP Phoenix, Arizona September 11, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS JUN-30-1998 JUL-01-1997 JUN-30-1998 1 14,362 0 41,498 0 1,113,297 0 33,333 0 1,310,462 0 703,938 0 0 18 345,749 1,310,462 0 1,177,767 0 944,966 166,343 0 0 66,458 23,925 42,533 0 0 0 42,533 2.39 2.30
EX-27.1 11 RESTATED 6/30/97 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE IS A RESTATEMENT OF A PREVIOUSLY FILED SCHEDULE TO DISCLOSE BASIC AND DILUTED EARNINGS PER SHARE AS NOW REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS JUN-30-1997 JUL-01-1996 JUN-30-1997 1 24,715 0 28,892 0 939,684 0 20,937 0 1,086,662 0 563,068 0 0 18 299,812 1,086,662 0 1,186,262 0 963,329 160,924 0 0 62,009 22,323 39,686 0 (1,285) 0 38,401 2.18 2.15
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