-----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, SA/U4YrdnKfQfhosVexiptHXtYP8j9HMfb55HVSU3juTNxajWhEZ+keWWzfWkhSl DWZeKBW0SCRu5ZlbIcoHmQ== 0000950148-01-000354.txt : 20010307 0000950148-01-000354.hdr.sgml : 20010307 ACCESSION NUMBER: 0000950148-01-000354 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KB HOME CENTRAL INDEX KEY: 0000795266 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 953666267 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09195 FILM NUMBER: 1557275 BUSINESS ADDRESS: STREET 1: 10990 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3102314000 MAIL ADDRESS: STREET 1: 10990 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 FORMER COMPANY: FORMER CONFORMED NAME: KAUFMAN & BROAD HOME CORP DATE OF NAME CHANGE: 19920703 10-K405 1 v65422e10-k405.txt FORM 10-K405 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 ENDED NOVEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ---------- TO ----------. COMMISSION FILE NO. 1-9195 KB HOME (FORMERLY KAUFMAN AND BROAD HOME CORPORATION) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) INCORPORATED IN DELAWARE 95-3666267 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90024 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 231-4000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED COMMON STOCK (PAR VALUE $1.00 PER SHARE) NEW YORK STOCK EXCHANGE RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE INCOME PRIDES NEW YORK STOCK EXCHANGE GROWTH PRIDES NEW YORK STOCK EXCHANGE 9 3/8% SENIOR SUBORDINATED NOTES DUE 2003 NEW YORK STOCK EXCHANGE 7 3/4% SENIOR NOTES DUE 2004 NEW YORK STOCK EXCHANGE 9 5/8% SENIOR SUBORDINATED NOTES DUE 2006 NEW YORK STOCK EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2011 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] THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE COMPANY ON FEBRUARY 14, 2001 WAS $1,383,860,269, INCLUDING 8,774,612 SHARES HELD BY THE REGISTRANT'S GRANTOR STOCK OWNERSHIP TRUST AND EXCLUDING 1,535,224 SHARES HELD IN TREASURY. THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK ON FEBRUARY 14, 2001 WAS AS FOLLOWS: Common Stock (par value $1.00 per share) 43,973,952 shares, including 8,774,612 shares held by the Registrant's Grantor Stock Ownership Trust and excluding 1,535,224 shares held in treasury. DOCUMENTS INCORPORATED BY REFERENCE 2000 Annual Report to Stockholders (incorporated into Part II). Notice of 2001 Annual Meeting of Stockholders and Proxy Statement (incorporated into Part III). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL The Company is one of the largest homebuilder in the United States based on the number of homes delivered. The Company builds single-family homes with domestic operations in six western states, and has international operations in France. On January 17, 2001, the Company announced it changed its name from Kaufman and Broad Home Corporation to KB Home. Founded in 1957, the Company builds innovatively designed homes which cater primarily to first-time and first move-up homebuyers, generally in medium-sized developments close to major metropolitan areas. Internationally, the Company's majority-owned subsidiary, Kaufman & Broad S.A. ("KBSA"), builds single family homes, high density residential properties such as condominium complexes and commercial projects in France. KBSA is among the largest builders in France based on the number of homes delivered. The Company provides mortgage banking services to domestic homebuyers through its wholly owned subsidiary, Kaufman and Broad Mortgage Company ("KBMC"). The Company is a Delaware corporation and maintains its principal executive offices at 10990 Wilshire Boulevard, Los Angeles, California 90024. The Company's telephone number is (310) 231-4000 and its Internet address is www.kbhome.com. As used herein, the term "Company" refers to KB Home and its subsidiaries, unless the context indicates otherwise. MARKETS The Company delivered 22,392 units in 2000 (excluding 455 deliveries from certain unconsolidated joint ventures). The Company's unit deliveries for the year ended November 30, 2000 were virtually flat compared with the previous year's 22,422 units (excluding 38 deliveries from certain unconsolidated joint ventures). During 2000, the average number of active communities operated by the Company was 321, an increase of 2% over 1999. The average selling price of the Company's homes was $168,300 in 2000, up 1% from 1999. Since 1997, the Company has nearly doubled its annual unit deliveries and more than doubled its unit backlog. The Company hopes to continue to increase unit deliveries in future years, with its current primary growth strategies to expand existing operations to optimal market volume levels, while entering new markets at high volume levels through acquisitions. The Company's growth could be materially affected by various risk factors such as changes in general economic conditions either nationally or in regions in which the Company operates or may commence operations, job growth and employment levels, home mortgage interest rates or consumer confidence, among other things. Nevertheless, the Company hopes to continue to grow its business in 2001. In recent years, in addition to growing its existing businesses, the Company has been active in completing acquisitions. During 2000, the Company's French subsidiary purchased four homebuilders with operations in Paris, Lille, Toulouse and Montpellier, France. In January 1999, the Company completed its purchase of substantially all of the homebuilding assets of the Lewis Homes group of companies ("Lewis Homes"). Prior to the acquisition, Lewis Homes was one of the largest privately held single-family homebuilders in the United States based on units delivered. Lewis Homes' principal markets were Las Vegas and Northern Nevada, Southern California and the greater Sacramento area in Northern California. The Company also acquired the remaining minority interest in Houston-based General Homes Corporation ("General Homes") in January 1999. (The Company had acquired a majority interest in General Homes in August 1998). In August 1999, KBSA completed the acquisition of the outstanding shares of Park, a French apartment builder. During the late 1990's as a result of both organic growth and acquisitions, the Company's homebuilding operations became more geographically diverse. This diversity reduces the risk of financial impacts resulting from changes in demand in individual markets. The Company's principal geographic markets as of November 30, 2000 were: "West Coast" -- California; "Southwest" -- Arizona, Nevada and New Mexico; "Central" -- Colorado and Texas; and France. For several years prior to this report, the Company grouped its domestic operating divisions in two regions: California and "Other U.S." All year-over-year comparisons have been accomplished by restating applicable prior years' results in a manner consistent with the new regional groupings. The Company delivered its first homes in California in 1963, France in 1970, Nevada in 1993, Colorado in 1994, New Mexico in 1995 and Texas in 1996. In 1994, the Company also re-entered Arizona, a market in which it had operated several years earlier. 1 3 To enhance its operating capabilities in regional submarkets, the Company conducted its domestic homebuilding business in 2000 through five divisional offices in California, one divisional office in each of Colorado and New Mexico, two divisional offices in both Nevada and Arizona, and four divisional offices in Texas. In addition, the Company operated 15 KB Home Studios in 2000. Internationally, the Company operates its construction business through two divisional offices in France. West Coast. The Company's West Coast region, comprised of operations in Northern and Southern California, accounted for 28% of its domestic home deliveries in 2000 compared to 32% in 1999 and 36% in 1998. During the first half of the 1990's, weak conditions for new housing and general recessionary trends in California prompted the Company to begin diversifying its business through aggressive expansion into other western states in 1993. Since 1995, the housing market has improved significantly in California. However, although the number of new housing permits issued in California increased 3% in 2000 from 1999, and has increased in each year since 1995, the Company worked to reposition its West Coast operations. In 2000, the Company's West Coast deliveries decreased 13% from the previous year to 5,476 units. The decrease was primarily due to two factors. First, the re-focusing of the Company's West Coast operations following the Lewis Homes acquisition, in keeping with the KB2000 operational business model, resulted in fewer active communities in Northern California in 2000 as compared to 1999. Second, the strength of the Company's Southwest and Central region operations, which generally offer lower risk for less investment in land, has resulted in more stringent criteria guiding the Company's land investment decisions and has caused the Company to be more selective in the West Coast region. Despite the decrease in the Company's West Coast deliveries in 2000, the Company's market share in California was nearly 6%, which was the largest market share of any homebuilder in the state. In Southern California, the Company conducts its homebuilding activity in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties. In Northern California, the Company's activities are conducted in the Central Valley, Monterey Bay, Sacramento and San Francisco Bay-Oakland-San Jose regions. The communities developed by the Company in the West Coast region consist of single-family detached homes primarily designed for the entry-level housing market. These homes ranged in size from approximately 1,200 to 5,000 square feet in 2000 and sold at an average price of $257,000, well below the state of California's new home average of $309,700, as a result of the Company's emphasis on the entry-level market. In 2000, the Company's average selling price in the West Coast region increased 5% from the previous year average of $246,000. The West Coast average selling price increased only moderately due to a lower proportion of Northern California deliveries in 2000, which are generally higher priced than deliveries generated from Southern California operations. Southwest. In the early 1990's, the greatly improved business conditions in other western states coupled with a prolonged economic downturn in California caused the Company to expand its domestic operations outside California. The Company's Southwest region, which includes operations in Arizona, Nevada and New Mexico, accounted for 30% of its domestic home deliveries in 2000 compared to 29% in 1999 and 20% in 1998. Deliveries from the Southwest region totaled 5,832 units in 2000, essentially flat with the prior year. The average number of active communities in the Company's Southwest operations were slightly below the prior year at 78 in 2000 compared to 82 in 1999. The Company conducts its Southwest region homebuilding activities in Phoenix and Tucson, Arizona; Las Vegas and Reno, Nevada; and Albuquerque, New Mexico. The communities developed by the Company's Southwest divisions primarily consist of single-family detached entry-level homes. These homes ranged in size from approximately 1,100 to 3,800 square feet in 2000 and sold at an average price of $145,200. The average selling price of the Company's Southwest region homes increased 2% in 2000 from $141,900 in 1999 as a result of selected increases in sales prices in certain markets due to favorable market conditions. Central. The Company's Central region, which includes operations in Colorado and Texas, accounted for 42% of the Company's domestic deliveries in 2000 compared to 39% in 1999 and 44% in 1998. Since delivering its first homes in the Central region in 1994, the Company has substantially grown its Central operations, both organically and through acquisitions. The Company's operations in the Central region delivered 8,112 units in 2000, up 4% from 7,809 units in 1999 as active communities in the region rose 4% to 100. 2 4 The Company conducts its Central region homebuilding activities in Denver, Colorado and Austin, Dallas, Houston and San Antonio, Texas. In 2000, the Company was one of the largest homebuilders in each of its Texas markets, based on the number of homes delivered. The communities developed by the Company in the Central region consist primarily of single-family detached homes targeted at the entry-level housing market. These homes ranged in size from approximately 1,000 to 3,300 square feet in 2000 and sold at an average price of $128,600. In 2000, the average selling price of the Company's Central region homes rose 6% from $121,100 in 1999. France. KBSA, the Company's majority owned subsidiary, is one of the leading builders of homes (individual homes in communities and condominium units) in France. KBSA's principal market in France is the Ile-de-France region, where it currently builds 87% of its individual homes and 61% of its condominium units. KBSA also has activities in the regions of Lyon, Marseille and Toulouse as well as in Strasbourg and in Rouen. In 2000, housing deliveries from KBSA's homebuilding operations increased 20% from the prior year, to 2,967 units, partly due to improved market conditions. KBSA focused primarily on single-family detached and attached homes in 2000, ranging in size from approximately 800 to 1,600 square feet. The average selling price of KBSA's homes in France decreased 3% to $158,500 in 2000 from $163,600 in 1999, primarily due to a weakening in the French franc and an increase in the proportion of deliveries generated from condominiums, which are typically priced below single-family homes. In the late 1980's and early 1990's, KBSA carried out a large commercial building business with revenues from these activities peaking at $362.3 million in 1990. These commercial operations, which included development of commercial office buildings in Paris for sale to institutional investors, became a smaller segment of the French operations, however, as the French economy declined in the first half of the 1990's. During this time, the French economy experienced a significant recession reflecting low consumer confidence, high unemployment and declines in both consumer and business investments in real estate. Since 1996, the French economy has continued to improve and KBSA expects a significant increase in its commercial activities in 2001, with revenues from these activities expected to range between $75.0 million and $90.0 million. Revenues from the development of commercial buildings, all located in metropolitan Paris, totaled $.8 million in 2000, $.7 million in 1999 and $1.5 million in 1998. Prior to February 7, 2000, KBSA was wholly owned by the Company. On February 7, 2000, KBSA issued 5,314,327 common shares (including an over allotment option) in an initial public offering. The offering was made in France and elsewhere in Europe and was priced at 23 euros per share. KBSA is now listed on the Premier Marche of the ParisBourse. The offering generated total net proceeds of $113.1 million of which $82.9 million was used by the Company to reduce its domestic debt and repurchase additional shares of its common stock. The remainder of the proceeds was used to fund internal and external growth of KBSA. The Company continues to own a majority interest in KBSA and will continue to consolidate these operations in its financial statements. Unconsolidated Joint Ventures. The Company participates in the development, construction and sale of residential properties and commercial projects through a number of unconsolidated joint ventures. These include joint ventures in California, Nevada, New Mexico, Texas and France. 3 5 Selected Market Data. The following table sets forth, for each of the Company's regions, unit deliveries, average selling price of homes and total construction revenues for the years ended November 30, 2000, 1999 and 1998 (excluding the effects of unconsolidated joint ventures).
YEARS ENDED NOVEMBER 30, ---------------------------- 2000 1999 1998 -------- -------- -------- West Coast: Unit deliveries........................................... 5,476 6,323 4,858 Average selling price..................................... $257,000 $246,000 $224,500 Total construction revenues (in millions)(1).............. $1,466.4 $1,579.2 $1,105.9 Southwest: Unit deliveries........................................... 5,832 5,801 2,730 Average selling price..................................... $145,200 $141,900 $128,800 Total construction revenues (in millions)(1).............. $ 862.8 $ 830.4 $ 352.4 Central: Unit deliveries........................................... 8,112 7,809 5,968 Average selling price..................................... $128,600 $121,100 $114,700 Total construction revenues (in millions)................. $1,065.8 $ 950.2 $ 690.0 Foreign: Unit deliveries........................................... 2,972 2,489 1,657 Average selling price(2).................................. $158,700 $164,700 $152,400 Total construction revenues (in millions)(1)(2)........... $ 475.5 $ 412.3 $ 254.7 Total: Unit deliveries........................................... 22,392 22,422 15,213 Average selling price(2).................................. $168,300 $166,500 $156,400 Total construction revenues (in millions)(1)(2)........... $3,870.5 $3,772.1 $2,403.0
- ------------ (1) Total construction revenues include revenues from residential development, commercial activities and land sales. (2) Average selling prices and total construction revenues for foreign operations have been translated into U.S. dollars using weighted average exchange rates for each period. STRATEGY The Company operates under the principles of its KB2000 operational business model, and has continued to introduce complementary strategies to enhance the benefits of this model. The KB2000 operational business model emphasizes efficiencies generated from a more process-driven, systematic approach to homebuilding and also focuses on gaining a deeper understanding of customer interests and needs. Key elements of KB2000 include: improving the Company's understanding of customer desires and preferences through frequent and localized surveys; emphasizing pre-sales in contrast to speculative inventory; maintaining lower average levels of in-process and standing inventory; establishing even flow production; providing a wide spectrum of choice to customers in terms of location, design and options; offering low base prices; and reducing the use of sales incentives. Since first introducing the KB2000 operational business model in 1997, the Company has made significant progress in implementing it by, among other things, focusing on the pre-sale and backlog building strategy, developing and implementing a rigorous and detailed customer survey program, and opening new KB2000 communities and KB Home Studios. In order to leverage the benefits of the KB2000 operational business model, the Company has concentrated on a strategy designed to achieve a leading position in its major markets. By operating in fewer, larger markets at sufficiently large volume levels, the Company believes it can better execute its KB2000 operational business model and use economies of scale to increase profits. The expected benefits of this strategy can include lower land acquisition costs, improved terms with suppliers and subcontractors, the ability to offer maximum choice and the best value to customers, and the retention of the best management talent. The Company hopes to continue to increase overall unit deliveries in future years. The Company's growth strategies include expanding existing operations to optimal market volume levels, as well as exploring entry into new markets at 4 6 high volume levels, through acquisitions. Growth in existing markets will be driven by the Company's ability to increase the average number of active communities in its major markets through the continued successful implementation of its KB2000 operational business model. Although the Company has not made a major domestic acquisition since the January 1999 acquisition of Lewis Homes, the Company continues to employ an acquisition strategy which has enabled it to supplement growth in existing markets and facilitate expansion into new markets. The Company believes that expanding its operations through the acquisition of existing homebuilding companies affords several benefits such as established land positions and existing relationships with land owners, subcontractors and suppliers not found in start-up operations. During the last five fiscal years, the Company has made the following acquisitions:
ENTITY ACQUIRED DATE ACQUIRED MARKETS - ----------------- ------------------- --------------------------------- Rayco March 1996 San Antonio, Texas SMCI July 1997 Paris, France Hallmark March 1998 Austin, Houston and San Antonio, Texas PrideMark March 1998 Denver, Colorado Estes April 1998 Phoenix and Tucson, Arizona General Homes August 1998* Houston, Texas Lewis Homes January 1999 Las Vegas, Nevada and Northern Nevada; Southern California and the greater Sacramento area of California Park August 1999 Paris, France Frank Arthur January 2000 Paris, France Sefima July 2000 Paris, France First July 2000 Lille, France Sopra November 2000 Toulouse and Montpellier, France
* The Company also acquired the remaining minority interest in General Homes in January 1999, bringing its total ownership interest to 100%. In identifying acquisition targets, the Company seeks homebuilders that possess the following characteristics: a business model similar to KB2000; access to or control of land to support growth; a strong management team; and a financial condition positioned to be accretive to earnings in the first full year following acquisition. The Company believes that acquisitions fitting these criteria will enable it to expand its operations in a focused and disciplined manner. However, the Company's ability to acquire additional homebuilders could be affected by several factors, including, among other things, conditions in the U.S. securities markets, the Company's stock price, the general availability of applicable acquisition candidates, pricing for such transactions, competition among other national or regional builders for such target companies, changes in general economic conditions nationally and in target markets, and capital or credit market conditions. The Company regularly reviews its land assets and businesses for the purpose of monetizing non-strategic or marginal positions. In 2000, this initiative was emphasized and was intended to increase cash flows to reduce debt and repurchase stock. The Company continues to review its land assets and employ stringent criteria for prospective land acquisitions. LOCAL EXPERTISE Management believes that its business requires in-depth knowledge of local markets in order to acquire land in desirable locations and on favorable terms, to engage subcontractors, to plan communities keyed to local demand, to anticipate customer tastes in specific markets and to assess the regulatory environment. Accordingly, the Company's divisional structure is designed to utilize local market expertise. The Company has experienced management teams in each of its regional submarkets. Although the Company has centralized certain functions, such as marketing, legal, materials purchasing, product development, architecture and accounting, to benefit from economies of scale, local management continues to exercise considerable autonomy in identifying land acquisition opportunities, developing sales strategies, conducting production operations and controlling costs. The Company seeks to operate at optimal volume 5 7 levels in each of its markets in order to maximize its competitive advantages and the benefits of the KB2000 operational business model. INNOVATIVE DESIGNS AND MARKETING STRATEGIES The Company believes that it has been and continues to be an innovator in the design of entry-level homes for the first-time buyer. The Company's in-house architectural services group, whose plans are protected by copyright, has been successful in creating distinctive design features that are not typically found in comparably priced homes. In 2000, the Company continued to deepen the implementation of the KB2000 operational business model, seeking to design homes that kept construction costs and base prices as low as possible while achieving high quality levels and promoting customer choice. In January 2001, the Company announced that it was changing its name to "KB Home." This new name, which resulted from homebuyer input, is intended to convey the Company's strong customer focus and its commitment to helping homebuyers realize their dream of home ownership. Certain elements of the KB2000 operational business model include achieving an in depth understanding of customer desires and preferences through detailed market surveys and providing a wide spectrum of choice to customers in terms of location, design and options. The Company's communities offer entry-level homebuyers an abundance of choices and options which allows customers to customize their home to an extent not typically available with other entry- level builders. The Company provides flooring and other options and upgrades to its homebuyers through its KB Home Studios. These KB Home Studios are typically approximately 10,000 square feet, are located separately from divisional business offices and offer customers over 5,000 options -- from floor plans to fireplaces to garage doors -- in a retail environment convenient to multiple communities. Company personnel are available at the studios to assist homebuyers in selecting options and upgrades. The Company markets its homes to prospective buyers through various types of media, including newspaper advertisements, billboards and direct mail. In addition, the Company extends its marketing programs beyond these more traditional approaches through the use of television advertising, off-site telemarketing and large-scale promotions. The Company maintains market and specific community information on its Internet website which can be reached at www.kbhome.com. The Company also utilizes a houseCall(TM) Center, a phone service center designed to bring potential buyers to its communities while also simplifying the home buying process for the consumer. The houseCall(TM) Center can be reached at 1-800-34HOMES. In 1999, the Company launched e.KB with the goal of increasing sales and customer satisfaction, and improving the Company's financial performance through e-commerce initiatives. Four key areas addressed by e.KB include: enhancing the richness of up-to-date information available at www.kbhome.com and fully integrating the website with the houseCall(TM) center, the KB Home Studios and all sales offices; developing strategic alliances that will enable the Company to provide new products and services to homebuyers; utilizing business-to-business resources such as the KBbid program to create cost and time savings for the Company; and increasing the Company's ability to cross-sell communities through data collection and retrieval, while protecting the privacy of its website visitors. In France, the Company created a village concept through the elimination of front-yard walls and the extensive use of landscaping. It also introduced to the French market the American concept of a master bedroom suite, as well as walk- in closets, built-in kitchen cabinetry and two-car garages. The Company believes that in each of its residential markets, its value engineering enables it to offer appealing and well-designed homes without increasing construction costs. In 1998, the Company opened a 6,500 square foot new home showroom in Paris, offering a broad choice of options to new home and condominium buyers. A French website (ketb.com) featuring available homes was also launched in 1998. In all of the Company's domestic and international residential markets, the sale of homes is carried out by its in-house sales force. The Company maintains on-site sales offices, which are usually open seven days a week, and markets its homes principally through the use of fully furnished and landscaped model homes which are decorated to emphasize the distinctive design features and the choices available to customers. Company sales representatives are available to assist prospective buyers by providing them with floor plans, price information and tours of model homes. These sales representatives are experienced, trained individuals who can provide buyers with specific information regarding other products in the area, the variety of financing programs available, construction schedules and marketing and advertising 6 8 plans. In all of its domestic communities, the Company encourages participation of outside real estate brokers in bringing prospective buyers to its communities. COMMUNITY DEVELOPMENT The community development process generally consists of three phases: land acquisition; land development; and home construction and sale. The normal development cycle for a community has historically ranged from six to 24 months in the West Coast region and is typically a somewhat shorter duration in the Company's Southwest and Central markets. In France, the development cycle has historically ranged from 12 to 30 months. Development cycles vary depending on the extent of the government approvals required, the size of the development, necessary site preparation, weather conditions and marketing results. When feasible, the Company acquires control of lot positions through the use of options. In addition, the Company frequently acquires finished lots within its pricing parameters, enabling it to deliver completed homes shortly after acquisition. The total number of lots in the Company's domestic new home communities vary significantly but typically range from 50 to 250 lots. These domestic developments usually include three different model home designs and generally offer lot sizes ranging from approximately 3,000 to 10,000 square feet, with premium lots often containing more square footage, views or orientation benefits. In prior years, the Company also regularly acquired undeveloped and/or unentitled properties, often with total lots significantly in excess of 250 lots. In 1996, the Company decided to substantially eliminate its prior practice of investing in such long-term development projects in order to reduce the operating risk associated with such projects. In France, typical single-family developments consist of approximately 30 to 40 lots, with average lot sizes of 3,500 square feet. Land Acquisition and Development. In accordance with the KB2000 operational business model, all homebuyers of new and resale homes in each market are carefully surveyed. Based upon these surveys, a marketing strategy is developed which targets specific price points and geographic sectors which the Company will pursue. The Company utilizes an in-house staff of land acquisition specialists at each division who carry out extensive site selection research and analysis in order to identify properties in desirable locations consistent with the Company's market strategy. In acquiring land, the Company considers such factors as: current market conditions, with an emphasis on the prices of comparable new and resale homes in the particular market; expected sales rates; proximity to metropolitan areas; population, industrial and commercial growth patterns; estimated costs of completed lot development; customer preferences; and environmental matters. Senior corporate management controls the commitment of the Company's resources for all land acquisitions and utilizes a series of specific financial and budgetary controls in approving acquisition opportunities identified by division land acquisition personnel. The Company employs strict standards for assessing all proposed land purchases based, in part, upon specific discounted after tax cash flow internal rate of return requirements and also evaluates each division's overall return on investment. The Company's geographic expansion to areas which generally offer lower risk for less investment in land has resulted in more stringent criteria guiding the Company's land investment decisions and has caused it to be more selective in its land investments in the West Coast region. Consistent with its standards, the Company seeks to minimize, or defer the timing of, cash expenditures for new land purchases and development by acquiring lots under option, phasing the land purchase and lot development, relying upon non-recourse seller financing or working with third-party land developers. In addition, the Company focuses on acquiring finished or partially improved lots, which allow the Company to begin delivery of finished homes within six months of the purchase of such lots and reduces the risks of unforeseen improvement costs and volatile market conditions. These techniques are intended to enhance returns associated with new land investments by minimizing the incremental capital required. 7 9 The following table shows the number of lots owned by the Company in various stages of development and under option contracts in its principal markets as of November 30, 2000 and 1999. The table does not include acreage which has not yet been approved for subdivision into lots. This excluded acreage consists of 627 acres and 767 acres owned in the United States in 2000 and 1999, respectively.
TOTAL LOTS HOMES/LOTS IN LAND UNDER LOTS UNDER OWNED OR PRODUCTION DEVELOPMENT OPTION UNDER OPTION --------------- --------------- --------------- --------------- 2000 1999 2000 1999 2000 1999 2000 1999 ------ ------ ------ ------ ------ ------ ------ ------ West Coast........... 6,324 6,393 6,057 5,152 8,475 15,454 20,856 26,999 Southwest............ 5,637 6,712 2,719 3,190 6,395 9,159 14,751 19,061 Central.............. 10,406 8,702 7,245 7,724 12,854 13,840 30,505 30,266 Foreign and Other.... 2,198 1,718 6,119 164 4,367 3,726 12,684 5,608 ------ ------ ------ ------ ------ ------ ------ ------ Total...... 24,565 23,525 22,140 16,230 32,091 42,179 78,796 81,934 ====== ====== ====== ====== ====== ====== ====== ======
The Company has reduced the proportion of unentitled and unimproved land in its portfolio. In addition, the Company has and expects to continue to focus on the purchase of raw land under options which require little or no initial payments, or pursuant to purchase agreements in which the Company's obligations are contingent upon the Company being satisfied with the feasibility of developing and selling homes. During the option period of its acquisition agreements, the Company performs technical, environmental, engineering and entitlement feasibility studies and seeks to obtain necessary government approvals. The use of such option arrangements allows the Company to evaluate and obtain regulatory approvals for a project, to reduce its financial commitments, including interest and other carrying costs, and to minimize land inventories. It also improves the Company's capacity to estimate costs accurately, an important element in planning communities and pricing homes. The Company typically purchases amounts sufficient for its expected production needs and does not purchase land for speculative investment. In France, despite the improvement in the French real estate market, the Company also employs conservative strategies, including a greater emphasis on the entry-level market segment and generally restrictive policies regarding land acquisition. Home Construction and Sale. Following the purchase of land and, if necessary, the completion of the entitlement process, the Company typically begins marketing homes and constructing model homes. 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 construction of production homes is generally contingent upon customer orders to minimize the costs and risks of standing inventory. The Company's KB2000 operational business model emphasizes pre-selling, maintaining stringent control of production inventory and reducing unsold inventory. The pre-selling of homes benefits homebuyers by allowing them to personalize their homes by selecting from a wider range of customizing options. As a result of the Company's KB2000 pre-sale and backlog building strategies, the percentage of sold inventory in production at year-end 2000 rose to 84% from 73% at year-end 1999. The Company acts as the general contractor for virtually all of its communities and hires subcontractors for all production activities. The use of subcontractors enables the Company to reduce its investment in direct labor costs, equipment and facilities. Where practical, the Company uses mass production techniques, and prepackaged, standardized components and materials to streamline the on-site production phase. During the early 1990's, the Company developed systems for national and regional purchasing of certain building materials, appliances and other items to take advantage of economies of scale and to reduce costs. At all stages of production, the Company's own administrative and on-site supervisory personnel coordinate the activities of subcontractors and subject their work to quality and cost controls. As part of its KB2000 strategies, the Company has also emphasized "even flow" production methods to enhance the quality of its new homes, minimize production costs and improve the predictability of revenues and earnings. The Company generally prices its homes only after it has entered into contracts for the construction of such homes with subcontractors, an approach which improves its ability to estimate gross profits accurately. Wherever possible, the Company seeks to acquire land and construct homes at costs which allow selling prices to be set at levels below immediate competitors on a per square foot basis, while maintaining appropriate gross margins. 8 10 The Company's division personnel provide assistance to the homebuyer during all phases of the homebuying process and after the home is sold. The coordinated efforts of sales representatives, KB Home Studio consultants, on-site construction superintendents and post-closing customer service personnel in the customer's homebuying experience is intended to provide high levels of customer satisfaction and lead to enhanced customer retention and referrals. In its domestic homebuilding operations, the Company provides customers with a limited home warranty program administered by the personnel in each of its divisions. This arrangement is designed to give customers prompt and efficient post-delivery service directly from the Company. The limited warranty program covers certain repairs which may be necessary following new home construction for one or two year periods and covers structural integrity for a period of ten years. In the aggregate, the costs associated with the Company's warranty program are not material to its operations. EXTERNAL RISK FACTORS The Company's operations and markets are affected by local and regional factors such as local economies, demographic demand for housing, population growth, employment growth, property taxes and energy costs, and by national factors such as short and long-term interest rates, consumer confidence, federal mortgage financing programs, federal income tax provisions and general economic trends. In addition, homebuilders are subject to various risks including availability and cost of land, conditions of supply and demand in local markets, weather conditions, and delays in construction schedules and the entitlement process. Net orders often vary on a seasonal basis, with the lowest order activity typically occurring in the winter months. The Company's 2000 financial results were affected by various factors, including but not limited to, improved demand for new housing in certain markets in the United States and in France, generally favorable economic conditions in the Company's markets, and low domestic and foreign interest rates. Financial results in 2000 were also adversely impacted by a weakening in the French franc versus the U.S. dollar. The Company believes that the homebuilding industry has been significantly less cyclical over the past several years, and should continue to be less cyclical if these favorable conditions continue. In addition, the Company's strategies, including the KB2000 operational business model, are also intended to reduce the cyclical nature of its business. The projections made by the Company for 2001 could be materially affected by various risk factors such as changes in general economic conditions, either nationally, in the U.S. or France, or in the localized regions in which the Company operates; changes in job growth or employment levels; a downturn in the economy's pace; changes in home mortgage interest rates or consumer confidence, among other things. The Company is proceeding with caution into 2001 as recent economic data indicates an overall slowing in the economy. The Company will closely monitor overall economic trends in 2001 while remaining focused on the effective management of its business units using KB2000 principles to minimize the impact of any sustained economic slowdown. BACKLOG Sales of the Company's homes are made pursuant to standard sales contracts which generally require a customer deposit at the time of execution and an additional payment upon mortgage approval. Subject to particular contract provisions, the Company generally permits customers to cancel their obligations and obtain refunds of their deposits in the event mortgage financing is unobtainable within a specified period of time. Backlog consists of homes for which the Company has entered into a sales contract but which it has not yet delivered. Ending backlog represents the number of units in backlog from the previous period plus the number of net orders (sales made less cancellations) taken during the current period minus unit deliveries made during the current period. The backlog at any given time will be affected by cancellations which most commonly result from the inability of a prospective purchaser to obtain financing. Historically, the Company's cancellation rates have increased during difficult economic periods. In addition, deliveries of new homes typically increase from the first to the fourth quarter in any year. The Company's backlog at November 30, 2000 reached a new year-end record of 10,559 units, up 23% from the 8,558 backlog units at year end 1999. Domestically, improvement occurred in all regions primarily due to generally good market conditions throughout the United States, and the Company's emphasis on pre-sales. The success of communities designed under the Company's KB2000 operational business model also contributed to the increase in domestic backlog levels. KB2000 initiatives caused the Company's backlog ratio to increase to 174% at year-end 2000 from 9 11 157% at year-end 1999. (Backlog ratio is defined as the ratio of beginning unit backlog to actual deliveries in the succeeding quarter). Internationally, unit backlog in France was 33% higher at November 30, 2000 as compared to November 30, 1999. This increase was mainly due to substantial improvement in the French housing market and acquisitions completed during the year. The following table sets forth net orders, unit deliveries and ending backlog relating to sales of homes and homes under contract for each quarter during the three-year period ended November 30, 2000. The information in the table excludes activity related to unconsolidated joint ventures. Activity associated with unconsolidated joint ventures included net orders, unit deliveries and ending backlog of 444, 455, and 208, respectively, for the year ended November 30, 2000, and 38, 38 and 219, respectively, for the year ended November 30, 1999.
NET UNIT ENDING ORDERS DELIVERIES BACKLOG* ------ ---------- -------- Fiscal 2000: First Quarter......................... 5,325 4,565 9,473 Second Quarter........................ 7,837 5,042 12,268 Third Quarter......................... 5,357 5,710 12,115 Fourth Quarter........................ 5,312 7,075 10,559 Fiscal 1999: First Quarter......................... 5,621 4,279 9,216 Second Quarter........................ 7,219 5,139 11,296 Third Quarter......................... 5,347 6,103 10,809 Fourth Quarter........................ 4,869 6,901 8,558 Fiscal 1998: First Quarter......................... 3,716 2,629 5,301 Second Quarter........................ 4,861 3,409 7,581 Third Quarter......................... 3,883 4,167 7,630 Fourth Quarter........................ 4,321 5,008 6,943
* Backlog amounts for 2000 have been adjusted to reflect four acquisitions in France. Therefore, backlog amounts at November 30, 1999 combined with net order and delivery activity for 2000 will not equal ending backlog at November 30, 2000. Similarly, backlog amounts for 1999 were adjusted to reflect the acquisitions of Lewis Homes and Park and backlog amounts for 1998 were adjusted to reflect the acquisitions of Hallmark, PrideMark and Estes, and the acquisition of a majority interest in General Homes. LAND AND RAW MATERIALS Management believes that the Company's current supply of land is sufficient for its reasonably anticipated needs over the next several years, and that it will be able to acquire land on acceptable terms for future housing developments absent great changes in current land acquisition market conditions. The principal raw materials used in the construction of homes are concrete and forest products. (In France, the principal materials used in the construction of commercial buildings are steel, concrete and glass). In addition, the Company uses a variety of other construction materials, including sheetrock, plumbing and electrical items. The Company attempts to maintain efficient operations by utilizing standardized materials which are commercially available on competitive terms from a variety of sources. In addition, the Company's centralized purchasing of certain building materials, appliances and fixtures, enable it to benefit from large quantity purchase discounts for its domestic operations. When possible, the Company makes bulk purchases of such products at favorable prices from suppliers and instructs subcontractors to submit bids based on such prices. LAND SALES In the normal course of its business, the Company sells land which either can be sold at an advantageous price due to market conditions or does not meet its marketing needs. This property may consist of land zoned for commercial use which is part of a larger parcel being developed for single-family homes or in areas where the Company may consider its inventory to be excessive. Generally, land sales fluctuate with decisions to maintain or decrease the Company's land ownership position in certain markets based upon the volume of its holdings, the strength and number of competing developers entering particular markets at given points in time, the availability of land in markets served by the Company 10 12 and prevailing market conditions. Land sales increased in 2000 in connection with the Company's review of its assets and businesses for the purpose of monetizing non-strategic or marginal positions. Land revenues totaled $100.5 million in 2000, $37.8 million in 1999 and $22.5 million in 1998. CUSTOMER FINANCING -- KAUFMAN AND BROAD MORTGAGE COMPANY On-site personnel at the Company's communities in the United States facilitate sales by offering to arrange financing for prospective customers through KBMC. Management believes that the ability to offer customers financing on firm, competitive terms as a part of the sales process is an important factor in completing sales. KBMC's business consists of providing the Company's domestic customers with competitive financing and coordinating and expediting the loan origination transaction through the steps of loan application, loan approval and closing. KBMC has its headquarters in Los Angeles and operates branch offices in Fairfield, California; Las Vegas, Nevada; and San Antonio, Texas. KBMC's principal sources of revenues are: (i) interest income earned on mortgage loans during the period they are held by KBMC prior to their sale to investors; (ii) net gains from the sale of loans; (iii) loan servicing fees; and (iv) revenues from the sale of the rights to service loans. KBMC is approved by the Government National Mortgage Association ("GNMA") as a seller-servicer of Federal Housing Administration ("FHA") and Veterans Administration ("VA") loans. A portion of the conventional loans originated by KBMC (i.e., loans other than those insured by FHA or guaranteed by VA) qualify for inclusion in loan guarantee programs sponsored by Fannie Mae or the Federal Home Loan Mortgage Corporation ("FHLMC"). KBMC arranges for fixed and adjustable rate, conventional, privately insured mortgages, FHA-insured or VA-guaranteed mortgages, and mortgages funded by revenue bond programs of states and municipalities. In 2000, 47% of the mortgages originated for the Company's customers were conventional (most of which conformed to Fannie Mae and FHLMC guidelines), 39% were FHA-insured or VA-guaranteed (a portion of which are adjustable rate loans), 8% were funded by mortgage revenue bond programs and 6% were adjustable rate mortgages ("ARMs") provided through commitments from institutional investors. The percentages set forth above change from year to year reflecting then-current fixed interest rates, introductory rates for ARMs, housing prices and other economic conditions. In 2000, KBMC originated loans for 74% of the Company's domestic home deliveries to end users who obtained mortgage financing. KBMC is a delegated underwriter under the FHA Direct Endorsement and VA Automatic programs in accordance with criteria established by such agencies. Additionally, KBMC has delegated underwriting authority from Fannie Mae and FHLMC. As a delegated underwriter, KBMC may underwrite and close mortgage loans under programs sponsored by these agencies without their prior approval, which expedites the loan origination process. KBMC customarily sells nearly all of the loans that it originates. Loans are sold either individually or in pools to GNMA, Fannie Mae or FHLMC or against forward commitments to institutional investors, including banks and savings and loan associations. KBMC typically sells servicing rights on a regular basis for substantially all of the loans it originates. However, for a small percentage of loans, and to the extent required for loans being held for sale to investors, KBMC services the mortgages that it originates. Servicing includes collecting and remitting loan payments, accounting for principal and interest, making inspections of mortgaged premises as required, monitoring delinquent mortgages and generally administering the loans. KBMC receives fees for servicing mortgage loans, generally ranging from .250% per annum to .375% per annum on the declining principal balances of the loans. The Company also assists its customers in France by arranging financing through third-party lenders, primarily major French banks with which the Company has established relationships. In some cases, French customers qualify for certain government-assisted, home financing programs. A second mortgage is usually handled through a government agency. A homebuyer in France may also have a third mortgage provided through credit unions or other employee groups. 11 13 EMPLOYEES All of the Company's operating divisions operate independently with respect to day-to-day operations within the context of the KB2000 operational business model. All land purchases and other significant construction, mortgage banking and similar operating decisions must be approved by the operating division and/or senior corporate management. The Company employs a trained staff of land acquisition specialists, architects, planners, engineers, construction supervisors, marketing and sales personnel and finance and accounting personnel, supplemented as necessary by outside consultants, who guide the development of communities from their conception through the marketing and sale of completed homes. At January 31, 2001, the Company had approximately 3,500 full-time employees in its operations, including approximately 400 in KBMC's operations. No employees are represented by a collective bargaining agreement. Construction and mortgage banking personnel are paid performance bonuses based on individual performance and incentive compensation based on the performance of the applicable operating division or subsidiary. The Company's corporate personnel are typically paid performance bonuses based on individual performance and incentive compensation based on the overall performance of the Company. Each operating division or subsidiary is given autonomy regarding employment of personnel within policy guidelines established by the Company's senior management. COMPETITION AND OTHER FACTORS The Company expects the use of the KB2000 operational business model, particularly the aspects which involve gaining a deeper understanding of customer interests and needs and offering a wide range of choice to homebuyers, to provide it with long-term competitive advantages. The housing industry is highly competitive, and the Company competes with numerous housing producers ranging from regional and national firms to small local builders primarily on the basis of price, location, financing, design, reputation, quality and amenities. In addition, the Company competes with other housing alternatives including existing homes and rental housing. In certain markets and at times when housing demand is high, the Company also competes with other builders to hire subcontractors. The Company has historically been one of the market leaders in each of the markets where it operates. Increases in interest rates typically have a negative impact on the Company's operations in that such increases adversely affect the availability of home financing to, or qualification for such financing by, the Company's customers. Conversely, significant reductions in interest rates typically have a positive effect on the Company's operations. The relatively low interest rates which have been in effect since the mid-1990s have been beneficial to the Company's improved domestic results. The Company believes that, by virtue of its KB2000 operational business model and the wide array of mortgage financing products readily available to its homebuyers, the Company is less susceptible to adverse impacts of interest rate increases on order rates than in the past. The Company does not generally finance the development of its domestic communities with proceeds of loans specifically obtained for, or secured by, particular communities, i.e., project financing. Instead, financing of the Company's domestic operations has been primarily generated from results of operations, public debt and equity financing, and borrowings under its $725 million unsecured credit facility with various banks. On October 6, 2000, the Company entered into the $725 million unsecured revolving credit facility, consisting of a $564 million four-year committed revolving credit facility and a $161 million five-year term loan, which together replaced its previously existing revolving credit facility and term loan. Financing of the Company's French operations has been primarily generated from results of operations and borrowings from its unsecured committed credit lines with a series of foreign banks. Furthermore, the initial public offering of the Company's French operations, completed in February 2000, has strengthened the French business by providing it with access to additional capital to support its growth. As a result of diverse external sources of financing, the Company was not adversely affected by the tight credit conditions that much of the homebuilding industry experienced during the recession of the early to mid-1990s, both domestically and in France. On February 8, 2001, pursuant to the 1997 Shelf Registration, the Company issued $250 million of 9 1/2% senior subordinated notes at 100% of the principal amount of the notes. Proceeds from the issuance of the notes were used to pay down bank borrowings. 12 14 KBMC competes with other mortgage lenders, including national, regional and local mortgage bankers, savings and loan associations and other financial institutions, in the origination, sale and servicing of mortgage loans. Principal competitive factors include interest rates and other features of mortgage loan products available to the consumer. KBMC's operations are financed primarily through a $300 million revolving Mortgage Warehouse Facility and a $250 million Master Loan and Security Agreement with an investment bank. REGULATION AND ENVIRONMENTAL MATTERS The housing industry is subject to extensive and complex regulations. The Company and its subcontractors must comply with various federal, state and local laws, ordinances, rules and regulations concerning zoning, building design, construction and similar matters. The operations of the Company are affected by environmental laws and regulations, including regulations pertaining to availability of water, municipal sewage treatment capacity, land use, protection of endangered species, population density and preservation of the natural terrain and coastlines. These and other requirements could become more restrictive in the future, resulting in additional time and expense to obtain approvals for the development of communities. The Company is also subject to regulations and restrictions by the government of France concerning investments in business operations in those countries by U.S. companies, none of which has to date had a material adverse effect on the Company's consolidated operations. The Company's foreign operations are also subject to exchange rate fluctuations, which affect the Company's financial statements and the reporting of profits and payment of dividends from foreign subsidiaries, and to the terms of the Foreign Corrupt Practices Act with which it is the strict policy of the Company to comply. In addition, the Company periodically receives dividends and royalties from its French operations without burdensome restrictions. KBMC is subject to numerous federal, state and local laws, ordinances, rules and regulations concerning loans to purchasers of homes as well as Company eligibility for participation in programs of the VA, FHA, GNMA, Fannie Mae and FHLMC. The Company entered into a consent order with the Federal Trade Commission in 1979, to which the Company is still subject and pursuant to which the Company has agreed to provide explicit warranties on the quality and workmanship of its new homes, follow certain guidelines in advertising and provide certain disclosures to any prospective purchaser who visits Company sales offices or model homes. It is Company policy to use third-party environmental consultants to investigate land considered for acquisition for environmental risks and requiring disclosure from land sellers of known environmental risks. Despite these activities, there can be no assurance that the Company will avoid material liabilities relating to the removal of toxic wastes, site restoration, monitoring or other environmental matters affecting properties currently or previously owned by the Company. No estimate of such potential liabilities can be made although the Company may, from time to time, purchase property which requires modest environmental clean-up costs after appropriate due diligence. In such instances, the Company takes steps prior to acquisition to assure itself as to the precise scope of work required and costs associated with removal, site restoration and/or monitoring, using detailed investigations by environmental consultants. To the extent such contamination or other environmental issues have occurred in the past, the Company believes it may be able to recover restoration costs from third parties, including, but not limited to, the generators of hazardous waste, land sellers or others in the prior chain of title and/or insurers. Utilizing such policies, the Company anticipates that it is not likely that environmental clean-up costs will have a material effect on future results of operations or the Company's financial position. The Company has not been notified by any governmental agency of any claim that any of the properties owned or formerly owned by the Company are identified by the Environmental Protection Agency as being a "Superfund" clean-up site requiring clean-up costs, which could have a material effect on the Company's future financial position or results of operations. Costs associated with the use of environmental consultants are not material to the Company's results of operations. ITEM 2. PROPERTIES The Company's executive offices are in leased premises at 10990 Wilshire Boulevard, Los Angeles, California. The Company's housing operations are principally conducted from leased premises located in Phoenix and Tucson, Arizona; 13 15 Fremont, Irvine, Los Angeles, Pleasanton, Pomona, San Diego and Vacaville, California; Denver, Colorado; Las Vegas and Reno, Nevada; Albuquerque, New Mexico; Austin, Dallas and Houston, Texas; and Paris, France. The Company's mortgage banking subsidiary leases executive offices in Los Angeles, California and branch offices in Fairfield, California and Las Vegas, Nevada. The Company's homebuilding and mortgage banking operations in San Antonio, Texas are principally conducted from premises which the Company owns. The Company believes that such properties, including the equipment located therein, are suitable and adequate to meet the requirements of its businesses. ITEM 3. LEGAL PROCEEDINGS The Company is involved in litigation incidental to its business. These cases are in various procedural stages and, based on reports of counsel, it is management's opinion that provisions or reserves made for potential losses are adequate and any liabilities or costs arising out of currently pending litigation will not have a materially adverse effect upon the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 2000 to a vote of security holders, through the solicitation of proxies or otherwise. 14 16 EXECUTIVE OFFICERS OF THE COMPANY The following sets forth certain information regarding the executive officers of the Company as of January 31, 2001:
YEAR ASSUMED PRESENT POSITION AT PRESENT OTHER POSITIONS AND OTHER BUSINESS EXPERIENCE WITHIN NAME AGE JANUARY 31, 2001 POSITION THE LAST FIVE YEARS(1) - --------------------- --- ------------------------- -------- ---------------------------------------------------- Bruce Karatz 55 Chairman, President and 1993 Chief Executive Officer Jeffrey T. Mezger 45 Chief Operating Officer 1999 Senior Vice President and Regional General Manager and Executive Vice President, Kaufman and Broad of Arizona, Inc. President Glen Barnard 56 Executive Vice President, 1999 Senior Vice President and Regional General Manager President, e.KB, Inc. President, Kaufman and Broad of Utah, Inc. President, Kaufman and Broad of Colorado, Inc. Guy Nafilyan 56 Chairman, President and 1999 President, European Operations Chief Executive Officer, President and Chief Executive Officer, Kaufman & Kaufman & Broad S.A. Broad S.A. (formerly Kaufman and Broad France) Barton P. Pachino 41 Senior Vice President and 1993 General Counsel Albert Z. Praw 52 Senior Vice President, 1999 Senior Vice President, Business Development Asset Management and President, Kaufman and Broad of Southern Acquisitions California, Inc. Senior Vice President and Regional General Manager Senior Vice President, Real Estate Gary A. Ray 42 Senior Vice President, 1996 Vice President, Training and Development, PepsiCo Human Resources Restaurants International William R. Hollinger 42 Vice President and 1992 Controller NAME FROM - TO - --------------------- --------- Bruce Karatz Jeffrey T. Mezger 1998-1999 1995-1999 Glen Barnard 1996-1999 1997-1998 1995-1998 Guy Nafilyan 1992-1999 1983-1999 Barton P. Pachino Albert Z. Praw 1998-1999 1997-1998 1996-1998 1994-1996 Gary A. Ray 1994-1996 William R. Hollinger
- --------------- (1) All positions described were with the Company, unless otherwise indicated. 15 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of January 31, 2001, there were 1,357 holders of record of the Company's common stock. Information as to the Company's quarterly stock prices is included on page 76 of the Company's 2000 Annual Report to Stockholders, which is included as part of Exhibit 13 hereto. Information as to the principal markets on which the Company's common stock is being traded and quarterly cash dividends is included on page 76 of the Company's 2000 Annual Report to Stockholders, which is included as part of Exhibit 13 hereto. ITEM 6. SELECTED FINANCIAL DATA The Five Year Summary of KB Home for the five-year period ended November 30, 2000 is included on page 34 of the Company's 2000 Annual Report to Stockholders, which is included as part of Exhibit 13 hereto. It should be read in conjunction with the consolidated financial statements included in the Company's 2000 Annual Report to Stockholders which are also included as part of Exhibit 13 hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations of KB Home is included on pages 35 through 49 of the Company's 2000 Annual Report to Stockholders, which are included as part of Exhibit 13 hereto. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company primarily enters into debt obligations to support general corporate purposes, including acquisitions, and the operations of its divisions. The primary market risk facing the Company is the interest rate risk on its senior and senior subordinated notes. The Company has no cash flow exposure due to interest rate changes for these notes. In connection with the Company's mortgage banking operations, mortgage loans held for sale and the associated Mortgage Warehouse Facility and Master Loan and Security Agreement are subject to interest rate risk; however, such obligations reprice frequently and are short-term in duration and accordingly the risk is not material. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes. The following table sets forth as of November 30, 2000, the Company's long-term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value (in thousands):
YEARS ENDED NOVEMBER 30, FAIR VALUE AT ----------------------------------------------------------------- NOVEMBER 30, 2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000 -------- -------- -------- -------- -------- ---------- -------- ------------- Long-term debt(1) -- -- $174,534 $175,000 -- $124,581 $474,115 $460,243 Fixed Rate Weighted Average Interest Rate -- -- 9.4% 7.8% -- 9.6%
- --------------- (1) Includes senior and senior subordinated notes A portion of the Company's construction operations are located in France. As a result, the Company's financial results could be affected by factors such as changes in the foreign currency exchange rate or weak economic conditions in its markets. The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currency in France, as a result of its sales in foreign markets. Therefore, for the year ending November 30, 2000, the result of a 10% uniform strengthening in the value of the dollar relative to the currency in which the Company's sales were denominated in France would have resulted in a decrease in revenues of $47.5 million and a decrease in pretax income of $3.4 million. Comparatively, the 1999 results of a 10% uniform strengthening in the value of the dollar relative to the currencies in which the Company's sales were denominated would have been a decrease in revenues of 16 18 $40.5 million and a decrease in pretax income of $2.8 million. These calculations assume that each exchange rate would change in the same direction relative to the U.S. dollar. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of KB Home are included on pages 50 through 72 of the Company's 2000 Annual Report to Stockholders, which are included as part of Exhibit 13 hereto. Reference is made to the Index to Financial Statements on page F-1 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Notice of 2001 Annual Meeting of Stockholders and Proxy Statement, filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, is incorporated by reference in this Annual Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K and provides the information required under Part III (Items 10, 11, 12 and 13) except for the information regarding the executive officers of the Company, which is included in Part I on page 15 herein. PART IV ITEM 14. FINANCIAL STATEMENTS, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS Reference is made to the index set forth on page F-1 of this Annual Report on Form 10-K. EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Purchase Agreement (Amended and Restated), executed January 7, 1999, between the Company and the Lewis Homes sellers, filed as an exhibit to the Company's Current Report on Form 8-K dated January 7, 1999, is incorporated by reference herein. 2.2 Representation, Warranty and Indemnity Agreement, dated January 7, 1999, between the Company and certain entities affiliated with the Lewis Homes sellers, filed as an exhibit to the Company's Current Report on Form 8-K dated January 7, 1999, is incorporated by reference herein. 3.1 Amended Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 3.2 Amendment to Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 3.3 Certificate of Designation of Series A Participating Cumulative Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 3.4 Certificate of Designation of Series B Mandatory Conversion Premium Dividend Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein.
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EXHIBIT NO. DESCRIPTION ------- ----------- 3.5 Amended Certificate of Designation of Series B Mandatory Conversion Premium Dividend Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 3.6 Amended Certificate of Designation of Series A Participating Cumulative Preferred Stock, filed as an exhibit to the Company's Registration Statement No. 001-09195 on Form 8-A12B, is incorporated by reference herein. 3.7 Certificate of Ownership and Merger effective January 17, 2001 merging KB Home, Inc. into Kaufman and Broad Home Corporation, through which the name of the Company was changed to KB HOME. 3.8 By-Laws, as amended and restated on January 17, 2001, to reflect the change in the Company's name. 4.1 Amended Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 4.2 Amendment to Certificate of Incorporation, filed as an exhibit to the Company's Registration Statement No. 33-30140 on Form S-1, is incorporated by reference herein. 4.3 Indenture relating to 9 3/8% Senior Subordinated Notes due 2003 between the Company and First National Bank of Boston, dated May 1, 1993, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 4.4 Specimen of 9 3/8% Senior Subordinated Notes due 2003, filed as an exhibit to the Company's Registration Statement No. 33-59516 on Form S-3, is incorporated by reference herein. 4.5 Indenture relating to 9 5/8% Senior Subordinated Notes due 2006 between the Company and SunTrust Bank, Atlanta, dated November 19, 1996, filed as an exhibit to the Company's Current Report on Form 8-K dated November 19, 1996, is incorporated by reference herein. 4.6 Specimen of 9 5/8% Senior Subordinated Notes due 2006, filed as an exhibit to the Company's Current Report on Form 8-K dated November 19, 1996, is incorporated by reference herein. 4.7 Indenture relating to 7 3/4% Senior Notes due 2004 between the Company and SunTrust Bank, Atlanta, dated October 14, 1997, filed as an exhibit to the Company's Current Report on Form 8-K dated October 14, 1997, is incorporated by reference herein. 4.8 Specimen of 7 3/4% Senior Notes due 2004, filed as an exhibit to the Company's Current Report on Form 8-K dated October 14, 1997, is incorporated by reference herein. 4.9 Certificate of Trust of KBHC Financing I, filed as an exhibit to the Company's registration Statement Nos. 333-51825 and 333-51825-01 (Amendment No. 4) on Form S-3, is incorporated by reference herein. 4.10 Declaration of Trust of KBHC Financing I, filed as an exhibit to the Company's Registration Statement Nos. 333-51825 and 333-51825-01 (Amendment No. 4) on Form S-3, is incorporated by reference herein. 4.11 Amended and Restated Declaration of Trust of KBHC Financing I, dated July 7, 1998, (including Capital Security Certificate for KBHC Financing I, with respect to the Capital Securities) filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.12 Guarantee Agreement, dated July 7, 1998, in respect of KBHC Financing I, in respect of the Capital Securities, filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.13 Indenture, dated July 7, 1998 between the Company and The First National Bank of Chicago, as Trustee, filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.14 First Supplemental Indenture, dated July 7, 1998, between the Company and The First National Bank of Chicago, as Trustee, (including Debentures) filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein.
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EXHIBIT NO. DESCRIPTION ------- ----------- 4.15 Purchase Contract Agreement, dated July 7, 1998, between the Company and The First National Bank of Chicago, as Purchase Contract Agent, filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.16 Pledge Agreement, dated July 7, 1998, between the Company, The Chase Manhattan Bank, as Collateral Agent, Custodial Agent and Securities Intermediary and The First National Bank of Chicago, as Purchase Contract Agent, filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.17 Remarketing Agreement, dated July 7, 1998, among the Company, The First National Bank of Chicago and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, filed as an exhibit to the Company's Current Report on Form 8-K dated August 14, 1998, is incorporated by reference herein. 4.18 Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated February 4, 1999, filed as an exhibit to the Company's Current Report on Form 8-K dated February 4, 1999, is incorporated by reference herein. 4.19 By-Laws, as amended and restated on January 17, 2001, to reflect the change in the Company's name, included as Exhibit No. 3.8 herein. 10.1 1986 Stock Option Plan, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 10.2 1988 Employee Stock Plan, filed as an exhibit to the definitive Joint Proxy Statement for the Company's 1989 Special Meeting of Shareholders, is incorporated by reference herein. 10.3 Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company's Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein. 10.4 SunAmerica Inc. Executive Deferred Compensation Plan, approved September 25, 1985, filed as an exhibit to SunAmerica Inc.'s 1985 Annual Report on Form 10-K, is incorporated by reference herein. 10.5 Directors' Deferred Compensation Plan established effective July 27, 1989, filed as an exhibit to the Company's 1989 Annual Report on Form 10-K, is incorporated by reference herein. 10.6 Settlement with Federal Trade Commission of June 27, 1991, filed as an exhibit to the Company's Current Report on Form 8-K, dated June 28, 1991, is incorporated by reference herein. 10.7 Amendments to the Kaufman and Broad Home Corporation 1988 Employee Stock Plan dated January 27, 1994, filed as an exhibit to the Company's 1994 Annual Report on Form 10-K, are incorporated by reference herein. 10.8 Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.9 Form of Stock Option Agreement under Kaufman and Broad Home Corporation Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.10 Employment Contract of Bruce Karatz, dated December 1, 1995, filed as an exhibit to the Company's 1995 Annual Report on Form 10-K, is incorporated by reference herein. 10.11 Kaufman and Broad Home Corporation Unit Performance Program, filed as an exhibit to the Company's 1996 Annual Report on Form 10-K, is incorporated by reference herein. 10.12 Kaufman and Broad France Incentive Plan, filed as an exhibit to the Company's 1997 Annual Report on Form 10-K, is incorporated by reference herein. 10.13 Registration Rights Agreement, dated January 7, 1999, filed as an exhibit to the Company's Current Report on Form 8-K, dated January 7, 1999, is incorporated by reference herein. 10.14 Kaufman and Broad Home Corporation 1998 Stock Incentive Plan, filed as an exhibit to the Company's 1998 Annual Report on Form 10-K, is incorporated by reference herein.
19 21
EXHIBIT NO. DESCRIPTION ------- ----------- 10.15 Kaufman and Broad Home Corporation Directors' Legacy Program, as amended January 1, 1999, filed as an exhibit to the Company's 1998 Annual Report on Form 10-K, is incorporated by reference herein. 10.16 Kaufman and Broad Home Corporation 1999 Incentive Plan, filed as an exhibit to the Company's 1999 Annual Report on Form 10-K, is incorporated by reference herein. 10.17 Trust Agreement between Kaufman and Broad Home Corporation and Wachovia Bank, N.A. as Trustee, dated as of August 27, 1999, filed as an exhibit to the Company's 1999 Annual Report on Form 10-K, is incorporated by reference herein. 10.18 Non-Employee Directors Stock Plan, as amended and restated as of December 6, 1999, filed as an exhibit to the Company's 1999 Annual Report on Form 10-K, is incorporated by reference herein. 10.19 Stock Purchase Agreement, dated as of September 21, 2000, by and between the Company and certain of the Lewis Homes sellers. 10.20 2000 Revolving Credit Facility, dated as of October 3, 2000, by and among the Company, the banks party thereto, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager. 10.21 2000 Term Credit Facility, dated as of October 3, 2000, by and among the Company, the banks party thereto, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager. 10.22 Form of limited liability company Operating Agreement under the e.KB Equity Incentive Program. 13 Pages 34 through 72 and page 76 of the Company's 2000 Annual Report to Stockholders. 22 Subsidiaries of the Company. 24 Consent of Independent Auditors.
FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements and notes thereto. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 2000. 20 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KB HOME By: /s/ WILLIAM R. HOLLINGER ------------------------------------ William R. Hollinger Vice President and Controller Dated: February 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ BRUCE KARATZ Chairman, President and February 28, 2001 - ----------------------------------------------------- Chief Executive Officer Bruce Karatz (Principal Executive Officer) /s/ WILLIAM R. HOLLINGER Vice President and Controller February 28, 2001 - ----------------------------------------------------- (Principal Financial Officer William R. Hollinger and Principal Accounting Officer) /s/ RONALD W. BURKLE Director February 28, 2001 - ----------------------------------------------------- Ronald W. Burkle /s/ HENRY G. CISNEROS Director February 28, 2001 - ----------------------------------------------------- Henry G. Cisneros /s/ JANE EVANS Director February 28, 2001 - ----------------------------------------------------- Jane Evans /s/ DR. RAY R. IRANI Director February 28, 2001 - ----------------------------------------------------- Dr. Ray R. Irani /s/ JAMES A. JOHNSON Director February 28, 2001 - ----------------------------------------------------- James A. Johnson /s/ RANDALL W. LEWIS Director February 28, 2001 - ----------------------------------------------------- Randall W. Lewis /s/ DR. BARRY MUNITZ Director February 28, 2001 - ----------------------------------------------------- Dr. Barry Munitz /s/ GUY NAFILYAN Director February 28, 2001 - ----------------------------------------------------- Guy Nafilyan /s/ LUIS G. NOGALES Director February 28, 2001 - ----------------------------------------------------- Luis G. Nogales /s/ SANFORD C. SIGOLOFF Director February 28, 2001 - ----------------------------------------------------- Sanford C. Sigoloff
21 23 KB HOME AND CONSOLIDATED SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS The consolidated financial statements, together with the report thereon of Ernst & Young LLP, dated December 21, 2000, all appearing on pages 50 through 72 of the 2000 Annual Report to Stockholders, are incorporated in this Annual Report on Form 10-K between page F-1 and the List of Exhibits Filed. With the exception of the aforementioned information and the information incorporated in Items 5, 6 and 7, the 2000 Annual Report to Stockholders is not to be deemed filed as part of this Annual Report on Form 10-K. Separate combined financial statements of the Company's unconsolidated joint venture activities have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary as defined by Rule 3-09 of Regulation S-X. ------------------------
PAGE NO. IN ANNUAL REPORT TO STOCKHOLDERS --------------- KB HOME Consolidated Statements of Income for the years ended November 30, 2000, 1999 and 1998............................ 50 Consolidated Balance Sheets as of November 30, 2000 and 1999... 51 Consolidated Statements of Stockholders' Equity for the years ended November 30, 2000, 1999 and 1998...................... 52 Consolidated Statements of Cash Flows for the years ended November 30, 2000, 1999 and 1998............................ 53 Notes to Consolidated Financial Statements..................... 54 through 70 Report of Independent Auditors................................. 71 Report on Financial Statements................................. 72
The following pages represent pages 34 through 72 and page 76 of the 2000 Annual Report to Stockholders of KB Home, and include the Five Year Summary, Management's Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and related notes thereto, the Report of Independent Auditors, Report on Financial Statements, Stockholder Information and Common Stock Prices. These pages were filed with the Securities and Exchange Commission as Exhibit 13 hereto. F-1 24 SELECTED FINANCIAL INFORMATION
YEARS ENDED NOVEMBER 30, ------------------------------------------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------- Construction: Revenues $ 3,870,488 $ 3,772,121 $ 2,402,966 $ 1,843,614 $ 1,754,147 Operating income (loss)(1) 288,609 259,107 148,672 101,751 (72,078) Total assets 2,361,768 2,214,076 1,542,544 1,133,861 1,000,159 Mortgages and notes payable 987,980 813,424 529,846 496,869 442,629 ------------------------------------------------------------------------------- Mortgage banking: Revenues $ 60,370 $ 64,174 $ 46,396 $ 35,109 $ 33,378 Operating income(2) 23,832 17,464 21,413 14,508 12,740 Total assets 467,153 450,159 317,660 285,130 243,335 Notes payable 385,294 377,666 239,413 200,828 134,956 Collateralized mortgage obligations 29,928 36,219 49,264 60,058 68,381 ------------------------------------------------------------------------------- Consolidated: Revenues $ 3,930,858 $ 3,836,295 $ 2,449,362 $ 1,878,723 $ 1,787,525 Operating income (loss)(1),(2) 312,441 276,571 170,085 116,259 (59,338) Net income (loss)(1),(2),(3) 209,960 147,469 95,267 58,230 (61,244) Total assets 2,828,921 2,664,235 1,860,204 1,418,991 1,243,494 Mortgages and notes payable 1,373,274 1,191,090 769,259 697,697 577,585 Collateralized mortgage obligations 29,928 36,219 49,264 60,058 68,381 Mandatorily redeemable preferred securities (Feline Prides) 189,750 189,750 189,750 Stockholders' equity(1),(2),(3) 654,759 676,583 474,511 383,056 340,350 ------------------------------------------------------------------------------- Basic earnings (loss) per share(1),(2),(3) $ 5.39 $ 3.16 $ 2.41 $ 1.50 $ (1.80) Diluted earnings (loss) per share(1),(2),(3) 5.24 3.08 2.32 1.45 (1.80) Cash dividends per common share .30 .30 .30 .30 .30 ===============================================================================
(1) Reflects a $170.8 million construction pretax noncash charge for impairment of long-lived assets recorded in the second quarter of 1996. (2) Reflects an $18.2 million mortgage banking pretax secondary marketing trading loss recorded in the third quarter of 1999. (3) Reflects a $39.6 million construction gain on issuance of French subsidiary stock recorded in the first quarter of 2000. 34 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW Revenues are primarily generated from the Company's (i) housing operations in the western United States and France and (ii) its domestic mortgage banking operations. The Company's construction revenues are generated from operating divisions in the following regional groups: "West Coast"- California; "Southwest"- Arizona, Nevada and New Mexico; and "Central"- Colorado and Texas. For several years prior to this report, the Company grouped its domestic operating divisions in two regions: California and "Other U.S." All year-over-year comparisons have been accomplished by restating applicable prior years' results in a manner consistent with the new regional groupings. The Company reported record earnings for the third consecutive year in 2000. Net income for the year ended November 30, 2000 totaled $210.0 million and diluted earnings per share reached $5.24, including a one-time gain on the issuance of stock by the Company's French subsidiary in an initial public offering in February 2000. Excluding this gain, diluted earnings per share were $4.25, compared to diluted earnings per share of $3.33 (excluding a secondary marketing trading loss) recorded in 1999. During the 2000 fiscal year, the Company delivered 22,392 homes. Total Company revenues rose to an all-time high of $3.93 billion in 2000, up 2.5% from $3.84 billion in 1999, which had increased 56.6% from revenues of $2.45 billion in 1998. The increase in 2000 mainly resulted from increases in housing and land sale revenues. The increase in revenues in 1999 compared to 1998 was primarily attributable to higher housing and land sale revenues, as well as increased revenues from mortgage banking operations. Operating results for 1999 included the results of Lewis Homes from its January 1999 acquisition date, as well as the first full year of results from the acquisitions of Houston-based Hallmark Residential Group ("Hallmark") and Phoenix/Tucson-based Estes Homebuilding Co. ("Estes") and the assets of Denver-based PrideMark Homebuilding Group ("PrideMark"), all of which the Company completed in the second quarter of 1998. Operating results for 1999 also reflected the acquisition of the remaining minority interest of General Homes, which occurred on January 4, 1999. The Company had acquired a majority interest in General Homes in August 1998. Included in total Company revenues were mortgage banking revenues of $60.4 million in 2000, $64.2 million in 1999 and $46.4 million in 1998, respectively. Net income increased $62.5 million or 42.4% to $210.0 million, or $5.24 per diluted share in 2000, both Company records, up from $147.5 million, or $3.08 per diluted share in 1999. These results include a one-time gain of $39.6 million, or $.99 per diluted share, on the issuance of stock by the Company's French subsidiary in an initial public offering in February 2000 (the "French IPO gain"). Excluding the French IPO gain, diluted earnings per share for 2000 were $4.25, up 27.6% compared with 1999, excluding the secondary marketing trading loss. The increase in diluted earnings per share in 2000 was principally driven by the combined effect of a higher housing gross margin, lower selling, general and administrative expenses, a lower effective income tax rate and a 16.2% reduction in the average number of diluted shares outstanding due to the Company's share repurchase program. Net income of $147.5 million, or $3.08 per diluted share for 1999 was 54.8% higher than the $95.3 million, or $2.32 per diluted share recorded in 1998. Net income and diluted earnings per share for 1999 included the impact of a third quarter secondary marketing trading loss, resulting from unauthorized trading by an employee at the Company's mortgage banking subsidiary. The loss totaled $11.8 million, or $.25 per diluted share, on an after tax basis. Excluding the impact of the trading loss, net income for 1999 was $159.2 million and diluted earnings per share were $3.33. The growth in diluted earnings per share occurred despite the trading loss and despite an increase of 16.6% in the diluted average number of common shares outstanding in 1999, resulting from the Lewis Homes acquisition which closed on January 7, 1999. The increase in diluted earnings per share in 1999 was principally driven by significantly higher unit deliveries, an improved construction gross margin and a reduction in the selling, general and administrative expense ratio. 35 26 CONSTRUCTION REVENUES Construction revenues rose to $3.87 billion in 2000 from $3.77 billion in 1999, which had increased from $2.40 billion in 1998. The increase in 2000 was primarily due to higher housing and land sale revenues. The improvement in 1999 was mainly the result of increased housing revenues, due, among other things, to the acquisition of Lewis Homes in 1999, the inclusion of a full year's operating results from the operations in Houston, Denver and Phoenix/Tucson acquired during 1998, and higher land sale revenues.
UNCONSOLIDATED WEST COAST SOUTHWEST CENTRAL FOREIGN TOTAL JOINT VENTURES ------------------------------------------------------------------------ Unit Deliveries 2000 First 1,128 1,264 1,653 520 4,565 123 Second 1,207 1,349 1,884 602 5,042 137 Third 1,444 1,596 1,944 726 5,710 102 Fourth 1,697 1,623 2,631 1,124 7,075 93 ------------------------------------------------------------------------ Total 5,476 5,832 8,112 2,972 22,392 455 ======================================================================== 1999 First 1,199 1,130 1,627 323 4,279 Second 1,430 1,376 1,845 488 5,139 Third 1,629 1,590 1,936 948 6,103 Fourth 2,065 1,705 2,401 730 6,901 38 ------------------------------------------------------------------------ Total 6,323 5,801 7,809 2,489 22,422 38 ======================================================================== Net Orders 2000 First 1,341 1,523 1,903 558 5,325 115 Second 2,178 1,875 2,888 896 7,837 121 Third 1,301 1,301 2,191 564 5,357 102 Fourth 1,198 1,337 1,941 836 5,312 106 ------------------------------------------------------------------------ Total 6,018 6,036 8,923 2,854 23,831 444 ======================================================================== 1999 First 1,572 1,284 2,230 535 5,621 Second 2,104 1,901 2,297 917 7,219 Third 1,660 1,457 1,720 510 5,347 Fourth 1,314 1,431 1,477 647 4,869 38 ------------------------------------------------------------------------ Total 6,650 6,073 7,724 2,609 23,056 38 ========================================================================
36 27
UNCONSOLIDATED WEST COAST SOUTHWEST CENTRAL FOREIGN TOTAL JOINT VENTURES ---------------------------------------------------------------------------------------- Ending Backlog-Units 2000 First 2,092 2,366 3,449 1,566 9,473 211 Second 3,063 2,892 4,453 1,860 12,268 195 Third 2,920 2,597 4,700 1,898 12,115 195 Fourth 2,421 2,311 4,010 1,817 10,559 208 ======================================================================================== 1999 First 1,925 2,208 3,887 1,196 9,216 Second 2,599 2,733 4,339 1,625 11,296 Third 2,630 2,600 4,123 1,456 10,809 Fourth 1,879 2,107 3,199 1,373 8,558 219 ======================================================================================== Ending Backlog-Value In thousands 2000 First $ 495,782 $ 349,122 $ 438,739 $ 249,581 $1,533,224 $ 38,824 Second 755,243 413,692 570,012 315,151 2,054,098 36,660 Third 737,912 377,324 607,767 310,240 2,033,243 35,880 Fourth 643,620 345,609 541,258 272,901 1,803,388 42,224 ======================================================================================== 1999 First $ 449,993 $ 305,339 $ 454,944 $ 196,028 $1,406,304 Second 613,466 389,458 524,065 270,229 1,797,218 Third 631,823 371,160 511,378 235,544 1,749,905 Fourth 457,439 299,520 396,962 228,213 1,382,134 $ 33,945 ========================================================================================
Housing revenues totaled a record $3.77 billion in 2000, $3.73 billion in 1999 and $2.38 billion in 1998. In 2000, housing revenues increased 1.0% from 1999 as a result of a 1.1% increase in the average selling price as unit volume remained nearly flat with the prior year. In 1999, housing revenues were up 56.9% from 1998 as a result of a 47.4% increase in unit volume and a 6.5% rise in the average selling price. Housing revenues from West Coast operations were $1.41 billion in 2000, down 9.5% from $1.56 billion in 1999 as a result of a 13.4% decrease in unit deliveries, partially offset by a 4.5% increase in the average selling price. West Coast housing operations generated 42.7% of domestic housing revenues in 2000, down from 46.8% in 1999 and 51.3% in 1998, mainly as a result of the Company's selective land investments in the region and the continued expansion of its Southwest and Central region operations. This marks a consistent trend of diversification of the Company's domestic operations outside of California since 1993. Housing revenues generated from the Company's Southwest region totaled $846.9 million in 2000, up 2.9% from $823.2 million in 1999, while the Central region posted housing revenues of $1.04 billion, up 10.4% from $945.4 million a year earlier. Both the Southwest and Central regions gained deliveries in 2000 with the Southwest up by 31 units and the Central region up by 303 units when compared to 1999. Housing revenues in the Southwest were up in 1999 from $351.5 million in 1998, as a result of both increased deliveries and a higher average selling price, partly due to acquisitions. In the Central region, housing revenues in 1999 rose from $684.3 million in 1998 as a result of expansion in both Colorado and Texas, including the full year impact of acquisitions completed during 1998. Operations in France generated housing revenues of $470.3 million in 2000, up 16.6% from $403.4 million in 37 28 1999, as a result of higher unit volume, partially offset by a lower average selling price. In 1998, housing revenues from operations in France totaled $240.0 million. Company-wide, housing deliveries of 22,392 units in 2000 were virtually flat compared with 22,422 units in 1999 as a 2.6% decrease in U.S. deliveries was partially offset by a 20.4% increase in French deliveries. The decline in domestic deliveries reflected a 13.4% decrease in the West Coast region, partly offset by increases of .5% and 3.9% in the Southwest and Central regions, respectively. West Coast deliveries decreased to 5,476 units in 2000 from 6,323 units in 1999, primarily due to two factors. First, the re-focusing of the Company's West Coast operations, following the Lewis Homes acquisition, in keeping with the KB2000 operational business model resulted in fewer active communities in Northern California in 2000 as compared to 1999. Second, the strength of the Company's Southwest and Central region operations, which generally offer lower risk for less investment in land, has resulted in more stringent criteria guiding the Company's land investment decisions and has caused the Company to be more selective in its land investments in the West Coast region. Southwest operations delivered 5,832 units in 2000, up slightly from 5,801 units in 1999, despite a 4.9% decrease in the average number of active communities operated in this region. In the Central region, deliveries totaled 8,112 units in 2000, up from 7,809 units in 1999 as active communities in the region rose 4.2%. French deliveries increased to 2,967 units in 2000 from 2,465 units in 1999 as a result of expansion of these operations during 2000, partly through acquisitions. Housing deliveries increased 47.4% to 22,422 units in 1999 from 15,213 units in 1998. This improvement reflected increases in U.S. and French deliveries of 47.0% and 53.2%, respectively. The increase in the number of domestic deliveries, partly due to acquisitions and partly due to organic growth, was comprised of a 30.2% year-over-year increase in units delivered in the West Coast region and increases of 112.5% and 30.8% in the Southwest and Central regions, respectively. West Coast deliveries rose to 6,323 units in 1999 from 4,858 units in 1998, reflecting a 34.4% increase in the average number of active communities in the state. Southwest operations delivered 5,801 units in 1999, up from 2,730 units in 1998 as the average number of active communities rose 105.0%. Deliveries from Central region operations rose to 7,809 units in 1999, up from 5,968 units in 1998 due to a 26.3% rise in the average number of active communities. Excluding the impact of acquisitions within the trailing twelve months, domestic deliveries rose 12.2% in 1999 from 1998. French deliveries increased 53.2% to 2,465 units in 1999 from 1,609 units in 1998, largely due to improved market conditions. The Company-wide average new home price increased 1.1% in 2000, to $168,300 from $166,500 in 1999. The 1999 average had increased 6.5% from $156,400 in 1998. The increase in the average selling price in 2000 resulted from a higher domestic average selling price, partially offset by a lower average selling price in France. In the West Coast region, the average selling price rose 4.5% in 2000 to $257,000 from $246,000 in 1999, which had increased 9.6% from $224,500 in 1998. The average selling price in the Southwest region increased 2.3% to $145,200 in 2000, compared with $141,900 in 1999 and $128,800 in 1998. The Central region average selling price rose 6.2% to $128,600 in 2000 compared with $121,100 in 1999 and $114,700 in 1998. The West Coast average selling price increased only moderately due to a lower proportion of Northern California deliveries in 2000, which are generally higher priced than deliveries generated from Southern California operations. Domestic price increases in 1999 resulted from the inclusion of higher-priced deliveries from the Lewis Homes operations in California and Nevada, acquired early in 1999, and from selected increases in sales prices in certain markets due to favorable market conditions. The Company's average selling price in France decreased to $158,500 in 2000 from $163,600 in 1999, which had increased from $149,200 in 1998. The average selling price in France decreased in 2000 primarily due to an increase in the proportion of deliveries generated from condominiums, which are typically priced below single-family detached homes, and the adverse foreign currency impact resulting from a weakening in the French franc versus the U.S. dollar. The French average selling price rose in 1999 primarily due to a change in the mix of deliveries and price appreciation in the French housing market. 38 29 Revenues from the development of commercial buildings, all located in metropolitan Paris, totaled $.8 million in 2000, $.7 million in 1999 and $1.5 million in 1998. After several years of de-emphasizing its commercial development operations in France due to French commercial market conditions, the Company currently anticipates a significant increase in this business in 2001, with revenues from these activities expected to range between $75.0 million and $90.0 million for the year, dependent upon continued favorable market conditions. Land sale revenues totaled $100.5 million in 2000, $37.8 million in 1999 and $22.5 million in 1998. Generally, land sale revenues fluctuate with decisions to maintain or decrease the Company's land ownership position in certain markets based upon the volume of its holdings, the strength and number of competing developers entering particular markets at given points in time, the availability of land in markets served by the Company and prevailing market conditions. The significant increase in land sales in 2000 resulted from the Company's asset repositioning strategy, adopted in late 1999, which included the identification and sale of non-core assets. OPERATING INCOME Operating income increased 11.4% to a new Company record of $288.6 million in 2000 from $259.1 million in 1999. The increase was primarily due to higher housing gross profits and lower selling, general and administrative expenses. Housing gross profits in 2000 increased 3.0% or $22.1 million to $743.7 million from $721.6 million in 1999. As a percentage of related revenues, housing gross profit margin was 19.7% in 2000, up from 19.3% in the prior year. The increase in the Company's housing gross margin resulted from several factors, including an improved pricing environment, generally favorable market conditions throughout the year, deeper execution of the KB2000 operational business model and the reduced impact related to purchase accounting associated with the 1999 acquisition of Lewis Homes. During 2000, the Company's housing gross profit margin showed sequential improvement each quarter and, in the fourth quarter reached 20.6%. Company-wide land sales generated a profit of $2.8 million in 2000, compared to a loss of $1.2 million in 1999. Selling, general and administrative expenses decreased .7%, or $3.3 million in 2000, to $458.0 million. As a percentage of housing revenues, to which these expenses are most closely correlated, selling, general and administrative expenses were 12.2% in 2000 compared to 12.4% in 1999. The improved ratio resulted from savings generated by the Company's cost-containment initiatives. Operating income increased 74.3% to $259.1 million in 1999 from $148.7 million in 1998. This increase was primarily due to higher housing gross profits, resulting from higher unit volume, partially offset by increased selling, general and administrative expenses. Housing gross profits in 1999 increased 58.1% or $265.2 million to $721.6 million from $456.4 million in 1998. As a percentage of related revenues, housing gross profit margin was 19.3% in 1999, up from 19.2% in the prior year. This increase was primarily due to more efficient home designs and construction costs in KB2000 communities and overall improved market conditions, as well as market-driven price increases in selected communities, particularly in the West Coast region. Company-wide land sales produced losses of $1.2 million and $3.2 million in 1999 and 1998, respectively. Selling, general and administrative expenses increased 51.5%, or $156.7 million to $461.3 million in 1999. As a percentage of housing revenues, however, selling, general and administrative expenses decreased .4 percentage points to 12.4% in 1999 from 12.8% in 1998. The improvement in the selling, general and administrative expense ratio was due to a strong increase in unit volume and reduced reliance on sales initiatives, partially offset by increased expenditures for information systems in support of the KB2000 operational business model and the Company's year 2000 compliance plan, and by goodwill amortization and other expenses related to the Lewis Homes transaction. INTEREST INCOME AND EXPENSE Interest income, which is generated from short-term investments and mortgages receivable, amounted to $5.8 million in 2000, $7.8 million in 1999 and $5.7 million in 1998. The decrease in interest income in 2000 reflected lower interest bearing average balances of short-term investments and mortgages receivable compared to the same period a year ago. The increase in interest income in 1999 compared to 1998 primarily reflected an increase in the interest bearing average balance of mortgages receivable and a higher average balance of short-term investments. 39 30 Interest expense results principally from borrowings to finance land purchases, housing inventory and other operating and capital needs. In 2000, interest expense, net of amounts capitalized, increased by $3.2 million to $31.5 million from $28.3 million in 1999. Gross interest incurred in 2000 was $16.2 million higher than that incurred in 1999, reflecting an increase in average indebtedness. The percentages of interest capitalized in 2000 and 1999 were 66.6% and 63.7%, respectively. The amounts of interest capitalized as a percentage of gross interest incurred and distributions associated with the Company's outstanding Feline Prides were 57.3% in 2000 and 53.3% in 1999. In 1999, interest expense, net of amounts capitalized, increased to $28.3 million from $23.3 million in 1998. Gross interest incurred in 1999 was $23.7 million higher than that incurred in 1998, reflecting an increase in average indebtedness, primarily as a result of the Lewis Homes acquisition and growth in the number of new communities in 1999. The percentage of interest capitalized in 1999 increased from the 57.0% capitalized in 1998. The higher capitalization rate in 1999 resulted from the effect of the issuance of Feline Prides in the third quarter of 1998 and a higher proportion of land under development in 1999 compared to the previous year. The amount of interest capitalized as a percentage of gross interest incurred and distributions associated with the Feline Prides was 51.3% in 1998. MINORITY INTERESTS Minority interests are comprised of two major components: pretax income of consolidated subsidiaries and joint ventures related to residential and commercial activities; and distributions associated with the Feline Prides issued in July 1998. Operating income was reduced by minority interests of $31.6 million in 2000, $29.4 million in 1999 and $7.0 million in 1998. Minority interests in 2000 included the impact of the Company's French IPO and $15.2 million in distributions related to the Feline Prides. In 1999 and 1998, minority interests included $15.2 million and $6.1 million, respectively, in distributions related to the Feline Prides. Increased joint venture activity contributed to the rise in minority interests from 1998 to 1999. In the aggregate, minority interests in 2001 are expected to remain at high levels due to ongoing joint venture activity and distributions associated with the Feline Prides. EQUITY IN PRETAX INCOME OF UNCONSOLIDATED JOINT VENTURES The Company's unconsolidated joint venture activities were located in California, Nevada, New Mexico and France in 2000; California, Nevada, New Mexico, Texas and France in 1999; and New Mexico, Texas and France in 1998. These unconsolidated joint ventures posted combined revenues of $116.8 million in 2000, $13.9 million in 1999 and $17.7 million in 1998. Revenues from unconsolidated joint ventures increased in 2000 primarily due to the inclusion of a new domestic joint venture related to a Nevada community. All unconsolidated joint venture revenues in 2000 and 1999 were generated from residential properties. French commercial activities accounted for $6.5 million of the combined revenues in 1998. Unconsolidated joint ventures generated combined pretax income of $4.9 million in 2000, compared with pretax income of $3.6 million and $5.0 million in 1999 and 1998, respectively. The Company's share of pretax income from unconsolidated joint ventures totaled $2.9 million in 2000, $.2 million in 1999 and $1.2 million in 1998. GAIN ON ISSUANCE OF FRENCH SUBSIDIARY STOCK The Company recognized a one-time gain of $39.6 million from the issuance of 5,314,327 common shares (including the over allotment option) by Kaufman & Broad S.A. ("KBSA"), the Company's wholly owned French subsidiary, in an initial public offering in the first quarter of 2000. The offering was made in France and elsewhere in Europe and was priced at 23 euros per share. KBSA is now listed on the Premier Marche of the ParisBourse. The offering generated total net proceeds of $113.1 million, of which $82.9 million was used by the Company to reduce its domestic debt and repurchase additional shares of its common stock. The remainder of the proceeds was used to fund internal and external growth of KBSA. The Company continues to own a majority interest in KBSA and will continue to consolidate these operations in its financial statements. 40 31 MORTGAGE BANKING INTEREST INCOME AND EXPENSE The Company's mortgage banking operations provide financing principally to purchasers of homes sold by the Company's domestic housing operations through the origination of residential mortgages. Interest income is earned primarily from first mortgages and mortgage-backed securities held for long-term investment as collateral, while interest expense results from notes payable and the collateralized mortgage obligations. Interest income increased to a record $21.1 million in 2000 from $19.2 million in 1999 and $15.6 million in 1998. Interest expense rose to $19.4 million in 2000 from $16.9 million in 1999 and $15.0 million in 1998. In both 2000 and 1999, interest income increased primarily due to a higher balance of first mortgages held under commitments of sale and other receivables outstanding compared to the previous year. Interest expense rose in both 2000 and 1999 due to a higher amount of notes payable outstanding compared to the prior year. Combined interest income and expense resulted in net interest income of $1.7 million in 2000, $2.3 million in 1999 and $.6 million in 1998. These differences reflect variations in mortgage production mix; movements in short-term versus long-term interest rates; and the amount, timing and rates of return on interim reinvestments of monthly principal amortization and prepayments. OTHER MORTGAGE BANKING REVENUES Other mortgage banking revenues, which principally consist of gains on sales of mortgages and servicing rights and, to a lesser extent, mortgage servicing fees and insurance commissions, totaled $39.2 million in 2000, $45.0 million in 1999 and $30.8 million in 1998. The decrease in 2000 was primarily the result of lower gains on the sales of mortgages and servicing rights due to lower unit delivery volume. Interest rate increases during 2000, including a shift in product mix toward more variable rate loans, lower retention and the intensely competitive mortgage banking environment also contributed to the decrease. The increase in 1999 reflected higher gains on the sales of mortgages and servicing rights due to a higher volume of mortgage originations associated with increases in housing unit volume and improved retention in the United States. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses associated with mortgage banking operations increased to $17.2 million in 2000 from $11.6 million in 1999 and $9.9 million in 1998. The increase in general and administrative expenses in 2000 was primarily due to expansion of the operations. In 1999, general and administrative expenses increased primarily due to higher mortgage production volume. SECONDARY MARKETING TRADING LOSS On August 31, 1999, the Company disclosed that it had discovered unauthorized mortgage loan trading activity by an employee of its mortgage banking subsidiary resulting in a pretax trading loss of $18.2 million ($11.8 million, or $.25 per diluted share, on an after-tax basis). It is normal practice for the Company's mortgage banking subsidiary to sell loans into the market that approximately match loan commitments to the Company's homebuyers. This practice is intended to hedge exposure to changes in interest rates that may occur until loans are sold to secondary market investors in the ordinary course of its business. The loss was the result of a single employee engaging in unauthorized mortgage loan trading largely unrelated to mortgage originations. The employee who conducted the unauthorized trading was terminated. INCOME TAXES The Company recorded income tax expense of $87.7 million in 2000, $79.4 million in 1999 and $51.3 million in 1998. These amounts represented effective income tax rates of approximately 34.0% in 2000 (excluding the one-time gain on the issuance of French subsidiary stock) and 35.0% in both 1999 and 1998. The effective tax rate declined by 1.0 percentage point in 2000 as a result of greater utilization of tax credits. Pretax income for financial reporting purposes and taxable income for income tax purposes historically have differed primarily due to the impact of state income taxes, foreign tax rate differences, intercompany dividends and the use of tax credits. 41 32 LIQUIDITY AND CAPITAL RESOURCES The Company assesses its liquidity in terms of its ability to generate cash to fund its operating and investing activities. Historically, the Company has funded its construction and mortgage banking activities with internally generated cash flows and external sources of debt and equity financing. In 2000, operating, investing and financing activities provided net cash of $4.7 million; in 1999, these activities used net cash of $35.0 million. Operating activities provided $64.5 million in 2000 while operating activities in 1999 provided $106.8 million. The Company's sources of operating cash in 2000 included earnings of $210.0 million, various noncash items deducted from net income and other operating items of $2.5 million. Partially offsetting these sources were investments in inventories of $96.1 million (excluding acquisitions and $25.1 million of inventories acquired through seller financing), a decrease in accounts payable, accrued expenses and other liabilities of $55.0 million, a decrease in receivables of $53.9 million and a gain on the issuance of French subsidiary stock of $39.6 million. In 1999, the sources of operating cash included earnings of $147.5 million, an increase of $130.3 million in accounts payable, accrued expenses and other liabilities and various noncash items deducted from net income. The cash provided was partially offset by an increase of $184.1 million in receivables and an investment of $38.8 million in inventories (excluding the effect of acquisitions and $43.5 million of inventories acquired through seller financing). Cash used by investing activities totaled $24.9 million in 2000 compared to $34.0 million in 1999. In 2000, $24.3 million, net of cash acquired, was used for acquisitions, $18.5 million was used for net purchases of property and equipment and $2.6 million was used for originations of mortgages held for long-term investment. Partially offsetting these uses were distributions related to investments in unconsolidated joint ventures of $13.9 million and proceeds of $6.6 million received from mortgage-backed securities, which were principally used to pay down collateralized mortgage obligations for which the mortgage-backed securities had served as collateral. In 1999, cash used by investing activities included $19.2 million used for net purchases of property and equipment, $15.0 million used for investments in unconsolidated joint ventures, $11.6 million, net of cash acquired, used for acquisitions, and $2.8 million used for originations of mortgages held for long-term investment. Partially offsetting these uses were $14.6 million of proceeds received from mortgage-backed securities. Financing activities in 2000 used $34.9 million of cash compared to $107.8 million used in 1999. In 2000, the Company's uses of cash included payments for repurchases of common stock of $169.2 million (excluding $78.0 million of common stock repurchased through the issuance of promissory notes), payments to minority interests of $20.1 million, cash dividend payments of $11.5 million and payments on collateralized mortgage obligations of $6.3 million. Partially offsetting these uses were proceeds from the issuance of French subsidiary stock of $113.1 million and net proceeds from borrowings of $59.1 million. The Company's financial leverage, as measured by the ratio of debt to total capital, net of invested cash, was 53.9% at the end of 2000 compared to 48.4% at the end of 1999. The ratio for 1999 was adjusted to reflect $.7 million of invested cash at November 30, 1999. The Company seeks to maintain its ratio of debt to total capital within a targeted range of 45% to 55%, and achieved this goal in 2000 despite executing stock repurchases of approximately $247.0 million during the year. The Company believes its debt to total capital ratio for 2000 reflects the impact of a strategic review of its assets and businesses initiated late in 1999. Financing activities in 1999 used $81.9 million for the repurchase of common stock, $43.7 million for payments to minority interests, $14.2 million for cash dividend payments and $14.1 million for payments on collateralized mortgage obligations. Partially offsetting these uses was cash of $46.1 million provided from net proceeds from borrowings. 42 33 On January 4, 1999, the Company invested approximately $14.5 million to acquire the remaining 49.7% of the outstanding stock of General Homes, bringing its ownership interest to 100%. General Homes was a builder of single-family homes primarily in Houston, Texas. The investment was accounted for under the purchase method and the results of operations of General Homes were included in the Company's consolidated financial statements as of January 4, 1999. The investment was financed by borrowings under the Company's domestic unsecured revolving credit facility. Effective January 7, 1999, the Company acquired substantially all of the homebuilding assets of Lewis Homes. Lewis Homes was engaged in the acquisition, development and sale of residential real estate in California and Nevada. The purchase price for Lewis Homes was approximately $449.2 million, comprised of the assumption of approximately $303.2 million in debt and the issuance of 7.9 million shares of the Company's common stock valued at approximately $146.0 million. The purchase price was based on the December 31, 1998 net book values of the entities purchased. The excess of the purchase price over the estimated fair value of net assets acquired was $177.6 million and was allocated to goodwill. The Company is amortizing the goodwill on a straight-line basis over a period of ten years. The 7.9 million shares of Company common stock issued in the acquisition were "restricted" shares and could not be resold without a registration statement or compliance with Rule 144 under the Securities Act of 1933 ("Rule 144"), which, among other things, limits the number of shares that may be resold in a given period. The Company originally agreed to file a registration statement for 6.0 million of those shares in three increments at the Lewis family's request from July 1, 2000 to July 1, 2002. On September 21, 2000, the Company instead repurchased 4.0 million of the shares issued in the acquisition from the Lewis holders at a price of $26.00 per share. In connection with the repurchase, the Lewis holders' registration rights for the first two increments were extinguished. In the period subsequent to the Company's repurchase, the Lewis holders sold most of the balance of their shares within the requirements of Rule 144. The acquisition consideration for Lewis Homes was determined by arms-length negotiations between the parties. The acquisition was accounted for as a purchase, with the results of Lewis Homes included in the Company's consolidated financial statements as of January 7, 1999. During the second half of 1999, the Company completed the acquisition of the outstanding shares of Park, a French apartment builder, for a total price of approximately $16.6 million. The acquisition was financed by a three-year bank loan that provides for interest at the Euro Interbank Offered Rate Plus 1.45%. The acquisition was accounted for under the purchase method, and the results of operations of the builder are included in the Company's consolidated financial statements as of the date of purchase. The excess of the purchase price over the estimated fair value of net assets acquired was $10.0 million and was allocated to goodwill. The Company is amortizing goodwill related to the acquisition on a straight-line basis over a period of ten years. During the year ended November 30, 2000, the Company's French subsidiary, KBSA, completed the acquisitions of four homebuilders in France. These companies were acquired for an aggregate purchase price of $33.5 million and were accounted for under the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net assets acquired was $24.7 million and was allocated to goodwill. The Company is amortizing the goodwill on a straight-line basis over a period of ten years. 43 34 In 2000 and 1999, common stock repurchases made under the Company's share repurchase program, established in August 1999, totaled $247.0 million and $81.9, respectively. The Company repurchased approximately 10.7 million shares in 2000 and 3.8 million shares in 1999, thereby completing the purchase of all the 14.5 million shares of common stock previously authorized for repurchase by the Company's Board of Directors. Included in the 10.7 million shares repurchased during 2000 were 4.0 million shares, repurchased on September 21, 2000, which had been issued in the January 1999 acquisition of Lewis Homes. In connection with its share repurchase program, on August 27, 1999, the Company established a grantor stock ownership trust (the "Trust") into which certain of the repurchased shares have been transferred. The Trust, administered by an independent trustee, acquires, holds and distributes the shares of common stock for the purpose of funding certain employee compensation and employee benefit obligations of the Company under its existing stock option, 401(k) and other employee benefit plans. The existence of the Trust has no impact on the amount of benefits or compensation that is paid under these plans. For financial reporting purposes, the Trust is consolidated with the Company. Any dividend transactions between the Company and the Trust are eliminated. Acquired shares held by the Trust remain valued at the market price at the date of purchase and are shown as a reduction to stockholders' equity in the consolidated balance sheet. The difference between the Trust share value and the fair market value on the date shares are released from the Trust, for the benefit of employees, will be included in additional paid-in capital. Common stock held in the Trust is not considered outstanding in the computation of earnings per share. The Trust held 8.8 million and 3.8 million shares of common stock at November 30, 2000 and 1999, respectively. The trustee votes shares held by the Trust in accordance with voting directions from eligible employees, as specified in a trust agreement with the trustee. External sources of financing for the Company's construction activities include its domestic unsecured credit facility, other domestic and foreign bank lines, third-party secured financings, and the public debt and equity markets. Substantial unused lines of credit remain available for the Company's future use, if required, principally through its domestic unsecured revolving credit facility. On October 6, 2000, the Company entered into a $725.0 million unsecured credit agreement (the "$725.0 million Unsecured Credit Facility"), consisting of a $564.0 million four-year committed revolving credit facility and a $161.0 million five-year term loan, which together replaced its previously existing revolving credit facility and Term Loan Agreement. This $725.0 million Unsecured Credit Facility could be expanded up to an aggregate total of $900.0 million if additional bank lending commitments are obtained. Interest on the $725.0 million Unsecured Credit Facility is payable monthly at the London Interbank Offered Rate plus an applicable spread on amounts borrowed. Under the $725.0 million Unsecured Credit Facility, $725.0 million remained committed and $414.4 million was available for the Company's future use at November 30, 2000. In addition, the Company's French subsidiaries have lines of credit with various banks which totaled $207.8 million at November 30, 2000 and have various committed expiration dates through November 2003. Under these unsecured financing agreements, $82.7 million was available in the aggregate at November 30, 2000. Depending upon available terms and its negotiating leverage related to specific market conditions, the Company also finances certain land acquisitions with purchase-money financing from land sellers and other third parties. At November 30, 2000, the Company had outstanding seller-financed notes payable of $29.8 million secured primarily by the underlying property which had a carrying value of $75.2 million. On September 21, 2000, in connection with the repurchase of 4.0 million shares from the Lewis holders, the Company issued promissory notes (the "Shareholder Notes"), with an aggregate principal amount of $78.0 million, to the Lewis holders. Interest on the Shareholder Notes is accrued monthly at a rate of 6.6%. Under the terms of the notes, principal payments of $26.0 million plus accrued interest are due on January 4, 2001, June 7, 2001 and December 6, 2001. 44 35 On December 5, 1997, the Company filed a universal shelf registration statement (the "1997 Shelf Registration") with the Securities and Exchange Commission for up to $500.0 million of the Company's debt and equity securities. This universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities. The registration was declared effective on December 16, 1997, and as of November 30, 2000 no securities had been issued thereunder. On July 7, 1998, the Company, together with a KBHC Trust that is wholly owned by the Company, issued an aggregate of (i) 19.0 million Feline Prides, and (ii) 1.0 million KBHC Trust capital securities, with a $10 stated liquidation amount. The Feline Prides consisted of (i) 18.0 million Income Prides with the stated amount per Income Prides of $10, which are units comprised of a capital security and a stock purchase contract under which the holders will purchase common stock from the Company not later than August 16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments, and (ii) 1.0 million Growth Prides with a face amount per Growth Prides equal to the $10 stated amount, which are units consisting of a 1/100th beneficial interest in a zero-coupon U.S. Treasury security and a stock purchase contract under which the holders will purchase common stock from the Company not later than August 16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments. The distribution rate on the Income Prides is 8.25% per annum and the distribution rate on the Growth Prides is .75% per annum. Under the stock purchase contracts, investors will be required to purchase shares of common stock of the Company for an effective price ranging between a minimum of $31.75 per share and a maximum of $38.10 per share, and the Company will issue approximately 5 to 6 million common shares by August 16, 2001, depending upon the price of the common stock upon settlement of the purchase contracts (subject to adjustment under certain circumstances). The capital securities associated with the Income Prides and the U.S. Treasury securities associated with the Growth Prides have been pledged as collateral to secure the holders' obligations in respect of the common stock purchase contracts. The capital securities issued by the KBHC Trust are entitled to a distribution rate of 8% per annum of their $10 stated liquidation amount. The Company uses its capital resources primarily for land purchases, land development and housing construction. The Company typically manages its investments in land by purchasing property under options and other types of conditional contracts whenever possible, and similarly controls its investment in housing inventories by emphasizing the pre-sale of homes over speculative construction and carefully managing the timing of the production process. The Company's backlog ratio (beginning backlog as a percentage of unit deliveries in the succeeding quarter) for the fourth quarter of 2000 was 174.0% versus 156.6% in the fourth quarter of 1999. During the 1990's, inventories became geographically more diverse, primarily as a result of the Company's extensive domestic expansion outside of the West Coast region. The Company continues to concentrate its housing operations in desirable areas within targeted growth markets, principally oriented toward entry-level and first-time move up purchasers. The principal sources of liquidity for the Company's mortgage banking operations are internally generated funds from the sales of mortgages and related servicing rights. Mortgages originated by the mortgage banking operations are generally sold in the secondary market within 60 days of origination. External sources of financing for these operations include a $300.0 million revolving mortgage warehouse agreement (the "Mortgage Warehouse Facility") and a $250.0 million Master Loan and Security Agreement. On February 18, 2000, the Company's mortgage banking subsidiary renewed its Mortgage Warehouse Facility and increased the facility from $250.0 million. The Mortgage Warehouse Facility, which expires on February 18, 2003, provides for an annual fee based on the committed balance of the facility and provides for interest at either the London Interbank Offered Rate or the Federal Funds Rate plus an applicable spread on amounts borrowed. The Master Loan and Security Agreement was renewed on May 19, 2000 with an investment bank and was increased from $150.0 million. The agreement, which expires on May 18, 2001, provides for a facility fee based on the $250.0 million maximum amount available and provides for interest to be paid monthly at the Eurodollar Rate plus an applicable spread on amounts borrowed. The amounts outstanding under the Mortgage Warehouse Facility and the Master Loan and Security Agreement are secured by a borrowing base, which includes certain mortgage loans 45 36 held under commitments of sale, and are repayable from sales proceeds. There are no compensating balance requirements under either facility. Both facilities include financial covenants and restrictions which, among other things, require the maintenance of certain financial statement ratios, a minimum tangible net worth and a minimum net income. Debt service on the Company's collateralized mortgage obligations is funded by receipts from mortgage-backed securities. Such funds are expected to be adequate to meet future debt-payment schedules for the collateralized mortgage obligations and therefore these securities have virtually no impact on the capital resources and liquidity of the mortgage banking operations. The Company continues to benefit in all of its operations from the strength of its capital position, which has allowed it to maintain overall profitability during troubled economic times, finance domestic and international expansion, re-engineer product lines and diversify into new markets. Secure access to capital at competitive rates, among other reasons, should enable the Company to continue to grow and expand. As a result of its geographic diversification, the disciplines of the KB2000 operational business model and its strong capital position, the Company believes it has adequate resources and sufficient credit line facilities to satisfy its current and reasonably anticipated future requirements for the funds needed to acquire capital assets and land, to construct homes, to fund its mortgage banking operations, and to meet other needs of its business, both on a short and long-term basis. CONVERSION TO THE EURO CURRENCY On January 1, 1999, certain member countries of the European Union (the "EU") established fixed conversion rates between their existing currencies and the European Union's common currency (the "euro"). The Company conducts substantial business in France, an EU member country. During the established transition period for the introduction of the euro, which extends to June 30, 2002, the Company will address the issues involved with the adoption of the new currency. The most important issues facing the Company include: converting information technology systems; reassessing currency risk; negotiating and amending contracts; and processing tax and accounting records. Based upon progress to date, the Company believes that use of the euro will not have a significant impact on the manner in which it conducts its business affairs and processes its business and accounting records. Accordingly, conversion to the euro is not expected to have a material effect on the Company's financial condition or results of operations. SUBSEQUENT EVENT On February 8, 2001, pursuant to the 1997 Shelf Registration, the Company issued $250.0 million of 9 1/2% senior subordinated notes at 100% of the principal amount of the notes. The notes, which are due February 15, 2011 with interest payable semi-annually, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at 104.750% of their principal amount beginning February 15, 2006, and thereafter at prices declining annually to 100% on and after February 15, 2009. Proceeds from the issuance of the notes were used to pay down bank borrowings. OUTLOOK The Company's residential backlog at November 30, 2000 consisted of 10,559 units, representing aggregate future revenues of $1.80 billion. Both amounts established new year-end records, and reflected increases of 22.7% and 30.3%, respectively, when compared to the 8,558 units in residential backlog, representing aggregate future revenues of $1.38 billion, at year-end 1999. Company-wide net orders for the fourth quarter of 2000 totaled 5,312, up 9.1% from the comparable quarter of 1999. The Company's domestic residential backlog at November 30, 2000 increased to $1.53 billion, up 32.6% from $1.15 billion at year-end 1999. On a unit basis, domestic backlog stood at 8,742 units at year-end 2000, up 21.7% from 7,185 units at year-end 1999. Improvement occurred in all domestic regions, reflecting generally good market conditions throughout the United States. The 46 37 success of communities designed under the Company's KB2000 operational business model also contributed to the increase in total U.S. backlog levels. West Coast operations produced substantial year-over-year growth, with backlog at November 30, 2000 rising to $643.6 million on 2,421 units from $457.4 million on 1,879 units at November 30, 1999. Full-year results were tempered by an 8.8% decline in net orders from West Coast operations in the fourth quarter of 2000 to 1,198 units from 1,314 units in the fourth quarter of 1999. In Southwest operations, backlog value increased to $345.6 million on 2,311 units at November 30, 2000 from $299.5 million on 2,107 units at November 30, 1999. This improvement occurred despite the region's average number of active communities decreasing 4.9% compared to the prior year. Fourth quarter 2000 net orders in Southwest operations decreased 6.6% to 1,337 units from 1,431 units in the year-earlier period. In the Central region, backlog rose to $541.3 million on 4,010 units at November 30, 2000 from $397.0 million on 3,199 units at November 30, 2000. Fourth quarter 2000 net orders in Central operations increased 31.4% to 1,941 units from 1,477 units in the year-earlier period. In France, residential backlog at November 30, 2000 totaled $272.9 million on 1,817 units, up 20.1% and 32.7%, respectively, from $227.2 million on 1,369 units at year-end 1999. French net orders increased 29.2% to 836 units in the fourth quarter of 2000 from 647 units in the year-earlier period. The value of the backlog associated with French commercial development activities totaled approximately $88.6 million at November 30, 2000, up from $1.7 million at year-end 1999, reflecting the Company's increasing level of activity. Substantially all homes included in the year-end 2000 backlog are expected to be delivered during 2001. However, cancellations could occur, particularly if market conditions deteriorate or mortgage interest rates increase, thereby decreasing backlog and related future revenues. Company-wide net orders during the first two months of fiscal 2001 increased 18.2% from the comparable period of 2000. Domestic net orders during the two-month period increased 20.1%, reflecting increases of 34.2% and 33.8% in Southwest and Central operations, respectively, partially offset by a decrease of 12.5% in the West Coast region. In France, net orders for the first two months of fiscal 2001 increased 3.6% compared to the same period in 2000, reflecting the expansion of the French operations through acquisitions and new community openings. Full year Company-wide net order results could be further affected by current global or regional market uncertainties, mortgage interest rate volatility in France or the U.S., declines in consumer confidence in either country and/or other factors. As a result of the Company's more selective land investment within the West Coast region and its continued domestic expansion outside of the region, the percentage of domestic unit deliveries generated from West Coast operations decreased to 28.2% in 2000 from 31.7% in 1999. On a housing revenue basis, these percentages were 42.7% in 2000 and 46.8% in 1999. In response to persistently weak conditions for new housing and general recessionary trends in the West Coast region during the first half of the 1990's and in order to spur growth, the Company diversified its business through aggressive expansion into other western states. Although the West Coast housing market has improved significantly since then, the Company has maintained a more selective approach to its land investments in keeping with its KB2000 operational business model. The Company's Southwest and Central operations continued to experience growth in 2000. The Company has also achieved the most significant penetration of its KB2000 operational business model in these markets. The Company is seeking to continue to expand its Southwest and Central operations and continues to explore opportunities to enter new domestic markets as well as grow its businesses within existing markets. The French housing market has continued to improve in recent years. In 2000, the Company's unit deliveries in France rose by 20.4% from the previous year as the Company expanded these operations, partly through acquisitions. French commercial activities are also likely to rebound in 2001 as the division reinvigorates its commercial business. The initial public offering of KBSA, completed in February 2000, has strengthened the French business by providing it with access to additional capital to support its growth. 47 38 While adhering to the disciplines of the KB2000 operational business model, the Company has leveraged the model with additional complementary initiatives, including strategies to establish and deepen its leading market positions and to identify new acquisition opportunities. The Company hopes to increase overall unit delivery growth in future years through these strategies. The Company's growth strategies include the expansion of existing operations to achieve optimal market volume levels, and the possible entry into new geographic markets through acquisitions. Growth in the Company's existing markets will be driven by the Company's ability to increase the average number of active communities through the continued successful implementation of its KB2000 operational business model. As part of its strategy, the Company has made a commitment to pursue e-commerce opportunities through its recently formed subsidiary, e.KB, Inc. These efforts include continually improving its website, kbhome.com, to provide more information for consumers, utilizing its houseCALL center to support website efforts and selectively investing in related e-commerce businesses. The Company intends to continue to focus on e-commerce initiatives with the hope of reducing supply chain costs, building longer-term relationships with its customers and bringing new technology to its customers. In August 2000, the Company announced that it had formed American CityVista, a joint venture with Henry Cisneros, former president of Univision Communications and former Secretary of the U.S. Department of Housing and Urban Development, now also a director of the Company. American CityVista will develop distinctive communities in urban in-fill areas where new residential development has not occurred in recent years. Working with the Company, American CityVista is expected to identify appropriate sites, plan neighborhoods, acquire and develop land, build homes and market them as competitively priced "villages within cities" that are designed to honor local tastes and traditions. During 2000, the Company focused on the asset repositioning strategy that it announced in late 1999. As part of this strategy, the Company reviewed its assets and businesses for the purpose of monetizing non-strategic or marginal positions, and instituted more stringent criteria for land acquisitions. The Company's asset repositioning activities during 2000 included the partial IPO of its French subsidiary and various land sales. A majority of the land assets originally identified through the asset repositioning strategy as non-core were sold as of November 30, 2000. The asset repositioning initiatives were intended to increase cash flows available to reduce debt and/or repurchase additional stock, or possibly to fund future acquisitions. In January 2001, the Company announced that it was changing its name to "KB Home." This new name, which resulted from homebuyer input, is intended to convey the Company's strong customer focus and its commitment to helping homebuyers realize their dream of home ownership. Based on its current projections, the Company expects to establish its fourth consecutive year of record earnings per share in fiscal 2001. However, this goal could be materially affected by various risk factors, such as changes in general economic conditions, either nationally, in the U.S. or France, or in the localized regions in which the Company operates; changes in job growth or employment levels; a downturn in the economy's pace; changes in home mortgage interest rates or consumer confidence, among other things. The Company is proceeding with caution into 2001 as recent economic data indicates an overall slowing in the economy. The Conference Board recently reported that U.S. consumer confidence in December 2000 sank to its lowest level in two years. The Federal Reserve, in its recent decision to cut the federal funds rate, also cited a variety of cautionary factors, including weakening sales and production, falling consumer confidence, skittish financial markets and high energy prices. The Company will closely monitor overall economic trends in 2001 while remaining focused on the effective management of its business units, using the KB2000 principles, to minimize the impact of any sustained economic slowdown. 48 39 IMPACT OF INFLATION The Company's business is significantly affected by general economic conditions, particularly by inflation and its generally associated adverse effect on interest rates. Although inflation rates have been low in recent years, rising inflation would likely affect the Company's revenues and earning power by reducing demand for homes as a result of correspondingly higher interest rates. In periods of high inflation, the rising costs of land, construction, labor, interest and administrative expenses have often been recoverable through increased selling prices, although this has not always been possible because of high mortgage interest rates and competitive factors in the marketplace. In recent years, inflation has had no significant adverse impact on the Company, as average annual cost increases have not exceeded the average rate of inflation. * * * Investors are cautioned that certain statements contained in this document, as well as some statements by the Company in periodic press releases and some oral statements by Company officials to securities analysts and stockholders during presentations about the Company are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", "hopes", and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about the Company, economic and market factors and the homebuilding industry, among other things. These statements are not guaranties of future performance, and the Company has no specific intention to update these statements. Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements made by the Company or Company officials due to a number of factors. The principal important risk factors that could cause the Company's actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, national or regional changes in general economic conditions, employment levels, costs of homebuilding material and labor, home mortgage and other interest rates, the secondary market for mortgage loans, competition, currency exchange rates as they affect the Company's operations in France, consumer confidence, government regulation or restrictions on real estate development, capital or credit market conditions affecting the Company's cost of capital; the availability and cost of land in desirable areas, environmental factors, governmental regulations, unanticipated violations of Company policy, property taxes, and unanticipated delays in the Company's operations. 49 40 consolidated statements of income
YEARS ENDED NOVEMBER 30, ----------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998 ----------------------------------------------- TOTAL REVENUES $ 3,930,858 $ 3,836,295 $ 2,449,362 =============================================== Construction: Revenues $ 3,870,488 $ 3,772,121 $ 2,402,966 Construction and land costs (3,123,869) (3,051,698) (1,949,729) Selling, general and administrative expenses (458,010) (461,316) (304,565) ----------------------------------------------- Operating income 288,609 259,107 148,672 Interest income 5,782 7,806 5,674 Interest expense, net of amounts capitalized (31,479) (28,340) (23,341) Minority interests (31,640) (29,392) (7,002) Equity in pretax income of unconsolidated joint ventures 2,926 224 1,151 Gain on issuance of French subsidiary stock 39,630 ----------------------------------------------- Construction pretax income 273,828 209,405 125,154 Mortgage banking: Revenues: Interest income 21,130 19,186 15,569 Other 39,240 44,988 30,827 ----------------------------------------------- 60,370 64,174 46,396 Expenses: Interest (19,374) (16,941) (15,046) General and administrative (17,164) (11,614) (9,937) Secondary marketing trading loss (18,155) ----------------------------------------------- Mortgage banking pretax income 23,832 17,464 21,413 ----------------------------------------------- Total pretax income 297,660 226,869 146,567 Income taxes (87,700) (79,400) (51,300) ----------------------------------------------- NET INCOME $ 209,960 $ 147,469 $ 95,267 =============================================== BASIC EARNINGS PER SHARE $ 5.39 $ 3.16 $ 2.41 =============================================== DILUTED EARNINGS PER SHARE $ 5.24 $ 3.08 $ 2.32 ===============================================
See accompanying notes. 50 41 consolidated balance sheets
NOVEMBER 30, ----------------------------- IN THOUSANDS, EXCEPT SHARES 2000 1999 ----------------------------- ASSETS Construction: Cash and cash equivalents $ 21,385 $ 15,576 Trade and other receivables 294,760 205,847 Mortgages and notes receivable 11,821 58,702 Inventories 1,657,401 1,521,265 Investments in unconsolidated joint ventures 10,407 21,290 Deferred income taxes 73,842 99,519 Goodwill 202,177 205,618 Other assets 89,975 86,259 ----------------------------- 2,361,768 2,214,076 ----------------------------- Mortgage banking: Cash and cash equivalents 11,696 12,791 Receivables: First mortgages and mortgage-backed securities 43,137 47,080 First mortgages held under commitments of sale and other receivables 403,165 386,076 Other assets 9,155 4,212 ----------------------------- 467,153 450,159 ----------------------------- TOTAL ASSETS $ 2,828,921 $ 2,664,235 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Construction: Accounts payable $ 311,537 $ 328,528 Accrued expenses and other liabilities 201,672 222,855 Mortgages and notes payable 987,980 813,424 ----------------------------- 1,501,189 1,364,807 ----------------------------- Mortgage banking: Accounts payable and accrued expenses 11,135 9,711 Notes payable 385,294 377,666 Collateralized mortgage obligations secured by mortgage-backed securities 29,928 36,219 ----------------------------- 426,357 423,596 ----------------------------- Minority interests: Consolidated subsidiaries and joint ventures 56,866 9,499 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 189,750 189,750 ----------------------------- 246,616 199,249 ----------------------------- Stockholders' equity: Preferred stock - $1.00 par value; authorized, 10,000,000 shares: none outstanding Common stock - $1.00 par value; authorized, 100,000,000 shares; 44,397,243 and 48,090,615 shares outstanding at November 30, 2000 and 1999, respectively 44,397 48,091 Paid-in capital 240,761 335,324 Retained earnings 598,374 376,626 Accumulated other comprehensive income (9,564) (1,584) Grantor stock ownership trust, at cost: 8,782,252 shares and 3,750,100 shares at November 30, 2000 and 1999, respectively (190,872) (81,874) Treasury stock, at cost: 1,448,100 shares at November 30, 2000 (28,337) ----------------------------- TOTAL STOCKHOLDERS' EQUITY 654,759 676,583 ----------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,828,921 $ 2,664,235 =============================
See accompanying notes. 51 42 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NUMBER OF SHARES --------------------------------- GRANTOR IN THOUSANDS STOCK YEARS ENDED NOVEMBER 30, COMMON OWNERSHIP TREASURY COMMON PAID-IN 2000, 1999 AND 1998 STOCK TRUST STOCK STOCK CAPITAL ---------------------------------------------------------------------- Balance at November 30, 1997 38,997 $ 38,997 $ 186,086 ---------------------------------------------------------------------- Comprehensive income: Net income Foreign currency translation adjustments Total comprehensive income Dividends on common stock Exercise of employee stock options 995 995 15,699 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company - contract adjustment payments and issuance costs (8,265) ---------------------------------------------------------------------- Balance at November 30, 1998 39,992 39,992 193,520 ---------------------------------------------------------------------- Comprehensive income: Net income Foreign currency translation adjustments Total comprehensive income Dividends on common stock Exercise of employee stock options 212 212 3,686 Issuance of common stock related to an acquisition 7,887 7,887 138,118 Grantor stock ownership trust (3,750) ---------------------------------------------------------------------- Balance at November 30, 1999 48,091 (3,750) 48,091 335,324 ---------------------------------------------------------------------- Comprehensive income: Net income Foreign currency translation adjustments Total comprehensive income Dividends on common stock Exercise of employee stock options 306 306 5,445 Common stock purchased and retired (4,000) (4,000) (100,000) Grantor stock ownership trust (5,032) (8) Treasury stock (1,448) Issuance of French subsidiary stock ---------------------------------------------------------------------- Balance at November 30, 2000 44,397 (8,782) (1,448) $ 44,397 $ 240,761 ======================================================================
ACCUMULATED GRANTOR IN THOUSANDS OTHER STOCK TOTAL YEARS ENDED NOVEMBER 30, RETAINED COMPREHENSIVE OWNERSHIP TREASURY STOCKHOLDERS' 2000, 1999 AND 1998 EARNINGS INCOME TRUST STOCK EQUITY ------------------------------------------------------------------------ Balance at November 30, 1997 $ 159,960 $(1,987) $ 383,056 ------------------------------------------------------------------------ Comprehensive income: Net income 95,267 95,267 Foreign currency translation adjustments (370) (370) -------- Total comprehensive income 94,897 Dividends on common stock (11,871) (11,871) Exercise of employee stock options 16,694 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company - contract adjustment payments and issuance costs (8,265) ------------------------------------------------------------------------ Balance at November 30, 1998 243,356 (2,357) 474,511 ------------------------------------------------------------------------ Comprehensive income: Net income 147,469 147,469 Foreign currency translation adjustments 773 773 -------- Total comprehensive income 148,242 Dividends on common stock (14,199) (14,199) Exercise of employee stock options 3,898 Issuance of common stock related to an acquisition 146,005 Grantor stock ownership trust $ (81,874) (81,874) ------------------------------------------------------------------------ Balance at November 30, 1999 376,626 (1,584) (81,874) 676,583 ------------------------------------------------------------------------ Comprehensive income: Net income 209,960 209,960 Foreign currency translation adjustments (7,980) (7,980) -------- Total comprehensive income 201,980 Dividends on common stock (11,465) (11,465) Exercise of employee stock options 5,751 Common stock purchased and retired (104,000) Grantor stock ownership trust (108,998) (109,006) Treasury stock $(28,337) (28,337) Issuance of French subsidiary stock 23,253 23,253 ------------------------------------------------------------------------ Balance at November 30, 2000 $ 598,374 $(9,564) $(190,872) $(28,337) $ 654,759 ========================================================================
See accompanying notes. 52 43 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------------------------ IN THOUSANDS 2000 1999 1998 ------------------------------------------ Cash flows from operating activities: Net income $ 209,960 $ 147,469 $ 95,267 Adjustments to reconcile net income to net cash provided (used) by operating activities: Equity in pretax income of unconsolidated joint ventures (2,926) (224) (1,151) Minority interests 31,640 29,392 7,002 Gain on issuance of French subsidiary stock (39,630) Amortization of discounts and issuance costs 1,012 1,501 1,882 Depreciation and amortization 41,298 38,251 16,178 Provision for deferred income taxes 25,677 (25,913) 474 Change in assets and liabilities, net of effects from acquisitions: Receivables (53,935) (184,116) (50,040) Inventories (96,078) (38,761) (125,719) Accounts payable, accrued expenses and other liabilities (54,970) 130,257 51,283 Other, net 2,496 8,911 (8,025) ------------------------------------------ Net cash provided (used) by operating activities 64,544 106,767 (12,849) ------------------------------------------ Cash flows from investing activities: Acquisitions, net of cash acquired (24,292) (11,646) (162,818) Investments in unconsolidated joint ventures 13,885 (15,022) 2,214 Net sales (originations) of mortgages held for long-term investment (2,645) (2,756) 1,686 Payments received on first mortgages and mortgage-backed securities 6,615 14,629 12,933 Purchases of property and equipment, net (18,500) (19,160) (15,859) ------------------------------------------ Net cash used by investing activities (24,937) (33,955) (161,844) ------------------------------------------ Cash flows from financing activities: Net proceeds from credit agreements and other short-term borrowings 84,984 119,425 63,187 Issuance of French subsidiary stock 113,118 Proceeds from Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 183,057 Payments on collateralized mortgage obligations (6,312) (14,098) (12,324) Payments on mortgages, land contracts and other loans (25,857) (73,329) (45,239) Payments to minority interests (20,133) (43,723) (7,006) Payments of cash dividends (11,465) (14,199) (11,871) Repurchases of common stock (169,228) (81,874) ------------------------------------------ Net cash provided (used) for financing activities (34,893) (107,798) 169,804 ------------------------------------------ Net increase (decrease) in cash and cash equivalents 4,714 (34,986) (4,889) Cash and cash equivalents at beginning of year 28,367 63,353 68,242 ------------------------------------------ Cash and cash equivalents at end of year $ 33,081 $ 28,367 $ 63,353 ========================================== Supplemental disclosures of cash flow information: Interest paid, net of amounts capitalized $ 50,042 $ 43,014 $ 37,915 Income taxes paid 40,818 64,554 40,521 ========================================== Supplemental disclosures of noncash activities: Cost of inventories acquired through seller financing $ 25,054 $ 43,529 $ 29,911 Issuance of promissory notes to repurchase common stock 78,000 Issuance of common stock related to an acquisition 146,005 Debt assumed related to an acquisition 303,239 ==========================================
See accompanying notes. 53 44 notes to consolidated financial statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS KB Home (the "Company") is a regional builder of single-family homes with domestic operations throughout the western United States, and international operations in France. The Company also develops commercial and high-density residential projects in France. Through its mortgage banking subsidiary, Kaufman and Broad Mortgage Company, the Company provides mortgage banking services to its domestic homebuyers. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all significant subsidiaries and joint ventures in which a controlling interest is held. All significant intercompany transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method. USE OF ESTIMATES The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management. Actual results could differ from these estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments and other short-term investments purchased with a maturity of three months or less to be cash equivalents. As of November 30, 2000 and 1999, the Company's cash equivalents totaled $1,830,000 and $704,000, respectively. FOREIGN CURRENCY TRANSLATION Results of operations for foreign entities are translated to U.S. dollars using the average exchange rates during the period. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Resulting translation adjustments are recorded in stockholders' equity as foreign currency translation adjustments. CONSTRUCTION OPERATIONS Housing and other real estate sales are recognized when title passes to the buyer and all of the following conditions are met: a sale is consummated, a significant down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured. In France, revenues from development and construction of single-family detached homes, condominiums and commercial buildings, under long-term contracts with individual investors who own the land, are recognized using the percentage of completion method, which is generally based on costs incurred as a percentage of estimated total costs of individual projects. Revenues recognized in excess of amounts collected are classified as receivables. Amounts received from buyers in excess of revenues recognized, if any, are classified as other liabilities. Construction and land costs are comprised of direct and allocated costs, including estimated future costs for warranties and amenities. Land, land improvements and other common costs are allocated on a relative fair value basis to units within a parcel or subdivision. Land and land development costs generally include related interest and property taxes incurred until development is substantially completed or deliveries have begun within a subdivision. Land to be developed and projects under development are stated at cost unless the carrying amount of the parcel or subdivision is determined not to be recoverable, in which case the impaired inventories are written down to fair value. Write-downs of impaired inventories are recorded as adjustments to the cost basis of the inventory. The Company's inventories typically do not consist of completed projects. Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized by the Company over periods ranging from five to ten years using the straight-line method. Accumulated amortization was $79,756,000 and $52,765,000 at November 30, 2000 and 1999, respectively. In the event that facts and circumstances indicate that the carrying value of goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flows associated with the goodwill would be compared to its carrying amount to determine if a write-down to fair value or discounted cash flow is required. 54 45 MORTGAGE BANKING OPERATIONS First mortgages and mortgage-backed securities consist of securities held for long-term investment and are valued at amortized cost. First mortgages held under commitments of sale are valued at the lower of aggregate cost or market. Market is principally based on public market quotations or outstanding commitments obtained from investors to purchase first mortgages receivable. Principal and interest payments received on mortgage-backed securities are invested in short-term securities maturing on the next debt service date of the collateralized mortgage obligations for which the securities are held as collateral. Such payments are restricted to the payment of the debt service on the collateralized mortgage obligations. SECONDARY MARKETING TRADING LOSS On August 31, 1999, the Company disclosed that it had discovered unauthorized mortgage loan trading activity by an employee of its mortgage banking subsidiary resulting in a pretax trading loss of $18,155,000 ($11,755,000, or $.25 per diluted share, on an after-tax basis). It is normal practice for the Company's mortgage banking subsidiary to sell loans into the market that approximately match loan commitments to the Company's homebuyers. This practice is intended to hedge exposure to changes in interest rates that may occur until loans are sold to secondary market investors in the ordinary course of business. The loss was the result of a single employee engaging in unauthorized mortgage loan trading largely unrelated to mortgage originations. The employee who conducted the unauthorized trading was terminated. STOCK OPTIONS The Company's employee stock option plans are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"). INCOME TAXES Income taxes are provided for at rates applicable in the countries in which the income is earned. Provision is made currently for United States federal income taxes on earnings of foreign subsidiaries that are not expected to be reinvested indefinitely. EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income by the average number of shares outstanding including all dilutive potentially issuable shares under various stock option plans and stock purchase contracts. The following table presents a reconciliation of average shares outstanding:
YEARS ENDED NOVEMBER 30, ------------------------------- IN THOUSANDS 2000 1999 1998 ------------------------------- Basic average shares outstanding 38,931 46,730 39,553 Net effect of stock options assumed to be exercised 1,138 1,101 1,480 ------------------------------- Diluted average shares outstanding 40,069 47,831 41,033 ===============================
SEGMENT INFORMATION In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company identified two reportable segments: construction and mortgage banking. The Company's construction segment consists primarily of domestic and foreign homebuilding operations. The Company's construction operations are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to the first-time homebuyer. Domestically, the Company currently sells homes in six western states. Internationally, the Company operates in France. The Company also builds commercial projects and high-density residential properties, such as condominium complexes, in France. The Company's mortgage banking operations provide mortgage banking services to the Company's domestic homebuyers. The mortgage banking segment originates, processes and sells mortgages to third-party investors. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. 55 46 Information for the Company's reportable segments are presented in its consolidated statements of income and consolidated balance sheets included herein. The Company's reporting segments follow the same accounting policies used for the Company's consolidated financial statements as described in the summary of significant accounting policies. Management evaluates a segment's performance based upon a number of factors including pretax results. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), was issued in June 1998. This statement addresses the accounting for and disclosure of derivative instruments, including derivative instruments imbedded in other contracts, and hedging activities. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change is recognized in earnings. Management has analyzed the implementation requirements and does not anticipate that the adoption of the new statement as of December 1, 2000 will have a significant effect on the earnings or financial position of the Company. The Company manages its interest rate market risk on mortgage loans held for sale and its estimated future commitments to originate and close mortgage loans at fixed prices through the use of mandatory forward commitments to sell mortgage-backed securities and best-efforts whole loan delivery commitments. The Company estimates the portion of the locked mortgage loan pipeline that is expected to close in order to determine the amount of hedging instruments. These hedging instruments are effective as hedges for interest rate market risk on mortgage loans held for sale and estimated future commitments. Accordingly, gains and losses are deferred until the ultimate disposition of the contract. As of November 30, 2000 and 1999, the Company had approximately $512,000,000 and $378,000,000, respectively, of mandatory forward commitments outstanding. RECLASSIFICATIONS Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to the 2000 presentation. NOTE 2. ISSUANCE OF FRENCH SUBSIDIARY STOCK On February 7, 2000, Kaufman & Broad S.A. ("KBSA"), the Company's wholly owned French subsidiary, issued 5,314,327 common shares (including the over-allotment option) in an initial public offering. The offering was made in France and elsewhere in Europe and was priced at 23 euros per share. KBSA is now listed on the Premier Marche of the ParisBourse. The offering generated total net proceeds of $113,100,000, of which $82,900,000 was used by the Company to reduce its domestic debt and repurchase additional shares of its common stock. The remainder of the proceeds was used to fund internal and external growth of KBSA. The Company recognized a gain of $39,630,000, or $.99 per diluted share as a result of the offering. The Company continues to own a majority interest in KBSA and will continue to consolidate these operations in its financial statements. NOTE 3. ACQUISITIONS Effective January 7, 1999, the Company acquired substantially all of the homebuilding assets of the Lewis Homes group of companies ("Lewis Homes"). Lewis Homes was engaged in the acquisition, development and sale of residential real estate in California and Nevada. The purchase price for Lewis Homes was approximately $449,244,000, comprised of the assumption of approximately $303,239,000 in debt and the issuance of 7,886,686 shares of the Company's common stock valued at approximately $146,005,000. The purchase price was based on the December 31, 1998 net book values of the entities purchased. The excess of the purchase price over the estimated fair value of net assets acquired was $177,600,000 and was allocated to goodwill. The Company is amortizing the goodwill on a straight-line basis over a period of ten years. Under the terms of the purchase agreement, a Lewis family member was also appointed to the Company's Board of Directors. 56 47 The 7,886,686 shares of Company common stock issued in the acquisition were "restricted" shares and could not be resold without a registration statement or compliance with Rule 144 under the Securities Act of 1933 ("Rule 144"), which, among other things, limits the number of shares that may be resold in a given period. The Company originally agreed to file a registration statement for 6,000,000 of those shares in three increments at the Lewis family's request from July 1, 2000 to July 1, 2002. On September 21, 2000, the Company instead repurchased 4,000,000 of the shares issued in the acquisition from the Lewis holders at a price of $26.00 per share. In connection with the repurchase, the Lewis holders' registration rights for the first two increments were extinguished. In the period subsequent to the Company's repurchase, the Lewis holders sold most of the balance of their shares within the requirements of Rule 144. In connection with the acquisition of Lewis Homes, the Company obtained a $200,000,000 unsecured term loan agreement with various banks (the "Term Loan Agreement") to refinance certain debt assumed. The Company used borrowings under its existing domestic unsecured revolving credit facility to refinance certain other debt assumed in the Lewis Homes acquisition. The acquisition consideration for Lewis Homes was determined by arm's-length negotiations between the parties. The acquisition was accounted for as a purchase, with the results of Lewis Homes included in the Company's consolidated financial statements as of January 7, 1999. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as if the acquisition of Lewis Homes had occurred as of December 1, 1998 with pro forma adjustments to give effect to amortization of goodwill, interest expense on acquisition debt and certain other adjustments, together with related income tax effects:
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS YEAR ENDED NOVEMBER 30, 1999 ----------- Total revenues $3,919,247 Total pretax income 231,384 Net income 150,384 Basic earnings per share 3.16 Diluted earnings per share 3.09 ===========
This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of December 1, 1998, nor are they necessarily indicative of future operating results. During the year ended November 30, 2000, the Company's French subsidiary, KBSA, completed the acquisitions of four homebuilders in France. These companies were acquired for an aggregate purchase price of $33,516,000 and were accounted for under the purchase method of accounting. The excess of the purchase price over the estimated fair value of the net assets acquired was $24,745,000 and was allocated to goodwill. The Company is amortizing the goodwill on a straight-line basis over a period of ten years. The pro forma results for 2000 and 1999, assuming these acquisitions had been made at the beginning of the year, would not be materially different from reported results. NOTE 4. RECEIVABLES CONSTRUCTION Trade receivables amounted to $213,197,000 and $138,250,000 at November 30, 2000 and 1999, respectively. Included in these amounts are unbilled receivables due from buyers on French single-family detached home, condominium and commercial building sales accounted for using the percentage of completion method totaling $161,658,000 at November 30, 2000 and $97,264,000 at November 30, 1999. The buyers are contractually obligated to remit payments against their unbilled balances. Other receivables of $81,563,000 at November 30, 2000 and $67,597,000 at November 30, 1999 included escrow deposits and amounts due from municipalities and utility companies. 57 48 At November 30, 2000 and 1999, receivables were net of allowances for doubtful accounts of $10,152,000 and $16,578,000, respectively. MORTGAGE BANKING First mortgages and mortgage-backed securities consisted of loans of $11,734,000 at November 30, 2000 and $9,089,000 at November 30, 1999 and mortgage-backed securities of $31,403,000 and $37,991,000 at November 30, 2000 and 1999, respectively. The mortgage-backed securities serve as collateral for related collateralized mortgage obligations. The properties covered by the mortgages underlying the mortgage-backed securities are single-family residences. Issuers of the mortgage-backed securities are the Government National Mortgage Association and Fannie Mae. The first mortgages and mortgage-backed securities bore interest at an average rate of 8 3/8% at both November 30, 2000 and 1999 (with rates ranging from 7% to 12% in both 2000 and 1999). The Company's mortgage-backed securities held for long-term investment have been classified as held-to-maturity and are stated at amortized cost, adjusted for amortization of discounts and premiums to maturity. Such amortization is included in interest income. The total gross unrealized gains and gross unrealized losses on the mortgage-backed securities were $600,000 and $0, respectively at November 30, 2000 and $685,000 and $0, respectively at November 30, 1999. First mortgages held under commitments of sale and other receivables consisted of first mortgages held under commitments of sale of $389,494,000 at November 30, 2000 and $376,377,000 at November 30, 1999 and other receivables of $13,671,000 and $9,699,000 at November 30, 2000 and 1999, respectively. The first mortgages held under commitments of sale bore interest at an average rate of 7 1/2% at both November 30, 2000 and 1999. The balance in first mortgages held under commitments of sale and other receivables fluctuates significantly during the year and typically reaches its highest level at quarter-ends, corresponding to the Company's home and mortgage delivery activity. NOTE 5. INVENTORIES Inventories consisted of the following:
NOVEMBER 30, --------------------------- IN THOUSANDS 2000 1999 --------------------------- Homes, lots and improvements in production $1,115,824 $1,063,505 Land under development 541,577 457,760 --------------------------- Total inventories $1,657,401 $1,521,265 ===========================
Land under development primarily consists of parcels on which 50% or less of estimated development costs have been incurred. The impact of capitalizing interest costs on consolidated pretax income is as follows:
YEARS ENDED NOVEMBER 30, --------------------------------------- IN THOUSANDS 2000 1999 1998 --------------------------------------- Interest incurred $ 94,201 $ 78,041 $ 54,299 Interest expensed (31,479) (28,340) (23,341) --------------------------------------- Interest capitalized 62,722 49,701 30,958 Interest amortized (40,679) (44,257) (30,752) --------------------------------------- Net impact on consolidated pretax income $ 22,043 $ 5,444 $ 206 =======================================
58 49 NOTE 6. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES The Company participates in a number of joint ventures in which it has less than a controlling interest. These joint ventures are based in California, Nevada, New Mexico, Texas and France and are engaged in the development, construction and sale of residential properties and commercial projects. Combined condensed financial information concerning the Company's unconsolidated joint venture activities follows:
NOVEMBER 30, --------------------- IN THOUSANDS 2000 1999 --------------------- Cash $ 9,151 $ 3,386 Receivables 11,440 4,914 Inventories 36,100 82,021 Other assets 166 377 --------------------- Total assets $56,857 $90,698 ===================== Mortgages and notes payable $17,522 $30,988 Other liabilities 14,936 11,111 Equity of: The Company 10,407 21,290 Others 13,992 27,309 --------------------- Total liabilities and equity $56,857 $90,698 =====================
The joint ventures finance land and inventory investments primarily through a variety of borrowing arrangements. The Company typically does not guarantee these financing arrangements.
YEARS ENDED NOVEMBER 30, ----------------------------------------- IN THOUSANDS 2000 1999 1998 ----------------------------------------- Revenues $ 116,837 $ 13,889 $ 17,657 Cost of sales (85,383) (9,842) (12,245) Other expenses, net (26,533) (426) (384) ----------------------------------------- Total pretax income $ 4,921 $ 3,621 $ 5,028 ----------------------------------------- The Company's share of pretax income $ 2,926 $ 224 $ 1,151 =========================================
The Company's share of pretax income includes management fees earned from the unconsolidated joint ventures. 59 50 NOTE 7. MORTGAGES AND NOTES PAYABLE CONSTRUCTION Mortgages and notes payable consisted of the following (interest rates are as of November 30):
NOVEMBER 30, ----------------------- IN THOUSANDS 2000 1999 ----------------------- Unsecured domestic borrowings with banks under a revolving credit agreement (7 7/8% in 2000 and 6 3/8% in 1999) $120,000 $ 50,000 Other unsecured domestic borrowings with banks due within one year (6 3/8% to 6 1/2% in 1999) 9,000 Unsecured French borrowings (5 4/5% to 6 1/2% in 2000 and 3 3/4% to 7% in 1999) 125,135 49,940 Term loan borrowings (8 3/8% in 2000 and 6 7/8% in 1999) 160,950 200,000 Shareholder notes (6 3/5% in 2000) 78,000 Mortgages and land contracts due to land sellers and other loans (4 1/4% to 10 1/2% in 2000 and 7% to 10 1/4% in 1999) 29,780 30,583 Senior notes due 2004 at 7 3/4% 175,000 175,000 Senior subordinated notes due 2003 at 9 3/8% 174,534 174,370 Senior subordinated notes due 2006 at 9 5/8% 124,581 124,531 ----------------------- Total mortgages and notes payable $987,980 $813,424 =======================
On January 7, 1999, in connection with the acquisition of Lewis Homes, the Company obtained a $200,000,000 Term Loan Agreement to refinance certain debt assumed. The Term Loan Agreement provided for three payments of $25,000,000, due on January 31, 2000, April 30, 2000 and July 31, 2000, with the remaining principal balance due on April 30, 2001. Interest was payable monthly at the London Interbank Offered Rate plus an applicable spread. Under the terms of the Term Loan Agreement, the Company was required, among other things, to maintain certain financial statement ratios and a minimum net worth and was subject to limitations on acquisitions, inventories and indebtedness. The financing obtained under the Term Loan Agreement did not affect the amounts available under the Company's pre-existing borrowing arrangements. On October 6, 2000, the Company entered into a $725,000,000 unsecured credit agreement (the "$725,000,000 Unsecured Credit Facility"), consisting of a $564,050,000 four-year committed revolving credit facility and a $160,950,000 five-year term loan, which together replaced its previously existing revolving credit facility and Term Loan Agreement. The $725,000,000 Unsecured Credit Facility could be expanded up to an aggregate total of $900,000,000 if additional bank lending commitments are obtained. Interest on the $725,000,000 Unsecured Credit Facility is payable monthly at the London Interbank Offered Rate plus an applicable spread on amounts borrowed. The Company's French subsidiaries have lines of credit with various banks which totaled $207,824,000 at November 30, 2000 and have various committed expiration dates through November 2003. These lines of credit provide for interest on borrowings at either the French Federal Funds Rate or the Paris Interbank Offered Rate plus an applicable spread. On September 21, 2000, in connection with the repurchase of 4,000,000 shares from the Lewis holders, the Company issued promissory notes (the "Shareholder Notes"), with an aggregate principal amount of $78,000,000, to the Lewis holders. Interest on the Shareholder Notes is accrued monthly at an annual rate of 6 3/5%. Under the terms of the notes, principal payments of $26,000,000 plus accrued interest are due on January 4, 2001, June 7, 2001 and December 6, 2001. The weighted average annual interest rate on aggregate unsecured borrowings, excluding the senior and senior subordinated notes, was 7 3/8% and 6 3/5% at November 30, 2000 and 1999, respectively. 60 51 On April 26, 1993, the Company issued $175,000,000 principal amount of 9 3/8% senior subordinated notes at 99.202%. The notes are due May 1, 2003 with interest payable semi-annually. The notes represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The Company may redeem the notes, in whole or in part, at any time at 100% of their principal amount. On October 29, 1996, the Company filed a universal shelf registration statement (the "1996 Shelf Registration") with the Securities and Exchange Commission for up to $300,000,000 of the Company's debt and equity securities. The Company's previously outstanding shelf registration for debt securities in the amount of $100,000,000 was subsumed within the 1996 Shelf Registration. On November 14, 1996, the Company utilized the 1996 Shelf Registration to issue $125,000,000 of 9 5/8% senior subordinated notes at 99.525%. The notes, which are due November 15, 2006 with interest payable semi-annually, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at 104.8125% of their principal amount beginning November 15, 2001, and thereafter, at prices declining annually to 100% on and after November 15, 2004. On October 14, 1997, pursuant to the 1996 Shelf Registration, the Company issued $175,000,000 of 7 3/4% senior notes at 100% of the principal amount of the notes. The notes, which are due October 15, 2004 with interest payable semi-annually, represent unsecured obligations of the Company and rank pari passu in right of payment with all other senior unsecured indebtedness of the Company. The notes are not redeemable by the Company prior to stated maturity. This offering resulted in the issuance of all available securities under the 1996 Shelf Registration. The 7 3/4% senior notes and 9 3/8% and 9 5/8% senior subordinated notes contain certain restrictive covenants that, among other things, limit the ability of the Company to incur additional indebtedness, pay dividends, make certain investments, create certain liens, engage in mergers, consolidations, or sales of assets, or engage in certain transactions with officers, directors and employees. Under the terms of the $725,000,000 Unsecured Credit Facility, the Company is required, among other things, to maintain certain financial statement ratios and a minimum net worth and is subject to limitations on acquisitions, inventories and indebtedness. Based on the terms of the Company's $725,000,000 Unsecured Credit Facility, senior notes and senior subordinated notes, retained earnings of $108,599,000 were available for payment of cash dividends or stock repurchases at November 30, 2000. Principal payments on senior and senior subordinated notes, term loan borrowings, shareholder notes, mortgages, land contracts and other loans are due as follows: 2001, $65,072,000; 2002, $37,355,000; 2003, $179,112,000; 2004, $175,668,000; 2005, $160,989,000; and thereafter, $124,649,000. Assets (primarily inventories) having a carrying value of approximately $75,243,000 are pledged to collateralize mortgages, land contracts and other secured loans. On December 5, 1997, the Company filed a universal shelf registration statement (the "1997 Shelf Registration") with the Securities and Exchange Commission for up to $500,000,000 of the Company's debt and equity securities. This universal shelf registration provides that securities may be offered from time to time in one or more series and in the form of senior, senior subordinated or subordinated debt, preferred stock, common stock, and/or warrants to purchase such securities. The registration was declared effective on December 16, 1997, and as of November 30, 2000 no securities had been issued thereunder. 61 52 MORTGAGE BANKING Notes payable included the following (interest rates are as of November 30):
November 30, ----------------------- in thousands 2000 1999 ----------------------- Mortgage Warehouse Facility (6 5/8% in 2000 and 6 1/8% in 1999) $228,922 $240,102 Master Loan and Security Agreement (6 4/5% in 2000 and 6 1/2% in 1999) 156,372 137,564 ----------------------- Total notes payable $385,294 $377,666 =======================
First mortgages receivable are financed through a $300,000,000 revolving mortgage warehouse agreement (the "Mortgage Warehouse Facility"). On February 18, 2000, the Company's mortgage banking subsidiary renewed its Mortgage Warehouse Facility and increased the facility from $250,000,000. The Mortgage Warehouse Facility, which expires on February 18, 2003, provides for an annual fee based on the committed balance of the facility and provides for interest at either the London Interbank Offered Rate or the Federal Funds Rate plus an applicable spread on amounts borrowed. On May 19, 2000, the Company's mortgage banking subsidiary renewed its Master Loan and Security Agreement with an investment bank and increased the maximum amount available under the agreement from $150,000,000 to $250,000,000. The agreement, which expires on May 18, 2001, provides for a facility fee based on the $250,000,000 maximum amount available and provides for interest to be paid monthly at the Eurodollar Rate plus an applicable spread on amounts borrowed. The amounts outstanding under the Mortgage Warehouse Facility and the Master Loan and Security Agreement are secured by a borrowing base, which includes certain mortgage loans held under commitments of sale and are repayable from sales proceeds. There are no compensating balance requirements under either facility. Both facilities include financial covenants and restrictions which, among other things, require the maintenance of certain financial statement ratios, a minimum tangible net worth and a minimum net income. Collateralized mortgage obligations represent bonds issued to third parties which are collateralized by mortgage-backed securities with substantially the same terms. At both November 30, 2000 and 1999, the collateralized mortgage obligations bore interest at rates ranging from 8% to 12 1/4% with stated original principal maturities ranging from 3 to 30 years. Actual maturities are dependent on the rate at which the underlying mortgage-backed securities are repaid. No collateralized mortgage obligations have been issued since 1988. Note 8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF THE COMPANY (FELINE PRIDES) On July 7, 1998, the Company, together with KBHC Financing I, a Delaware statutory business trust (the "KBHC Trust") that is wholly owned by the Company, issued an aggregate of (i) 18,975,000 Feline Prides, and (ii) 1,000,000 KBHC Trust capital securities, with a $10 stated liquidation amount. The Feline Prides consisted of (i) 17,975,000 Income Prides with a stated amount per Income Prides of $10 (the "Stated Amount"), which are units comprised of a capital security and a stock purchase contract under which the holders will purchase common stock from the Company not later than August 16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments, and (ii) 1,000,000 Growth Prides with a face amount per Growth Prides equal to the Stated Amount, which are units consisting of a 1/100th beneficial interest in a zero-coupon U.S. Treasury security and a stock purchase contract under which the holders will purchase common stock from the Company not later than August 16, 2001 and the Company will pay to the holders certain unsecured contract adjustment payments. The distribution rate on the Income Prides is 8.25% per annum and the distribution rate on the Growth Prides is .75% per annum. Under the stock purchase contracts, investors will be required to purchase shares of common stock of the Company for an effective price ranging between a minimum of $31.75 per share and a maximum of $38.10 per share, and the Company will issue 62 53 approximately 5,000,000 to 6,000,000 common shares by August 16, 2001, depending upon the price of the common stock upon settlement of the purchase contracts (subject to adjustment under certain circumstances). The capital securities associated with the Income Prides and the U.S. Treasury securities associated with the Growth Prides have been pledged as collateral to secure the holders' obligations in respect of the common stock purchase contracts. The capital securities issued by the KBHC Trust are entitled to a distribution rate of 8% per annum of their $10 stated liquidation amount. The KBHC Trust utilized the proceeds from the issuance of the Feline Prides and capital securities to purchase an equivalent principal amount of the Company's 8% Debentures due August 16, 2003 (the "8% Debentures"). The 8% Debentures are the sole asset of the KBHC Trust. The Company's obligations under the Debentures and related agreements, taken together, constitute a firm and unconditional guarantee by the Company of the KBHC Trust's obligations under the capital securities. The interest rate on the 8% Debentures and the distribution rate on the capital securities of the KBHC Trust are to be reset, subject to certain limitations, effective August 16, 2001. The Company has recorded the present value of the contract adjustment payments on the Feline Prides, totaling $1,600,000, as a liability and a reduction of stockholders' equity. The liability will be reduced as the contract adjustment payments are made. The Company has the right to defer the contract adjustment payments and the payment of interest on the 8% Debentures, but any such election will subject the Company to restrictions on the payment of dividends on, and redemption of, its outstanding shares of common stock, and on the payment of interest on, or redemption of, debt securities of the Company junior in rank to the 8% Debentures, none of which are currently outstanding. Distributions of $15,180,000, $15,180,000 and $6,072,000 are included as minority interests in the Company's results of operations for each of the years ended November 30, 2000, 1999 and 1998, respectively. NOTE 9. FAIR VALUES OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments have been determined based on available market information and appropriate valuation methodologies. However, judgment is necessarily required in interpreting market data to develop the estimates of fair value. In that regard, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The carrying values and estimated fair values of the Company's financial instruments, except for those for which the carrying values approximate fair values, are summarized as follows:
NOVEMBER 30, --------------------------------------------------- 2000 1999 --------------------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED IN THOUSANDS VALUE FAIR VALUE VALUE FAIR VALUE --------------------------------------------------- Construction: Financial liabilities 7 3/4% Senior notes $175,000 $164,745 $175,000 $163,520 9 3/8% Senior subordinated notes 174,534 173,110 174,370 174,738 9 5/8% Senior subordinated notes 124,581 122,388 124,531 125,700 Mortgage banking: Financial assets Mortgage-backed securities 31,403 32,003 37,991 38,676 Financial liabilities Collateralized mortgage obligations secured by mortgage-backed securities 29,928 30,982 36,219 36,897 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 189,750 175,000 189,750 141,800 ===================================================
63 54 The Company used the following methods and assumptions in estimating fair values: Cash and cash equivalents; first mortgages held under commitments of sale and other receivables; borrowings under the unsecured credit facilities, Shareholder Notes, French lines of credit, Mortgage Warehouse Facility and Master Loan and Security Agreement: The carrying amounts reported approximate fair values. Senior notes and senior subordinated notes: The fair values of the Company's senior notes and senior subordinated notes are estimated based on quoted market prices. Mortgage-backed securities and collateralized mortgage obligations secured by mortgage-backed securities: The fair values of these financial instruments are estimated based on quoted market prices for the same or similar issues. Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company: The fair values of these financial instruments are based on quoted market prices on the New York Stock Exchange. NOTE 10. COMMITMENTS AND CONTINGENCIES Commitments and contingencies include the usual obligations of homebuilders for the completion of contracts and those incurred in the ordinary course of business. The Company is also involved in litigation incidental to its business, the disposition of which should have no material effect on the Company's financial position or results of operations. NOTE 11. STOCKHOLDERS' EQUITY PREFERRED STOCK On February 4, 1999, the Company adopted a new Stockholder Rights Plan to replace its preexisting shareholder rights plan adopted in 1989 (the "1989 Rights Plan"), and declared a dividend distribution of one preferred share purchase right for each outstanding share of common stock; such rights were issued on March 7, 1999, simultaneously with the expiration of the rights issued under the 1989 Rights Plan. Under certain circumstances, each right entitles the holder to purchase 1/100th of a share of the Company's Series A Participating Cumulative Preferred Stock at a price of $135.00, subject to certain antidilution provisions. The rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that a person or group has acquired Company stock representing 15% or more of the aggregate votes entitled to be cast by all shares of common stock or (ii) 10 days following the commencement of a tender offer for Company stock representing 15% or more of the aggregate votes entitled to be cast by all shares of common stock. If, without approval of the Board of Directors, the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company's assets or earning power is sold, each right will entitle its holder to receive, upon exercise, common stock of the acquiring company having a market value of twice the exercise price of the right; and if, without approval of the Board of Directors, any person or group acquires Company stock representing 15% or more of the aggregate votes entitled to be cast by all shares of common stock, each right will entitle its holder to receive, upon exercise, common stock of the Company having a market value of twice the exercise price of the right. At the option of the Company, the rights are redeemable prior to becoming exercisable at $.005 per right. Unless previously redeemed, the rights will expire on March 7, 2009. Until a right is exercised, the holder will have no rights as a stockholder of the Company, including the right to vote or receive dividends. NOTE 12. EMPLOYEE BENEFIT AND STOCK PLANS Benefits are provided to most employees under the Company's 401(k) Savings Plan under which contributions by employees are partially matched by the Company. The aggregate cost of this plan to the Company was $4,513,000 in 2000, $3,937,000 in 1999 and $3,025,000 in 1998. 64 55 The Company's 1999 Incentive Plan (the "1999 Plan") provides that stock options, associated limited stock appreciation rights, restricted shares of common stock, stock units and other securities may be awarded to eligible individuals for periods of up to 15 years. The Company also has a Performance-Based Incentive Plan for Senior Management (the "Incentive Plan") and a 1998 Stock Incentive Plan (the "1998 Plan") which provide for the same awards as may be made under the 1999 Plan, but require that such awards be subject to certain conditions which are designed to assure that annual compensation paid in excess of $1,000,000 to participating executives is tax deductible for the Company. The 1998 Plan and the 1999 Plan are the Company's primary existing employee stock plans. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), issued in October 1995, established financial accounting and reporting standards for stock-based employee compensation plans. As permitted by SFAS No. 123, the Company elected to continue to use APB Opinion No. 25 and related interpretations in accounting for its stock options. Had compensation expense for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2000, 1999 and 1998 consistent with the provisions of SFAS No. 123, the Company's net income and diluted earnings per share would have been reduced to the pro forma amounts indicated below:
YEARS ENDED NOVEMBER 30, ---------------------------------------------- IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 2000 1999 1998 ---------------------------------------------- Net income - as reported $ 209,960 $ 147,469 $ 95,267 Net income - pro forma 205,652 142,816 91,398 Diluted earnings per share - as reported 5.24 3.08 2.32 Diluted earnings per share - pro forma 5.10 2.99 2.24 ==============================================
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2000, 1999 and 1998, respectively: a risk free interest rate of 5.44%. 6.14% and 4.38%; an expected volatility factor for the market price of the Company's common stock of 44.82%, 43.14% and 41.31%; a dividend yield of 1.00%, 1.36% and 1.19%; and an expected life of 4 years, 4 years and 4 years. The weighted average fair value of options granted in 2000, 1999 and 1998 was $7.70, $6.92 and $6.09, respectively. Stock option transactions are summarized as follows:
2000 1999 1998 ---------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------------------------------------------------------------------------------- Options outstanding at beginning of year 4,849,822 $17.26 2,965,067 $15.22 2,747,318 $ 9.98 Granted 1,615,176 24.74 2,241,736 20.12 1,318,017 22.83 Exercised (306,628) 16.46 (211,925) 16.43 (995,235) 10.70 Cancelled (419,638) 21.08 (145,056) 21.00 (105,033) 16.56 ---------------------------------------------------------------------------------- Options outstanding at end of year 5,738,732 $19.13 4,849,822 $17.26 2,965,067 $15.22 ---------------------------------------------------------------------------------- Options exercisable at end of year 2,773,254 $15.60 2,041,106 $13.83 1,586,455 $12.16 ---------------------------------------------------------------------------------- Options available for grant at end of year 1,671,996 2,867,334 2,464,014 ==================================================================================
65 56 Stock options outstanding at November 30, 2000 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGE OF EXERCISE PRICE OPTIONS LIFE PRICE OPTIONS PRICE ------------------------------------------------------------- $4.38 to $14.56 1,255,489 5.10 $ 7.78 1,214,989 $ 7.55 $16.13 to $19.88 1,103,166 13.60 17.79 385,381 17.86 $20.25 to $24.85 1,833,714 12.74 22.42 1,085,929 22.54 $25.00 to $33.94 1,546,363 14.78 25.39 86,955 31.29 ------------------------------------------------------------- $4.38 to $33.94 5,738,732 11.78 $19.13 2,773,254 $15.60 =============================================================
The Company records proceeds from the exercise of stock options as additions to common stock and paid-in capital. The tax benefit, if any, is recorded as additional paid-in capital. In 1991, the Board of Directors approved the issuance of restricted stock awards under the 1988 Plan of up to an aggregate 600,000 shares of common stock to certain officers and key employees. Restrictions lapse each year through May 10, 2005 on specified portions of the shares awarded to each participant so long as the participant has remained in the continuous employ of the Company. Restricted shares under this grant outstanding at the end of the year totaled 108,331 in 2000, 129,998 in 1999 and 151,665 in 1998. On August 4, 1999, the Company's Board of Directors authorized a share repurchase program which allowed the Company to purchase shares of its common stock at prices not to exceed $28 per share. As of November 30, 2000, the Board of Directors had authorized the repurchase of a total of 14,500,000 shares. The Company had repurchased 14,500,000 shares and 3,750,100 shares, respectively, under the repurchase program as of November 30, 2000 and 1999. In connection with its share repurchase program, on August 27, 1999, the Company established a grantor stock ownership trust (the "Trust") into which certain of the repurchased shares have been transferred. The Trust, administered by an independent trustee, acquires, holds and distributes the shares of common stock for the purpose of funding certain employee compensation and employee benefit obligations of the Company under its existing stock option, 401(k) and other employee benefit plans. The existence of the Trust has no impact on the amount of benefits or compensation that is paid under these plans. For financial reporting purposes, the Trust is consolidated with the Company. Any dividend transactions between the Company and the Trust are eliminated. Acquired shares held by the Trust remain valued at the market price at the date of purchase and are shown as a reduction to stockholders' equity in the consolidated balance sheet. The difference between the Trust share value and the fair market value on the date shares are released from the Trust, for the benefit of employees, will be included in additional paid-in capital. Common stock held in the Trust is not considered outstanding in the computation of earnings per share. The Trust held 8,782,252 and 3,750,100 shares of common stock at November 30, 2000 and 1999, respectively. The trustee votes shares held by the Trust in accordance with voting directions from eligible employees, as specified in a trust agreement with the trustee. 66 57 NOTE 13. INCOME TAXES The components of pretax income are as follows:
YEARS ENDED NOVEMBER 30, ------------------------------------------- IN THOUSANDS 2000 1999 1998 ------------------------------------------- Domestic $263,266 $200,272 $136,042 Foreign 34,394 26,597 10,525 ------------------------------------------- Total pretax income $297,660 $226,869 $146,567 ===========================================
The components of income taxes are as follows:
IN THOUSANDS TOTAL FEDERAL STATE FOREIGN -------------------------------------------------- 2000 Currently payable $ 70,818 $ 43,776 $17,000 $10,042 Deferred 16,882 11,586 5,296 -------------------------------------------------- Total $ 87,700 $ 55,362 $17,000 $15,338 ================================================== 1999 Currently payable $ 87,428 $ 65,557 $11,755 $10,116 Deferred (8,028) (12,411) 4,383 -------------------------------------------------- Total $ 79,400 $ 53,146 $11,755 $14,499 ================================================== 1998 Currently payable $ 52,628 $ 39,989 $ 8,498 $ 4,141 Deferred (1,328) (3,145) 1,817 -------------------------------------------------- Total $ 51,300 $ 36,844 $ 8,498 $ 5,958 ==================================================
67 58 Deferred income taxes result from temporary differences in the financial and tax bases of assets and liabilities. Significant components of the Company's deferred tax liabilities and assets are as follows:
NOVEMBER 30, ---------------------- IN THOUSANDS 2000 1999 ---------------------- Deferred tax liabilities: Installment sales $ 15,763 $ 15,471 Bad debt and other reserves 468 449 Capitalized expenses 21,970 15,704 Partnerships and joint ventures 1,237 2,439 Repatriation of foreign subsidiaries 12,381 Other 3,917 12,179 ---------------------- Total deferred tax liabilities 43,355 58,623 ---------------------- Deferred tax assets: Warranty, legal and other accruals 27,372 29,210 Depreciation and amortization 19,328 27,957 Capitalized expenses 14,928 16,370 Partnerships and joint ventures 14,139 13,183 Noncash charge for impairment of long-lived assets 6,400 7,686 Foreign tax credits 12,346 Net operating losses 20,347 40,121 Other 14,683 11,269 ---------------------- Total deferred tax assets 117,197 158,142 ---------------------- Net deferred tax assets $ 73,842 $ 99,519 ======================
Net operating loss carryforwards expire in various years from 2005 through 2018. The Company expects that the entire deferred tax benefit of the tax loss carryforwards will be recognized in future periods. Income taxes computed at the statutory United States federal income tax rate and income tax expense provided in the financial statements differ as follows:
YEARS ENDED NOVEMBER 30, --------------------------------------- IN THOUSANDS 2000 1999 1998 --------------------------------------- Amount computed at statutory rate $ 104,181 $ 79,404 $ 51,298 Increase (decrease) resulting from: State taxes, net of federal income tax benefit 11,050 7,641 5,524 Differences in foreign tax rates 853 4,379 1,594 Intercompany dividends (2,537) 1,153 977 Tax credits (24,211) (11,329) (3,351) Other, net (1,636) (1,848) (4,742) --------------------------------------- Total $ 87,700 $ 79,400 $ 51,300 =======================================
68 59 The Company has commitments to invest $6,197,000 over five years in affordable housing partnerships which are scheduled to provide tax credits. The Company had foreign tax credit carryforwards at November 30, 2000 of $1,000,000 for United States federal income tax purposes which expire in 2004. NOTE 14. GEOGRAPHICAL INFORMATION The following table presents information about the Company by geographic area. The Company's domestic construction operations are comprised of three regions as follows: West Coast - California; Southwest - Arizona, Nevada and New Mexico; and Central - Colorado and Texas.
OPERATING IDENTIFIABLE IN THOUSANDS REVENUES INCOME ASSETS ---------------------------------------- 2000 Construction: West Coast $1,466,418 $ 95,243 $ 907,956 Southwest 862,822 67,899 427,347 Central 1,065,803 90,018 531,074 Foreign 475,445 35,449 495,391 ---------------------------------------- Total construction 3,870,488 288,609 2,361,768 Mortgage banking 60,370 23,832 467,153 ---------------------------------------- Total $3,930,858 $312,441 $2,828,921 ======================================== 1999 Construction: West Coast $1,579,226 $115,515 $ 905,890 Southwest 830,418 58,434 481,997 Central 950,177 59,488 505,144 Foreign 412,300 25,670 321,045 ---------------------------------------- Total construction 3,772,121 259,107 2,214,076 Mortgage banking 64,174 17,464 450,159 ---------------------------------------- Total $3,836,295 $276,571 $2,664,235 ======================================== 1998 Construction: West Coast $1,105,849 $ 82,939 $ 655,920 Southwest 352,389 25,742 258,081 Central 690,019 32,493 398,308 Foreign 254,709 7,498 230,235 ---------------------------------------- Total construction 2,402,966 148,672 1,542,544 Mortgage banking 46,396 21,413 317,660 ---------------------------------------- Total $2,449,362 $170,085 $1,860,204 ========================================
69 60 NOTE 15. QUARTERLY RESULTS (UNAUDITED) Quarterly results for the years ended November 30, 2000 and 1999 follow:
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS FIRST SECOND THIRD FOURTH ------------------------------------------------------ 2000 Revenues $799,585 $906,182 $ 981,024 $1,244,067 Operating income 47,275 53,678 81,964 129,524 Pretax income 77,414 42,700 66,439 111,107 Net income 64,214 27,700 44,639 73,407 Basic earnings per share 1.51 .70 1.17 2.10 Diluted earnings per share 1.47 .68 1.14 2.00 ====================================================== 1999 Revenues $694,143 $862,270 $1,057,113 $1,222,769 Operating income 34,134 56,494 72,058 113,885 Pretax income 24,886 43,975 58,781 99,227 Net income 16,186 28,575 38,181 64,527 Basic earnings per share .36 .60 .80 1.39 Diluted earnings per share .35 .58 .78 1.36 ======================================================
Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year. NOTE 16. SUBSEQUENT EVENT (UNAUDITED) On February 8, 2001, pursuant to the 1997 Shelf Registration, the Company issued $250,000,000 of 9 1/2% senior subordinated notes at 100% of the principal amount of the notes. The notes, which are due February 15, 2011 with interest payable semi-annually, represent unsecured obligations of the Company and are subordinated to all existing and future senior indebtedness of the Company. The notes are redeemable at the option of the Company, in whole or in part, at 104.750% of their principal amount beginning February 15, 2006, and thereafter at prices declining annually to 100% on and after February 15, 2009. Proceeds from the issuance of the notes were used to pay down bank borrowings. 70 61 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of KB Home: We have audited the accompanying consolidated balance sheets of KB Home as of November 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended November 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KB Home at November 30, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Los Angeles, California December 21, 2000 71 62 REPORT ON FINANCIAL STATEMENTS The accompanying consolidated financial statements are the responsibility of management. The statements have been prepared in conformity with generally accepted accounting principles. Estimates and judgments of management based on its current knowledge of anticipated transactions and events are made to prepare the financial statements as required by generally accepted accounting principles. Management relies on internal accounting controls, among other things, to produce records suitable for the preparation of financial statements. The responsibility of our external auditors for the financial statements is limited to their expressed opinion on the fairness of the consolidated financial statements taken as a whole. Their examination is performed in accordance with generally accepted auditing standards which include tests of our accounting records and internal accounting controls and evaluation of estimates and judgments used to prepare the financial statements. The Company employs a staff of internal auditors whose work includes evaluating and testing internal accounting controls. An audit committee of outside members of the Board of Directors periodically meets with management, the external auditors and the internal auditors to evaluate the scope of auditing activities and review results. Both the external and internal auditors have the unrestricted opportunity to communicate privately with the audit committee. /s/ WILLIAM R. HOLLINGER William R. Hollinger Vice President and Controller December 21, 2000 72 63 STOCKHOLDER INFORMATION Common Stock Prices
2000 1999 ----------------------------------------------------- High Low High Low ----------------------------------------------------- First Quarter $24 13/16 $18 3/4 $ 31 $21 3/8 Second Quarter 22 3/8 16 13/16 28 3/4 21 Third Quarter 25 3/8 16 15/16 25 7/16 19 1/4 Fourth Quarter 32 13/16 23 15/16 25 9/16 16 3/4 =====================================================
DIVIDEND DATA KB Home paid a quarterly cash dividend of $.075 per common share in 2000 and 1999. ANNUAL STOCKHOLDERS' MEETING The 2001 Annual Stockholders' meeting will be held at The W Hotel, 930 Hilgard Avenue, in Los Angeles, California, at 9:00 a.m. on Thursday, April 5, 2001. STOCK EXCHANGE LISTINGS KB Home's common stock is listed on the New York Stock Exchange and is also traded on the Boston, Cincinnati, Midwest, Pacific and Philadelphia Exchanges. The ticker symbol is KBH. Kaufman & Broad S.A. is listed on the ParisBourse. The ticker symbol is KOF. KBSA's Web site address is ketb.com. TRANSFER AGENT Mellon Investor Services LLC P.O. Box 3315 South Hackensack, New Jersey 07606-1915 (800) 356-2017 www.mellon-investor.com INDEPENDENT AUDITORS Ernst & Young LLP Los Angeles, California SHAREHOLDER INFORMATION The Company's common stock is traded on the New York Stock Exchange under the symbol KBH. There were 45,508,345 shares of common stock outstanding as of February 1, 2001. FORM 10-K The Company's 2000 Report on Form 10-K filed with the Securities and Exchange Commission may be obtained without charge by writing to the Company's Investor Relations department, or by visiting the Company's Web site at kbhome.com. HEADQUARTERS KB Home 10990 Wilshire Boulevard, Seventh Floor Los Angeles, California 90024 (310) 231-4000 (310) 231-4222 Fax Location and Community Information: kbhome.com (800) 34-HOMES INVESTOR CONTACT Mary McCarthy Senior Vice President, Corporate Communications KB Home 10990 Wilshire Boulevard, Seventh Floor Los Angeles, California 90024 (310) 231-4000 mmccarthy@kbhome.com BONDHOLDER SERVICES ADDRESSES & PHONE NUMBERS 8 1/4% $189,750,000 FELINE PRIDES - Due 8/16/01 Trustee: Bank One, N.A. Corporate Trust Investor Relations One Bank One Plaza Mail Code IL1-0126 Chicago, Illinois 60670 bondholder@em.fcnbd.com (800) 524-9472 9 3/8% $175,000,000 Note - Due 5/1/03 Trustee: State Street Bank and Trust Company of California, N.A. Corporate Trust Department 633 West 5th Street, 12th Floor Los Angeles, California 90071 corporatetrust.statestreet.com (800) 531-0368 7 3/4% $175,000,000 Note - Due 10/15/04 9 5/8% $125,000,000 Note - Due 11/15/06 9 1/2% $250,000,000 Note - Due 2/15/11 Trustee: Sun Trust Bank Corporate Trust Division Mail Code 008 25 Park Place, 24th Floor Building 10, Suite 810 Atlanta, Georgia 30303-2900 olga.warren@suntrust.com (800) 711-1614 76 64 LIST OF EXHIBITS FILED
SEQUENTIAL EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ------- ----------- ---------- 3.7 Certificate of Ownership and Merger effective January 17, 2001 merging KB Home, Inc. into Kaufman and Broad Home Corporation, through which the name of the Company was changed to KB HOME.......................................... 3.8 By-Laws, as amended and restated on January 17, 2001, to reflect the change in the Company's name.................... 4.19 By-Laws, as amended and restated on January 17, 2001, to reflect the change in the Company's name, included as Exhibit No. 3.8 herein. 10.19 Stock Purchase Agreement, dated as of September 21, 2000, by and between the Company and certain of the Lewis Homes sellers..................................................... 10.20 2000 Revolving Credit Facility, dated as of October 3, 2000, by and among the Company, the banks party thereto, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager...... 10.21 2000 Term Credit Facility, dated as of October 3, 2000, by and among the Company, the banks party thereto, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager...... 10.22 Form of limited liability company Operating Agreement under the e.KB Equity Incentive Program........................... 13 Pages 34 through 72 and page 76 of the Company's 2000 Annual Report to Stockholders...................................... 22 Subsidiaries of the Company................................. 24 Consent of Independent Auditors.............................
EX-3.7 2 v65422ex3-7.txt EXHIBIT 3.7 1 EXHIBIT 3.7 CERTIFICATE OF OWNERSHIP AND MERGER MERGING KB HOME, INC. INTO KAUFMAN AND BROAD HOME CORPORATION (Pursuant to Section 253 of the General Corporation Law of Delaware) Kaufman and Broad Home Corporation, a corporation organized and existing under the laws of Delaware (the "Corporation"), does hereby certify: FIRST: That the Corporation owns all of the outstanding shares of each class of stock of KB Home, Inc. a Delaware corporation. SECOND: That the Corporation, by the following resolutions of its Board of Directors, duly adopted at a meeting held on December 6, 2000, determined to and did merge into itself said KB Home, Inc., by the adoption thereof: RESOLVED, that the Corporation merge, and it hereby does merge, into itself KB Home, Inc. and assumes all of its obligations. RESOLVED, that said merger shall become effective upon the filing of a Certificate of Ownership and Merger with the Secretary of State of the State of Delaware or at such later time set forth therein. RESOLVED, that upon effectiveness of said merger, the name of the Corporation shall be changed to KB HOME and Article FIRST of the Certificate of Incorporation of the Corporation shall be amended to read as follows: FIRST. The name of the corporation (hereinafter called the "Corporation") is KB HOME. RESOLVED, that the proper officers of the Corporation be, and they hereby are, directed to make and execute a Certificate of Ownership and Merger setting forth a copy of the resolutions to so merge KB Home, Inc. into the Corporation and to assume its obligations, and to so change 2 the name of the Corporation, and the date of adoption thereof, and to cause the same to be filed with the Secretary of State of the State of Delaware and to do all acts and things whatsoever, whether within or without the State of Delaware, which may be necessary or proper to effect said merger and change of name. THIRD: This Certificate shall be effective at 12:01 a.m., E.S.T. on January 17, 2001. In Witness Whereof, the Corporation has caused this certificate to be signed by its duly authorized officer, this 9th day of January 2001. KAUFMAN AND BROAD HOME CORPORATION By: /s/ Kimberly N. King ------------------------------------- Kimberly N. King Secretary EX-3.8 3 v65422ex3-8.txt EXHIBIT 3.8 1 EXHIBIT 3.8 BY-LAWS OF KB HOME (amended and restated January 17, 2001) * * * * * ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be in County of Kent, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. Section 3. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETING OF STOCKHOLDERS Section 1. Time and Place of Meetings. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). Section 2. Annual Meeting. Annual meetings of stockholders, shall be held to elect such members of the Board of Directors necessary to fill any expired terms or vacancies and to transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of stockholders may be called by the Board of Directors or the Chairman of the Board. The power of the Stockholders to request a special meeting of the Stockholders is expressly denied. Section 4. Notice of Meetings and Adjourned Meetings: Waivers of Notice. (a) whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, 2 and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware ("Delaware Law"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these by-laws otherwise require when a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 5. Quorum. Unless otherwise provided under the Certificate of Incorporation or these By-laws and subject to Delaware law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders, shall constitute a quorum for the transaction of business. Section 6. Voting. (a) Unless otherwise provided in the Certificate of Incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Unless otherwise provided in Delaware Law, the Certificate of Incorporation or these By-laws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by proxy, at a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. (c) Notwithstanding the provisions of paragraph (a) of this Section 6 or any other provisions of the Certificate of Incorporation or these By-laws (and notwithstanding that a lesser percentage may be allowed by law), no alteration, amendment, addition to or repeal of Section 2 of Article III hereof shall be made except by vote of the Board of Directors or by the affirmative vote of the holders of not less than 80% of the combined voting power of the then outstanding capital stock of this Corporation. Section 7. Organization. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, (or at his designation, in his absence or if one shall not have 3 been elected, the President) shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. ARTICLE III DIRECTORS Section 1. General Powers. Except as otherwise provided in Delaware Law or the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. Section 2. Number. Election and Term of Office. (a) The Board of Directors shall consist of not less than three nor more than twelve. The number of directors shall initially be eight. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 12 of this Article, and each director so elected shall hold office until term shall expire and until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. (b) The directors shall be divided, with respect to the terms for which they severally hold office, into three classes, as nearly equal in number as the then total number of directors constituting the whole Board of Directors permits, as determined by the Board of Directors, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1989, at which directors shall initially be classified, directors of the first class shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1990, directors of the second class shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1991 and directors of the third class shall be elected to hold office for a term expiring at the annual meeting of stockholders in 1992, with each class of directors to hold office until their successors are duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms shall then expire, other than those directors elected as provided in paragraph (c) by a separate class vote of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation of the Corporation, shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders after such election. In the event of any increase in the number of directors of the Corporation, the additional director or directors shall be so classified that all classes of directors shall be as nearly equal in number as may be possible, as determined by the Board of Directors. In the event of any decrease in the number of directors of the Corporation, all classes of directors shall be decreased in number as nearly equally as may be possible, as determined by the Board of Directors. No decrease in the number of directors shall shorten the term of any incumbent director. (c) If at any time the holders of any class or series of stock of the Corporation having a preference over the Common Stock as to dividends or upon liquidation of the 4 Corporation are entitled, by a separate class vote, to elect directors pursuant to the terms of this Certificate of Incorporation (as it may be amended from time to time), then the provisions of the Certificate of Incorporation with respect to their rights shall apply. Except as otherwise expressly provided in the Certificate of Incorporation (including any Certificate of Designation hereto) the directors that may be so elected by the holders of any such class or series of stock shall be elected for terms expiring at the next annual meeting of stockholders and, without regard (insert page 5) to the classification of the remaining members of the Board, of Directors, vacancies among directors so elected by the separate class vote of any such class or series of stock shall be filled by the remaining directors elected by such class or series, or, if there are no such remaining directors, by the holders of such class or series in the same manner in which such class or series initially elected directors. (d) If at any meeting for the election of directors, more than one class of stock, voting separately as classes, shall be entitled to elect one or more directors and there shall be a quorum of only one such class of stock, that class of stock shall be entitled to elect its quota of directors notwithstanding the absence of a quorum of the other class of classes of stock. Section 3. Quorum and Manner of Acting. Unless the Certificate of Incorporation of these By-laws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority to the directors present at meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). Section 5. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof signed by all the directors. Section 6. Regular Meetings. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to 5 each member of the Board of Directors, regular meetings may be held without further notice being given. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President, or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director in such manner as is determined by the Board of Directors at least three days before the date of the meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation; and unless the resolution of the Board of Directors or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 9. Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 10. Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Resignation. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 6 Section 12. Vacancies. Unless otherwise provided in the Corporation's Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the expiration of his term and until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the Corporation's Certificate of Incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of other vacancies. Section 13. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have authority to fix the compensation, of directors, including fees and reimbursement of expenses, except that no compensation shall be paid to directors who are employees of the Corporation. ARTICLE IV OFFICERS Section 1. Principal Officers. The principal officers of the Corporation shall be Chairman of the Board of Directors, a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of Chairman of the Board and Secretary. Section 2. Election. Term of Office and Remuneration. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. Section 3. Subordinate Officers. In addition to the principal officers enumerated in Section 1 of this Article IV, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to 7 any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. Section 4. Removal. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. Section 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Powers and Duties. The Board of Directors may designate an officer as the Chief Executive Officer. The Chief Executive Officer shall, subject to the direction and control of the Board of Directors, be the general manager of, and supervise and direct, the business and affairs of the Corporation and conduct of the officers of the Corporation. The other officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE V GENERAL PROVISIONS Section 1. (a) Fixing the Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 or less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) If no record date is fixed by the Board of Directors: (i) The record date for determining shareholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and 8 (ii) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. Section 2. Dividends. Subject to limitations contained in Delaware Law and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property, or in shares of the capital stock of the Corporation. Section 3. Fiscal Year. The fiscal year of the Corporation shall commence on December 1 and end on November 30 of each year. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. Section 5. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. EX-10.19 4 v65422ex10-19.txt EXHIBIT 10.19 1 EXHIBIT 10.19 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of September 21, 2000, is entered into by and among KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation (the "Company"), and the other signatories hereto listed on the signature pages to this Agreement (each a "Shareholder" and collectively the "Shareholders"). WHEREAS, the Company and the Shareholders (or their predecessors in interest) are parties to that certain Shareholder Agreement, dated as of January 7, 1999 (the "Shareholder Agreement"), and that certain Registration Rights Agreement, dated January 7, 1999 (the "Registration Rights Agreement"); WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Shareholders desire to sell, and the Company desires to purchase, an aggregate of 4,000,000 shares (the "Shares") of the Company's common stock, par value $1.00 per share ("Common Stock"), held by the Shareholders; and WHEREAS, in connection with the sale of the Shares, the Company and the Shareholders wish to amend the Registration Rights Agreement and the Shareholder Agreement and enter into the other agreements contained in this Agreement; NOW, THEREFORE, upon the premises and the mutual promises herein contained, and for good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties hereby agree as follows: 1. Sale of Shares. Subject to the terms and conditions of this Agreement, at the Closing the Company shall buy, and each Shareholder shall sell to the Company, the number of Shares of Common Stock set forth opposite such Shareholder's name on Exhibit A hereto for a purchase price of (a) Six Dollars and Fifty Cents ($6.50) per Share in cash and (b) a promissory note for Nineteen Dollars and Fifty Cents ($19.50) per Share in the form attached hereto as Exhibit B (the "Promissory Note," and together with the promissory notes issued to the other Shareholders, the "Promissory Notes"). The aggregate purchase price for all of the Shares shall be Twenty Six Million Dollars ($26,000,000) in cash (the "Cash Purchase Price") and Promissory Notes with an aggregate principal amount of Seventy Eight Million Dollars ($78,000,000). 2. Closing. The purchase and sale of Shares contemplated by this Agreement (the "Closing") will take place at the offices of Munger, Tolles & Olson LLP at 355 South Grand Avenue, 35th Floor, Los Angeles, California at 10:00 a.m. (Los Angeles time) on September 21, 2000. At the Closing, - 1 - 2 (a) each Shareholder who is an individual will deliver to the Company a fully executed and notarized special power of attorney appointing Robert E. Lewis as such Shareholder's true and lawful attorney; (b) each Shareholder that is a corporation or limited liability company will deliver to the Company an original of such Shareholder's duly adopted resolutions or a certified copy of its bylaws or operating agreement authorizing the sale of the Shares and designating a duly authorized representative to act on behalf of such Shareholder; (c) the Shareholders will deliver to the Company certificates representing the Shares, accompanied by duly executed stock powers, with signatures guaranteed by a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchange Medallion Program, for transfer to the Company; and (d) the Company will deliver to each Shareholder (i) such Shareholder's portion of the Cash Purchase Price payable by wire transfer in such an amount and pursuant to the instructions set forth on Exhibit A and (ii) a duly executed Promissory Note in the principal amount specified for such Shareholder on Exhibit A. To the extent that a Shareholder is selling to the Company less than all of the shares of Common Stock evidenced by a particular stock certificate, within two business days of the Closing, the Company shall deliver to any such Shareholder a new certificate of like tenor evidencing the remaining shares of Common Stock owned by such Shareholder. 3. Amendments. (a) Amendment of Registration Rights Agreement. Effective as of the Closing, Section 2(b)(iii) of the Registration Rights Agreement shall be amended in its entirety to read as follows: "(iii) the Company shall not be obligated to file a registration statement relating to a registration request pursuant to this Section 2(b): (A) sooner than January 1, 2002 (except that the foregoing restriction shall not apply to a request for registration of Registrable Securities held by or on behalf of the estate of a deceased Shareholder, but in such case the Company shall have no obligation to serve the Request Notice or to include in the registration any Registrable Securities other than those held by or on behalf of such estate); (B) for an aggregate of more than 2,000,000 shares of Common Stock during the six-month period commencing January 1, 2002 (the "Demand Period"); (C) more than once in the Demand Period; or (D) if such registration request (including Registrable Securities requested to be included in response to a Request Notice) is for a number of Registrable Securities which have an aggregate market value less than $10 million." (b) Amendment of Shareholder Agreement. Effective as of the Closing, the second sentence of Section 2 of the Shareholder Agreement shall be amended in its entirety to read as follows: - 2 - 3 "The foregoing agreement (the "Voting Agreement") shall be suspended automatically and become ineffective on the earliest to occur of the following events: (a) the aggregate beneficial ownership (whenever used herein, as defined under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Common Stock by the Shareholders becomes less than 2,000,000 shares, (b) the Board does not nominate the Shareholders' designee for election at the 2000 annual meeting or a subsequent annual meeting at which directors of the designee's class are nominated for election, (c) the currently incumbent chief executive officer of the Company as of September 21, 2000 ceases to hold the office of chief executive officer, or (d) December 1, 2003." 4. Representations and Warranties of the Shareholders. Each Shareholder individually represents and warrants to the Company as of the Closing as follows: (a) Shareholder has good and marketable title to, and sole record and beneficial ownership of, the number of the Shares set forth opposite such Shareholder's name on Exhibit A hereto, which are to be transferred to the Company pursuant to this Agreement, free and clear of any and all covenants, conditions, marital property rights, and other Encumbrances. (b) If Shareholder is an entity, Shareholder has been duly incorporated or formed and is validly existing in good standing under the laws of its state of incorporation or formation. Whether an individual or an entity, Shareholder has the right, power and authority to enter into this Agreement and any ancillary agreements hereto, to transfer, convey and sell to the Company at the Closing the Shares to be sold to the Company by such Shareholder, and otherwise perform its obligations under this Agreement and any ancillary agreements. Upon consummation of the Closing, the Company will acquire from such Shareholder the legal and beneficial ownership of, and all right to vote and other rights inhering in the Shares to be sold to the Company by such Shareholder, free and clear of all covenants, conditions, marital property rights, or other Encumbrances. (c) Shareholder is not a party to, subject to or bound by any Law or Order, and no Action is pending against Shareholder or, to Shareholder's knowledge, threatened, that would prevent the execution, delivery or performance of this Agreement by Shareholder or the transfer, conveyance and sale of the Shares to be sold by Shareholder to the Company pursuant to the terms hereof. (d) This Agreement has been duly authorized by all necessary corporate, partnership or limited liability company action on the part of Shareholder, and if Shareholder is a corporation, partnership or limited liability company, this Agreement has been executed and delivered by Shareholder and is a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws limiting creditors' rights generally and equitable principles. - 3 - 4 (e) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby by Shareholder violates or will violate or results or will result in a breach of any of the terms and provisions of, or constitutes or will constitute a default under any material Contract to which Shareholder is a party or is bound or which applies to the Shares being sold, or any Order applicable to Shareholder or to the Shares being sold. (f) If and to the extent required, Shareholder hereby consents to the execution, delivery and performance of this Agreement by each other Shareholder. (g) Shareholder will acquire the Promissory Note for investment for Shareholder's own accounts and not with a view to or for offer or sale in connection with any distribution thereof. Shareholder understands that the Promissory Note will not be registered under the Securities Act of 1933, as amended (the "Securities Act") or any applicable state securities laws by reason of a specific exemption or exception from the registration requirements thereof which depend upon, among other things, the accuracy of Shareholder's representations and warranties in this Section. Shareholder understands that the Promissory Note will bear a legend substantially to the effect that the Promissory Note may not be transferred without the prior consent of the Company (which shall not be unreasonably withheld) and has not been registered under the Securities Act or any applicable state securities laws and may be offered and sold only if so registered or upon delivery to the Company of an opinion of counsel that an exemption or exception from such registration is applicable. (h) Shareholder acknowledges receipt of all information requested from the Company and considered by Shareholder to be necessary or appropriate for deciding whether to sell the Shares and acquire the Promissory Note pursuant to this Agreement, including, without limitation, any documents filed by the Company with the Securities and Exchange Commission. Shareholder is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act or has such knowledge and experience in financial and business matters that Shareholder is capable of evaluating the merits and risks of, and Shareholder is able to bear the economic risks of, selling such Shares of Common Stock and acquiring such Shareholder's interest in the Promissory Note. Shareholder has had the opportunity to ask questions and receive answers regarding the terms and conditions of the sale of the Shares and the acquisition of an interest in the Promissory Note pursuant to this Agreement, and Shareholder is satisfied with the responsiveness and adequacy of such answers. Shareholder understands and acknowledges that events or circumstances may occur after the date hereof that may be favorable or unfavorable to the Company's earnings, business affairs or operations, and that such events or circumstances may result in changes in the fair market value of the Shares. 5. Representations and Warranties of the Company. The Company represents and warrants to each Shareholder as of the Closing as follows: - 4 - 5 (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all necessary corporate power and authority to carry on its business as now being conducted. The Company has the necessary corporate power and authority to execute, deliver and perform this Agreement and the Promissory Notes. (b) The purchase of the Shares and the issuance of the Promissory Notes have been duly and validly authorized by the Board of Directors of the Company and by all other necessary corporate action on the part of the Company. This Agreement and the Promissory Notes have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms except as may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or limiting creditors' rights generally and equitable principles. (c) The execution, delivery and performance of this Agreement by the Company and the issuance of the Promissory Notes will not violate the provisions of, or constitute a breach or default (whether upon lapse of time and/or the occurrence of any act or event or otherwise) under (a) the certificate of incorporation or bylaws of the Company, (b) any Law or Order to which the Company is subject or (c) any Contract to which the Company is a party that is material to the financial condition, results of operations or conduct of the business of the Company. The execution and delivery of this Agreement by the Company and the performance of this Agreement by the Company will not require a filing or registration with, or the issuance of any Permit or Approval by, any other third party or Governmental Entity. (d) There is no Order or Action pending or to the knowledge of the Company, threatened against or affecting the Company that individually or when aggregated with one or more other Actions has or might reasonably be expected to have a material adverse effect on the Company's ability to perform this Agreement or the Promissory Notes. (e) The Company is acquiring the Shares from the Shareholders for the Company's own accounts for investment purposes only and not with a view to or for sale in connection with the public distribution thereof. 6. Certain Defined Terms. Any capitalized term used in Section 4 or Section 5 of this Agreement but not defined in this Agreement shall have the meaning assigned to such term in the Purchase Agreement, as amended on January 7, 1999, among the Company and the Sellers named therein, for the purchase and sale of the homebuilding business of the homebuilding entities of the Lewis Homes group of companies. - 5 - 6 7. Miscellaneous. (a) Injunctions. Each party acknowledges and agrees that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. Therefore, each party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which such party may be entitled at law or in equity. (b) Severability. If any term or provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and each of the parties shall use its best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. (c) Waivers, etc. No failure or delay on the part of either party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by each of the parties, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. (d) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. The paragraph headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. (e) Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall be one and the same instrument. (f) Amendment. This Agreement may be amended only by a written instrument duly executed by each of the Company and the Shareholders. (g) Notices. Any notice or other communication hereunder must be given in writing and delivered in person or sent by telecopy, by a nationally-recognized overnight courier service or by certified or registered mail, postage prepaid, receipt requested, addressed as follows: - 6 - 7 If to the Company, addressed to: Kaufman and Broad Home Corporation 10990 Wilshire Boulevard Los Angeles, CA 90024 Attention: Kimberly N. King Fax No.: (310) 231-4280 with a copy to: Munger, Tolles & Olson LLP 355 South Grand Avenue 35th Floor Los Angeles, CA 90071 Attention: Michael O'Sullivan, Esq. Fax No.: (213) 687-3702 If to the Shareholders, addressed to: John M. Goodman Lewis Operating Corp. 1156 N. Mountain Avenue Upland, CA 91785 Fax No.: (909) 912-6770 with a copy to: O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071 Attn: Richard A. Boehmer, Esq. Fax No.: (213) 430-6407 or to such other address or to such other person as any party shall have last designated by such notice to the other party. Each such notice or other communication shall be effective (i) if given by telecommunication, when transmitted to the applicable number so specified in (or pursuant to) this Section 7(g) and an appropriate answer back is received, (ii) if given by overnight courier for next business day delivery, one business day following delivery by sender to such overnight courier, (iii) if given by mail, three days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid, or (iv) if given by any other means, when actually received at such address. - 7 - 8 (h) Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the internal laws of the State of California. (i) Assignment. Except as provided herein, the parties may not assign their rights or delegate their obligations under this Agreement without the prior written consent of the other parties. [Remainder of Page Intentionally Left Blank] - 8 - 9 IN WITNESS WHEREOF, the Shareholders and the Company have executed this Agreement as of the date first above written. KAUFMAN AND BROAD HOME CORPORATION By: /S/ WILLIAM R. HOLLINGER ------------------------------------- Name: William R. Hollinger ----------------------------- Its: Vice President and Controller ------------------------------ SHAREHOLDERS Ralph M. Lewis By: /S/ RALPH M. LEWIS BY ROBERT E. LEWIS ------------------------------------- Robert E. Lewis, his attorney-in-fact Goldy S. Lewis By: /S/ GOLDY S. LEWIS BY ROBERT E. LEWIS ------------------------------------- Robert E. Lewis, his attorney-in-fact - 9 - 10 LHE PLATTE, LLC By: Lewis Holding Company, a Delaware limited liability company, its member By: Forehand Development Corp., a California corporation, its member By: /S/ JOHN M. GOODMAN ------------------------------ John M. Goodman, its Authorized Agent LH AUGUSTA, LLC By: /S/ JOHN M. GOODMAN ------------------------------------- John M. Goodman, its Authorized Agent LH EVANS, LLC By: /S/ JOHN M. GOODMAN ------------------------------------- John M. Goodman, its Authorized Agent LH GRUNHORN, LLC By: /S/ JOHN M. GOODMAN ------------------------------------- John M. Goodman, its Authorized Agent LH WHITNEY, LLC By: /S/ JOHN M. GOODMAN ------------------------------------- John M. Goodman, its Authorized Agent LH JAGERHORN, LLC By: /S/ JOHN M. GOODMAN ------------------------------------- John M. Goodman, its member - 10 - 11 EXHIBIT A SHAREHOLDERS
- --------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF SHAREHOLDER SHARES CASH PURCHASE PROMISSORY SHAREHOLDER WIRE INSTRUCTIONS SOLD (#) PRICE ($) NOTE ($) - --------------------------------------------------------------------------------------------------- Ralph M. Lewis & Bank: Wells Fargo Bank 45,763 297,459.50 892,378.50 Goldy S. Lewis San Francisco, CA Credit: Long Beach Trust Services WDDA: 4068-000868 Fed Routing #: 121000248 FFC Account #: 219349 - --------------------------------------------------------------------------------------------------- LHE Platte, LLC Bank: Wells Fargo Bank 400,000 2,600,000.00 7,800,000.00 San Francisco, CA Credit: Long Beach Trust Services WDDA: 4068-000868 Fed Routing #: 121000248 FFC Account #: 216797 - --------------------------------------------------------------------------------------------------- LH Augusta, LLC Bank: Wells Fargo Bank 393,935 2,560,577.50 7,681,732.50 San Francisco, CA Fed Routing #: 121000248 Account #: 4047-100755 - --------------------------------------------------------------------------------------------------- LH Evans, LLC Bank: Wells Fargo Bank 1,719,455 11,176,457.50 33,529,372.50 San Francisco, CA Credit: Long Beach Trust Services WDDA: 4068-000868 Fed Routing #: 121000248 FCC Account #: 220960 - --------------------------------------------------------------------------------------------------- LH Grunhorn, LLC Bank: Wells Fargo Bank 149,218 969,917.00 2,909,751.00 San Francisco, CA Fed Routing #: 121000248 Account #: 4047-100771 - --------------------------------------------------------------------------------------------------- LH Whitney, LLC Bank: Wells Fargo Bank 1,134,055 7,371,357.50 22,114,072.50 San Francisco, CA Credit: Long Beach Trust Services WDDA: 4068-000868 Fed Routing #: 121000248 FCC Account #: 220969 - --------------------------------------------------------------------------------------------------- LH Jagerhorn, LLC Bank: Wells Fargo Bank 157,574 1,024,231.00 3,072,693.00 San Francisco, CA Fed Routing #: 121000248 Account #: 4047-100797 - ---------------------------------------------------------------------------------------------------
A- 1 12 EXHIBIT B FORM OF PROMISSORY NOTE 13 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT (A) WITH THE PRIOR CONSENT OF THE COMPANY (WHICH SHALL NOT BE UNREASONABLY WITHHELD) AND (B) PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH NOTE WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES. IN THE CASE OF TRANSFERS OR OTHER DISPOSITIONS MADE OTHERWISE THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, THE HOLDER SHALL, AT THE COMPANY'S REQUEST, PROVIDE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO THE PROVISIONS AND ENTITLED TO THE BENEFITS OF A STOCK PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 21, 2000. A COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY. --------------- KAUFMAN AND BROAD HOME CORPORATION 6.6% PROMISSORY NOTE No. R-1 $892,378.50 September 21, 2000 Los Angeles, California KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation (the "Company"), for value received hereby promises to pay to Ralph M. Lewis and Goldy S. Lewis, jointly (the "Holder"), the aggregate principal sum of $892,378.50, with $297,459.50 payable on January 4, 2001, $297,459.50 payable on June 7, 2001, and $297,459.50 payable on December 6, 2001 (the "Final Maturity Date"), plus interest as hereinafter provided. Notwithstanding the foregoing, on the Final Maturity Date, the entire remaining unpaid balance of this Note, plus any and all accrued and unpaid interest, shall be due and payable. This Note is issued in connection with the transactions described in that certain Stock Purchase Agreement and among the Company, Holder and certain other holders of the Company's common stock, dated as of September 21, 2000, as the same may from time to time be amended, modified or supplemented (the "Purchase Agreement"). Payment of the principal of, and interest on, this Note shall be made in lawful money of the United States of America by wire transfer to the Holder pursuant to the wire instructions set forth on Exhibit A hereto. Holder is subject to certain restrictions and shall be entitled to certain rights and privileges set forth in the Purchase Agreement. Capitalized terms used herein but not defined herein shall have the meaning set forth in the Purchase Agreement. 14 1. INTEREST. This Note shall bear simple interest on the unpaid principal balance hereof at a rate of 6.6 percent per annum. Interest shall be calculated on the basis of a 365 or 366 day year, as applicable, and charged for the actual number of days elapsed. Interest on the unpaid principal balance of this Note shall be due and payable on the outstanding balance at the time of each payment of principal. 2. PREPAYMENT. The Company may, without premium or penalty, prepay all or a portion of the outstanding principal balance due under this Note, provided that each such prepayment is accompanied by accrued interest on the amount of principal repaid calculated to the date of such prepayment. Any partial prepayments shall be applied to installments of principal in inverse order of their maturity. 3. RESTRICTIONS ON TRANSFER. Title to this Note may not be offered, sold, or otherwise transferred, pledged or hypothecated without the prior written consent of the Company (which shall not be unreasonably withheld). 4. EVENTS OF DEFAULT. If any of the events specified in this Section 4 shall occur (herein individually referred to as an "Event of Default"), Holder may, so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company. (a) If the Company shall fail to pay when due any payment of principal or interest on this Note and such failure continues for 5 days after Holder notifies the Company in writing; or (b) The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or (c) If, within sixty (60) days after the commencement of an action against the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of the Company or any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or 15 (d) Any declared default of the Company under any Senior Indebtedness (as defined below) that gives the holder thereof the right to accelerate such Senior Indebtedness, and such Senior Indebtedness is in fact accelerated by the holder. For purposes hereof, "Senior Indebtedness" means (i) all indebtedness to banks, commercial finance lenders, insurance companies or other financial institutions regularly engaged in the business of lending money, which is borrowed by the Company (whether or not secured), (ii) all indebtedness which by its terms is senior in right of payment to the Company's general unsecured indebtedness, and (iii) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for or to refinance such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. 5. STATUS. Until the Company pays to the Holder the first principal payment required under this Note, this Note shall rank pari passu in right of payment with the general unsecured indebtedness of the Company which by its terms is not subordinated to this Note. From and after the date the Company makes such payment, this Note shall be subordinate and junior in right of payment to all existing and future Senior Indebtedness of the Company. For so long as the Notes are so subordinated, the Company shall not make any payments on account of the Notes or acquire any of the Notes if a default in the payment of principal of, premium, if any, or interest on Senior Indebtedness occurs and is continuing beyond any applicable period of grace (a "Payment Default") or any other default occurs and is continuing with respect to any Senior Indebtedness that permits the holders thereof to accelerate its maturity ( a "Non-payment Default") and the Company or trustee thereof, as applicable, receives a notice of such default (a "Payment Blockage Notice") meeting the requirements specified in the terms of such Senior Indebtedness. In the case of a Payment Default, payments on the Note shall be resumed by the Company upon the date on which such default is cured or waived in accordance with the terms of such Senior Indebtedness or such default ceases to exist. In the case of a Non-Payment Default, payments on the Note shall be resumed by the Company upon the earlier of: (a) the date on which such Non-Payment Default is cured or waived in accordance with the terms of such Senior Indebtedness, (b) 179 days after the date on which the applicable Payment Blockage Notice is received, or (c) the date on which the payment blockage period is otherwise terminated or the holders of such Senior Indebtedness consent to payments on the Note. With respect to any Non-Payment Default, during the term of this Note the aggregate of all periods of payment blockage shall not exceed 179 days. No Non-Payment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice shall be, or be made, the basis of a subsequent Payment Blockage Notice unless such default shall have been cured or waived in accordance with the terms of such Senior Indebtedness for a period of not less than 90 days. At all times, this Note shall be senior as to liquidation and distributions of stock or cash to all existing and future classes of Company common stock. 6. EXCHANGE OF NOTE. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of the mutilated Note, the Company at its expense shall execute and deliver, in lieu of the Note, a new Note of the same form and amount. 16 7. NO STOCKHOLDER RIGHTS. This Note shall not confer upon Holder or any other person the right to vote, to receive dividends or other distributions, to consent or to receive notice as a shareholder in respect of any meeting of shareholders, or any other rights whatsoever as a shareholder of the Company. 8. AMENDMENT. All amendments to this Note require the written consent of the Company and Holder. 9. WAIVER. The Company hereby waives presentment, demand for payment, notice of dishonor, notice of nonpayment, protest, notice of protest, and any and all other notices and demands in connection with the delivery, acceptance, performance, default, or enforcement of this Note. 10. NOTE REGISTER. This Note shall be registered in the Note Register maintained by the Company. The Company shall be entitled to treat the Holder whose name appears in the Note Register as the owner in fact for all purposes (notwithstanding any notation of ownership or other writing hereon made by anyone or any notice to the contrary). 11. SIGNATURES. If this Note bears the signatures of individuals who were at any time the proper officers of the Company at the time of singing, such signatures shall bind the Company, notwithstanding that any such individuals shall have ceased to hold such offices prior to the delivery of this Note or did not hold such offices on the date of the Purchase Agreement. 12. NOTICES. All notices to the Company under this Note shall be in writing and addressed to the Company at 10990 Wilshire Boulevard, Los Angeles, California 90024, Attn: Kimberly N. King, or to other such address of the Company as the Company may notify the Holders. 13. GOVERNING LAW. This Note shall be construed, interpreted and governed by the laws of the State of California, without regard to its conflicts-of-law provisions. 14. HEADINGS. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. [Remainder of Page Intentionally Left Blank] 17 In witness whereof, the Company has caused this Note to be executed by a duly authorized officer and attested by its Secretary, this 21st day of September, 2000. Kaufman and Broad Home Corporation By: ------------------------------- William R. Hollinger Vice President and Controller By: ------------------------------- Kimberly King Secretary EX-10.20 5 v65422ex10-20.txt EXHIBIT 10.20 1 EXHIBIT 10.20 EXECUTION ----------------------------------------- 2000 REVOLVING LOAN AGREEMENT Dated as of October 3, 2000 among KAUFMAN AND BROAD HOME CORPORATION as Borrower THE BANKS PARTY HERETO BANK OF AMERICA, N.A., as Administrative Agent CREDIT LYONNAIS LOS ANGELES BRANCH, as Syndication Agent BANK ONE, NA, as Documentation Agent and BANC OF AMERICA SECURITIES LLC, as Lead Arranger and Sole Book Manager ----------------------------------------- 2 TABLE OF CONTENTS
Page ---- RECITALS .................................................................................. 1 Article 1 DEFINITIONS AND ACCOUNTING TERMS .................................................. 1 1.1 Defined Terms ................................................................. 1 1.2 Use of Defined Terms .......................................................... 25 1.3 Accounting Terms .............................................................. 25 1.4 Rounding ...................................................................... 26 1.5 Miscellaneous Terms ........................................................... 26 1.6 Exhibits and Schedules ........................................................ 26 1.7 References to "Borrower and its Subsidiaries" ................................. 26 Article 2 LOANS AND LETTERS OF CREDIT ....................................................... 27 2.1 Loans-General ................................................................. 27 2.2 Prime Rate Loans .............................................................. 28 2.3 LIBOR Loans ................................................................... 28 2.4 Swing Line .................................................................... 28 2.5 Letters of Credit ............................................................. 30 2.6 Reduction of Commitment/Extension of Maturity Date ............................ 34 2.7 Administrative Agent's Right to Assume Funds Available ........................ 36 2.8 Optional Increase to Commitment ............................................... 36 Article 3 PAYMENTS AND FEES ................................................................. 38 3.1 Principal and Interest ........................................................ 38 3.2 Upfront Fee ................................................................... 39 3.3 Commitment Fee ................................................................ 39 3.4 Agency Fee .................................................................... 40 3.5 Arrangement Fee ............................................................... 40 3.6 Capital Adequacy .............................................................. 40 3.7 LIBOR Fees and Costs .......................................................... 41 3.8 Late Payments/Default Interest ................................................ 44 3.9 Computation of Interest and Fees .............................................. 44 3.10 Holidays ..................................................................... 44 3.11 Payment Free of Taxes ........................................................ 44 3.12 Funding Sources .............................................................. 45 3.13 Failure to Charge or Making of Payment Not Subsequent Waiver ................. 45 3.14 Time and Place of Payments; Evidence of Payments; Application of Payments .... 45 3.15 Administrative Agent's Right to Assume Payments Will be Made ................. 46 3.16 Survivability ................................................................ 46 3.17 Bank Calculation Certificate ................................................. 46 3.18 Transition ................................................................... 46
-i- 3 Article 4 REPRESENTATIONS AND WARRANTIES .................................................... 48 4.1 Existence and Qualification; Power; Compliance with Law ....................... 48 4.2 Authority; Compliance with Other Instruments and Government Regulations ....... 48 4.3 No Governmental Approvals Required ............................................ 49 4.4 Subsidiaries .................................................................. 49 4.5 Financial Statements .......................................................... 49 4.6 No Other Liabilities; No Material Adverse Effect .............................. 50 4.7 Title to Assets ............................................................... 50 4.8 Intangible Assets ............................................................. 50 4.9 Existing Indebtedness and Contingent Guaranty Obligations ..................... 50 4.10 Governmental Regulation ...................................................... 51 4.11 Litigation ................................................................... 51 4.12 Binding Obligations .......................................................... 51 4.13 No Default ................................................................... 51 4.14 Pension Plans ................................................................ 51 4.15 Tax Liability ................................................................ 51 4.16 Regulation U ................................................................. 51 4.17 Environmental Matters ........................................................ 51 4.18 Disclosure ................................................................... 52 4.19 Projections .................................................................. 52 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) ........................................................... 53 5.1 Payment of Taxes and Other Potential Liens .................................... 53 5.2 Preservation of Existence ..................................................... 53 5.3 Maintenance of Properties ..................................................... 53 5.4 Maintenance of Insurance ...................................................... 53 5.5 Compliance with Laws .......................................................... 53 5.6 Inspection Rights ............................................................. 54 5.7 Keeping of Records and Books of Account ....................................... 54 5.8 Use of Proceeds ............................................................... 54 5.9 Subsidiary Guaranty ........................................................... 54 Article 6 NEGATIVE COVENANTS ................................................................ 55 6.1 Payment or Prepayment of Subordinated Obligations ............................. 55 6.2 [Intentionally Omitted] ....................................................... 55 6.3 Mergers and Sale of Assets .................................................... 55 6.4 Investments and Acquisitions .................................................. 55 6.5 ERISA Compliance .............................................................. 56 6.6 Change in Business ............................................................ 57 6.7 Liens and Negative Pledges .................................................... 57 6.8 Transactions with Affiliates .................................................. 58 6.9 Consolidated Tangible Net Worth ............................................... 58 6.10 Consolidated Leverage Ratio .................................................. 59
-ii- 4 6.11 Consolidated Interest Coverage Ratio ......................................... 60 6.12 Distributions ................................................................ 60 6.13 Amendments ................................................................... 60 6.14 Hostile Tender Offers ........................................................ 60 6.15 Inventory .................................................................... 60 6.16 Investment in Subsidiaries and Joint Ventures ................................ 60 6.17 Money Market Indebtedness .................................................... 60 6.18 Domestic Standing Inventory .................................................. 60 Article 7 INFORMATION AND REPORTING REQUIREMENTS ............................................ 62 7.1 Financial and Business Information of Borrower and Its Subsidiaries ........... 62 7.2 Compliance Certificate ........................................................ 64 Article 8 CONDITIONS ........................................................................ 65 8.1 Initial Advances .............................................................. 65 8.2 Any Advance ................................................................... 66 8.3 Any Letter of Credit .......................................................... 66 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT ............................. 68 9.1 Events of Default ............................................................. 68 9.2 Remedies Upon Event of Default ................................................ 69 Article 10 THE ADMINISTRATIVE AGENT .......................................................... 72 10.1 Appointment and Authorization ................................................ 72 10.2 Administrative Agent and Affiliates .......................................... 72 10.3 Banks' Credit Decisions ...................................................... 72 10.4 Action by Administrative Agent ............................................... 72 10.5 Liability of Administrative Agent ............................................ 73 10.6 Indemnification .............................................................. 74 10.7 Successor Administrative Agent ............................................... 74 10.8 No Obligations of Borrower ................................................... 75 10.9 Defaulting Banks ............................................................. 75 Article 11 MISCELLANEOUS ..................................................................... 76 11.1 Cumulative Remedies; No Waiver ............................................... 76 11.2 Amendments; Consents ......................................................... 76 11.3 Costs, Expenses and Taxes .................................................... 76 11.4 Nature of Banks' Obligations ................................................. 77 11.5 Representations and Warranties ............................................... 78 11.6 Notices ...................................................................... 78 11.7 Execution in Counterparts .................................................... 78 11.8 Binding Effect; Assignment ................................................... 78 11.9 Sharing of Setoffs ........................................................... 80
-iii- 5 11.10 Indemnity by Borrower ....................................................... 81 11.11 Nonliability of Banks ....................................................... 82 11.12 Confidentiality ............................................................. 82 11.13 No Third Parties Benefited .................................................. 82 11.14 Other Dealings .............................................................. 83 11.15 Right of Setoff - Deposit Accounts .......................................... 83 11.16 Further Assurances .......................................................... 83 11.17 Integration ................................................................. 83 11.18 Governing Law ............................................................... 83 11.19 Severability of Provisions .................................................. 83 11.20 Headings .................................................................... 83 11.21 Conflict in Loan Documents .................................................. 83 11.22 Waiver Of Jury Trial ........................................................ 83 11.23 Purported Oral Amendments ................................................... 84 11.24 Hazardous Materials Indemnity ............................................... 85
-iv- 6 Exhibits A - Commitment Assignment and Acceptance B - Compliance Certificate C - Note D-1 - Opinion of Counsel D-2 - Opinion of Counsel E - Subsidiary Guaranty F - Quarterly Report - Sales G - Quarterly Report - Inventory Schedules 1.1 Pro Rata Shares 3.18 Outstanding Letters of Credit 4.4 Subsidiaries 4.7 Existing Liens and Rights of Others 4.9 Existing Indebtedness and Contingent Obligations 6.4 Investments -v- 7 2000 REVOLVING LOAN AGREEMENT Dated as of October 3, 2000 This 2000 Revolving Loan Agreement ("Agreement") is entered into by and among Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"), each bank set forth on the signature pages of this Agreement or which from time to time becomes party hereto (collectively, the "Banks" and individually, a "Bank") and Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, Bank One, NA, as Documentation Agent, and Banc of America Securities LLC as Lead Arranger and Sole Book Manager. RECITALS This Agreement establishes a new credit facility replacing that certain 1997 Revolving Loan Agreement dated as of April 21, 1997 by and among Borrower, the banks named therein, Bank of America National Trust and Savings Association, as Administrative Agent and various other banks in various agent capacities, as amended (the "Prior Revolving Loan Agreement") and the 2000 Bridge Loan Agreement dated as of May 10, 2000 by and among Borrower, the banks named therein, and Bank of America, as Administrative Agent and various other banks in various agent capacities (the "Bridge Loan Agreement"). Subject to the transition provisions of Section 3.18, and as contemplated by Sections 8.1(a)(viii) and (a)(x), the terms and provisions of this Agreement shall become effective, and the Prior Revolving Loan Agreement and the Bridge Loan Agreement shall terminate, as of the 2000 Closing Date. WHEREFORE, 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: "2000 Closing Date" means the time and Banking Day on which the conditions set forth in Section 8.1 are satisfied or waived pursuant to Section 11.2, as evidenced by the return of one or more of the promissory notes under the Prior Loan Agreements by the Administrative Agent to Borrower. "2000 Term Loan Agreement" means the 2000 Term Loan Agreement dated as of October 3, 2000 among Borrower, Bank of America, as administrative agent, and the banks party thereto, and as the same may from time to time be amended, modified, refinanced or replaced. "Acquisition" means any transaction, or any series of related transactions, consummated after the 2000 Closing Date, by which Borrower and/or any of its Subsidiaries directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or -1- 8 otherwise, (b) acquires control of securities of a corporation representing 50% or more of the ordinary voting power for the election of directors or (c) acquires control of a 50% or more ownership interest in any partnership, joint venture or other business entity. "Administrative Agent" means Bank of America or any successor administrative agent. "Administrative Agent's Office" means Bank of America, N.A., 5 Park Plaza, Suite 500, Irvine, California 92614, or such other office as the Administrative Agent may designate in writing to Borrower and the Banks. "Advance" means an advance made or to be made to Borrower by a Bank pursuant to Article 2. "Affiliate" means, with respect 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" (including its correlative meanings, "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 which 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 record holders of such interests will be deemed to control such corporation or other Person. "Agents" mean the Administrative Agent, the Syndication Agent, the Documentation Agent, and the Lead Arranger and Sole Book Manager. "Agreement" means this 2000 Revolving Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Applicable Commitment Fee Rate" means, as of any date of determination, the commitment fee rate set forth below opposite the Applicable Pricing Level as of such date:
Applicable Applicable Commitment Pricing Level Fee Rate ------------- ---------- I 0.175% II 0.225% III 0.250% IV 0.275% V 0.350%
"Applicable Federal Funds Rate" means, as of any date of determination, the rate per annum equal to the greater of (a) the Federal Funds Rate in effect on such date and (b) if funds are not reasonably available to the Swing Line Bank at the Federal Funds Rate to fund a Swing -2- 9 Line Loan, such rate as reasonably determined by the Swing Line Bank as representing its actual cost of funding the Swing Line Loan, without the addition of fees or markup of any kind. "Applicable Letter of Credit Fee " means, as of any date of determination, a letter of credit fee equal to the Applicable LIBOR Spread on that date. "Applicable LIBOR 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 Applicable Pricing Level LIBOR Spread ------------- ------------ I 0.900% II 1.125% III 1.250% IV 1.450% V 1.700%
"Applicable Minimum Hold Requirement " means, in the case of any Bank, the amount of the Pro Rata Share of the Commitment held by that Bank plus the amount, if any, of the Pro Rata Share (as defined in the 2000 Term Loan Agreement) of the Commitment (as defined in the 2000 Term Loan Agreement) held by that Bank, as reduced by (a) the amount of any assignment of a portion thereof made by that Bank to an Eligible Assignee that is not an Affiliate of that Bank and (b) the amount of any participation therein granted by that Bank to a participant that is not an Affiliate of that Bank, which net amount, after giving effect to clauses (a) and (b), shall not be less than $20,000,000 (unless approved in writing by the Administrative Agent or unless an Event of Default has occurred and is continuing), but subject to the provisions of Section 11.8(b) and (e). "Applicable Pricing Level" means, Pricing Level "I" for any day on which Borrower holds an Investment Grade Credit Rating and, for any day during a Pricing Period on which Borrower does not hold an Investment Grade Credit Rating, means the following:
Consolidated Leverage Ratio Applicable Pricing Level Applicable to Pricing Period - ------------------------ ---------------------------- II Consolidated Leverage Ratio of less than or equal to 1.25 to 1.00 III Consolidated Leverage Ratio of greater than 1.25 to 1.00, but less than or equal to 1.80 to 1.00 IV Consolidated Leverage Ratio of greater than 1.80 to 1.00, but less than or equal to 2.25 to 1.00 V Consolidated Leverage Ratio of greater than 2.25 to 1.00.
-3- 10 Borrower is responsible pursuant to Section 7.1(k) to provide the Administrative Agent with notice of each change in the Applicable Pricing Level that is due to the inception or cessation of an Investment Grade Credit Rating. "Applicable Prime Rate 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 Applicable Prime Rate Pricing Level Spread ------------- ---------- I 0.00% II 0.00% III 0.00% IV 0.00% V 0.25%
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Authorizations" has the meaning set forth for that term in Section 4.1. "Bank " means each bank whose name is set forth in the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8. "Bank of America " means Bank of America, N.A., formerly known as 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 California or New York. "Bond Facility " means any bond facility pursuant to which a municipality, or a community facilities district formed by a municipality, has or will issue bonds to finance a portion of the costs of acquisition of and/or improvements to real property located in such municipality (or district) owned by Borrower, one of its Subsidiaries or by another Person acquired by Borrower or one of its Subsidiaries (or to pay development or "impact" fees in lieu thereof), and with respect to which Borrower or one of its Subsidiaries will provide a letter of credit or other reimbursement support. The real property that is the subject of any such bond facility will be subject to a Lien for special taxes to repay the Indebtedness evidenced by such bonds. "Borrower " means Kaufman and Broad Home Corporation, a Delaware corporation, and its successors and permitted assigns. "Bridge Loan Agreement" has the meaning set forth for that term in the Recitals hereto. -4- 11 "Capital Lease" means, with respect to any Person, a lease of any Property by that Person as lessee that is, or should be in accordance with Financial Accounting Standards Board Statement No. 13, recorded as a "capital lease" on a balance sheet of that Person prepared in accordance with Generally Accepted Accounting Principles. "Cash" means all monetary items (including currency, coin and bank demand deposits) that are treated as cash under Generally Accepted Accounting Principles. "Cash Equivalents" means, with respect to any Person, that Person's Investments in: (a) Government Securities due within one year of the making of the Investment; (b) readily marketable direct obligations of any State of the United States of America or any political subdivision of any such State or any public agency or instrumentality thereof given on the date of such Investment a credit rating of at least Aa3 by Moody's or AA- by S&P, in each case due within one year from the making of the Investment; (c) certificates of deposit issued by, deposits in, eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by, (i) any Bank or (ii) any bank and/or savings and loan association doing business in and incorporated under the Laws of the United States of America, any state thereof or the District of Columbia and having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000 and which carries on the date of such Investment a credit rating of P-1 or higher by Moody's or A-1 or higher by S&P, 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 and which carries on the date of such Investment a credit rating of P-1 or higher by Moody's or A-1 or higher by S&P, in each case due within one year after the date of the making of the Investment; (e) readily marketable commercial paper or other debt securities of (i) any Bank that is a Bank as of the 2000 Closing Date, (ii) corporations, commercial banks or financial institutions doing business in and incorporated under the Laws of the United States of America or any state thereof or the District of Columbia or (iii) a holding company for a bank described in clause (c) or (d) above, given on the date of such Investment a credit rating of P-1 or higher by Moody's, of A-1 or higher by S&P, or F-1 or higher by Fitch, in each case due within one year of the making of the Investment; (f) repurchase agreements covering Government Securities executed by a broker or dealer registered under Section 15(b) of the Exchange Act, having on the date -5- 12 of the Investment capital of at least $50,000,000, due within 90 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 Government Securities on the books of a "primary dealer" in such government Securities or on the books of such registered broker or dealer, as soon as practicable after 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 (i) given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P, in each case having an investment period not exceeding 50 days or (ii) to the extent that investors therein have the benefit of a standby letter of credit issued by a Bank or a bank described in clauses (c) or (d) above; provided, that (y) the amount of all such Investments issued by the same issuer does not exceed $10,000,000 and (z) the aggregate amount of all such Investments does not exceed $25,000,000; (h) a readily redeemable "money market mutual fund" sponsored by a bank described in clause (c) or (d) hereof, or a registered broker or dealer described in clause (f) 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 given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P; and (i) corporate notes or bonds having an original term to maturity of not more than one year issued by a corporation incorporated under the Laws of the United States of America or any state thereof, or a participation interest therein; provided, that (i) commercial paper issued by such corporation is given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P, (ii) the amount of all such Investments issued by the same issuer does not exceed $10,000,000 and (iii) the aggregate amount of all such Investments does not exceed $25,000,000. "Change in Control" means, and shall be deemed to have occurred at such time as any of the following events shall occur: (a) there shall be consummated any consolidation or merger of Borrower in which Borrower is not the continuing or surviving corporation or pursuant to which the Voting Stock would be converted into Cash, securities or other property, other than a merger or consolidation of Borrower where the Borrower is not the continuing or surviving corporation and in which the holders of Voting Stock immediately prior to the merger have 75% ownership, directly or indirectly, of the Voting Stock of the surviving corporation immediately after such merger or consolidation; or (b) there is a report filed by any person, including its Affiliates and Associates, on Schedule 13D or 14D-1 (or any successor schedule, form or report) pursuant to the Exchange Act, disclosing that such person (for the purposes of the definition of Change in Control only, the term "person" is used as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the -6- 13 Exchange Act) of 50% or more of the voting power of Borrower's Voting Stock then outstanding; provided, however, that a person shall not be deemed beneficial owner of, or to own beneficially (1) any Securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tendered Securities are accepted for purchase or exchange thereunder, or (2) any Securities if such beneficial ownership (a) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act, and (b) is not also then reportable on Schedule 13D (or any successor schedule) under the Exchange Act; or (c) a "Change in Control" (or analogous term) as defined in one or more indentures or agreements governing any Subordinated Obligations occur and $25,000,000 of Subordinated Obligations thereupon become due and payable by Borrower or its Subsidiaries. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred if at any time Borrower, any Subsidiary of Borrower, any employee stock ownership plan or any other employee benefit plan, including any Pension Plan of Borrower or any Subsidiary of Borrower, or any person holding Voting Stock for or pursuant to the terms of such employee benefit plan, files or becomes obligated to file a report under or in response to Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report) under the Exchange Act disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 50% or otherwise. "Code" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. "Commission" means the Securities and Exchange Commission and any successor commission. "Commitment" means, subject to Sections 2.6 and 2.8, $564,050,000. The Pro Rata Shares of the Banks with respect to the Commitment 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 $1.00 par value common stock and special common stock of Borrower. "Compliance Certificate" means a compliance certificate in the form of Exhibit B signed, on behalf of Borrower, by a Senior Officer of Borrower. "Consolidated Adjusted EBITDA" means, for any fiscal period, Consolidated EBITDA for that fiscal period plus (a) the amount of capitalized interest that was included in cost of sales in determining Consolidated Net Income for that fiscal period plus (b) all non-Cash Net Realizable Value Adjustments made during that fiscal period. "Consolidated EBITDA" means, for any fiscal period, the sum of (a) Consolidated Net Income for that period, plus (b) any extraordinary loss reflected in such Consolidated Net -7- 14 Income, minus (c) any extraordinary gain reflected in such Consolidated Net Income, plus (d) Consolidated Interest Expense for that period plus (e) the aggregate amount of federal and state taxes on or measured by income for that period (whether or not payable during that period), plus (f) depreciation, amortization and all other non-cash expenses for that period, in each case as determined in accordance with Generally Accepted Accounting Principles, in the case of items (d), (e) and (f), only to the extent deducted in the determination of Consolidated Net Income for that period. "Consolidated Interest Coverage Ratio" means, with respect to any Fiscal Quarter of Borrower and its Consolidated Subsidiaries, the ratio of (a) Consolidated Adjusted EBITDA for the twelve month period ending on the last day of such Fiscal Quarter to (b) the sum of (i) Consolidated Interest Expense (including any non-cash items included in Consolidated Interest Expense) plus (ii) to the extent not included in Consolidated Interest Expense, any charge to Consolidated Net Income which reflects the distribution paid or accrued to or for the holders of the Trust Preferred Capital Securities (including any such charge denominated "minority interest in net income of consolidated subsidiaries") plus (iii) all dividends (other than dividends paid in the same class of stock) paid on any preferred stock of Borrower, in each case for the twelve month period ending on the last day of such Fiscal Quarter. "Consolidated Interest Expense" means, with respect to any fiscal period of Borrower and its Consolidated Subsidiaries, the aggregate amount of interest, fees, charges and related expenses paid or payable to a lender in connection with borrowed money that is treated as interest (including accretion of original issue discount on long-term debt existing during such fiscal period) and the interest portion of any capitalized lease payment of Borrower and its Consolidated Subsidiaries (other than any such items properly attributable to Financial Subsidiaries). "Consolidated Joint Venture" means, as of any date of determination, a Joint Venture that is consolidated in the consolidated financial statements of Borrower and its Subsidiaries as of such date. "Consolidated Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness on that date to (b) [Consolidated Tangible Net Worth on that date minus the amount, if any, by which the portion of Shareholders' Equity of Borrower and its Consolidated Subsidiaries attributable to Borrower's equity interest in the Shareholders' Equity of all Joint Ventures (other than any Consolidated Joint Venture) exceeds $30,000,000]. "Consolidated Net Income" means, with respect to any fiscal period, the consolidated net income of Borrower and its Consolidated Subsidiaries for that period, determined in accordance with Generally Accepted Accounting Principles, consistently applied. "Consolidated Subsidiaries" means, with respect to Borrower, all of the Subsidiaries of Borrower whose financial statements are consolidated with the consolidated financial statements of Borrower under Generally Accepted Accounting Principles. "Consolidated Tangible Net Worth" means, as of any date of determination, the Shareholders' Equity of Borrower and its Consolidated Subsidiaries on a consolidated basis on that date plus, if that date is on or prior to the Settlement Date with respect to an issuance of securities treated as Trust Preferred Capital Securities, an amount equal to 100% of the -8- 15 aggregate book value of such Trust Preferred Capital Securities outstanding on that date minus the aggregate book value on that date of any Intangible Assets consisting of goodwill arising from Acquisitions completed after November 30, 1996, provided that any cumulative positive or negative adjustment to Consolidated Tangible Net Worth attributable to foreign currency translations shall be ignored. "Consolidated Total Indebtedness" means, as of any date of determination, all Indebtedness and Contingent Guaranty Obligations of Borrower and its Subsidiaries on that date (without duplication for any guaranty by Borrower of a Subsidiary's Indebtedness or any guaranty by a Subsidiary of either Borrower's or another Subsidiary's Indebtedness) plus (a) if that date is after the Settlement Date with respect to an issuance of securities treated as Trust Preferred Capital Securities, an amount equal to 100% of the aggregate book value of such Trust Preferred Capital Securities outstanding on that date, minus (b) all Indebtedness and Contingent Guaranty Obligations of the Financial Subsidiaries on that date, and minus (c) the amount, if any, by which the aggregate Cash and Cash Equivalents of Borrower and its Subsidiaries (other than the Financial Subsidiaries) on that date are in excess of $15,000,000. "Contingent Guaranty Obligation" means, as to any Person, any (a) direct or indirect guarantee of Indebtedness of, or other obligation performable by, any other Person (other than a performance obligation undertaken in the ordinary and usual course of business), including any endorsement (other than for collection or deposit in the ordinary course of business), co-making or sale with recourse of the obligations of any other Person or (b) assurance given to an obligee with respect to the performance of an obligation (other than a performance obligation undertaken in the ordinary and usual course of business) by, or the financial condition of, any other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person, or any "keep-well", "take-or-pay", "through put" or other arrangement of whatever nature having the effect of assuring or holding harmless any obligee against loss with respect to any obligation of such other Person. The amount of any Contingent Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation (unless the Contingent Guaranty Obligation is limited by its terms to a lesser amount, in which case to the extent of such amount) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Contractual Obligation" means, as to any Person, any provision of any outstanding Securities 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, other than, in the case of Borrower and its Subsidiaries, any of the Loan Documents. "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, 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 notice or passage of time, or both, would be an Event of Default. -9- 16 "Default Rate" means the interest rate described in Section 3.8. "Designated Deposit Account" means a demand deposit account to be maintained by Borrower with Bank of America, as from time to time designated by Borrower by written notification to the Administrative Agent. "Distribution" means, with respect to any shares of capital stock or any warrant or right to acquire shares of capital stock or any other equity security issued by a Person, (a) the retirement, redemption, purchase, or other acquisition for value (other than for capital stock of the same type of such Person) by such Person of any such security, (b) the declaration or payment by such Person of any dividend in Cash or in Property (other than in capital stock of the same type of such Person) on or with respect to any such security, and (c) any Investment by such Person in any holder of 5% or more of the capital stock (or other equity securities) of such Person, if a purpose of such Investment is to avoid the characterization of the transaction between such Person and such holder as a Distribution under clause (a) or (b) above. In addition, to the extent any loan or advance by Borrower to one of its Subsidiaries is deemed to be an "Investment" for purposes of this Agreement, then any principal payment made by such Subsidiary in respect of such loan or advance shall be considered a Distribution for purposes of Section 6.16. "Documentation Agent" means Bank One, NA, so long as such bank is a Bank hereunder. The Documentation Agent shall have no duties under the Loan Documents beyond those of a Bank. "Dollars" means the national currency of the United States of America. "Domestic Lending Office" means, with respect to each Bank, its office, branch or affiliate identified on the signature pages hereof as its Domestic Lending Office or such other office, branch or affiliate as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. "Domestic Standing Inventory" means, as of any date of determination, the number of items of unsold housing inventory (other than Model Homes) of Borrower and its Domestic Subsidiaries with respect to which either (a) 90% of the then reasonably anticipated direct construction costs have been incurred on such date or (b) at least 12 months have elapsed from the date its construction was commenced through and including such date. Construction for purposes of this definition shall be deemed to have commenced upon the pouring of foundation concrete. "Domestic Subsidiary" means, with respect to any Person and as of any date of determination, a Subsidiary of such Person (a) that is organized under the Laws of the United States of America or any state thereof and (b) the majority of the assets of which (as reflected on a balance sheet of such Subsidiary prepared in accordance with Generally Accepted Accounting Principles) is located in the United States of America; provided that Kaufman and Broad International, Inc., a California corporation, shall in no event be considered a Domestic Subsidiary of Borrower. "Domestic Unimproved Land" means, as of any date of determination, real Property located in the United States of America that is: (a) owned by Borrower or any of its -10- 17 Subsidiaries if on that date there has been expended by Borrower and its Subsidiaries less than 50% of the physical construction costs reasonably estimated by Borrower (in accordance with its past practices as of the 2000 Closing Date) to bring such real Property to "finished lot" status; or (b) owned by Persons other than Borrower or any of its Subsidiaries but which, if owned by Borrower or any of its Subsidiaries on that date, would have satisfied the requirement set forth in clause (a) and if on that date Borrower or any of its Domestic Subsidiaries holds an option to purchase such real Property for which it has paid an amount equal to 33% or more of the purchase price provided for in such option to purchase, provided, that in the event an option to purchase land covers more than one parcel, phase or lot, any deposit paid by Borrower or any of its Subsidiaries shall be allocated to each parcel, phase or lot pro rata in accordance with the purchase price of the parcels, phases or lots. The "book value" with respect to Domestic Unimproved Land referred to in Section 6.15 shall be calculated as if the option to purchase had been exercised as of the date of determination, and otherwise in accordance with Generally Accepted Accounting Principles, consistently applied. "Eligible Assignee" means (a) another Bank, (b) any commercial bank, savings bank, savings and loan association or similar financial institution which, (i) has total assets of $5,000,000,000 or more, (ii) is "well capitalized" within the meaning of such term under the Federal Depository Institutions Control Act, (iii) is engaged in the business of lending money and extending credit under credit facilities substantially similar to those extended under this Agreement and (iv) is operationally and procedurally able to meet the obligations of a Bank hereunder to the same degree as a commercial bank, (c) any insurance company engaged in the business of writing insurance which (i) has total assets of $5,000,000,000 or more, (ii) is "best capitalized" under applicable regulations of the National Association of Insurance Commissioners, and (iii) meets the requirements set forth in subclauses (iii) and (iv) of clause (b) above and (d) any other financial institution having total assets of $5,000,000,000 or more (including a mutual fund or other fund under management of an investment manager having under its management total assets of $5,000,000,000 or more) which meets the requirements set forth in subclauses (iii) and (iv) of clause (b) above; provided that each Eligible Assignee must (A) be organized under the Laws of the United States of America, any state thereof or the District of Columbia or (B) if a commercial bank, be organized under the Laws set forth in clause (A) or under the Laws of the Cayman Islands or any country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, and (C) act under the Loan Documents through a branch, agency or funding office located in the United States of America and (D) be exempt from withholding of tax on interest and deliver the documents related thereto pursuant to the Code. "ERISA" means, at any date, the Employee Retirement Income Security Act of 1974 and the regulations thereunder, all as the same shall be in effect at such date. "ERISA Affiliate" means, with respect to any Person, any other Person (or any trade or business, whether or not incorporated) that is under common control with that Person within the meaning of Section 414 of the Code. "Event of Default" has the meaning provided in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. -11- 18 "Exposure" means for any Bank, as of any date of determination, the product obtained by multiplying that Bank's then effective Pro Rata Share by the then effective Commitment. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Banking Day opposite the caption "Federal funds (effective)"; or, if for any relevant day such rate is not so published on any such preceding Banking Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Financial Subsidiary" means (a) the Mortgage Company and its Subsidiaries, so long as such entities continue to engage in the mortgage banking business, (b) a Trust Issuer, so long as it engages in no activities other than those incident to the Trust Preferred Capital Securities, (c) any Subsidiary of Borrower that is organized and operates solely to issue (i) collateralized mortgage obligations or (ii) other similar asset-backed obligations, and (d) any other Subsidiary of Borrower that (i) is engaged primarily in the business of origination, marketing, and servicing of residential mortgage loans, the sale of servicing rights, or the financing of long term residential mortgage loans, (ii) holds not less than 95% of its total assets in the form of Cash, Cash Equivalents, notes and mortgages receivable, Cash held by a trustee for the benefit of such Subsidiary or other financial instruments and (iii) is the subject of an Officer's Certificate of Borrower delivered to the Administrative Agent stating that such Subsidiary is a Financial Subsidiary within the meaning hereof. As of the 2000 Closing Date, the Financial Subsidiaries are International Mortgage Acceptance Corporation, KBASW Mortgage Acceptance Corporation, KBI/Mortgage Acceptance Corporation, KBRAC IV Mortgage Acceptance Corporation, Kaufman and Broad Mortgage Company, rateOne Home Loans, LLC, Rate One Associates, Inc. and Rate One Holdings, Inc. "Fiscal Quarter" means each of the fiscal quarters of Borrower ending on each February 28 (or 29, if a leap year), May 31, August 31 and November 30. "Fiscal Year" means each of the fiscal years of Borrower ending on each November 30 or as otherwise changed by the Borrower upon advance written notice to the Administrative Agent, but subject to the requirements of Section 1.3. "Fitch" means Fitch and its successors. "Foreign Subsidiary" means, with respect to any Person, a Subsidiary of that Person which is not a Domestic Subsidiary and with respect to Borrower, includes Kaufman and Broad International, Inc., a California corporation. "Generally Accepted Accounting Principles" means, as of any date of determination, accounting principles set forth as "generally accepted" in then currently effective Statements of the Auditing Standards Board of the American Institute of Certified Public Accountants, or, if such Statements are not then in effect, accounting principles that are then 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 -12- 19 applied to financial statements of a Person as of any date or for any period are consistent in all material respects (subject to Section 1.3) to those applied to financial statements of that Person as of recent prior dates and for recent prior periods. "Government Securities" means (a) readily marketable direct full faith and credit obligations of the United States of America or obligations unconditionally 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 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, (c) any court or administrative tribunal, or (d) any arbitration tribunal or other non-governmental authority to whose jurisdiction a Person has consented, in each case whether of the United States of America or any other nation. "Guarantor Subsidiary" means (a) any Domestic Subsidiary which is a Significant Subsidiary, other than any Financial Subsidiary and (b) any other Domestic Subsidiary, other than any Financial Subsidiary, that is designated in writing by Borrower as a Guarantor 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. Section 9601 et seq., or as "hazardous", "toxic" or "pollutant" substances or as "solid waste" pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or as "friable asbestos" pursuant to the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. or any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "Hazardous Materials Laws" means all Laws governing the treatment, transportation or disposal of Hazardous Materials applicable to any real Property of Borrower or its Subsidiaries. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person for borrowed money, (b) that portion of the obligations of such Person under Capital Leases which should properly be recorded as a liability on a balance sheet of that Person prepared in accordance with Generally Accepted Accounting Principles, (c) any obligation of such Person that is evidenced by a promissory note or other instrument representing an extension of credit to such Person, whether or not for borrowed money, (d) any obligation of such Person for the deferred purchase price of Property or services (other than trade or other accounts payable in the ordinary course of business in accordance with customary industry terms), (e) any obligation of the types referred to in clauses (a) through (d) above that is secured by a Lien (other than a Permitted Encumbrance) on assets of such Person, whether or not that Person has assumed such obligation or whether or not such obligation is non-recourse to the credit of such Person, but only to the extent of the fair market value of the assets so subject to the Lien, (f) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person and (g) any obligation of such Person under letters -13- 20 of credit issued for the account of such Person and that is not otherwise a Contingent Guaranty Obligation. "Intangible Assets" means assets that are considered intangible assets under Generally Accepted Accounting Principles, including (a) customer lists, goodwill, computer software, unamortized deferred charges, unamortized debt discount, capitalized research and development costs and other intangible assets and (b) any write-up in book value of any asset subsequent to its acquisition, but excluding any existing write-up in book value of any asset acquired by Borrower or any of its Subsidiaries prior to the 2000 Closing Date, as such write-up may decrease (but not increase) from time to time. "Interest Period" means, as to each LIBOR Loan, a period of one, two, three or six months, as designated by Borrower; provided that (a) the first day of each Interest Period must be a LIBOR Market Day, (b) any Interest Period that would otherwise end on a day that is not a LIBOR Market Day shall be extended to the next succeeding LIBOR Market Day, unless such LIBOR Market Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding LIBOR Market Day, and (c) no Interest Period may extend beyond the Maturity Date. "Investment" means, with respect to any Person, any investment by that Person, whether by means of purchase or other acquisition of capital stock or other Securities of any other Person or by means of loan, advance, capital contribution, or other debt or equity participation or interest in any other Person, including any partnership or joint venture interest in any other Person; provided that an Investment of a Person shall not include any trade or account receivable arising in the ordinary course of the business of such Person, whether or not evidenced by a note or other writing. The amount of any Investment shall be the amount actually invested, less any return of capital, without adjustment for subsequent increases or decreases in the market value of such Investment. "Investment Grade Credit Rating" means, as of any date of determination, that at least two (2) Rating Agencies have as of that date issued credit ratings for Borrower's long-term senior unsecured debt of (a) at least BBB- in the case of S&P, (b) at least Baa3 in the case of Moody's and (c) at least BBB- in the case of Fitch. "Issuing Bank" means, subject to Section 2.5(h), Bank of America. "Joint Venture" means any Person, other than a Subsidiary, (a) in which Borrower or any Subsidiary of Borrower holds an equity Investment which entitles Borrower or such Subsidiary to more than 10% of (i) the ordinary voting power for the election of the board of directors or other governing body of such Person or (ii) the partnership, membership or other ownership interest in such Person, and (b) which has at least one holder of its equity interests that is not an Affiliate of Borrower or any Subsidiary of Borrower. Notwithstanding the foregoing, for the purposes of Section 6.16, the term "Joint Venture" will not include any equity Investment in any Person if the dollar amount of that investment is less than $1,000,000, computed in accordance with Generally Accepted Accounting Principles, but only to the extent that the aggregate dollar amount of such equity Investments is less than $25,000,000. -14- 21 "Laws" means, collectively, all foreign, federal, state and local statutes, treaties, codes, ordinances, rules, regulations and controlling precedents of any Governmental Agency. "Lead Arranger and Sole Book Manager" means Banc of America Securities LLC. "Letter of Credit Usage" means, as of any date of determination, the aggregate undrawn face amount of outstanding Letters of Credit plus the aggregate amount of unreimbursed draws under Letters of Credit. "Letters of Credit" means any of the standby or commercial letters of credit (including financial and performance letters of credit) issued by an Issuing Bank under the Commitment pursuant to Section 2.5, either as originally issued or as the same may be supplemented, modified, amended, renewed, extended or supplanted. "Lewis Homes Stock Repurchase" means the purchase of up to 4 million shares of Borrower's common stock issued in connection with the acquisition of the Lewis Homes group of companies for $26.00 per share payable in cash or by promissory note. "LIBOR" means, for each LIBOR Loan, that rate per annum, determined solely by the Administrative Agent, pursuant to the following formula (with each component expressed as a decimal and rounded upward to the nearest 1/100 of 1%): London Interbank Offered Rate for that LIBOR Loan ------------------------------------------------- 1.00 - Reserve Percentage "LIBOR Advance" means an Advance made by a Bank to fund its Pro Rata Share of a LIBOR Loan. "LIBOR Lending Office" means, with respect to each Bank, its office, branch or affiliate identified on the signature page hereof as its LIBOR Lending Office or such other office, branch or affiliate as such Bank may hereafter designate as its LIBOR Lending Office by notice to Borrower and the Administrative Agent. "LIBOR Loan" means a Loan made hereunder and designated or redesignated as a LIBOR Loan in accordance with Article 2. "LIBOR Market" means the London, England market established by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. "LIBOR Market Day" means any Banking Day on which commercial banks are open for international business (including dealing in Dollar deposits) in London, England. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, 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 (other than an agreement which gives to a Person the right to become equally and ratably secured with any other Person to whom a Lien is granted on any item of Property) 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 -15- 22 (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. "Loan" means the aggregate of the Advances made at any one time by the Banks pursuant to Article 2. "Loan Documents" means, collectively, this Agreement, the Notes, the Letters of Credit, the Swing Line Documents, the Subsidiary Guaranty, any Request for Loan, any Request for Letter of Credit, any Compliance Certificate and any other instruments, documents or agreements of any type or nature hereafter executed and delivered by Borrower or any of its Subsidiaries or Affiliates to the Administrative Agent or any other 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. "London Interbank Offered Rate" means, for each LIBOR Loan, the per annum rate (rounded upward to the nearest 1/100 of 1%) determined by the Administrative Agent as the rate for deposits in Dollars for a period equal to the applicable Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the date that is 2 LIBOR Market Days prior to the commencement of such Interest Period. If such rate does not appear on the Telerate Page 3750, the rate for that Interest Period will be determined by the Administrative Agent and will be equal to the rate at which deposits in Dollars are offered by the Administrative Agent to prime banks in the LIBOR Market at or about 11:00 a.m., London time, on the date that is 2 LIBOR Market Days prior to the commencement of such Interest Period in an aggregate amount approximately equal to the amount of the Advance to be made by the Administrative Agent (as a Bank) with respect to such LIBOR Loan and for a period of time comparable to the number of days in the applicable Interest Period. "Majority Banks" means (a) as of any date of determination if the Commitment is then in effect, Banks having in the aggregate in excess of 50% of the Commitment then in effect and (b) as of any date of determination if the Commitment has then been terminated or suspended and there is then any Indebtedness evidenced by the Notes, Banks holding in the aggregate in excess of 50% the aggregate Indebtedness then evidenced by the Notes and the Swing Line Documents. "Material Adverse Effect" means any circumstance or event, or any set of circumstances or events which, individually or when aggregated with any other circumstances or events, (a) has or is reasonably likely to have any material adverse effect upon the validity or enforceability of any Loan Document, (b) is or is reasonably likely to be material and adverse to the condition (financial or otherwise) or operations of Borrower and its Subsidiaries, taken as a whole, or (c) materially impairs or is reasonably likely to materially impair the ability of Borrower and its Subsidiaries, taken as a whole, to perform the Obligations. "Material Amount of Assets" means, as of any date of determination, more than 10% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date. "Maturity Date" means October 6, 2004, subject to extension as provided in Section 2.6. -16- 23 "Model Homes" means housing units which have been completed, furnished and landscaped and are used in the marketing efforts with respect to a residential home community, provided that the total number of units considered as Model Homes at any time shall not exceed an amount equal to (a) the number of domestic residential home communities open for sale at such time, times (b) four (4). "Money Market Facility" means any unsecured credit facility the advances under which have a maturity of not in excess of 180 days and which have been extended to Borrower from time to time other than under this Agreement, either by a Bank or by any other financial institution. "Money Market Outstandings" means, as of any date of determination, the aggregate principal amount outstanding under all Money Market Facilities. "Moody's" means Moody's Investor's Service, Inc. and its successors. "Mortgage Company" means Kaufman and Broad Mortgage Company, an Illinois corporation and a wholly owned Financial Subsidiary of Borrower. "Mortgage Warehousing Agreements" mean that certain Amended and Restated Mortgage Loan Warehousing Agreement dated as of February 18, 2000 among Mortgage Company, rateOne, the banks party thereto and Bank of America, N.A., as administrative agent, and Bank One Texas, N.A., as managing agent, and that certain Master Loan and Security Agreement dated as of May 25, 1999 between Mortgage Company and Morgan Stanley Mortgage Capital, Inc., as lender, as amended by Amendment No. 1 to Master Loan and Security Agreement, dated as of May 19, 2000, among Mortgage Company, rateOne and Morgan Stanley Mortgage Capital, Inc., as the foregoing may from time to time be amended, modified, refinanced or replaced, and substantially similar loan or credit agreements or arrangements entered into from time to time by Mortgage Company for loans to be used for the purpose of funding the origination of residential mortgage loans, secured by a pledge of such mortgage loans. "Multiemployer Plan" means any employee benefit plan of a type described in Section 4001(a)(3) of ERISA. "Net Orders" means, as of any date of determination, the number of items of housing inventory that are in the process of being sold and with respect to which a purchase contract has been signed, as reported in Borrower's filings with the Commission. "Net Realizable Value Adjustment" means the adjustment required pursuant to Generally Accepted Accounting Principles (including FAS 121 issued by the Financial Accounting Standards Board) to reflect a decrease in the book value of assets below their historical costs. "New Bank" has the meaning set forth in Section 2.8(a). "Non-Recourse Indebtedness" means Indebtedness incurred in connection with the purchase or improvement of Property (a) that is secured solely by the Property purchased or improved, (b) with respect to which the holder of such Indebtedness has recourse only to such -17- 24 Property, and (c) that is otherwise non-recourse (whether by contract or under applicable Law) to any Person. "Note" means each promissory note made by Borrower to a Bank evidencing the Advances under that Bank's Pro Rata Share of the 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. "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 Administrative 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 to the extent permitted by applicable Law after the commencement of any proceeding under any Debtor Relief Law by or against Borrower. "Officer's Certificate" means, when used with reference to any Person, a certificate signed by a Senior Officer of such Person. "Operating Loss" means, for any Fiscal Quarter, that the sum of (a) Consolidated Net Income for that Fiscal Quarter plus (b) all taxes on or measured by income payable by Borrower with respect to such Consolidated Net Income plus (c) all non-Cash Net Realizable Value Adjustments made during that Fiscal Quarter is less than zero; provided that each amount described in clauses (a), (b) and (c) shall be adjusted to eliminate any portion thereof, or effect thereon, attributable to a Financial Subsidiary. "Opinions of Counsel" means the favorable written legal opinions of (a) Munger, Tolles & Olson LLP , special counsel to Borrower, and (b) Barton P. Pachino, Senior Vice President and General Counsel of Borrower substantially in the form of Exhibits D-1 and D-2, respectively, together with copies of all factual certificates and legal opinions upon which such counsel has relied. "Party" means any Person other than the Banks or the Agents which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto established under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is defined in ERISA) which is subject to Title IV of ERISA and which is maintained for employees of Borrower or any of its ERISA Affiliates. "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 and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of -18- 25 nonpayment of the obligations secured by such Liens, no material property is subject to a material risk of loss or forfeiture; (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, by reason of nonpayment of the obligations secured by such Liens, no material 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 for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, utilities, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting real property, facilities, or equipment 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; (e) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of property 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; (f) rights reserved to or vested in any Governmental Agency to control or regulate the use of any real property; (g) any obligations or duties affecting any real property to any Governmental Agency with respect to any right, power, franchise, grant, license, or permit; (h) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of real property; (i) statutory Liens, including warehouseman's liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith, provided that, if delinquent, adequate reserves have been set aside with respect thereto and, by reason of nonpayment, no material property is subject to a material risk of loss or forfeiture; (j) 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; (k) 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; -19- 26 (l) 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; (m) 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 the 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 25% of the annual fixed rentals payable under such lease; (n) Liens consisting of deposits of property to secure statutory obligations of the Borrower or a Subsidiary of Borrower in the ordinary course of its business; and (o) Liens consisting of deposits of property to secure (or in lieu of) surety, appeal or customs bonds in proceedings to which Borrower or a Subsidiary of Borrower is a party in the ordinary course of its business. "Permitted Right of Others" means a Right of Others consisting of (a) an interest (other than a legal or equitable co-ownership interest, an option or right to acquire a legal or equitable co-ownership interest and any interest of a ground lessor under a ground lease), that does not materially impair the value or use of property for the purposes for which it is or may reasonably be expected to be held, (b) an option or right to acquire a Lien that would be a Permitted Encumbrance or (c) the reversionary interest of a landlord under a lease of Property. "Person" means an individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, trust, estate, unincorporated organization, union, tribe, business association or firm, joint venture, Governmental Agency, or other entity. "Pricing Period" means the 3 calendar month periods of (a) May 1 through July 31, (b) August 1 through October 31, (c) November 1 through January 31, and (d) February 1 through April 30, and the Consolidated Leverage Ratio applicable to any Pricing Period shall be the one that is calculated as of the Fiscal Quarter end that falls approximately 60 days prior to the beginning of such Pricing Period. "Prime Rate" means, on any day, the rate of interest per annum then most recently established by the Administrative Agent as its "prime rate." Any such rate is a general reference rate of interest, may not be related to any other rate, and may not be the lowest or best rate actually charged by the Administrative Agent to any customer or a favored rate and may not correspond with future increases or decreases in interest rates charged by other lenders or market rates in general, and that the Administrative Agent may make various business or other loans at rates of interest having no relationship to such rate. If the Administrative Agent ceases to exist or to establish or publish a prime rate from which the Prime Rate is then determined, the applicable variable rate from which the Prime Rate is determined thereafter shall be instead the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low prime rate are therein reported), and the Prime Rate shall change without notice with each change in such prime rate as of the date such change is reported. If The Wall Street Journal does not then or ceases to report such a prime rate, the Prime Rate shall thereafter be -20- 27 determined by such alternate method as may be reasonably selected by the Administrative Agent. "Prime Rate Advance" means an Advance made by a Bank to fund its Pro Rata Share of a Prime Rate Loan. "Prime Rate Loan" means a Loan made hereunder and designated or redesignated as a Prime Rate Loan in accordance with Article 2, or converted to a Prime Rate Loan in accordance with Article 3. "Prior Loan Agreements" means the Bridge Loan Agreement, the Prior Revolving Loan Agreement and the Prior Term Loan Agreement. "Prior Revolving Loan Agreement" has the meaning set forth for that term in the Recitals hereto. "Prior Term Loan Agreement" means the Term Loan Agreement dated as of January 7, 1999, as amended, by and among Borrower, the Banks named therein, and Bank of America, as Administrative Agent and various other Banks in various agent capacities. "Pro Rata Share" of a Bank, as pertains to the Commitment, means the applicable percentage set forth opposite the name of that Bank on Schedule 1.1 to this Agreement. "Projections" means the financial projections of Borrower delivered to the Banks and dated as of August 24, 2000. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Quarterly Payment Date" means December 31, 2000, and each March 31, June 30, September 30 and December 31 thereafter through and including the Maturity Date. "rateOne" means rateOne Home Loan, LLC, a Delaware limited liability company and a Subsidiary of Mortgage Company. "Rating Agencies" means S&P, Moody's and Fitch. "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. "Regulatory Development" means (a) any change in the Laws, (b) change in the application of any existing Laws or the interpretation thereof by any Governmental Agency or central bank or comparable authority (whether or not having the force of Law), or (c) compliance by any Bank with any request or directive (whether or not having the force of Law) of any Governmental Agency or central bank or comparable authority. -21- 28 "Request for Letter of Credit" means a written request for the issuance of a Letter of Credit signed by a Responsible Official of Borrower, in a form reasonably designated from time to time by the Administrative Agent. "Request for Loan" means a request for a Loan signed by a Responsible Official of Borrower, in a form reasonably designated from time to time by the Administrative Agent. "Request for Redesignation" means a written request for redesignation of Loans signed by a Responsible Official of Borrower, in a form reasonably designated from time to time by the Administrative Agent. "Required Banks" means as of any date of determination, Banks having in the aggregate 80% or more of the Commitment then in effect. "Requirement of Law" means, as to any Person, any Law or any judgment, award, decree, writ or determination of, or any consent or similar agreement with, 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. "Reserve Percentage" means, for each LIBOR Loan, the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Regulation D. The Reserve Percentage shall be expressed in decimal form and rounded upward, if necessary, to the nearest 1/100th of one percent, and shall include marginal, emergency, supplemental, special and other reserve percentages. The Reserve Percentage shall be determined solely by the Administrative Agent, which determination shall be conclusive absent manifest error. "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 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 a Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of that Person. "Right of Others" means, with respect to any Property in which a Person has an interest, (a) any legal or equitable claim or other interest (other than a Lien) in or with respect to that Property held by any other Person, and (b) any option or right held by any other Person to acquire any such claim or other interest (including a Lien). "S&P" means Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) and its successors. "Securities" means any capital stock, share, voting trust certificate, bonds, debentures, notes or other evidences of indebtedness, limited partnership interests, or any warrant, option or other right to purchase or acquire any of the foregoing. -22- 29 "Senior Officer" means the (a) chief executive officer, (b) chief operating officer, (c) chief financial officer, (d) vice president and controller, or (e) treasurer, in each case whatever the title nomenclature may be, of the Person designated. "Settlement Date" means the settlement date specified in the forward contract for the sale and purchase of Common Stock which is a component of any Trust Preferred Capital Securities. The Settlement Date for the Trust Preferred Capital Securities referred to in clause (a) of the definition thereof is August 16, 2001. "Shareholders' Equity" means, as of any date of determination, shareholders' equity as of that date determined in accordance with Generally Accepted Accounting Principles; provided that there shall be excluded from Shareholders' Equity any amount attributable to capital stock that is, directly or indirectly, required to be redeemed or repurchased by the issuer thereof prior to the date which is one year after the Maturity Date or upon the occurrence of specified events or at the election of the holder thereof. "Significant Subsidiary" means, as of May 31, 2000, those Subsidiaries of Borrower identified as such in Schedule 4.4 and, as of any other date of determination, any Subsidiary of Borrower (other than a Joint Venture) with respect to which any of the following conditions is met: (a) the aggregate book value of all Investments of Borrower and its Subsidiaries in such Subsidiary exceeds 5% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date; or (b) the proportionate share of Borrower and its Subsidiaries in the total assets of such Subsidiary (after intercompany eliminations) exceeds 5% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date; or (c) the equity of Borrower and its Subsidiaries in the net income of such Subsidiary (before income taxes, extraordinary items and cumulative effect of a change in accounting principles) as of the end of the most recently ended fiscal year of such Subsidiary exceeds the greater of (i) an amount equal to 5% of the consolidated net income of Borrower and its Subsidiaries (computed as aforesaid) as of the end of the most recent Fiscal Year ended prior to such date or (ii) $3,000,000. "Subordinated Obligations" means, collectively, all obligations of Borrower or any of its Subsidiaries that (a) do not provide for any payment of principal, any sinking fund payment or any scheduled redemption prior to the Maturity Date, (b) are expressly subordinated to the Obligations by a written instrument containing subordination and related provisions (including interest payment blockage, standstill and related provisions) not materially less favorable to the Banks in any respect whatsoever from those applicable to Borrower's 9-5/8% Senior Subordinated Notes due 2006 (the "Subordinated Notes") (or such other subordination and related provisions as may be approved in writing by the Majority Banks), (c) are subject to financial covenants not materially more burdensome to Borrower taken as a whole than those applicable to the Subordinated Notes, except such covenants as may be approved in writing by the Majority Banks and (d) are subject to other covenants (other than the covenant to pay interest) and events of default which in the aggregate are not materially more burdensome to -23- 30 Borrower than those applicable to the Subordinated Notes, except such covenants or events of default as may be approved in writing by the Majority Banks. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership or joint venture whether now existing or hereafter organized or acquired: (a) in the case of a corporation or limited liability company, of which securities having a majority of the ordinary voting power for the election of the board of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by such Person and/or one or more Subsidiaries of such Person or (b) in the case of a partnership, joint venture or other business entity, in which such Person or a Subsidiary of such Person is a general partner. "Subsidiary Guaranty" means the guaranty of the Indebtedness of Borrower under this Agreement executed by each Guarantor Subsidiary of Borrower substantially in the form of Exhibit E, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Swing Line" means the revolving line of credit established by the Swing Line Bank in favor of Borrower pursuant to Section 2.4. "Swing Line Bank" means Bank of America. "Swing Line Documents" means the promissory note and any other documents executed by Borrower in favor of the Swing Line Bank in connection with the Swing Line. "Swing Line Loans" means loans made by the Swing Line Bank to Borrower pursuant to Section 2.4. "Swing Line Maturity Date" shall mean the date 15 days following the date of disbursement of a Swing Line Loan or, if such day is not a Banking Day, the next Banking Day. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal Indebtedness of Borrower on all Swing Line Loans then outstanding. "Syndication Agent" means Credit Lyonnais Los Angeles Branch, so long as such bank is a Bank hereunder. The Syndication Agent shall have no duties under the Loan Documents beyond those of a Bank. "Termination Event" means (a) a "reportable event" as defined in Section 4043 of ERISA (other than a "reportable event" that is not subject to the provision for 30 day notice to the PBGC), (b) the withdrawal of Borrower or any of its ERISA Affiliates from a Pension Plan during any plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Pension Plan or the treatment of an amendment to a Pension Plan as a termination thereof pursuant to Section 4041 of ERISA, other than pursuant to Section 4041(b) of ERISA, (d) the institution of proceedings to terminate a Pension Plan by the PBGC or (e) any other event or condition which might reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. -24- 31 "Term Loan Commitment Increases" means the aggregate of increases to the Commitment requested under Section 2.6 of the 2000 Term Loan Agreement. "to the best knowledge of" means, when modifying a representation, warranty or other statement of any Person, that such representation, warranty or statement is a representation, warranty or statement that (a) the Person making it has no actual knowledge of the inaccuracy of the matters therein stated and (b) assuming the exercise by the Person making it of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person would have done under similar circumstances), the Person making it would have no actual knowledge of the inaccuracy of the matters therein stated. Where the Person making the representation, warranty or statement is not a natural Person, the aforesaid actual or constructive knowledge shall be that of any Senior Officer of that Person. "Trust Issuer" means a business trust formed by Borrower as a special purpose grantor trust for the purpose of facilitating the issuance of Trust Preferred Capital Securities, and which engages in no activities other than those incident to the Trust Preferred Capital Securities. "Trust Preferred Capital Securities" means the securities issued by Borrower and a Trust Issuer (a) covered by Borrower's Prospectus dated June 30, 1998 filed with the Commission and (b) such other similar securities as may from time to time be issued by Borrower after being approved in writing by the Majority Banks in their sole and absolute discretion to be treated as Trust Preferred Capital Securities. "Voting Stock" means, with respect to any Person, the capital stock of such Person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 1.2 Use of Defined Terms. Any defined term used in the plural preceded by the definite article shall be taken to encompass all members of the relevant class. Any defined term used in the singular preceded by "any" shall be taken to indicate any number of the members of the relevant class. 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, consistently applied, except as otherwise specifically prescribed herein. In the event that Generally Accepted Accounting Principles change during the term of this Agreement such that the financial covenants contained in Sections 6.9, 6.10 or 6.11 would then be calculated in a different manner or with different components or would render the same not meaningful criteria for evaluating Borrower's financial condition, (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 financial covenants contained in such Sections during the 90 day period following 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. In the event that the -25- 32 Borrower changes its Fiscal Year during the term of this Agreement, Borrower and the Banks agree to amend this Agreement and the other Loan Documents in such respects as are necessary to conform the definitions, the financial covenants, the reporting requirements and the other provisions thereof to fairly reflect such change in the Borrower's Fiscal Year. 1.4 Rounding. Any financial ratios required to be maintained 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 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. 1.6 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 reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.7 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. -26- 33 Article 2 LOANS AND LETTERS OF CREDIT 2.1 Loans-General. (a) Subject to the terms and conditions set forth in this Agreement (including Section 8.2), at any time and from time to time from the 2000 Closing Date through the Banking Day immediately preceding the Maturity Date, each Bank shall, pro rata according to that Bank's Pro Rata Share of the Commitment then in effect, make Advances to Borrower under the Commitment in such amounts as Borrower may request; provided that after giving effect to such Advance, the aggregate outstanding principal evidenced by the Notes plus the Letter of Credit Usage plus the Money Market Outstandings plus Swing Line Outstandings shall not exceed the Commitment. Subject to the limitations set forth herein, Borrower may borrow, repay and reborrow under this Section 2.1(a) without premium or penalty. (b) [Intentionally Omitted.] (c) Subject to the next sentence and to Sections 2.4(e) and 2.5(d), each Loan shall be made pursuant to a Request for Loan which shall be in a form and shall contain information specified from time to time by the Administrative Agent and which shall in all events specify the requested (i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan and (iv) in the case of a LIBOR Loan, Interest Period for such Loan. Unless the Administrative Agent, in its sole and absolute discretion, has notified Borrower to the contrary, each Loan may be requested by telephone (promptly confirmed in writing) or telecopier by a Responsible Official of Borrower, and Borrower shall confirm such request by promptly mailing a Request for Loan conforming to the preceding sentence to the Administrative Agent. (d) Promptly following receipt of a Request for Loan, the Administrative Agent shall notify each Bank by telephone, telecopier or telex of the date and type of the Loan, the applicable Interest Period in the case of a LIBOR Loan, and that Bank's Pro Rata Share of the Loan. Not later than 11:00 a.m., California time, on the date specified for any Loan, each Bank shall make its Pro Rata Share of the Loan in immediately available funds available to the Administrative Agent at the Administrative Agent's Office. Upon fulfillment of the applicable conditions set forth in Article 8, all Advances shall be credited in immediately available funds to the Designated Deposit Account. (e) The principal amount of each Loan shall be an integral multiple of $1,000,000 and shall be in an amount not less than (i) $1,000,000 if such Loan is a Prime Rate Loan and (ii) $5,000,000 if such Loan is a LIBOR Loan. (f) A Request for Loan shall be irrevocable upon the Administrative Agent's first notification thereof. The obligation of each Bank to make any Advance is several, and not joint or joint and several, and is not conditioned upon the performance by any other Bank of its obligation to make Advances. The failure by any Bank to perform its obligation to make any Advance will not increase the obligation of any other Bank to make Advances. (g) Borrower may redesignate a Prime Rate Loan as a LIBOR Loan, or a LIBOR Loan as a Prime Rate Loan or a LIBOR Loan with a new Interest Period, by delivering a Request for Redesignation to the Administrative Agent, within the time periods and pursuant to -27- 34 the conditions set forth in Section 2.1(c), 2.2 or 2.3, as applicable, and elsewhere in this Agreement. If no Request for Redesignation (or telephonic or other request referred to in the second sentence of Section 2.1(c) , if applicable) has been made prior to the last day of the Interest Period for an outstanding LIBOR Loan within the requisite notice periods set forth in Section 2.3, then Borrower shall be deemed to have requested that such LIBOR Loan be redesignated as a Prime Rate Loan. (h) The Advances made by each Bank under this Section 2.1 shall be evidenced by that Bank's Note. 2.2 Prime Rate Loans. Each request by Borrower for a Prime 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(c), if applicable) received by the Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m., California time, on the Banking Day on which the requested Prime Rate Loan is to be made. The Administrative Agent shall notify each Bank of a request for a Prime Rate Loan as soon as practicable after receipt of the same. All Loans shall constitute Prime Rate Loans unless properly designated as LIBOR Loans pursuant to Section 2.3. 2.3 LIBOR Loans. (a) Each request by Borrower for a LIBOR 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(c) , if applicable) received by the Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m., California time, at least 3 LIBOR Market Days before the first day of the applicable Interest Period, provided that such advance notice period may be reduced by the Administrative Agent in its discretion with respect to any LIBOR Loan made on the 2000 Closing Date. The Administrative Agent shall notify each Bank of a request for a LIBOR Loan as soon as practicable after receipt of the same. (b) At or about 10:00 a.m., California time, 2 LIBOR Market Days before the first day of the applicable Interest Period, the Administrative Agent shall determine the applicable LIBOR (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, telecopier or, in the case of Banks, telex. (c) No more than 10 LIBOR Loans may be outstanding at any particular time. (d) Unless the Majority Banks otherwise consent, no LIBOR Loan may be requested during the continuance of an Event of Default. 2.4 Swing Line. (a) The Swing Line Bank shall from time to time through the day prior to the Maturity Date make Swing Line Loans to Borrower in such amounts as Borrower may request, provided that (i) giving effect to such Swing Line Loan, the Swing Line Outstandings do not exceed $50,000,000, (ii) the conditions to an Advance specified in Article 8 have been satisfied, (iii) without the consent of all of the Banks, no Swing Line Loan may be made during the continuation of an Event of Default, (iv) the Swing Line Bank has not given at least 24 hours prior notice to Borrower that availability under the Swing Line is suspended or terminated and -28- 35 (v) after giving effect to such Swing Line Loan, the aggregate outstanding principal evidenced by the Notes plus the Letter of Credit Usage plus the Money Market Outstandings plus the Swing Line Outstandings shall not exceed the Commitment. Borrower may borrow, repay and reborrow under this Section 2.4 . Unless notified to the contrary by the Swing Line Bank, borrowings under the Swing Line may be made in amounts which are integral multiples of $100,000 upon telephonic request, and delivery of such written request and certification as the Swing Line Bank may designate from time to time, by a Responsible Official of Borrower made to the Swing Line Bank not later than 4:00 p.m., Los Angeles time, on the Banking Day of the requested borrowing (in all events, any telephonic request shall be promptly confirmed in writing by telecopier). Unless notified to the contrary by the Swing Line Bank, each repayment of a Swing Line Loan shall be in an amount which is an integral multiple of $100,000. A Swing Line Loan may, at any time and from time to time, voluntarily be prepaid at the election of Borrower in whole or in part without premium or penalty. If after 2:00 p.m., Los Angeles time, on a Banking Day, Borrower (a) instructs the Swing Line Bank to debit its demand deposit account at the Swing Line Bank in the amount of any payment with respect to a Swing Line Loan, or (b) the Swing Line Bank otherwise receives repayment, such payment shall be deemed received on the next Banking Day. (b) Swing Line Loans shall bear interest at a fluctuating rate per annum equal to the sum of the Applicable Federal Funds Rate plus the Applicable LIBOR Spread plus 0.15%, payable on the dates principal is due and in any event on the Maturity Date. The Swing Line Bank shall be responsible for invoicing Borrower for such interest. The interest payable on Swing Line Loans is solely for the account of the Swing Line Bank (or, if applicable, for the account of the Banks funding such Swing Line Loans pursuant to Section 2.4(d)). (c) Each Swing Line Loan shall be payable on the applicable Swing Line Maturity Date and in any event on the Maturity Date. (d) Upon the making of a Swing Line Loan, each Bank shall be deemed to have purchased from the Swing Line Bank a participation therein in an amount equal to that Bank's Pro Rata Share of the Commitment times the amount of the Swing Line Loan. Upon demand made by the Swing Line Bank, each Bank shall, according to its Pro Rata Share of the Commitment, promptly provide to the Swing Line Bank its purchase price therefor in an amount equal to its participation therein. The obligation of each Bank to so provide its purchase price to the Swing Line 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. (e) In the event that any Swing Line Outstandings have not been repaid by the applicable Swing Line Maturity Date, then on the next Banking Day (unless Borrower has made other arrangements acceptable to the Swing Line Bank to repay the Swing Line Outstandings), Borrower shall request a Prime Rate Loan under the Commitment pursuant to Section 2.2 in an amount complying with Section 2.1(e) and sufficient to repay the Swing Line Outstandings. The Administrative Agent shall automatically provide such amount to the Swing Line Bank (which the Swing Line Bank shall then apply to the Swing Line Outstandings) and credit any balance of the Loan in immediately available funds to the Designated Deposit Account. In the event that Borrower fails to request a Prime Rate Loan under the Commitment within the time specified by Section 2.2 on any such Swing Line Maturity Date, the Administrative Agent may, but is not required to, without notice to or the consent of Borrower, cause Prime Rate Advances to be made by the Banks under the Commitment in the amount necessary -29- 36 to comply with Section 2.1(e) and sufficient to repay the Swing Line Outstandings and, for this purpose, the conditions precedent set forth in Section 8.2 shall not apply. The proceeds of such Advances shall be paid to the Swing Line Bank for application to the Swing Line Outstandings. 2.5 Letters of Credit. (a) Subject to the terms and conditions of this Agreement (including Section 8.3), Borrower may request from time to time during the period from the 2000 Closing Date through the day prior to the Maturity Date that the Issuing Bank issue Letters of Credit for the account of Borrower, and the Issuing Bank agrees to issue for the account of Borrower one or more Letters of Credit, provided that (i) Borrower shall not request that the Issuing Bank issue any Letter of Credit if, after giving effect to such issuance, the aggregate outstanding principal evidenced by the Notes plus the Letter of Credit Usage plus the Money Market Outstandings plus the Swing Line Outstandings exceeds the Commitment, (ii) Borrower shall not request that the Issuing Bank issue any Letter of Credit if Borrower would not be in compliance with Sections 6.10 and 6.11, (iii) in no event shall the Issuing Bank issue any Letter of Credit having an expiration date after the Maturity Date, (iv) the Borrower shall not request any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $100,000,000 or any limit established by Law after the 2000 Closing Date on the Issuing Bank's ability to issue the requested Letter of Credit at any time, and (v) prior to the issuance of any Letter of Credit the Issuing Bank shall request confirmation by telephone from the Administrative Agent that such Letter of Credit may be issued. Notwithstanding the foregoing, the Issuing Bank shall not be obligated to issue a Letter of Credit if, on or prior to the Banking Day immediately preceding the issuance thereof any Bank has notified the Issuing Bank in writing that the conditions set forth in Section 8.3 have not been satisfied with respect to the issuance of such Letter of Credit. (b) Whenever Borrower requests that the Issuing Bank issue a Letter of Credit it shall deliver to the Issuing Bank (with a copy to the Administrative Agent) (i) an executed application for such Letter of Credit in the form customarily required by the Issuing Bank and a Request for Letter of Credit by 1:00 p.m., California time, at least three (3) Banking Days prior to the proposed date of issuance, provided that the Issuing Bank shall use its best efforts to issue the proposed Letter of Credit within two Banking Days after receipt of such request, and (ii) the form of the Letter of Credit requested, together with such other information or materials as the Issuing Bank may reasonably request with respect to such Letter of Credit. The Administrative Agent shall promptly thereafter notify each of the Banks of the contents of such Request for Letter of Credit and proposed form of Letter of Credit. Prior to the issuance of any Letter of Credit, the Issuing Bank shall confirm by telephone with the Administrative Agent that, giving effect to the issuance of such Letter of Credit, the limitations set forth in Section 2.5(a) have been satisfied. (c) The Issuing Bank shall notify the Administrative Agent and Borrower of each issuance or amendment of any Letter of Credit issued by it on the Banking Day upon which such issuance or amendment occurs. Upon the issuance of a Letter of Credit, each Bank (other than the Issuing Bank and any Bank that has notified the Issuing Bank pursuant to the last sentence of Section 2.5(a) with respect to such Letter of Credit) shall be deemed to have purchased a pro rata participation from the Issuing Bank in an amount equal to that Bank's Pro Rata Share of the Commitment, of the face amount of such Letter of Credit. Without limiting the scope and nature of each such Bank's participation in any Letter of Credit, to the extent that -30- 37 the Issuing Bank has not been reimbursed for any payment required to be made by the Issuing Bank under any Letter of Credit by the Banks through the making of a Prime Rate Loan in accordance with Section 2.5(d) or by the Borrower in accordance with Section 2.5(e), each such Bank shall, according to its Pro Rata Share of the Commitment, immediately reimburse the Issuing Bank upon demand for the amount of such payment. If any Bank fails to reimburse the Issuing Bank in the manner required by this Section on the same day upon which the related payment has been made by the Issuing Bank, that Bank shall also pay interest to the Issuing Bank on the amount of such reimbursement obligations at the Federal Funds Rate for the first two days after payment has been made by the Issuing Bank and at a rate equal to the sum of the Federal Funds Rate plus 2% from and after the third day after the date such payment was made (which interest shall not be for the account of or otherwise reimbursable by Borrower). The obligation of each such Bank to so reimburse the Issuing Bank shall be absolute and unconditional and shall not be affected by (i) the occurrence of an Event of Default or a Default, (ii) any set-off, counterclaim, defense or other right that such Bank or Borrower may have against the Issuing Bank, Borrower or any other Person, (iii) any adverse change in the condition (financial or otherwise) of Borrower or (iv) any other occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of Borrower to reimburse the Issuing Bank under any Letter of Credit together with interest as hereinafter provided. (d) The Issuing Bank shall provide notice to Borrower and the Administrative Agent of the amount of each demand for a draw under any Letter of Credit and, where practicable, such notice may be provided on the Banking Day immediately preceding the Banking Day of an expected payment. If all of the limitations and requirements set forth in this Agreement with respect to the making of a Prime Rate Loan under the Commitment (except the requirement that a Request for Loan be made as and when specified herein) have been satisfied then the Banks shall be obligated to make a Prime Rate Loan to Borrower (without notice to or the consent of the Borrower) under the Commitment in an aggregate amount equal to the amount paid by the Issuing Bank on the related Letter of Credit. The Administrative Agent shall thereupon promptly provide notice of such payment under the Letter of Credit to the Banks, and within one Banking Day after such notice from the Administrative Agent, each Bank shall make its Pro Rata Share of such Prime Rate Loan under the Commitment (plus interest at the Federal Funds Rate for the first two days after the date payment has been made by the Issuing Bank and at a rate equal to the sum of the Federal Funds Rate plus 2% from and after the third day after the date such payment has been made by the Issuing Bank, which interest shall not be for the account of or otherwise reimbursable by Borrower) available to the Administrative Agent for the account of the Issuing Bank in immediately available funds, and such funds shall collectively constitute the aforementioned Prime Rate Loan, the proceeds of which shall be paid to the Issuing Bank to reimburse it for the payment made by it under the Letter of Credit. (e) In the event that not all of the limitations and requirements set forth in this Agreement with respect to the making of a Prime Rate Loan under the Commitment (other than the requirement that a Request for Loan be made as and when specified herein) have been satisfied, then Borrower agrees to pay to the Issuing Bank an amount equal to the amount of the applicable demand for a draw under a Letter of Credit (i) on the same Banking Day any payment is made, if the Issuing Bank notifies Borrower of such payment prior to 12:00 p.m., California time, on the Banking Day immediately preceding the Banking Day upon which such payment is to be made or (ii) on the Banking Day immediately following the Banking Day of the payment, if later notice is given. The principal amount of any such payment made by -31- 38 Borrower to the Issuing Bank shall be used to reimburse the Issuing Bank for the payment made by it under the Letter of Credit. In the event that Borrower does not make such payment when due, Borrower shall also pay interest to the Administrative Agent for the account of the Banks on such amount from the date of any payment to, but not including, the date of payment by Borrower at the rate provided for in Section 3.8; provided that not less than one day's interest shall be due. Each Bank that has reimbursed the Issuing Bank pursuant to Section 2.5(c) in accordance with its Pro Rata Share of the Commitment 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 this Section 2.5(e). (f) Subject to Section 3.18, Borrower agrees to pay to the Administrative Agent (which shall promptly pay the same to the Banks or the Issuing Bank, as the case may be), (i) for the account of the Banks (other than a Bank that has notified the Issuing Bank pursuant to the last sentence of Section 2.5(a) with respect to such Letter of Credit) with respect to each Letter of Credit, a per annum letter of credit fee in an amount equal to the Applicable Letter of Credit Fee times the face amount of such Letter of Credit (including increases in the undrawn face amount thereof) for the term of such Letter of Credit, and (ii) for the account of the Issuing Bank with respect to each Letter of Credit, an issuance fee in an amount equal to the greater of $500 or one eighth percent (1/8%) per annum times the face amount of such Letter of Credit (including increases in the undrawn face amount thereof) for the term of such Letter of Credit, together with the Issuing Bank's standard charges and actual and reasonable out-of-pocket costs in connection with such issuance. The letter of credit fees described in clause (i) of the first sentence in this subsection (f) for all Letters of Credit outstanding at any time during the quarterly period ending on each Quarterly Payment Date are payable quarterly in arrears on each Quarterly Payment Date. The letter of credit issuance fees described in clause (ii) of the first sentence in this subsection (f) for each Letter of Credit are payable in advance for each six month period (or portion thereof) during the term of the applicable Letter of Credit, on the issuance date and on each six month anniversary thereof during the term the applicable Letter of Credit is outstanding. In the event a Letter of Credit is canceled or terminated prior to its original expiration date, one-half of such issuance fee shall be refundable by the Issuing Bank over the period such Letter of Credit will no longer be outstanding (and the balance will be non-refundable). (g) The obligation of Borrower to reimburse the Issuing Bank for drawings or payments made under each Letter of Credit shall be unconditional and irrevocable. Without limiting the foregoing, such obligation of Borrower shall not be affected by any of the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, this Agreement, or any letter of credit application or other agreement or instrument relating thereto; (ii) compliance by the Issuing Bank with any amendment or waiver of or any consent to departure from the Letter of Credit, this Agreement or any letter of credit application or other agreement or instrument relating thereto previously approved by Borrower pursuant to Section 2.5(b) (except as to such amendments that are set forth on the face of such Letter of Credit); -32- 39 (iii) the existence of any claim, setoff, defense, or other rights which Borrower may have at any time against any Bank, any beneficiary of the Letter of Credit (or any Persons for whom any such beneficiary may be acting) or any other Person, whether in connection with the Letter of Credit, this Agreement, or any letter of credit application or other agreement or instrument relating thereto, or any unrelated transactions; (iv) any demand, statement, or any other document presented under a 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; (v) the solvency or financial responsibility of any party issuing any documents in connection with a Letter of Credit; (vi) any failure or delay in notice of shipments or arrival of any property; (vii) 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; (viii) any error, neglect or default of any correspondent of any Bank in connection with a Letter of Credit; (ix) any consequence arising from acts of God, war, insurrection, disturbances, labor disputes, emergency conditions or other causes beyond the control of the Banks; (x) the form, accuracy, genuineness or legal effect of any contract or document referred to in any document submitted to the Issuing Bank in connection with a Letter of Credit so long as the Issuing Bank in good faith determines that the draft or document appears to comply with the terms of the Letter of Credit; and (xi) where the Issuing Bank has acted in good faith and without gross negligence and observed general banking usage, any other circumstance whatsoever. IN DETERMINING WHETHER TO PAY UNDER ANY LETTER OF CREDIT, THE ISSUING BANK SHALL BE RESPONSIBLE ONLY TO DETERMINE THAT THE DOCUMENTS AND CERTIFICATES REQUIRED TO BE DELIVERED UNDER THAT LETTER OF CREDIT HAVE BEEN DELIVERED AND THAT THEY COMPLY ON THEIR FACE WITH THE REQUIREMENTS OF THAT LETTER OF CREDIT AND THE ISSUING BANK SHALL OBTAIN THE CONSENT OF THE BORROWER PRIOR TO MAKING ANY PAYMENT WITH RESPECT TO ANY DOCUMENT OR CERTIFICATE WHICH DOES NOT SO COMPLY ON ITS FACE. (h) Borrower shall initially request all Letters of Credit under this Agreement from Bank of America, as Issuing Bank (provided that the foregoing shall not limit Borrower's ability to request letters of credit that are not Letters of Credit issued pursuant to the terms of this Agreement from any issuing bank). In the event that (i) a prospective beneficiary will not -33- 40 accept Bank of America as the Issuing Bank with respect to the requested Letter of Credit, or (ii) Bank of America is otherwise unable to issue a properly requested Letter of Credit to which Borrower is entitled hereunder or (iii) Bank of America is unwilling, after reasonable opportunity to do so, to issue a properly requested Letter of Credit to which Borrower is entitled hereunder in the form requested by Borrower, then, upon prior notice to the Administrative Agent, Borrower may select an additional "Issuing Bank" from among the Banks holding a portion of the Commitment (with such additional Issuing Bank's approval) to issue the requested Letter of Credit. (i) The Issuing Bank shall be entitled to the protections accorded to the Administrative Agent pursuant to Article 10 , as if set forth herein, naming Issuing Bank in lieu of Administrative Agent, where appropriate. 2.6 Reduction of Commitment/Extension of Maturity Date (a) Borrower shall have the right, at any time and from time to time, without penalty or charge, upon at least 5 Banking Days prior written notice voluntarily to reduce or terminate permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 but not less than $5,000,000 (unless all of the unused Commitment is being terminated), all or a portion of the unused Commitment. Borrower shall pay to the Administrative Agent on the date of such termination all unpaid commitment fees which have accrued to such date in respect of the terminated portion of the Commitment. (b) From time to time, but no earlier than 120 days after the 2000 Closing Date nor later than 60 days prior to the Maturity Date, and so long as no Default or Event of Default then exists hereunder, Borrower may make a written request to the Administrative Agent to extend the then existing Maturity Date (the "Prior Maturity Date") for a period of an additional one year. It is understood and agreed that the Maturity Date may be extended more than once and that there may be more than one Prior Maturity Date. If written consent to such extension request is given by the Required Banks to the Administrative Agent within 45 days of such request by Borrower at any agreed extension fee, then the Maturity Date shall be so extended subject to the payment by Borrower to the Administrative Agent, within 60 days before the Prior Maturity Date, of such extension fee to all consenting Banks. Each such extension fee shall be for the account of the consenting Banks, based upon their pro-rata shares of the continuing Commitment. 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 within the foregoing periods prior to the Maturity Date in accordance with the procedure set forth above. Only one extension may be granted by the Required Banks during any 12 month period pursuant to this Section 2.6. (c) In the event that a request to extend a Maturity Date under clause (b), above, is approved by the Required Banks but less than all of the Banks, then, subject to clauses (d) and (e) below, the portion of the Commitment attributable to the Banks that did not grant consent to such extension (each, a "Non-Consenting Bank") shall terminate on the Prior Maturity Date. (d) In the event that a portion of the Commitment is to be terminated on a Prior Maturity Date pursuant to the terms of clause (c), 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") -34- 41 and that (if not an existing Bank) are approved by the Administrative Agent (which approval shall not be unreasonably withheld) purchase all (but not part) of any Non-Consenting Bank's then outstanding Advances, its Note and its participation interest in outstanding Letters of Credit, and assume its Pro Rata Share of the Commitment 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 Commitment, 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 that 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 Administrative 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 2.5). The NonConsenting Bank shall be obligated to reimburse to Borrower a portion of the issuance fees referred to in clause (ii) of the first sentence of Section 2.5(f) based on the period during which each new Letter of Credit issued by the New Bank will be outstanding in replacement or support of a Letter of Credit issued by the Non-Consenting Bank. Any such purchase by a New Bank pursuant to this clause (d) shall be further evidenced by a revised version of Schedule 1.1 hereto prepared by the Administrative Agent and delivered to Borrower and each of the Banks and replacement Notes delivered by Borrower to the Administrative Agent for distribution to the applicable Banks in exchange for the corresponding existing Notes. (e) In the event that a portion of the Commitment is to be terminated on a Prior Maturity Date pursuant to the terms of clause (c), above, Borrower may within 30 days of the effective date of an extension of the Maturity Date granted by the Required Banks, elect in writing to permanently and irrevocably terminate that portion of the Commitment equal to the entire Pro Rata Share of the Commitment of one or more Non-Consenting Banks, provided that no Default or Event of Default has occurred. To do this, Borrower must reduce the unused Commitment to an amount equal to or greater than the Pro Rata Shares of the Commitment of the Non-Consenting Bank(s) to be terminated. Borrower shall then pay to the Administrative Agent on the date of such termination all unpaid commitment fees which have accrued to such date in respect of the terminated portion of the Commitment. On the effective date of any such termination, which must occur within 30 days after Borrower's election to terminate, any NonConsenting Bank that is being so eliminated shall cease to be a "Bank" for all purposes of this Agreement and shall receive (i) from the Borrower 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 (including those fees set forth in Section 3.7(d) with respect to the Non-Consenting Bank's share of any then outstanding LIBOR Advances). Borrower may not eliminate pursuant to this -35- 42 clause (e) any Non-Consenting Bank that is the Issuing Bank. Any such termination and elimination pursuant to this clause (e) shall be further evidenced by a revised version of Schedule 1.1 hereto prepared by the Administrative Agent and delivered to Borrower and each of the remaining Banks, and the Non-Consenting Banks to be eliminated shall promptly deliver to the Administrative Agent for delivery to Borrower their original Notes. 2.7 Administrative Agent's Right to Assume Funds Available. Unless the Administrative Agent shall have been notified by any Bank at least two hours prior to the funding by the Administrative Agent of any Loan that such Bank does not intend to make available to the Administrative Agent such Bank's Pro Rata Share of such Loan, the Administrative Agent may, in its discretion (but shall not be so obligated), assume that such Bank has made such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Bank, which demand shall be made in a reasonably prompt manner. If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent promptly shall notify Borrower and Borrower shall pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also 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 Administrative Agent to Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to the Federal Funds Rate as notified by the Administrative Agent to such Bank or the Borrower, as the case may be. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Pro Rata Share of the Commitment hereunder or to prejudice any rights which the Administrative Agent or Borrower may have against any Bank as a result of any default by such Bank hereunder. 2.8 Optional Increase to Commitment. (a) Subject to the limitations set forth in this Section, during the period beginning on the 2000 Closing Date and ending 6 months prior to the Maturity Date, if no Default or Event of Default then exists, Borrower may from time to time request in writing that the Commitment be increased to an aggregate amount that is not greater than $175,000,000 less Term Loan Commitment Increases. Any such increase shall be accomplished by (i) the addition of new Banks who qualify as Eligible Assignees that are reasonably acceptable to the Administrative Agent (each, a "New Bank") or (ii) one or more of the existing Banks increasing its Exposure in accordance with the provisions of this Section. Each such increase shall be effective, if at all, not later than 6 months prior to the Maturity Date. (b) Any request under this Section shall be submitted by the Borrower to the Administrative Agent, shall specify the proposed effective date and amount of such increase and be accompanied by (i) a certificate signed by a Responsible Official of the Borrower, stating that no Default or Event of Default exists as of the date of the request or will result from the requested increase and (ii) a written consent to the increase in the amount of the Commitment executed by each Guarantor Subsidiary. No consent of the Banks shall be required for an increase in the amount of the Commitment pursuant to this Section. The Administrative Agent shall prepare and circulate to the Borrower and Banks a new Schedule 1.1 after each increase in the Commitment. -36- 43 (c) No Bank shall be obligated to increase the amount of its Exposure, nor shall any Bank have the right to do so unless designated by the Borrower. (d) Each New Bank designated by the Borrower and reasonably acceptable to the Administrative Agent shall become an additional party hereto as a New Bank concurrently with the effectiveness of the proposed increase in the Commitment upon its execution of an instrument of joinder to this Agreement which is in form and substance acceptable to the Administrative Agent and which, in any event, contains the representations, warranties, indemnities and other protections afforded to the Administrative Agent and the other Banks which would be granted or made by an Eligible Assignee by means of the execution of an Assignment and Acceptance. (e) Subject to the foregoing, any increase to the Commitment requested under this Section shall be effective as of the effective date proposed by the Borrower (but not later than 6 months prior to the Maturity Date) and shall be in the principal amount equal to (i) the amount that consenting Banks have agreed to assume as increases to the amount of their respective Exposures plus (ii) the amount that any New Banks have agreed to be the amount of their respective Exposures. (f) Concurrently with the effectiveness of any increase to the Commitment under this Section, (i) the participation interest of each Bank in each outstanding Letter of Credit shall be adjusted, and (ii) each New Bank and each existing Bank which has increased its Exposure shall make additional Advances available to the Administrative Agent (the proceeds of which shall be paid to the other Banks or used in part to refinance expiring LIBOR Loans) in the amount required to result in the aggregate outstanding Advances of each Bank being equal to its Pro Rata Share of the Commitment, as so increased. (g) The Borrower confirms (i) its obligation pursuant to Section 3.7(d) to repay any breakage fees resulting from the prepayment of any LIBOR Loans resulting under this Section, and (ii) that unless the initial Loans being made by each New Bank and each Bank increasing its Exposure under this Section are LIBOR Loans being made by all of the Banks in accordance with their respective Pro Rata Shares, then the initial Loans by the New Banks and by each increasing Bank shall be Prime Rate Loans. (h) Notwithstanding any other provision of this Agreement or the 2000 Term Loan Agreement, the Borrower agrees that it will not exercise its rights under this Section 2.8 unless and until the sum (such sum being referred to as "Collective Exposure") of Bank of America's Exposure and its "Exposure" (as defined in the 2000 Term Loan Agreement) is reduced to $200,000,000 or less. Thus, Bank of America must first assign or grant participations in at least $43,000,000 of its Collective Exposure before the Borrower may exercise its rights under this Section 2.8. Bank of America agrees to waive any LIBOR breakage fees that may be owing to it (but not to any other Bank) with respect to any assignment or participation by it of the first $43,000,000 of its Collective Exposure. Bank of America may from time to time, in its sole and absolute discretion, waive the application of this Section 2.8(h) with respect to a particular increase in the Commitment pursuant to this Section 2.8, but any such waiver(s) shall not affect the continuing enforceability of this Section 2.8(h). -37- 44 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 of such Advance until payment in full and shall accrue and be payable at the rates set forth herein, to the extent permitted by applicable Laws, before and after default, before and after maturity, before and after any 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. (b) Interest accrued on each Prime Rate Loan shall be due and payable on the last day of each calendar month. Except as otherwise provided in Section 3.8, the unpaid principal amount of any Prime Rate Loan shall bear interest at a fluctuating rate per annum equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread. Each change in the interest rate hereunder shall take effect simultaneously with the corresponding change in the Prime Rate. Each change in the Prime Rate shall be effective as of the Banking Day on which the change in the Prime Rate is announced, unless otherwise specified in such announcement, in which case the change shall be effective as so specified. (c) Interest accrued on each LIBOR Loan with an Interest Period of one month shall be due and payable on the last day of the related Interest Period. Interest accrued on each LIBOR Loan with an Interest Period in excess of one month shall be due and payable on the last day of each calendar month and on the last day of the related Interest Period. Except as otherwise provided in Section 3.8, the unpaid principal amount of any LIBOR Loan shall bear interest at a rate per annum equal to the sum of LIBOR for that LIBOR Loan plus the Applicable LIBOR Spread. (d) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be payable as follows: (i) the principal Indebtedness evidenced by the Notes shall be payable within one (1) Banking Day in Cash to the extent that the sum of (A) the aggregate principal Indebtedness evidenced by the Notes plus (B) the Letter of Credit Usage plus (C) the Money Market Outstandings plus (D) the Swing Line Outstandings exceeds at any time the Commitment as then in effect; and (ii) the principal Indebtedness evidenced by the Notes shall in any event be immediately payable in Cash on the Maturity Date. (e) The Notes may, at any time and from time to time, voluntarily be prepaid at the election of Borrower in whole or in part without premium or penalty; provided that: (i) any partial prepayment shall be in integral multiples of $1,000,000, (ii) any partial prepayment shall be in an amount not less than $1,000,000 on a Prime Rate Loan, and not less than $5,000,000 on a LIBOR Loan, (iii) the Administrative Agent must have received written notice (or telephonic notice confirmed promptly in writing) of any prepayment at least three Banking Days before the date of prepayment in the case of a LIBOR Loan and by 10:00 a.m., California time, on the date of prepayment in the case of a Prime Rate Loan, (iv) each prepayment of -38- 45 principal, except for partial prepayments on Prime Rate Loans, shall be accompanied by prepayment of interest accrued to the date of payment on the amount of principal paid and (v) in the case of any prepayment of any LIBOR Loan, Borrower shall promptly upon demand reimburse each Bank for any loss or cost directly or indirectly resulting from the prepayment, determined as set forth in Section 3.7. (f) Change in Control. (i) If a Change in Control shall have occurred, at the option of the Majority Banks, Borrower shall repay in Cash the entire principal Indebtedness evidenced by the Notes, together with interest thereon and all other amounts due in connection with the Notes and this Agreement, and deliver to the Administrative Agent an amount equal to the Letter of Credit Usage then outstanding, to be held as cash collateral as provided in Section 9.2(c) (the "Change in Control Repayment"), on the date that is no more than 27 Banking Days after the occurrence of the Change in Control (the "Change in Control Payment Date"), subject to receipt by Borrower of a Change in Control Payment Notice as set forth in Section 3.1(f)(iii). On the Change in Control Payment Date, the Commitment shall automatically terminate. (ii) Within 15 Banking Days after the occurrence of a Change in Control, Borrower shall provide written notice of the Change in Control to the Administrative Agent and each Bank. The notice shall state: (A) the events causing a Change in Control and the date of such Change in Control; (B) the date by which the Change in Control Payment Notice (as defined in Section 3.1(f)(iii)) must be given; and (C) the Change in Control Payment Date. (iii) At the direction of the Majority Banks, the Administrative Agent shall, on behalf of the Banks, exercise the rights specified in Section 3.1(f)(i) by delivery of a written notice (a "Change in Control Payment Notice") to Borrower at any time prior to or on the Change in Control Payment Date, stating that the Notes shall be prepaid and cash collateral shall be provided for the Letter of Credit Usage on the Change in Control Payment Date. On the Change in Control Payment Date, Borrower shall make the Change in Control Repayment to the Administrative Agent for the benefit of the Banks, and the Commitment shall terminate. 3.2 Upfront Fee. In addition to the fees specified in the letters referred in Sections 3.4 and 3.5, on the 2000 Closing Date, Borrower shall pay to the Administrative Agent, for the account of each Bank, an upfront fee as set forth in the letter agreement between the Borrower and the Administrative Agent. 3.3 Commitment Fee. From the 2000 Closing Date until the Maturity Date, Borrower shall pay to the Administrative Agent, for the account of each Bank, pro rata according to that Bank's Pro Rata Share of the Commitment, a commitment fee equal to the Applicable Commitment Fee Rate per annum in effect from time to time times the average daily amount by which the -39- 46 Commitment exceeds the aggregate outstanding principal of the Loans evidenced by the Notes plus the Letter of Credit Usage plus the Swing Line Outstandings. This commitment fee shall accrue daily and be payable in arrears with respect to each calendar quarter on the Quarterly Payment Date falling at the end of such calendar quarter. The Administrative Agent shall calculate the commitment fee and the amount thereof allocable to each Bank according to that Bank's Pro Rata Share of the Commitment and shall notify Borrower in writing of such amounts. 3.4 Agency Fee. Borrower shall pay to the Administrative Agent an agency fee in such amounts and at such times as heretofore agreed upon by letter agreement between Borrower and the Administrative Agent. 3.5 Arrangement Fee. On the 2000 Closing Date, the Borrower shall pay to the Administrative Agent, for the sole account of Bank of America, an arrangement fee in the amount heretofore agreed upon by letter agreement between the Borrower and Bank of America. 3.6 Capital Adequacy. (a) If any Bank (an "Affected Bank") determines that compliance with any Law or regulation or with any guideline or request from any central bank or other Governmental Agency (whether or not having the force of Law) enacted or issued after the 2000 Closing Date relating to the capital adequacy of banks or corporations in control of banks has or would have the effect of reducing the rate of return on the capital of such Affected Bank or any corporation controlling such Affected Bank as a consequence of, or with reference to, such Affected Bank's Pro Rata Share of the Commitment below the rate which the Bank or such other corporation could have achieved but for such compliance (taking into account the policies of such Bank or corporation with regard to capital adequacy), then Borrower shall from time to time, upon demand by such Affected Bank in accordance with this Section 3.6 (with a copy of such demand to the Administrative Agent), within 15 days after demand pay to such Affected Bank additional amounts sufficient to compensate such Affected Bank or other corporation for such reduction. (b) An Affected Bank may not seek compensation under Section 3.6(a) unless the demand for such compensation is delivered to Borrower within six months following the date of enactment or issuance of the Law, regulation, guideline or request giving rise to such demand for compensation. (c) A certificate as to any amounts for which an Affected Bank is seeking compensation under Section 3.6(a), submitted to Borrower and the Administrative Agent by such Affected Bank, shall be conclusive and binding for all purposes, absent manifest error. Each Affected Bank shall calculate such amounts in a manner which is consistent with the manner in which it makes calculations for comparable claims with respect to similarly situated borrowers from such Affected Bank, will not allocate to Borrower a proportionately greater amount of such compensation than it allocates to each of its other commitments to lend or other loans with respect to which it is entitled to demand comparable compensation, and will not include amounts already factored into the rates of interest or fees already provided for herein. Each Bank agrees promptly to notify Borrower and the Administrative Agent of any circumstances that would cause Borrower to pay additional amounts pursuant to this Section, provided that the failure to give such notice shall not affect Borrower's obligation to pay such additional amounts hereunder. -40- 47 (d) Without limiting its obligation to reimburse an Affected Bank for compensation theretofore claimed by an Affected Bank pursuant to Section 3.6(a), Borrower may, within 60 days following any demand by an Affected Bank, request that one or more Persons that are Eligible Assignees and that are acceptable to Borrower and approved by the Administrative Agent (which approval shall not be unreasonably withheld) purchase all (but not part) of the Affected Bank's then outstanding Advances, its Note and its participation interest in outstanding Letters of Credit, and assume its Pro Rata Share of the Commitment and its obligations hereunder. If one or more such Banks or banks so agree in writing (each, an "Assuming Bank" and collectively, the "Assuming Banks"), the Affected Bank shall assign its Pro Rata Share of the Commitment, together with the Indebtedness then evidenced by its Note and its participation interest in outstanding Letters of Credit, to the Assuming Bank or Assuming Banks in accordance with Section 11.8. On the date of any such assignment, the Affected Bank which is being so replaced shall cease to be a "Bank" for all purposes of this Agreement and shall receive (x) from the Assuming Bank or Assuming Banks the principal amount of its Advances then outstanding and (y) 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 Affected Bank is also an Issuing Bank, then the Assuming Bank shall become an Issuing Bank for all purposes of this Agreement and shall either (at the Affected Bank's election, subject to the approval of Borrower, the Administrative Agent and the Assuming Bank (which approvals shall not be unreasonably withheld) and, in the case of clause (i) below, the approval of the applicable Letter of Credit beneficiaries) (i) issue new letters of credit to replace the outstanding Letters of Credit issued by the Affected Bank, or (ii) issue new letters of credit to the Affected Bank in support of the outstanding Letters of Credit issued by the Affected 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 2.5). The Affected Bank shall be obligated to reimburse to Borrower a portion of the issuance fees referred to in clause (ii) of the first sentence of Section 2.5(f) based on the period during which each new Letter of Credit issued by the Assuming Bank will be outstanding in replacement or support of a Letter of Credit issued by the Affected Bank. 3.7 LIBOR Fees and Costs. (a) If the occurrence of any Regulatory Development after the 2000 Closing Date: (i) shall subject any Bank or its LIBOR Lending Office to any tax, duty or other charge or cost with respect to any LIBOR Advance or its obligation to make LIBOR Advances, or shall change the basis of taxation of payments to any Bank of the principal of or interest on any LIBOR Advance or any other amounts due under this Agreement in respect of any LIBOR Advance or its obligation to make LIBOR Advances (except for changes in any tax on the overall net income, gross income or gross receipts of such Bank or its LIBOR Lending Office); (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirements (excluding any such requirement included in any applicable Reserve Percentage) against assets of, deposits -41- 48 with or for the account of, or credit extended by, any Bank or its LIBOR Lending Office; or (iii) shall impose on any Bank or its LIBOR Lending Office or the LIBOR Market any other condition affecting any LIBOR Advance or its obligation to make LIBOR Advances, 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 LIBOR Lending Office of making or maintaining any LIBOR Advance or in respect of any LIBOR Advance or its obligation to make LIBOR Advances or reduces the amount of any sum received or receivable by such Bank or its LIBOR Lending Office with respect to any LIBOR Advance or its obligation to make LIBOR Advances (assuming such Bank's LIBOR Lending Office had funded 100% of its LIBOR Advance in the LIBOR Market), then, within 15 days after demand by such Bank (with a copy to the Administrative 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 LIBOR Lending Office had funded 100% of its LIBOR Advance in the LIBOR Market); provided that Borrower shall not be liable to any Bank for any such increased cost or reduction pursuant to this Section in respect of any period which is more than six months prior to such Bank's demand for such compensation. 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 which will entitle such Bank to compensation pursuant to this Section, and agrees to designate a different LIBOR 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 disadvantageous to such Bank. If any Bank claims compensation under this Section, Borrower may at any time, upon at least four (4) LIBOR Market Days' prior notice to the Administrative 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 3.7(d), pay in full the affected LIBOR Advances of such Bank or request that such LIBOR Advances be converted to Prime Rate Advances. (b) If after the 2000 Closing Date the occurrence of any Regulatory Development shall, in the opinion of any Bank, make it unlawful or impossible for such Bank or its LIBOR Lending Office to make, maintain or fund its portion of any LIBOR Loan, or to take deposits of, dollars in the LIBOR Market, or to determine or charge interest rates based upon the LIBOR, and such Bank shall so notify the Administrative Agent, then such Bank's obligation to make LIBOR Advances shall be suspended for the duration of such illegality or impossibility and the Administrative Agent forthwith shall give notice thereof to the other Banks and Borrower. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. Upon receipt of such notice, the outstanding principal amount of such Bank's LIBOR Advances, together with accrued interest thereon, automatically shall be converted to Prime Rate Advances with Interest Periods corresponding to the LIBOR Loans of which such LIBOR Advances were a part on either (1) the last day of the Interest Period(s) applicable to such LIBOR Advances if such Bank may lawfully continue to maintain and fund such LIBOR Advances to such day(s) or (2) immediately if such Bank may not lawfully continue to fund and maintain such LIBOR Advances to such day(s), provided that in such event the conversion shall -42- 49 not be subject to payment of a prepayment fee under Section 3.7(d). In the event that any Bank is unable, for the reasons set forth above, to make, maintain or fund its portion of any LIBOR Loan, such Bank shall fund such amount as a Prime Rate Advance for the same period of time, and such amount shall be treated in all respects as a Prime Rate Advance. (c) If, with respect to any proposed LIBOR Loan: (i) the Administrative Agent reasonably determines that, by reason of circumstances affecting the LIBOR Market generally that are beyond the reasonable control of the Banks, deposits in dollars (in the applicable amounts) are not being offered to each of the Banks in the LIBOR Market for the applicable Interest Period; or (ii) the Majority Banks advise the Administrative Agent that the LIBOR as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of making the applicable LIBOR Advances; then the Administrative Agent forthwith shall give notice thereof to Borrower and the Banks, whereupon until the Administrative Agent notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Banks to make any future LIBOR Advances shall be suspended. If at the time of such notice there is then pending a Request for Loan that specifies a LIBOR Loan, such Request for Loan shall be deemed to specify a Prime Rate Loan. (d) Upon payment or prepayment of any LIBOR Advance (other than as the result of a conversion required under Section 3.7(b)) on a day other than the last day in the applicable Interest Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrower to borrow on the date or in the amount specified for a LIBOR Loan in any Request for Loan, Borrower shall pay to each Bank an amount equal to the sum of (i) $250; plus (ii) the amount, if any, by which (x) the additional interest that would have accrued (without any Applicable LIBOR Spread) on the principal amount prepaid on account of the LIBOR Advance had it remained outstanding until the last day of the applicable Interest Period, exceeds (y) the interest that Bank could recover by placing funds in the amount of the prepayment on deposit in the LIBOR Market selected by that Bank for a period beginning on the date of the prepayment and ending on the last day of the applicable Interest Period, or for a comparable period for which an appropriate rate quote may be obtained; plus (iii) an amount equal to all costs and expenses which that Bank incurred or reasonably expects to incur in liquidating and reinvesting the prepayment. Each Bank's determination of the amount of any prepayment fee or failure to borrow fee payable under this Section 3.7(d) shall be conclusive in the absence of manifest error. (e) Any statement or certificate given by a Bank under this Section 3.7 shall satisfy the requirements set forth in Section 3.7(c) with respect to requests for reimbursement under Section 3.7(a). -43- 50 (f) Should any Bank demand payment under the provisions of Section 3.7(a) or should any Bank's LIBOR Advances be suspended under the provisions of Section 3.7(b), then without limiting its obligation to reimburse any Bank for compensation claimed by such Bank pursuant to this Section 3.7, Borrower may, within 60 days following such occurrence, treat that Bank as an "Affected Bank" under Section 3.6(d), and exercise the remedies set forth in such Section 3.6(d). 3.8 Late Payments/Default Interest. If any installment of principal or interest under the Notes or any other amount payable to the Banks under any Loan Document is not paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread plus 2%, to the extent permitted by applicable Law, until paid in full (whether before or after judgment). Upon and during the continuance of any Event of Default, the Indebtedness evidenced by the Notes shall, at the election of the Majority Banks and upon notice to Borrower (and in lieu of interest provided for in the preceding sentence), bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread plus 2%, to the extent permitted by applicable Law, until no Event of Default exists (whether before or after judgment). Notwithstanding the preceding sentence, after the occurrence of any Event of Default under Sections 6.7, 6.10 or 6.16, the Indebtedness evidenced by the Notes may not bear interest at the increased rate provided for in the preceding sentence until such Event of Default has continued for at least 15 days, in the case of Section 6.7, or 30 days, in the case of Sections 6.10 or 6.16. 3.9 Computation of Interest and Fees. All computations of interest and fees hereunder shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day and excluding the last day), which results in greater interest than if a year of 365 days were used. Any Loan that is repaid on the same day on which it is made shall bear interest for one day. 3.10 Holidays. If any principal payment to be made by Borrower on a Prime Rate Loan shall come due on a day other than a Banking Day, payment shall be made on the next succeeding Banking Day and the extension of time shall be reflected in computing interest. If any principal payment to be made by Borrower on a LIBOR Loan shall come due on a day other than a LIBOR Market Day, payment shall be made on the next preceding or succeeding LIBOR Market Day as determined by the Administrative Agent in accordance with the then current banking practice in the LIBOR Market and the adjustment shall be reflected in computing interest. 3.11 Payment Free of Taxes. (a) Any payments made by any Party under the Loan Documents shall be made free and clear of, and without reduction by reason of, any tax, assessment or other charge imposed by any Governmental Agency, central bank or comparable authority (other than taxes on income or gross receipts generally applicable to banks). To the extent that Borrower is obligated by applicable Laws to make any deduction or withholding on account of taxes, assessments or other charges imposed by any Governmental Agency from any amount payable to any Bank under this Agreement, Borrower shall (a) make such deduction or withholding and pay the same to the relevant Governmental Agency and (b) pay such additional amount to that Bank as is necessary to result in that Bank's receiving a net after-tax (or after-assessment or after-charge) amount equal to the amount to which that Bank would have been entitled under -44- 51 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, assessments or other charges, that Bank shall refund such excess to Borrower. 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 Administrative Agent, within twenty days after the 2000 Closing Date (or such later date on which such Bank becomes a "Bank" hereunder), a certificate signed by a Responsible Official of that Bank to the effect that such Bank is entitled to receive payments of interest and other amounts payable under this Agreement without deduction or withholding on account of United States of America federal income taxes, which certificate shall be accompanied by two copies of Internal Revenue Service Form 1001 or Form 4224, as applicable, also executed by a Responsible Official of that Bank. Each such Bank agrees (i) promptly to notify the Administrative Agent and Borrower if any fact set forth in such certificate ceases to be true and correct and (ii) to take such steps as may be reasonably necessary to avoid any requirement of applicable Laws that Borrower make any deduction or withholding for taxes from amounts payable to that Bank under this Agreement. (b) Without limiting its obligation to pay any additional amount to a Bank pursuant to Section 3.11(a), Borrower may, within 60 days following any such payment by that Bank, treat that Bank as an "Affected Bank" under Section 3.6(d), and exercise the remedies set forth in such Section 3.6(d). 3.12 Funding Sources. Nothing in this Agreement shall be deemed to obligate any Bank to obtain the funds for its share of any Loan in any particular place or manner or to constitute a representation by any Bank that it has obtained or will obtain the funds for its share of any Loan in any particular place or manner. 3.13 Failure to Charge or Making of Payment Not Subsequent Waiver. Any decision by any Bank not to require payment of any fee or costs, or to reduce the amount of the payment required for any fee or costs, or to calculate any fee or any cost in any particular manner, shall not limit or be deemed a waiver of any Bank's right to require full payment of any fee or costs, or to calculate any fee or any costs in any other manner. Any decision by Borrower to pay any fee or costs shall not limit or be deemed a waiver of any right of Borrower to protest or dispute the payment amount of such fee or costs. 3.14 Time and Place of Payments; Evidence of Payments; Application of Payments. The amount of each payment hereunder, under the Notes or under any Loan Document shall be made to the Administrative Agent at the Administrative Agent's Office, for the account of each of the Banks or the Administrative Agent, as the case may be, in lawful money of the United States of America without deduction, offset or counterclaim and in immediately available funds on the day of payment (which must be a Banking Day). All payments of principal received after 10:00 a.m., California time, on any Banking Day, shall be deemed received on the next succeeding Banking Day for purposes of calculating interest thereon. The amount of all payments received by the Administrative Agent for the account of a Bank shall be promptly paid by the Administrative Agent to that Bank in immediately available funds. Each Bank shall keep a record of Advances made by it and payments of principal with respect to each Note, and such record shall be presumptive evidence of the principal amount owing under such Note; provided that failure to keep such record shall in no way affect the Obligations of Borrower hereunder. Prior to the Maturity Date or an acceleration of the maturity of the Loans, payments under the Loan Documents shall be applied first to amounts owing thereunder other than the outstanding principal balance under the Notes and second to the outstanding principal balance under the Notes in a manner -45- 52 designated by Borrower or, if no such designation is made prior to payment or, if an Event of Default shall have occurred and be continuing, as may be designated by the Majority Banks. Following the Maturity Date or an acceleration of the maturity of the Loans, payments and recoveries under the Loan Documents shall be applied in a manner designated in Section 9.2(e). 3.15 Administrative Agent's Right to Assume Payments Will be Made. Unless the Administrative Agent shall have been notified by Borrower prior to the date on which any payment to be made by Borrower hereunder is due that Borrower does not intend to remit such payment, the Administrative Agent may, in its discretion (but shall not be so obligated), assume that Borrower has remitted such payment when so due and the Administrative 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 Pro Rata Share of such assumed payment. If Borrower has not in fact remitted such payment to the Administrative Agent, each Bank shall forthwith on demand repay to the Administrative 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 Administrative Agent to such Bank to but excluding the date such amount is repaid to the Administrative Agent at a rate per annum equal to the actual cost to the Administrative Agent of funding such amount as notified by the Administrative Agent to such Bank. 3.16 Survivability. All of Borrower's obligations under this Article 3 shall survive for 3 months following the date on which all Loans hereunder are fully paid. 3.17 Bank Calculation Certificate. Any request for compensation pursuant to Section 3.6 or 3.7 shall be accompanied by a statement of an officer of the Bank requesting such compensation and describing the methodology used by such Bank in calculating the amount of such compensation, which methodology (i) may consist of any reasonable averaging and attribution methods and (ii) in the case of Section 3.6 hereof shall be consistent with the methodology used by such Bank in making similar calculations in respect of loans or commitments to other borrowers. 3.18 Transition. (a) Borrower warrants and covenants that as of the 2000 Closing Date there will be no loans of any nature outstanding under the Prior Loan Agreements. The parties hereto agree that as of the 2000 Closing Date all commitments to extend credit under the Prior Loan Agreements shall terminate. (b) The letters of credit identified on Schedule 3.18 ("Existing Letters of Credit") were issued by Bank of America for the account of Borrower as "Line A Letters of Credit" pursuant to the terms of the Prior Revolving Loan Agreement and are expected to remain outstanding on the 2000 Closing Date. The parties hereto agree that the Existing Letters of Credit shall be deemed for all purposes to be Letters of Credit issued pursuant to the terms of Section 2.5; provided that fees with respect thereto shall be governed by Section 3.18(c). (c) A letter of credit fee and an issuance fee has most recently been paid by Borrower with respect to each Existing Letter of Credit (pursuant to Section 2.5(f) of the Prior Revolving Loan Agreement) as shown on Schedule 3.18. These fees are applicable to the 6 month period from and after their respective dates of payment. No further letter of credit or issuance fee shall be due with respect to any Existing Letter of Credit that expires or is drawn in full prior to the end of such applicable six-month period. From and after the end of each -46- 53 such applicable 6 month period, Borrower shall be responsible to pay letter of credit fees, issuance fees and other fees pursuant to Section 2.5(f) of this Agreement for each Existing Letter of Credit that has not expired or been drawn in full before that date. (d) The Banks hereby agree to make appropriate adjustments among themselves (and any "Bank" under the Prior Revolving Loan Agreement who is not a party to this 2000 Loan Agreement) with respect to the letter of credit fees to be paid with respect to the Existing Letters of Credit. Such adjustments shall be as of the 2000 Closing Date and shall be based upon any change in the pro rata share held by each such Bank in the Commitment under this Agreement from the pro rata share held by each such Bank in the "Line A Commitment" under the Prior Revolving Loan Agreement. The Administrative Agent shall, on or prior to January 31, 2001, send a settlement billing to each such Bank with respect to such adjustments, which settlement billing shall be conclusive in the absence of manifest error. -47- 54 Article 4 REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to the Banks that: 4.1 Existence and Qualification; Power; Compliance with Law. Borrower is a corporation duly organized, validly existing and in good standing under the Laws of Delaware, and its certificate of incorporation does not provide for the termination of its existence. Borrower is duly qualified or registered to transact business as a foreign corporation in the State of California, and in each other jurisdiction in which the conduct of its business or the ownership of its properties makes such qualification or registration necessary, except where the failure so to qualify or register 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, deliver and perform all of its obligations under the Loan Documents. All outstanding shares of capital stock of Borrower are duly authorized, validly issued, fully paid, non-assessable, and were issued in compliance with all applicable state and federal securities Laws, except where the failure to so comply would not constitute a Material Adverse Effect. Borrower is in substantial compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits (collectively, "Authorizations") 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 obtain Authorizations, comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.2 Authority; Compliance with Other Instruments and Government Regulations. The execution, delivery, and performance by Borrower, and by each Guarantor Subsidiary of Borrower, of the Loan Documents to which it is a Party, have been duly authorized by all necessary corporate action, and do not: (a) require any consent or approval not heretofore obtained of any stockholder, partner, security holder, or creditor of such Party; (b) violate or conflict with any provision of such Party's charter, certificate or articles of incorporation, bylaws, certificate or articles of organization, operating agreement, partnership agreement or other organizational or governing documents of such Party; (c) result in or require the creation or imposition of any Lien or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by such Party; (d) constitute a "transfer of an interest" or an "obligation incurred" that is avoidable by a trustee under Section 548 of the Bankruptcy Code of 1978, as amended, or constitute a "fraudulent transfer" or "fraudulent obligation" within the meaning of the Uniform Fraudulent Transfer Act as enacted in any jurisdiction or any analogous Law; (e) violate any Requirement of Law applicable to such Party; or (f) 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 or any of its Property is bound or affected; -48- 55 and neither Borrower nor any Subsidiary of Borrower 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(f) in any respect that would constitute a Material Adverse Effect. 4.3 No Governmental Approvals Required. Except such as have heretofore been obtained, no authorization, consent, approval, order, license or permit from, or filing, registration, or qualification with, or exemption from any of the foregoing from, any Governmental Agency is or will be required to authorize or permit the execution, delivery and performance by Borrower or any Significant Subsidiary of Borrower of the Loan Documents to which it is a Party. 4.4 Subsidiaries. (a) Schedule 4.4 correctly sets forth the names, the form of legal entity and jurisdictions of organization of all Subsidiaries of Borrower as of the 2000 Closing Date and identifies each such Subsidiary that is a Consolidated Subsidiary, a Significant Subsidiary, a Guarantor Subsidiary, a Foreign Subsidiary and a Financial Subsidiary. As of the 2000 Closing Date, 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 indicated thereon are owned of record and beneficially by Borrower or one of such Subsidiaries, and all such shares or equity interests so owned were issued in compliance with all state and federal securities Laws and are duly authorized, validly issued, fully paid and non-assessable (other than with respect to required capital contributions to any joint venture in accordance with customary terms and provisions of the related joint venture agreement), except where the failure to so comply would not constitute a Material Adverse Effect, and are free and clear of all Liens and Rights of Others, except for Permitted Encumbrances and Permitted Rights of Others. (b) Each Significant Subsidiary is as of the date of this Agreement, and will be as of the 2000 Closing Date, a legal entity of the form described for that Subsidiary in Schedule 4.4, and is duly organized, 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, to own and lease its Properties and to execute, deliver and perform the Loan Documents to which it is a Party. (c) Each Significant Subsidiary is in substantial compliance with all Laws and other requirements applicable to its business and has obtained all Authorizations from, and each such Significant 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 so to obtain Authorizations, comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.5 Financial Statements. Borrower has furnished to each Bank the following financial statements: -49- 56 (a) the audited consolidated financial statements of Borrower and its Consolidated Subsidiaries as at November 30, 1999 and for the Fiscal Year then ended; and (b) the unaudited consolidating financial statements of Borrower and its Consolidated Subsidiaries as at May 31, 2000 for the Fiscal Quarter then ended and for the portion of the Fiscal Year ended with such Fiscal Quarter. The audited financial statements described in clause (a) are in accordance with the books and records of Borrower and its Consolidated Subsidiaries, were prepared in accordance with Generally Accepted Accounting Principles and fairly present in accordance with Generally Accepted Accounting Principles consistently applied the consolidated financial condition and results of operations of Borrower and its Consolidated Subsidiaries as at the date and for the period covered thereby. The unaudited financial statements described in clause (b), are in accordance with the books and records of Borrower and its Consolidated Subsidiaries, were prepared in accordance with Generally Accepted Accounting Principles and fairly present in accordance with Generally Accepted Accounting Principles consistently applied the consolidating financial condition and results of operation of Borrower and its Consolidated Subsidiaries as at the date and for the period covered thereby. 4.6 No Other Liabilities; No Material Adverse Effect. Borrower and its Consolidated Subsidiaries do not have any material liability or material contingent liability not reflected or disclosed in the financial statements or in the notes to the financial statements described in Section 4.5, other than liabilities and contingent liabilities arising in the ordinary course of business subsequent to November 30, 1999. Since November 30, 1999, no event or circumstance has occurred that constitutes a Material Adverse Effect with respect to Borrower and its Subsidiaries. 4.7 Title to Assets. As of the 2000 Closing Date, Borrower and its Consolidated Subsidiaries have good and valid title to all of the assets reflected in the financial statements described in Section 4.5 owned by them or any of them (other than assets disposed of in the ordinary course of business) and all other assets owned on the date of this Agreement, free and clear of all Liens and Rights of Others other than (a) those reflected or disclosed in the notes to the financial statements described in Section 4.5, (b) immaterial Liens or Rights of Others not required under Generally Accepted Accounting Principles to be so reflected or disclosed, (c) Liens permitted pursuant to Section 6.7, (d) Permitted Rights of Others, and (e) such existing Liens or Rights of Others as are described on Schedule 4.7 hereto. 4.8 Intangible Assets. Borrower and its Subsidiaries own, or possess the unrestricted right to use, all trademarks, trade names, copyrights, patents, patent rights, licenses and other intangible assets that are necessary in the conduct of their businesses as 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 would constitute a Material Adverse Effect. 4.9 Existing Indebtedness and Contingent Guaranty Obligations. As of the 2000 Closing Date, except as set forth in Schedule 4.9, neither Borrower nor any of its Subsidiaries has (a) any Indebtedness owed to any Person or (b) outstanding any Contingent Guaranty Obligation with respect to obligations of another Person that is not a Subsidiary of Borrower. -50- 57 4.10 Governmental Regulation. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940. 4.11 Litigation. There are no actions, suits, or proceedings pending 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 which would constitute a Material Adverse Effect. 4.12 Binding Obligations. Each of the Loan Documents to which Borrower or any Guarantor Subsidiary of Borrower is a Party will, when executed and delivered by Borrower or the Guarantor Subsidiary, as the case may be, constitute the legal, valid and binding obligation of Borrower or the Guarantor Subsidiary, as the case may be, enforceable against Borrower or the Guarantor Subsidiary, as the case may be, in accordance with its terms, except as enforcement may be limited by Debtor Relief Laws or by equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.13 No Default. No event has occurred and is continuing that is a Default or an Event of Default. 4.14 Pension Plans. As of the 2000 Closing Date, all contributions required to be made under any Pension Plan maintained by Borrower or any of its ERISA Affiliates (or to which Borrower or any ERISA Affiliate contributes or is required to contribute) have been made or accrued in the balance sheet of Borrower and its Consolidated Subsidiaries as at November 30, 1999. There is no "accumulated funding deficiency" within the meaning of Section 302 of ERISA or any liability to the PBGC (other than for premiums) with respect to any such Pension Plan other than a Multiemployer Plan. 4.15 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 which have become due pursuant to said returns or pursuant to any assessment received by Borrower or any Subsidiary, except (a) such taxes, if any, as are being contested in good faith by appropriate proceedings (and with respect to which Borrower or its Subsidiary has established adequate reserves for the payment of the same), and (b) such taxes the failure of which to pay will not constitute a Material Adverse Effect. 4.16 Regulation U. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the meanings of Regulation U of the Board of Governors of the Federal Reserve System, and no Loan hereunder will be used to purchase or carry any such margin stock in violation of Regulation U. 4.17 Environmental Matters. To the best knowledge of Borrower, Borrower and its Subsidiaries are in substantial compliance with all applicable Laws relating to environmental protection where the failure to comply would constitute a Material Adverse Effect. To Borrower's best knowledge, neither Borrower nor any of its Subsidiaries has received any notice from any Governmental Agency respecting the alleged violation by Borrower or any Subsidiary of such Laws which would constitute a Material Adverse Effect and which has not been or is not being corrected. -51- 58 4.18 Disclosure. The information provided by Borrower to the Banks in connection with this Agreement or any Loan, taken as a whole, has not contained any untrue statement of a material fact and has not omitted a material fact necessary to make the statements contained therein, taken as a whole, not misleading under the totality of the circumstances existing at the date such information was provided and in the context in which it was provided. 4.19 Projections. Except with respect to the effect of the Lewis Homes Stock Repurchase, which is not reflected in the Projections, as of the 2000 Closing Date, the assumptions upon which the Projections are based are reasonable and consistent with each other assumption and with all facts known to Borrower and that the Projections are reasonably based on those assumptions. Nothing in this Section 4.19 shall be construed as a representation or warranty as of any date other than the 2000 Closing Date or that the Projections will in fact be achieved by Borrower. -52- 59 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) As long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall, and shall cause each of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing: 5.1 Payment of Taxes and Other Potential Liens. Pay and discharge promptly, all taxes, assessments, and governmental charges or levies imposed upon Borrower or any of its Subsidiaries, upon their respective Property or any part thereof, upon their respective income or profits or any part thereof, except any tax, assessment, charge, or levy that is not yet past due, or is being contested in good faith by appropriate proceedings, as long as Borrower or its Subsidiary has established and maintains adequate reserves for the payment of the same and by reason of such nonpayment no material Property of Borrower or its Subsidiaries is subject to a risk of loss or forfeiture. 5.2 Preservation of Existence. Preserve and maintain their respective existence, licenses, rights, franchises, and privileges in the jurisdiction of their formation and all authorizations, consents, approvals, orders, licenses, permits, or exemptions from, or registrations with, any Governmental Agency that are necessary for the transaction of their respective business, and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties; provided that (a) the failure to preserve and maintain any particular right, franchise, privilege, authorization, consent, approval, order, license, permit, exemption, or registration, or to qualify or remain qualified in any jurisdiction, that does not constitute a Material Adverse Effect will not constitute a violation of this covenant, and (b) nothing in this Section 5.2 shall prevent any consolidation or merger or disposition of assets permitted by Section 6.3 or shall prevent the termination of the business or existence (corporate or otherwise) of any Subsidiary of Borrower which in the reasonable judgment of the management of Borrower is no longer necessary or desirable. 5.3 Maintenance of Properties. Maintain, preserve and protect all of their respective real Properties in good order and condition, subject to wear and tear in the ordinary course of business and damage caused by the natural elements, and not permit any waste of their respective real Properties, except that the failure to so maintain, preserve or protect any particular real Property, or the permitting of waste on any particular real Property, where such failure or waste with respect to all real Properties of Borrower and its Subsidiaries, in the aggregate, would not constitute a Material Adverse Effect will not constitute a violation of this covenant. 5.4 Maintenance of Insurance. Maintain insurance with responsible insurance companies in such amounts and against such risks as in Borrower's reasonable business judgment is adequate in light of Borrower's and its Subsidiaries' size, business, assets and location of operations. 5.5 Compliance with Laws. Comply with all Requirements of Laws noncompliance with which would constitute a Material Adverse Effect, except that Borrower and its Subsidiaries need not comply with a Requirement of Law then being contested by any of them in good faith by appropriate procedures, so long as such contest (or a bond or surety posted in connection -53- 60 therewith) operates as a stay of enforcement of any penalty that would otherwise apply as a result of such failure to comply. 5.6 Inspection Rights. At any time during regular business hours and as often as reasonably requested (and, in any event, upon 24 hours' prior notice), permit any Bank or any appropriately designated employee, agent or representative thereof at the expense of such Bank 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 or employees; provided that none of the foregoing unreasonably interferes with the normal business operations of Borrower or any of its Subsidiaries and that the Banks shall engage in any such inspections on a cooperative basis, if there has been no Default or Event of Default. 5.7 Keeping of Records and Books of Account. Keep adequate records and books of account fairly reflecting all financial transactions in conformity with Generally Accepted Accounting Principles applied on a consistent basis (except for changes concurred with by Borrower's independent certified public accountants) and all applicable requirements of any Governmental Agency having jurisdiction over Borrower or any of its Subsidiaries. 5.8 Use of Proceeds. Use the proceeds of all Loans solely for working capital, Acquisitions permitted hereunder and other general corporate purposes of Borrower and its Subsidiaries. 5.9 Subsidiary Guaranty. Cause each of its Guarantor Subsidiaries hereafter formed, acquired or qualifying as a Guarantor Subsidiary, to execute and deliver a joinder of the Subsidiary Guaranty promptly following such formation, acquisition or qualification. -54- 61 Article 6 NEGATIVE COVENANTS As long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall not, and shall not permit any of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing: 6.1 Payment or Prepayment of Subordinated Obligations. Make an optional or unscheduled payment or prepayment of any principal (including an optional or unscheduled sinking fund payment), interest or any other amount with respect to any Subordinated Obligation, or make a purchase or redemption of any Subordinated Obligation, or make any payment with respect to any Subordinated Obligation in violation of the subordination provisions in the instruments governing such Subordinated Obligation if a Default or Event of Default then exists or would result therefrom. Notwithstanding the preceding sentence, if no Default or Event of Default then exists or would result therefrom, Borrower may refinance the entire outstanding amount of a Subordinated Obligation, provided the new obligation constitutes a Subordinated Obligation with a maturity date no earlier than and an interest rate no higher than those of the Subordinated Obligation being refinanced. 6.2 [Intentionally Omitted] 6.3 Mergers and Sale of Assets. Merge or consolidate with or into any Person, or sell a Material Amount of Assets to any Person, except, subject to Section 6.6; (a) a merger of Borrower into a wholly-owned Subsidiary of Borrower that has nominal assets and liabilities, the primary purpose of which is to effect the reincorporation of Borrower in another state; (b) mergers or consolidations of a Subsidiary of Borrower into Borrower (with Borrower as the surviving corporation) or into any other Subsidiary of Borrower, provided that (i) the reduction in the proportionate share of Borrower and its Subsidiaries in the total assets of such resulting Subsidiary (after intercompany eliminations) does not constitute a Material Amount of Assets and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (c) mergers, consolidations, liquidations, or sales of all or substantially all of the assets of a Subsidiary; provided that (i) any such transaction does not involve a transfer by Borrower or its Subsidiaries of a Material Amount of Assets and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; or (d) a merger or consolidation of Borrower with another Person if (i) no Change of Control results therefrom, (ii) Borrower does not transfer a Material Amount of Assets to one or more Persons in connection with the merger or consolidation and (iii) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing. 6.4 Investments and Acquisitions. Make any Acquisition, or enter into an agreement to make any Acquisition, or make or suffer to exist any Investment, other than: -55- 62 (a) Investments consisting of Cash or Cash Equivalents; (b) advances to officers, directors and employees of Borrower or its Subsidiaries for travel, entertainment, housing expenses, relocation, stock option plans, or otherwise in connection with their employment or the business of Borrower or any of its Subsidiaries; (c) Investments of Borrower in any of its wholly-owned Subsidiaries and Investments of any Subsidiary of Borrower in Borrower or any of Borrower's wholly-owned Subsidiaries; (d) Acquisitions of or Investments in Persons engaged in the same businesses as Borrower and its Subsidiaries, or in a business reasonably related to such businesses, including electronic commerce and similar activities related to real estate; (e) Acquisitions and Investments by the Mortgage Company permitted under the Mortgage Warehousing Agreements; (f) Acquisitions of or Investments in Persons engaged primarily in businesses in addition to those permitted by Sections 6.4(d), provided that the aggregate cost of all such Acquisitions and Investments made in any fiscal year does not exceed $25,000,000; (g) Investments in a Trust Issuer and Investments by a Trust Issuer in Borrower; (h) Investments in Subsidiaries in existence on the 2000 Closing Date or as otherwise disclosed on Schedule 6.4; (i) Investments received in connection with the settlement of a bona fide dispute with another Person; (j) Investments consisting of readily marketable securities actively traded on a public exchange, provided that the aggregate amount of any such Investments at any one time do not exceed $25,000,000; and (k) Investments consisting of the extension of credit to suppliers in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof, provided that the aggregate amount of any such Investments at any one time do not exceed $25,000,000; but in all events, subject to the restrictions of Section 6.16. 6.5 ERISA Compliance. Permit any Pension Plan maintained by Borrower or any of its ERISA Affiliates (or to which Borrower or any ERISA Affiliate contributes or is required to contribute), other than a Multiemployer Plan, to incur any material "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, unless waived, or permit any Pension Plan maintained by any of them to suffer a Termination Event or incur withdrawal liability under any Multiemployer Plan if any of such events would result in a liability of Borrower or any ERISA affiliate exceeding in the aggregate $25,000,000. -56- 63 6.6 Change in Business. Engage in any business other than the businesses as now conducted by Borrower or its Subsidiaries, and any business the Board of Directors of Borrower determine in good faith is reasonably related to such businesses, other than: (a) businesses in which Borrower and its Subsidiaries have invested no more than $25,000,000 in any Fiscal Year; and (b) as permitted pursuant to Section 6.4(f). 6.7 Liens and Negative Pledges. 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, or enter or suffer to exist any Contractual Obligation wherein Borrower or any of its Subsidiaries agrees not to grant any Lien on any of their Properties, except: (a) Liens and Contractual Obligations existing on the date hereof and described in Schedule 4.7, provided that the obligations secured by such Liens are not increased and that no such Lien extends to any Property of Borrower or any Subsidiary other than the Property subject to such Lien on the 2000 Closing Date; (b) Liens on Property of any Financial Subsidiary or Foreign Subsidiary securing Indebtedness of that Financial Subsidiary or Foreign Subsidiary; (c) Liens on Property securing Indebtedness of Borrower or any of its Subsidiaries provided that (i) aggregate Indebtedness secured by all such Liens shall at no time exceed $100,000,000 and (ii) the aggregate book value of the Property so encumbered shall at no time exceed 3 times the aggregate amount of Indebtedness so secured; (d) Liens that may exist from time to time under the Loan Documents; (e) Liens consisting of a Capital Lease covering personal Property; (f) Permitted Encumbrances; (g) attachment, judgment and other similar Liens arising in connection with court proceedings; provided that the execution or enforcement of such Lien is effectively stayed and the claims secured thereby do not in the aggregate exceed $25,000,000 and are being contested in good faith by appropriate proceedings timely commenced and diligently prosecuted; (h) Liens existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event; (i) Liens on any asset of any Person existing at the time such Person is merged or consolidated with or into Borrower or any of its Subsidiaries and not created in contemplation of such event; (j) Liens existing on any asset prior to the acquisition thereof by Borrower or any of its Subsidiaries and not created in contemplation of such acquisition; -57- 64 (k) Liens arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Indebtedness is not increased and is not secured by additional assets; (l) Liens arising in the ordinary course of business which (i) do not secure Indebtedness, (ii) do not secure any obligation in an amount exceeding $500,000 individually, or $2,000,000 in the aggregate, and (iii) do not in the aggregate materially detract from the value of the assets covered by such Liens or materially impair the use thereof in the operation of Borrower's business; (m) Liens not otherwise permitted by the foregoing clauses of this Section which secure Indebtedness not exceeding $2,000,000 in the aggregate; (n) Liens referred to in the last sentence of the definition of "Bond Facility" encumbering (i) real property owned by Borrower or one of its Subsidiaries on November 30, 1999 or (ii) other real property of Borrower or one of its Subsidiaries provided that the aggregate obligations secured by such Liens does not at any time exceed $25,000,000 plus the amount by which aggregate Indebtedness then secured by Liens described in Section 6.7(c) is less than $100,000,000; (o) a Contractual Obligation wherein Borrower or any of its Subsidiaries agrees not to a grant any Lien on any of their Properties, if such Contractual Obligation does not, by its terms, prohibit the grant of a Lien in favor of the Administrative Agent and the Banks with respect to the Obligations (and Borrower shall, as soon as reasonably possible, provide to the Banks a copy of such Contractual Obligation); and (p) Liens on Property of a Joint Venture. 6.8 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of Borrower other than (a) a transaction that results in Subordinated Obligations, (b) a transaction between or among Borrower and its wholly-owned Subsidiaries, (c) a transaction that has been authorized by the board of directors of Borrower with the favorable vote of a majority of the directors who have no financial or other interest in the transaction or by the vote of a majority of the outstanding shares of capital stock of Borrower, (d) a transaction entered into on terms and under conditions not less favorable to Borrower or any of its Subsidiaries than could be obtained from a Person that is not an Affiliate of Borrower, (e) salary, bonus, employee stock options and other compensation arrangements and indemnification arrangements with directors or officers, (f) transactions permitted by Sections 6.4 or 6.16, or (g) the Lewis Homes Stock Repurchase. 6.9 Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth to be, at the end of any Fiscal Quarter, less than an amount equal to (a) $575,000,000, plus (b) an amount equal to 50% of aggregate of Consolidated Net Income for each Fiscal Quarter contained in the fiscal period commencing on June 1, 2000 and ending as of the last day of such Fiscal Quarter (provided that there shall be no reduction hereunder in the event of a consolidated net loss in any such Fiscal Quarter), plus (c) an amount equal to 50% of the cumulative net proceeds received by Borrower from the issuance of its capital stock subsequent to the 2000 Closing Date, plus (d) an amount equal to 50% of the cumulative net proceeds received by Borrower from the issuance of the Trust Preferred Capital Securities subsequent to the 2000 Closing Date, minus (e) the cumulative cost to Borrower for the repurchase, if any, of its capital stock (provided that such deduction shall have an aggregate cap of -58- 65 $70,000,000 for the measurement at the end of the Fiscal Quarter ending on August 31, 2000, a cumulative aggregate $50,000,000 cap for the measurements at the end of the Fiscal Quarters ending on November 30, 2000 and February 28, 2001, and an aggregate $20,000,000 cap for the measurement at the end of any Fiscal Quarter thereafter). 6.10 Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio to be, at the end of any Fiscal Quarter, greater than 2.25 to 1.00; provided that: (a) in the event $30,000,000 or more is used to finance an Acquisition by Borrower or its Subsidiaries, the foregoing maximum permitted ratio may, upon the request of Borrower to the Administrative Agent, be increased to 2.65 to 1.00 for up to 3 consecutive Fiscal Quarters next ending after such Acquisition is consummated, provided that: (i) an increase under this clause (a) has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is to be made; (ii) Borrower's request is accompanied by 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent and for delivery to the Banks, demonstrating that, giving effect to the Acquisition and to Borrower's election under this Section, Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 4 Fiscal Quarters; (iii) Borrower must remain in compliance with Section 6.11 (without giving effect to any adjustment permitted thereunder) during each Fiscal Quarter for which an adjustment is applicable under this Section 6.10(a); and (iv) Borrower must elect on or before 60 days after the end of the first, second and third of such Fiscal Quarters next ending after the consummation of an Acquisition whether the 2.65 to 1.00 maximum Consolidated Leverage Ratio is to be in effect for the Pricing Period related to that Fiscal Quarter, it being understood and agreed that (a) the Borrower may only make such an election for the second and third of such Fiscal Quarters if Borrower made a similar election for the prior Fiscal Quarter and (b) if Borrower makes such an election, Applicable Pricing Level V shall be in effect for the entire Pricing Period regardless of the actual Consolidated Leverage Ratio. (b) if an election under Section 6.10(a) is not then in effect, the foregoing ratio shall, if needed, be increased to 2.50 to 1.00 for a period of up to 2 consecutive Fiscal Quarters, provided that: (i) this clause (b) has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is needed; (ii) no other Default or Event of Default then exists; (iii) Borrower furnishes to the Administrative Agent no later than 60 days after the end of the first Fiscal Quarter for which such adjustment is needed, 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent and for delivery to the Banks, demonstrating that Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 2 Fiscal Quarters; (iv) as of the end of each Fiscal Quarter for which such adjustment is applicable, the Consolidated Interest Coverage Ratio is not less than 2.50 to 1.00; and (v) Borrower has not incurred Operating Losses for the first Fiscal Quarter for which such adjustment is needed and the immediately preceding Fiscal Quarter; and (c) notwithstanding Section 6.10(a) or 6.10(b), the foregoing ratio shall automatically be reduced to 1.75 to 1.00 as of the end of any Fiscal Quarter if Borrower has incurred an Operating Loss for that Fiscal Quarter and the immediately preceding Fiscal Quarter and shall remain at 1.75 to 1.00 until the first Fiscal Quarter thereafter for which there is no Operating Loss. -59- 66 6.11 Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio to be, at the end of any Fiscal Quarter, less than 2.25 to 1.00; provided that the foregoing ratio shall, upon the request of Borrower to the Administrative Agent, be decreased for a period of 2 Fiscal Quarters provided that (a) an adjustment under this Section 6.11 has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is to be made, (b) no Default or Event of Default then exists and (c) Borrower furnishes to the Administrative Agent 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent, demonstrating that Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 4 Fiscal Quarters. Subject to satisfaction of the foregoing conditions, the decrease in the ratio for the first Fiscal Quarter shall be to 1.75 to 1.00 and the decrease for the second Fiscal Quarter shall be to a level (in no event higher than 2.25:1.00) that is 0.25 higher than the actual Consolidated Interest Coverage Ratio for such first Fiscal Quarter (e.g., from 1.80 to 1.00 improving to at least 2.05 to 1.00). 6.12 Distributions. Make any Distribution (other than a Distribution made to Borrower or to a Guarantor Subsidiary) if an Event of Default then exists or if an Event of Default or Default would result therefrom. 6.13 Amendments. Amend, waive or terminate any provision in any instrument or agreement governing Subordinated Obligations unless such amendment, waiver or termination would not be materially adverse to the interests of the Banks under this Agreement. 6.14 Hostile Tender Offers. Make any offer to the shareholders of a publicly held corporation or business entity to purchase or acquire, or consummate such a purchase or acquisition of, more than 5% of the shares of capital stock or analogous ownership interests in such a corporation or business entity if the board of directors or analogous body of such corporation or business entity has notified Borrower that it opposes such offer or purchase, except for consideration which consists solely of shares of capital stock or other equity securities of Borrower or any of its Subsidiaries. 6.15 Inventory. Permit, as of the end of any Fiscal Quarter, the book value of Domestic Unimproved Land to exceed an amount equal to 100% of Consolidated Tangible Net Worth. 6.16 Investment in Subsidiaries and Joint Ventures. Permit, as of the last day of any Fiscal Quarter, Borrower's equity interest, computed in accordance with Generally Accepted Accounting Principles, in all Subsidiaries of Borrower (other than Guarantor Subsidiaries), Financial Subsidiaries, Foreign Subsidiaries, all Joint Ventures and all other entities with financial statements not consolidated with those of Borrower under with Generally Accepted Accounting Principles to exceed: (a) 35% of Consolidated Tangible Net Worth for the Fiscal Quarter ending on November 30, 2000; (b) 25% of Consolidated Tangible Net Worth for Fiscal Quarters ending after November 30, 2000 but on or before November 30, 2002; and (c) 20% of Consolidated Tangible Net Worth for Fiscal Quarters ending after November 30, 2002. 6.17 Money Market Indebtedness. Permit, for any consecutive period of more than one (1) Banking Day, at any time the sum of the aggregate outstanding principal amount of the Loans plus the Letter of Credit Usage plus the Money Market Outstandings plus the Swing Line Outstandings to exceed the Commitment. 6.18 Domestic Standing Inventory. Permit, as of the last day of any Fiscal Quarter that immediately follows a Fiscal Quarter on the last day of which the Consolidated Leverage Ratio was -60- 67 in excess of 2.25:1.00, Domestic Standing Inventory to exceed an amount equal to 15% of Net Orders received during the four most recently ended Fiscal Quarters. -61- 68 Article 7 INFORMATION AND REPORTING REQUIREMENTS 7.1 Financial and Business Information of Borrower and Its Subsidiaries. As long as any Loan remains unpaid or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing, deliver to the Administrative Agent and each of the Banks (except as otherwise provided below) at its own expense: (a) As soon as reasonably possible, and in any event within 60 days after the close of each Fiscal Quarter of Borrower (other than the fourth Fiscal Quarter), (i) the consolidated and consolidating balance sheet of Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, setting forth in comparative form the corresponding figures for the corresponding Fiscal Quarter of the preceding Fiscal Year, if available, and (ii) the consolidated and consolidating statements of profit and loss and the consolidated statements of cash flows of Borrower and its Consolidated Subsidiaries for such Fiscal Quarter and for the portion of the Fiscal Year ended with such Fiscal Quarter, setting forth in comparative form the corresponding periods of the preceding Fiscal Year. Such consolidated and consolidating balance sheets and statements shall be prepared in reasonable detail in accordance with Generally Accepted Accounting Principles (other than those which require footnote disclosure of certain matters) consistently applied, and shall be certified by the principal financial officer of Borrower, subject to normal year-end accruals and audit adjustments; (b) As soon as reasonably possible, and in any event within 90 days after the close of each Fiscal Year of Borrower, (i) the consolidated and consolidating (in accordance with past practices of Borrower) balance sheets of Borrower and its Consolidated Subsidiaries as at the end of such Fiscal Year, setting forth in comparative form the corresponding figures at the end of the preceding Fiscal Year and (ii) the consolidated and consolidating (in accordance with past practices of Borrower) statements of profit and loss and the consolidated statements of cash flows of Borrower and its Consolidated Subsidiaries for such Fiscal Year, setting forth in comparative form the corresponding figures for the previous Fiscal Year. Such consolidated and consolidating balance sheet and statements shall be prepared in reasonable detail in accordance with Generally Accepted Accounting Principles consistently applied. Such consolidated balance sheet and statements shall be accompanied by a report and opinion of Ernst & Young or other independent certified public accountants of recognized national standing selected by Borrower (i.e., a "big five" firm), which report and opinion shall state that the examination of such consolidated financial statements by such accountants was made in accordance with generally accepted auditing standards and that such consolidated financial statements fairly present the financial condition, results of operations and of cash flows of Borrower and its Subsidiaries subject to no exceptions as to scope of audit and subject to no other exceptions or qualifications (other than changes in accounting principles in which the auditors concur) unless such other exceptions or qualifications are approved by the Majority Banks in their reasonable discretion. Such accountants' report and opinion shall be accompanied by a certificate stating that, in conducting the audit examination of books and records necessary for the certification of such financial statements, such accountants have obtained no knowledge of any Default or Event of Default hereunder or, if in the opinion of such accountants, any such Default or Event of Default shall exist, stating the nature and status of such event, and setting forth the applicable calculations under Sections 6.9, 6.10, 6.11, 6.15 (without requiring any physical count of inventory) and 6.16, as of the date of the balance sheet. -62- 69 Such consolidating balance sheet and statements shall be certified by the principal financial officer of Borrower; (c) Promptly after the receipt thereof by Borrower, copies of any audit or management reports submitted to it by independent accountants in connection with any audit or interim audit submitted to the board of directors of Borrower or any of its Subsidiaries; (d) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to its stockholders, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Commission or any similar or corresponding Governmental Agency or with any securities exchange; (e) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within ten Banking Days after becoming aware, of the occurrence of any (i) "reportable event" (as such term is defined in Section 4043 of ERISA) other than any such event as to which the PBGC has by regulation waived the requirement of 30 days' notice or (ii) "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) in connection with any Pension Plan, other than a Multiemployer Plan, or any trust created thereunder, a written notice specifying the nature thereof, what action Borrower and 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; (f) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, of the existence of a Default or an Event of Default, a written notice specifying the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (g) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, that the holder of any evidence of Indebtedness (in a principal amount in excess of $15,000,000) of Borrower or any of its Subsidiaries has given notice or taken any other action with respect to a default or event of default, a written notice specifying the notice given or action taken by such holder and the nature of such default or event of default and what action Borrower or its Subsidiary is taking or proposes to take with respect thereto; (h) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, of the existence of any pending or threatened litigation or any investigation by any Governmental Agency that would constitute a Material Adverse Effect (provided, that no failure of a Senior Officer to provide notice of any such event shall be the sole basis for any Default or Event of Default hereunder); (i) As soon as possible, and in any event within 60 days after the close of each Fiscal Quarter of Borrower (except 90 days after the close of the Fiscal Year of Borrower), (i) a sales report by geographical region, in the form of Exhibit F hereto, certified by a Senior Officer of Borrower, setting forth the number of homes or other units sold and delivered during such period and in backlog at the end of such period, (ii) an inventory report for such Fiscal Quarter summarizing such inventory by type and geographical region, in the form of Exhibit G hereto and (iii) a report of any change, as of the last day of such Fiscal Quarter, in the listing of -63- 70 Subsidiaries set forth in Schedule 4.4 (as the same may have been revised by previous reports under this clause (i)(iii)); (j) As soon as reasonably possible, and in any event prior to the date that is 60 days after the commencement of each Fiscal Year, deliver to the Administrative Agent the business plan of Borrower and its Subsidiaries for that Fiscal Year, together with projections (in substantially the same format as the Projections) covering the next 2 Fiscal Years; (k) Promptly following obtaining knowledge thereof by a Senior Officer of Borrower, written notice to the Administrative Agent of the inception or cessation of the Investment Grade Credit Rating; and (l) Such other data and information as from time to time may be reasonably requested by any of the Banks. 7.2 Compliance Certificate. Not later than 60 days after the close of each Fiscal Quarter and 90 days after the close of each Fiscal Year, a Compliance Certificate dated as of the last day of the Fiscal Quarter or Fiscal Year, as the case may be, (a) setting forth computations showing, in detail reasonably satisfactory to the Administrative Agent, whether Borrower and its Subsidiaries were in compliance with their obligations to the Banks pursuant to Sections 6.9, 6.10, 6.11, 6.15, 6.16, and 6.18, (b) setting forth a list of the Guarantor Subsidiaries of Borrower, based upon the most current financial statements then available, (c) either (i) stating that to the best knowledge of the certifying officer as of the date of such certificate there is no Default or Event of Default, or (ii) if there is a Default or Event of Default as of the date of such certificate, specifying all such Defaults or Events of Default and their nature and status and (d) stating, to the best knowledge of the certifying officer, whether any event or circumstance constituting a Material Adverse Effect (other than a Material Adverse Effect which is not particular to the Borrower and which is generally known) has occurred since the date of the most recent Compliance Certificate delivered under this Section and, if so, describing such Material Adverse Effect in reasonable detail. No failure of the certifying officer to describe the existence of an event or circumstance constituting a Material Adverse Effect shall be the sole basis for any Default or Event of Default hereunder. -64- 71 Article 8 CONDITIONS 8.1 Initial Advances, Etc. The obligation of each Bank to make the initial Advance to be made by it and of the Issuing Bank to issue the initial Letter of Credit are subject to the following conditions precedent, each of which shall be satisfied prior to the making of the initial Advances (unless all of the Banks, in their sole and absolute discretion, shall agree otherwise): (a) The Administrative Agent shall have received all of the following, each dated as of the 2000 Closing Date (unless otherwise specified or unless the Administrative Agent otherwise agrees) and all in form and substance satisfactory to the Administrative Agent and legal counsel for the Administrative Agent: (i) executed counterparts of this Agreement, sufficient in number for distribution to the Banks and Borrower; (ii) a Note executed by Borrower in favor of each Bank, each in a principal amount equal to that Bank's Pro Rata Share of the Commitment. Promptly following the 2000 Closing Date, the promissory notes delivered to the Banks pursuant to the Prior Loan Agreements shall be canceled and promptly returned to Borrower; (iii) the Subsidiary Guaranty executed by each Subsidiary which is a Guarantor Subsidiary as of the 2000 Closing Date; (iv) the Swing Line Documents, executed by Borrower; (v) with respect to Borrower and each Subsidiary which is a Guarantor Subsidiary as of the 2000 Closing Date, such documentation as the Administrative Agent may reasonably require to establish the due organization, valid existence and good standing of Borrower and each such Subsidiary, its qualification to engage in business in each jurisdiction in which it is required to be so qualified, its authority to execute, deliver and perform any Loan Documents to which it is a Party, and the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, including, without limitation, 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, and the like; (vi) the Opinions of Counsel; (vii) an Officer's Certificate of Borrower affirming, to the best knowledge of the certifying Senior Officer, that the conditions set forth in Sections 8.1(c) and 8.1(d) have been satisfied; (viii) a side letter executed by each "Bank" under the Prior Revolving Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitments" under the Prior Revolving Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.18; -65- 72 (ix) a side letter executed by each "Bank" under the Prior Term Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitment" under the Prior Term Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.18; (x) a side letter executed by each "Bank" under the Bridge Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitment" under the Bridge Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.18; and (xi) such other assurances, certificates, documents, consents or opinions relevant hereto as the Administrative Agent may reasonably require. (b) The upfront fee payable pursuant to Section 3.2 shall have been paid and any fees then payable under the letter agreement referred to in Section 3.5 shall have been paid. (c) The representations and warranties of Borrower contained in Article 4 shall be true and correct in all material respects on and as of the 2000 Closing Date. (d) Borrower and its Subsidiaries and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and after giving effect to the initial Advance, no Default or Event of Default shall have occurred and be continuing. (e) The Banks shall have received the written legal opinion of Sheppard, Mullin, Richter & Hampton LLP, legal counsel to the Administrative Agent, to the effect that the Opinions of Counsel are acceptable and such other matters relating to the Loan Documents as the Administrative Agent may request. 8.2 Any Advance. The obligations of the Banks to make any Advance are subject to the following conditions precedent: (a) the Administrative Agent shall have received a Request for Loan; (b) the representations and warranties contained in Article 4 (other than the representations and warranties contained in Sections 4.4(a), 4.5, 4.6, 4.7, 4.9, 4.12, 4.14, 4.18 and 4.19) shall be true and correct in all material respects on and as of the date of the Loan as though made on and as of that date and no event or circumstance that constitutes a Material Adverse Effect shall have occurred since the 2000 Closing Date; and (c) the Administrative Agent shall have received such other information relating to any matters which are the subject of Section 8.2(b) or the compliance by Borrower with this Agreement as may reasonably be requested by the Administrative Agent on behalf of a Bank. 8.3 Any Letter of Credit. The obligation of an Issuing Bank to issue any Letter of Credit, and the obligation of the other Banks to participate therein, are subject to the conditions precedent that (a) the conditions set forth in Section 8.2 have been satisfied and (b) Borrower shall have -66- 73 certified that, giving effect to the issuance of the requested Letter of Credit, the Letter of Credit Usage shall not exceed any limitations set forth in this Agreement. -67- 74 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT 9.1 Events of Default. There will be a default hereunder if any one or more of the following events ("Events of Default") occurs and is continuing, whatever the reason therefor: (a) failure to pay any installment of principal on any of the Notes or a Swing Line note on the date, or any payment in respect of a Letter of Credit pursuant to Section 2.5(e) , when due; or (b) failure to pay any installment of interest on any of the Notes, or to pay any fee or other amounts due the Administrative Agent or any Bank hereunder, within 5 Banking Days after the date when due; or (c) any failure to comply with Sections 6.1, 6.3, 6.4 (with respect to Acquisitions), 6.7, 6.10, 6.11, 6.14, 6.17 or 7.1(f); or (d) any failure to comply with Sections 5.8 , 5.9, 6.4 (with respect to Investments), 6.8, 6.9, 6.15, 6.16, or 6.18 that remains unremedied for a period of 15 calendar days after notice by the Administrative Agent of such Default or 20 calendar days after a Senior Officer becomes aware of such Default, whichever occurs first; or (e) Borrower or any other Party fails to perform or observe any other term, covenant, or agreement contained in any Loan Document on its part to be performed or observed within 30 calendar days after notice by the Administrative Agent of such Default; or (f) any representation or warranty in any Loan Document or in any certificate, agreement, instrument, or other document made or delivered, on or after the 2000 Closing Date, pursuant to or in connection with any Loan Document proves to have been incorrect when made in any respect material to the ability of Borrower to duly and punctually perform all of the Obligations; or (g) Any failure to pay any interest or principal when due (following any applicable cure period) under the Mortgage Warehousing Agreement to which Administrative Agent is a party or under any Money Market Facility; or (h) Borrower or any of its Significant Subsidiaries (i) fails to pay the principal, or any principal installment, of any present or future Indebtedness (other than Non-Recourse Indebtedness, and in the case of the Mortgage Company, arising under the Mortgage Warehousing Agreements), or any guaranty of present or future Indebtedness (other than Non-Recourse Indebtedness) 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 in excess of $25,000,000 individually or $50,000,000 in the aggregate or (ii) fails to perform or observe any other material term, covenant, or agreement on its part to be performed or observed, or suffers to exist any condition, in connection with any present or future Indebtedness (other than Non-Recourse Indebtedness, and in the case of the Mortgage Company, arising under the Mortgage Warehousing Agreements) or any guaranty of present or future Indebtedness (other than Non-Recourse Indebtedness), in excess of $25,000,000 individually or $50,000,000 in the aggregate, if as a result of such failure or such condition any -68- 75 holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare it due before the date on which it otherwise would become due; or (i) any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of all 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 is, in the reasonable opinion of the Majority Banks, materially adverse to the interest of the Banks; or (j) a final judgment (or judgments) against Borrower or any of its Significant Subsidiaries is entered for the payment of money in excess of $25,000,000 individually or $50,000,000 in the aggregate over the amount of any insurance proceeds reasonably expected to be received and remains unsatisfied without procurement of a stay of execution within thirty (30) calendar days after the issuance of any writ of execution or similar legal process or the date of entry of judgment, whichever is earlier, or in any event at least 5 calendar days prior to the sale of any assets pursuant to such legal process; or (k) Borrower or any Significant Subsidiary of Borrower institutes or consents to any proceeding under a Debtor Relief Law relating to it or to all or any part of its Property, or fails generally to pay its debts as they mature, or makes a general 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 60 calendar days; or any proceeding under any 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 60 calendar days; or (l) the occurrence of a Termination Event with respect to any Pension Plan if the aggregate liability of Borrower and its ERISA Affiliates under ERISA as a result thereof exceeds $25,000,000; or the complete or partial withdrawal by Borrower or any of its ERISA Affiliates from any Multiemployer Plan if the aggregate liability of Borrower and its ERISA Affiliates as a result thereof exceeds $25,000,000; or (m) any determination is made by a court of competent jurisdiction that payment of principal or interest or both is due to the holder of any Subordinated Obligations which would not be permitted by Section 6.1 or that any Subordinated Obligation is not subordinated in accordance with its terms to the Obligations; or (n) the occurrence of an Event of Default (as defined in the 2000 Term Loan Agreement), so long as any Advance (as defined in the 2000 Term Loan Agreement) remains unpaid or any other Obligation (as defined in the 2000 Term Loan Agreement) remains unpaid, or any portion of the Commitment (as defined in the 2000 Term Loan Agreement) remains in force. 9.2 Remedies Upon Event of Default. Without limiting any other rights or remedies of the Administrative Agent or the Banks provided for elsewhere in this Agreement or the Loan Documents, or by applicable Law or in equity, or otherwise: -69- 76 (a) Upon the occurrence of any Event of Default, and so long as any such Event of Default shall be continuing (other than an Event of Default described in Section 9.1(k) with respect to Borrower or a Guarantor Subsidiary): (i) all commitments to make Advances or issue Letters of Credit, and all other obligations of the Administrative Agent, any Issuing Bank or the Banks shall be suspended without notice to or demand upon Borrower, which are expressly waived by Borrower, except that the Majority Banks may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to the Majority Banks, to reinstate the Commitment and make further Advances or issue Letters of Credit, which waiver or determination shall apply equally to, and shall be binding upon, all the Banks; and (ii) the Majority Banks may request the Administrative Agent to, and the Administrative Agent thereupon shall, declare the unpaid principal of all Obligations due to the Banks hereunder and under the Notes, an amount equal to the Letter of Credit Usage, all interest accrued and unpaid thereon, and all other amounts payable to the Banks under the Loan Documents to be forthwith due and payable, whereupon the same shall become and 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; provided that the Administrative Agent shall notify Borrower (by telecopy and, if practicable, by telephone) substantially concurrently with any such acceleration (but the failure of Borrower to receive such notice shall not affect such acceleration). (b) Upon the occurrence of any Event of Default described in Section 9.1(k) with respect to Borrower or a Guarantor Subsidiary: (i) all commitments to make Advances or issue Letters of Credit, and all other obligations of the Administrative Agent, any Issuing Bank or the Banks under the Loan Documents shall terminate without notice to or demand upon Borrower, which are expressly waived by Borrower, except that all the Banks may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to all the Banks, to reinstate the Commitment and make further Advances; and (ii) the unpaid principal of all Obligations due to the Banks hereunder and under the Notes, an amount equal to the Letter of Credit Usage and all interest accrued and unpaid on such Obligations, 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) So long as any Letter of Credit shall remain outstanding, any amounts received by the Administrative Agent in respect of the Letter of Credit Usage pursuant to Section 9.2.(a)(ii) or 9.2(b)(ii) may be held as cash collateral for the obligation of Borrower to reimburse the Issuing Bank in event of any drawing under any Letter of Credit (and Borrower hereby grants to the Administrative Agent a security interest in such cash collateral). In the event any Letter of Credit in respect of which Borrower has deposited cash collateral with the Administrative Agent is canceled or expires, the cash collateral shall be applied first to the -70- 77 reimbursement of the Issuing Bank (or all of the Banks, as the case may be) for any drawings thereunder, and second to the payment of any outstanding Obligations of Borrower hereunder or under any other Loan Document. (d) Upon the occurrence of an Event of Default, the Banks and the Administrative Agent, or any of them, may proceed to protect, exercise, and enforce their rights and remedies under the Loan Documents against Borrower or any other Party and such other rights and remedies as are provided by Law or equity, without notice to or demand upon Borrower (which are expressly waived by Borrower) except to the extent required by applicable Laws. The order and manner in which the rights and remedies of the Banks under the Loan Documents and otherwise are exercised shall be determined by the Majority Banks; provided, however, that a Non-Consenting Bank (as defined in Section 2.6(c)) that is not paid on the Prior Maturity Date (as defined in Section 2.6(b)) applicable to it may proceed to exercise its rights under this Section 9.2(d) without the approval of Majority Banks. (e) All payments received by the Administrative Agent and the Banks, or any of them, after the acceleration of the maturity of the Loans shall be applied first to the costs and expenses (including attorneys' fees and disbursements) of the Administrative Agent, acting as Administrative Agent, and of the Banks and thereafter paid pro rata to the Banks in the same proportion that the aggregate of the unpaid principal amount owing on the Obligations of Borrower to each Bank, plus accrued and unpaid interest thereon, bears to the aggregate of the unpaid principal amount owing on all the Obligations, plus accrued and unpaid interest thereon. Regardless of how each Bank may treat the payments for the purpose of its own accounting, for the purpose of computing Borrower's Obligations, the payments shall be applied first, to the costs and expenses of the Administrative Agent, acting as Administrative Agent, and the Banks as set forth above, second, to the payment of accrued and unpaid fees hereunder and interest on all Obligations to the Banks, to and including the date of such application (ratably according to the accrued and unpaid interest on the Loans), third, to the ratable payment of the unpaid principal of all Obligations to the Banks, and fourth, to the payment of all other amounts then owing to the Administrative Agent or the Banks under the Loan Documents. Subject to Section 9.2(a)(i), no application of the payments will cure any Event of Default or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents or prevent the exercise, or continued exercise, of rights or remedies of the Banks hereunder or under applicable Law unless all amounts then due (whether by acceleration or otherwise) have been paid in full. -71- 78 Article 10 THE ADMINISTRATIVE AGENT 10.1 Appointment and Authorization. Subject to Section 10.7, each Bank hereby irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof or are reasonably incidental, as determined by the Administrative Agent, thereto. This appointment and authorization does not constitute appointment of the Administrative Agent as trustee for any Bank and, except as specifically set forth herein to the contrary, the Administrative Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 Administrative Agent and Affiliates. Bank of America (and each successor Administrative Agent) has the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" includes Bank of America in its individual capacity. Bank of America (and each successor Administrative Agent) and its respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Borrower and any Affiliate of Borrower, as if it were not the Administrative Agent and without any duty to account therefor to the Banks. Bank of America (and each successor Administrative Agent) need not account to any other Bank for any monies received by it for reimbursement of its costs and expenses as Administrative Agent hereunder, or for any monies received by it in its capacity as a Bank hereunder, except as otherwise provided herein. 10.3 Banks' Credit Decisions. Each Bank agrees that it has, independently and without reliance upon the Administrative Agent, any other Bank, or the directors, officers, agents, or employees of the Administrative Agent or of any other Bank, and instead in reliance upon information supplied to it by or on behalf of Borrower and its Subsidiaries and upon such other information as it has deemed 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 Administrative Agent, any other Bank, or the directors, officers, agents, or employees of the Administrative 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. 10.4 Action by Administrative Agent. (a) The Administrative Agent may assume that no Default or Event of Default has occurred and is continuing, unless the Administrative Agent has actual knowledge of the Default or Event of Default, has received notice from Borrower stating the nature of the Default or Event of Default, or has received notice from a Bank stating the nature of the Default or Event of Default and that Bank considers the Default or Event of Default to have occurred and to be continuing. (b) The Administrative Agent has only those obligations under the Loan Documents that are expressly set forth therein. Without limitation on the foregoing, the Administrative Agent shall have no duty to inspect any property of Borrower or any of its Subsidiaries, although the Administrative Agent may in its discretion periodically inspect any property from time to time. -72- 79 (c) Except for any obligation expressly set forth in the Loan Documents and as long as the Administrative Agent may assume that no Event of Default has occurred and is continuing, the Administrative Agent may, but shall not be required to, exercise its discretion to act or not act, except that the Administrative Agent shall be required to act or not act upon the instructions of the Majority Banks (or of all the Banks, to the extent required by Section 11.2) and those instructions shall be binding upon the Administrative Agent and all the Banks, provided that the Administrative Agent shall not be required to act or not act if to do so would, in the reasonable judgment of the Administrative Agent, expose the Administrative Agent to significant liability or would be contrary to any Loan Document or to applicable law. (d) If the Administrative Agent has received a notice specified in clause (a), the Administrative Agent shall give notice thereof to the Banks and shall act or not act upon the instructions of the Majority Banks (or of all the Banks, to the extent required by Section 11.2). If the Majority Banks fail for three (3) Banking Days after the receipt of notice from the Administrative Agent, to instruct the Administrative Agent, then the Administrative Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Banks. (e) The Administrative 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), notwithstanding any other provision hereof. 10.5 Liability of Administrative Agent. Neither the Administrative Agent, the Lead Arranger and Sole Book Manager or any of their Affiliates nor any of its respective directors, officers, agents, or employees shall be liable to any Bank 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 Administrative Agent and its respective directors, officers, agents, and employees: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives notice of the assignment or transfer thereof in form satisfactory to the Administrative Agent, signed by the payee and may treat each Bank as the owner of that Bank's interest in the obligations due to Banks for all purposes of this Agreement until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Bank; (b) may consult with legal counsel, in-house legal counsel, independent public accountants, in-house accountants and other professionals, or other experts selected by it, or with legal counsel, independent public accountants, or other experts for Borrower, and shall not be liable to any Bank for any action taken or not taken by it or them in good faith in accordance with the advice of such legal counsel, independent public accountants, or experts; (c) will 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) in connection with any of the Loan Documents; (d) except to the extent expressly set forth in the Loan Documents, will have no duty to ascertain or inquire as to the performance or observance by Borrower or any other -73- 80 Person of any of the terms, conditions, or covenants of any of the Loan Documents or to inspect the property, books, or records of Borrower or any of its Subsidiaries or other Person; (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; (f) will not incur any liability to any Bank by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, or other instrument or writing believed by it or them to be genuine and signed or sent by the proper party or parties; and (g) will not incur any liability for any arithmetical error in computing any amount payable to or receivable from any Bank hereunder, including without limitation payment of principal and interest on the Notes, payment of commitment fees, Loans, and other amounts; provided that promptly upon discovery of such an error in computation, the Administrative Agent, the Banks, and (to the extent applicable) Borrower 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. 10.6 Indemnification. Each Bank shall, ratably in accordance with its respective Pro Rata Share of the Commitment, indemnify and hold the Administrative Agent, the Lead Arranger and Sole Book Manager and their Affiliates and their respective directors, officers, agents, and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever (including, without limitation, attorney's fees and disbursements) that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of this Agreement (other than losses incurred by reason of the failure by Borrower to pay the obligations due to the Administrative Agent under a Note) or any action taken or not taken by it as Administrative Agent thereunder, except for the Administrative Agent's gross negligence or willful misconduct. Without limitation on the foregoing, each Bank shall reimburse the Administrative Agent upon demand for that Bank's ratable share of any cost or expense incurred by the Administrative Agent in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver, refinancing, restructuring, reorganization (including a bankruptcy reorganization), or enforcement of the Loan Documents, to the extent that Borrower is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. Any such reimbursement shall not relieve Borrower of its obligations under Section 11.3. 10.7 Successor Administrative Agent. The Administrative Agent may resign as such at any time by written notice to Borrower and the Banks, to be effective upon a successor's acceptance of appointment as Administrative Agent. The Majority Banks may at any time remove the Administrative Agent by written notice to that effect to be effective on such date as the Majority Banks designate. In either event, the Majority Banks shall appoint a successor Administrative Agent or Agents, who must be from among the Banks and who shall be subject to the prior approval of Borrower, which approval shall not be unreasonably withheld or delayed, provided, that the Administrative Agent shall be entitled to appoint a successor Administrative Agent from among the Banks, subject to acceptance of appointment by that successor Administrative Agent, if the Majority Banks have not appointed a successor Administrative Agent within thirty (30) days after the date the Administrative Agent gave notice of resignation or was removed. Upon a successor's acceptance of appointment as Administrative Agent, the successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the Administrative Agent under the Loan Documents, -74- 81 and the resigning or removed Administrative Agent will thereupon be discharged from its duties and obligations thereafter arising under the Loan Documents. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 10 and Sections 11.3 and 11.10 shall inure to its benefit as to any action taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 10.8 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 Administrative Agent of its obligations to the Banks under any provision of this Agreement, and Borrower shall have no liability to the Administrative Agent or any of the Banks in respect of any failure by the Administrative Agent or any Bank to perform any of its obligations to the Administrative 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 Administrative 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 Administrative Agent in the manner provided by this Agreement. 10.9 Defaulting Banks. If for any reason any Bank wrongfully (in violation of this Agreement) fails or refuses to timely make any Advance required of it, or otherwise defaults on any of its material obligations under this Agreement, and fails to cure its default within 5 Banking Days of receiving notice of its failure to perform (such Bank being a "Defaulting Bank"), then in addition to the rights and remedies that may be available to the Administrative Agent and the Banks at law or in equity, the Defaulting Bank's right to participate in the Loan and the Agreement will be suspended during the pendency of the Defaulting Bank's uncured default, and (without limiting the foregoing) the Administrative Agent may (or at the direction of the Majority Banks, shall) withhold from the Defaulting Bank any interest payments, fees, principal payments or other sums otherwise payable to such Defaulting Bank under the Loan Documents until such default of such Defaulting Bank has been cured. Each non-defaulting Bank will have the right, but not the obligation, in its sole discretion, to acquire at par a proportionate share (based on the ratio of its Pro Rata Share of the Commitment to the aggregate amount of the Pro Rata Shares of the Commitments of all of the non-defaulting Banks that elect to acquire a share of the Defaulting Bank's Pro Rata Share of the Commitment) of the Defaulting Bank's Pro Rata Share of the Commitment, including without limitation its proportionate share in the outstanding principal balance of the Loans. The Defaulting Bank will pay and protect, defend and indemnify Administrative Agent and each of the other Banks against, and hold Administrative Agent, and each of the other Banks harmless from, all claims, actions, proceedings, liabilities, damages, losses, and expenses (including without limitation attorneys' fees and costs, and interest at the Prime Rate plus 2.0% per annum for the funds advanced by Administrative Agent or any Banks on account of the Defaulting Bank) they may sustain or incur by reason of or in consequence of the Defaulting Bank's failure or refusal to perform its obligations under the Loan Documents. Administrative Agent may set off against payments due to the Defaulting Bank for the claims of Administrative Agent and the other Banks against the Defaulting Bank. The exercise of these remedies will not reduce, diminish or liquidate the Defaulting Bank's Pro Rata Share of the Commitment (except to the extent that part or all of such Pro Rata Share of the Commitment is acquired by the other Banks as specified above) or its obligations to share losses and reimbursement for costs, liabilities and expenses under this Agreement. This indemnification will survive the payment and satisfaction of all of the Borrower's obligations and liabilities to the Banks. The foregoing provisions of this Section 10.9 are solely for the benefit of the Administrative Agent and the Banks, and may not be enforced or relied upon by the Borrower. -75- 82 Article 11 MISCELLANEOUS 11.1 Cumulative Remedies; No Waiver. The rights, powers, and remedies of the Administrative Agent or any Bank provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, or remedy provided by law or equity. No failure or delay on the part of the Administrative Agent or any Bank in exercising any right, power, or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, or remedy preclude any other or further exercise of any other right, power, or remedy. The terms and conditions of Sections 8.1, 8.2, and 8.3 hereof are inserted for the sole benefit of the Banks and the Administrative Agent may (with the approval of the Majority Banks) waive them in whole or in part with or without terms or conditions in respect of any Loan, without prejudicing the Banks' rights to assert them in whole or in part in respect of any other Loans. 11.2 Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or any other Loan Document, 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 Administrative Agent with the approval of the Majority Banks and 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 the principal of, or the amount of principal or principal prepayments, payable on any Obligation or (except as provided in Section 2.6) the amount of the Commitment or to decrease the rate of any interest or fee payable to any Bank; (b) to postpone any date fixed for any payment of principal of, prepayment of principal of, or any installment of interest on, any Obligation or any installment of any fee or (except as provided in Section 2.6) to extend the term of the Commitment; (c) to amend or modify the provisions of the definitions in Section 1.1 of "Majority Banks" or "Required Banks" or of Sections 11.2, 11.9, 11.10, or 11.11; (d) release any Guarantor Subsidiary from liability under the Subsidiary Guaranty (except as provided below); or (e) to amend or modify any provision of this Agreement or the Loan Documents 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 Agents. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 that permits the sale or other transfer of the capital stock of (or all or substantially all of the assets of) a Guarantor Subsidiary shall automatically release the Guarantor Subsidiary effective concurrently with such sale or other transfer. 11.3 Costs, Expenses and Taxes. Borrower shall pay within 30 days after demand (which demand shall be accompanied by an invoice in reasonable detail) the reasonable actual out-of-pocket costs and expenses of the Administrative Agent and Lead Arranger and Sole Book -76- 83 Manager in connection with (a) the negotiation, preparation, execution, delivery, arrangement, syndication and closing of the Loan Documents, provided that such costs and expenses do not exceed the amounts referred to in a letter agreement between Borrower and the Administrative Agent and Lead Arranger and Sole Book Manager, (b) administration of the Loan Documents, provided that such costs and expenses do not exceed the amounts set forth in a letter agreement between Borrower and the Administrative Agent and Lead Arranger and Sole Book Manager and (c) any amendment, waiver or modification of the Loan Documents. Borrower shall pay within 30 days after demand the reasonable actual out-of-pocket costs and expenses of the Administrative Agent and each of the Banks in connection with the enforcement of any Loan Documents following the occurrence of a Default or an Event of Default, including in connection with any refinancing, restructuring, reorganization (including a bankruptcy reorganization, if such payment is approved by the bankruptcy court or any similar proceeding). The costs and expenses referred to in the first sentence above (for which Borrower shall be liable solely with respect to costs and expenses of the Administrative Agent and Lead Arranger and Sole Book Manager) and the second sentence above (which shall apply to costs and expenses of the Administrative Agent and the Banks) shall include filing fees, recording fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket expenses and the reasonable actual fees and out-of-pocket expenses of any legal counsel retained by the Administrative Agent and Lead Arranger and Sole Book Manager or any of the Banks (including the allocated costs of in-house counsel), as the case may be, or independent public accountants and other outside experts retained by the Administrative Agent and Lead Arranger and Sole Book Manager (provided that (i) Borrower shall not be liable under this Section 11.3 for fees and expenses of more than one firm of independent public accountants, or more than one expert with respect to a specific subject matter, at any one time and (ii) with respect to the costs and expenses referred to in the second sentence above (pertaining to enforcement matters), Borrower shall not be liable for the fees and expenses of more than one firm of outside legal counsel retained to represent the Administrative Agent and the Banks, but if any of such parties does not consent to such joint representation, Borrower shall be liable for the fees and expenses of not more than one firm of outside legal counsel retained to represent the Administrative Agent and also for not more than one additional firm of outside legal counsel retained to otherwise represent one or more of the Banks). Nothing herein shall obligate Borrower to pay any costs and expenses in connection with an assignment of or participation in a Bank's Pro-Rata Share of a Commitment. Borrower shall pay any and all documentary and transfer taxes, assessments or charges made by any Governmental Agency and all reasonable actual costs, expenses, fees, and charges of Persons (other than the Administrative Agent and Lead Arranger and Sole Book Manager or the Banks) payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement, any other Loan Document, or any other instrument or writing to be delivered hereunder or thereunder, and shall reimburse, hold harmless, and indemnify the Administrative Agent and Lead Arranger and Sole Book Manager and each Bank 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 Borrower to perform any of its Obligations. Any amount payable to the Administrative Agent and Lead Arranger and Sole Book Manager or any Bank under this Section shall bear interest from the date which is 30 days after Borrower's receipt of demand (together with reasonable supporting documentation) for payment at the rate then in effect for Prime Rate Loans. 11.4 Nature of Banks' Obligations. Nothing contained in this Agreement or any other Loan Document and no action taken by the Administrative 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. Each Bank's obligation to make any Advance pursuant hereto is several and not joint or joint and several, and is not conditioned -77- 84 upon the performance by any other Bank of its obligation to make Advances. A default by any Bank will not increase the Pro Rata Share of the Commitment of 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. 11.5 Representations and Warranties. All representations and warranties of Borrower and any other Party contained herein or in any other Loan Document (including, for this purpose, all representations and warranties contained in any certificate or other writing required to be delivered by or on behalf of Borrower or such Party pursuant to any Loan Document) will survive the making of the loans hereunder and the execution and delivery of the Notes, and, in the absence of actual knowledge by the Administrative Agent or a Bank of the untruth of any representation or warranty, have been or will be relied upon by the Administrative Agent and that Bank, notwithstanding any investigation made by the Administrative Agent or that Bank or on their behalf. 11.6 Notices. Except as otherwise provided in any Loan Document, all notices, requests, demands, directions, and other communications provided for hereunder and under any other Loan Document must be in writing and must be mailed (provided that communications related to any Default or Event of Default or proposed action under Section 11.2 shall not be sent solely by mail), telegraphed, delivered, or sent by telex, telecopier or cable to the appropriate party at the address set forth on the signature pages of this Agreement or, as to any Party, at any other address as may be designated by it in the applicable Loan Document or in a written notice sent to the Administrative Agent and Borrower in accordance with this Section. Except as otherwise provided in any Loan Document if any notice, request, demand, direction, or other communication is given by mail it will be effective on the earlier of actual receipt or the third Banking Day after deposited in the United States mails 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; if given by telex, when confirmed by answerback; or if given by personal delivery, when delivered. The Administrative Agent will endeavor to forward to Borrower a list of the contact persons and addresses of each of the Banks on a quarterly basis, but the Administrative Agent's failure to do so will not relieve Borrower from any notice or other requirements set forth in this Agreement. 11.7 Execution in Counterparts. This Agreement and any other Loan Document to which Borrower is a Party 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, taken together will be deemed to be but one and the same instrument. Such counterparts may be sent by telecopy, with the original counterparts to follow by mail or courier. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until executed counterparts hereof or thereof (or other evidence of execution satisfactory to the Administrative Agent and Borrower) have been delivered to the Administrative Agent and Borrower. 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 Agents, each of the Banks, and their respective successors and assigns, except that except as permitted in Section 6.3, Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all the Banks. Any Bank may at any time pledge its Notes or any other instrument evidencing its rights as a Bank hereunder to a Federal Reserve Bank, -78- 85 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 2000 Closing Date, each Bank may assign to one or more Eligible Assignee all or any portion of its Pro Rata Share of the Commitment; provided that (i) such Eligible Assignee, if not then a Bank, shall be approved by each of the Administrative Agent (which approval shall not be unreasonably withheld) and by Borrower (which approval shall not be unreasonably withheld and which approval shall not be necessary after an Event of Default has occurred and is continuing), (ii) such assignment shall be evidenced by a Commitment Assignment and Acceptance, a copy of which shall be furnished to the Administrative Agent as hereinbelow provided; (iii) except in the case of an assignment to an Affiliate of the assigning Bank, to another Bank or of the entire remaining Commitment of the assigning Bank, the assignment shall not assign a Pro Rata Share of the Commitment equivalent to less than $20,000,000 and that is not an integral multiple of $5,000,000 (which restrictions shall not apply while an Event of Default has occurred and is continuing), (iv) except in the case of an assignment of the entire remaining Commitment of the assigning Bank, giving effect to the assignment, the assigning Bank will not be in violation of its Applicable Minimum Hold Requirement (unless an Event of Default has occurred and is continuing) and (v) 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 5 Banking Days after the date the Administrative Agent has received the Commitment Assignment and Acceptance. 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 Shares of the Commitment therein set forth and, to the extent of such Pro Rata Shares, 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 under this Agreement) to such assignee Bank, Notes evidencing that assignee Bank's Pro Rata Share, and to the assigning Bank, Notes evidencing the remaining balance Pro Rata Share retained by the assigning Bank. (c) By executing and delivering a Commitment Assignment and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Shares of the Commitment 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 its obligations under this Agreement; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to this Agreement 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 Administrative 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 Administrative Agent to take such action and to exercise such powers as are delegated to the Administrative Agent by this Agreement; and (vi) it will perform -79- 86 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) After receipt of a completed Commitment Assignment and Acceptance executed by any Bank and an Eligible Assignee, and receipt of an assignment fee of $5,000 from such Eligible Assignee, the Administrative Agent shall, at least one Banking Day prior to 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 one or more banks or other financial institutions (including another Bank) in its Pro Rata Share of the Commitment; provided, however, that (i) such participant, if not an Affiliate of the granting Bank, shall be approved by Borrower (which approval shall not be unreasonably withheld and which approval shall not be necessary after an Event of Default has occurred and is continuing), (ii) such Bank's obligations under this Agreement shall remain unchanged, (iii) such Bank shall remain solely responsible to the other parties hereto and thereto for the performance of such obligations, (iv) the participating bank or other financial institution shall not be a Bank hereunder for any purpose except, if the participation agreement so provides, for the purposes of recovery of eurodollar costs or capital adequacy expenses or indemnifications provided to the Banks under this Agreement but only to the extent that the cost of such benefits to Borrower does not exceed the cost which Borrower would have incurred in respect of such Bank absent the participation, (v) the participating bank or other financial institution shall be prohibited from transferring, encumbering or granting any sub-participation interest in the participation interest, (vi) Borrower, the Administrative Agent, and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, (vii) the participation interest granted shall not be with respect to a Pro Rata Share of the Commitment equivalent to less than $20,000,000 (which restriction shall not apply while an Event of Default has occurred and is continuing), (viii) giving effect to the participation, the granting Bank will not be in violation of its Applicable Minimum Hold Requirement (unless an Event of Default has occurred and is continuing), (ix) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those which (A) extend the maturity dates or any other date upon which any payment of money is due to the Banks (other than pursuant to Section 2.6), (B) reduce the rate of interest, any fee or any other monetary amount payable to the Banks, (C) reduce the amount of any installment of principal due to the Banks thereunder, (D) release any Guarantor Subsidiary from its obligations under the Subsidiary Guaranty (except as provided in Section 11.2), or (E) release any material portion of any collateral securing any of the obligations of Borrowers to the Banks and (x) to the extent that the holder of the participation interest is granted consent rights with respect to the matters described in clause (ix), such rights must be subject to a voting procedure whereby the holders of the entire Pro Rata Share of the Commitment held by the participating Bank shall act in such matters in accordance with the vote of a majority-in-interest of such Pro Rata Share of the Commitment. 11.9 Sharing of Setoffs . Each Bank severally agrees that if it, through the exercise of the right of setoff, banker's lien, or counterclaim against Borrower or otherwise, receives payment of the Obligations due it hereunder and under the Notes that is ratably more than that to which it is entitled hereunder pursuant to Section 3.14 or 9.2(e), then: (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 -80- 87 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 the provisions of Section 3.14 and 9.2(e), 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 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement 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. Borrower expressly consents to the foregoing arrangements and agrees that, to the extent permitted by Law, any Bank holding a participation in an Obligation so purchased may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Bank were the original owner of the Obligation purchased. 11.10 Indemnity by Borrower. Borrower agrees to indemnify, save, and hold harmless the Administrative Agent and Lead Arranger and Sole Book Manager and each Bank and their directors, officers, agents, attorneys, and employees (collectively, the "indemnitees") from and against: (i) any and all claims, demands, actions or causes of action that are asserted against any indemnitee (other than by Borrower or by any other indemnitee) if the claim, demand, action or cause of action arises out of or relates to a Commitment, the use of proceeds of any Loans, any transaction contemplated pursuant to this Agreement, or any relationship or alleged relationship of any indemnitee to Borrower related to this Agreement; (ii) 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 (i) above; and (iii) any and all liabilities, losses, costs, or expenses (including reasonable attorneys' fees and disbursements (including the allocated cost of in-house counsel)) that any indemnitee suffers or incurs as a result of any of the foregoing; provided, that Borrower shall have no obligation under this Section to any indemnitee with respect to any of the foregoing arising out of the gross negligence or willful misconduct of that indemnitee or the breach by the indemnitee of this Agreement or from the transfer or disposition of any Note by any Bank. 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. If requested by Borrower in writing and so long as no Default or Event of Default shall have occurred and be continuing, such indemnitee shall in good faith contest the validity, applicability and amount of such claim, demand, action or cause of action, shall permit Borrower to participate in such contest and shall cooperate with Borrower to the extent their interests are aligned. 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 not so settle or compromise without Borrower's written approval thereof, which approval may be withheld in Borrower's sole discretion. Any voluntary settlement by an indemnitee of such a claim or proceeding without Borrower's written approval shall relieve Borrower of its obligation to indemnify that indemnitee with respect to such claim or proceeding. In any legal action involving more than one indemnitee, all indemnitees shall be represented by a single legal counsel unless -81- 88 such legal counsel determines that a defense or counterclaim is available to an indemnitee that is not available to all indemnitees and that to assert such a defense or counterclaim would create a conflict of interest, or a potential conflict of interest, in which case such indemnitee shall be entitled to separate legal counsel. Any obligation or liability of Borrower to any indemnitee under this Section shall survive the expiration or termination of this Agreement and the repayment of all Loans and all other Obligations owed to the Banks. 11.11 Nonliability of Banks. The relationship between Borrower and the Banks is, and shall at all times remain, solely that of borrower and lenders, and the Banks and the Administrative Agent neither undertake nor assume any responsibility or duty to Borrower to review, inspect, supervise, pass judgment upon, or inform Borrower of any matter in connection with any phase of Borrower's business, operations, or condition, financial or otherwise. Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment, or information supplied to Borrower by any Bank or the Agents in connection with any such matter is for the protection of the Banks and the Agents, and neither Borrower nor any third party is entitled to rely thereon. 11.12 Confidentiality. Each Bank agrees that it and its employees shall use any confidential information that such Bank may receive, directly or indirectly, from Borrower pursuant to this Agreement only for the purposes of this Agreement and shall hold such confidential information in confidence, except for disclosure: to Affiliates of the Bank (provided that any such Affiliate who is a "person" described in Rule 100(b)(1) of Regulation FD of the Commission expressly agrees to maintain the disclosed information in confidence or otherwise falls within the exceptions to Rule 100(a) of Regulation FD set forth in Rule 100(b)(2) of Regulation FD); to other Banks; to legal counsel, accountants and other professional advisors to that Bank; to regulatory officials having jurisdiction over that Bank; as required by Law or legal process (provided that the Bank shall, to the extent possible give sufficient notice to Borrower of such legal process to enable Borrower to oppose such legal process, and in any event, give written notice to Borrower of such legal process as soon as practicable) or in connection with any legal proceeding to which that Bank and Borrower are adverse parties; and 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 its Notes (provided that such disclosure is made subject to an appropriate confidentiality agreement by such institution on terms substantially similar to this Section). For purposes of the foregoing, "confidential information" shall mean any information respecting Borrower or its Subsidiaries reasonably considered by Borrower to be confidential, other than (a) information previously filed with any Governmental Agency and available to the public, (b) information previously published in any public medium from a source other than, directly or indirectly, the Agents or any Bank, and (c) information previously disclosed by Borrower to any Person not associated with Borrower without any reasonable expectation of confidentiality. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Agents or the Banks to Borrower. 11.13 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrower, the Agents and the Banks in connection with the Commitment, and is made for the sole benefit of Borrower, the Administrative Agent and the Banks, and the Administrative 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. -82- 89 11.14 Other Dealings. Any Bank may, without liability to account to the other Banks, accept deposits from, lend money or provide credit facilities to and generally engage in any kind of banking or other business with Borrower and its Subsidiaries. 11.15 Right of Setoff - Deposit Accounts. Upon the occurrence of an Event of Default and the acceleration of maturity of the principal indebtedness under any of the Notes pursuant to Section 9.2, Borrower hereby specifically authorizes each Bank in which Borrower maintains a deposit account (whether a general or special deposit account, other than trust accounts) or a certificate of deposit to setoff any Obligations owed to the Banks against such deposit account or certificate of deposit without prior notice to Borrower (which notice is hereby waived) whether or not such deposit account or certificate of deposit has then matured. Nothing in this Section shall limit or restrict the exercise by a Bank of any right to setoff or banker's lien under applicable Law, subject to the approval of the Majority Banks. 11.16 Further Assurances. Borrower shall, at its expense and without expense to the Banks or the Administrative Agent, do, execute, and deliver such further acts and documents as any Bank or the Administrative Agent from time to time reasonably requires for the assuring and confirming unto the Banks or the Administrative Agent 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; provided that this Section 11.16 is not intended to create any affirmative obligation on the part of Borrower to provide collateral security, additional guarantors or other credit enhancement with respect to the Obligations. 11.17 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 except as expressly provided herein to the contrary; provided that the foregoing is subject to Section 4.18 hereof. The Loan Documents were drafted with the joint participation of Borrower and the Banks and shall be construed neither against nor in favor of either, but rather in accordance with the fair meaning thereof. 11.18 Governing Law. The Loan Documents shall be governed by, and construed and enforced in accordance with, the Laws of California. 11.19 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.20 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. 11.21 Conflict in Loan Documents. To the extent there is any actual irreconcilable conflict between the provisions of this Agreement and any other Loan Document, the provisions of this Agreement shall prevail. 11.22 Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR -83- 90 PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES, ANY OTHER LOAN DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.23 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 ANY AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OR THE OTHER LOAN DOCUMENTS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -84- 91 11.24 Hazardous Materials Indemnity. Without limiting any other indemnity provided for in the Loan Documents, Borrower agrees to indemnify the Administrative Agent, the Lead Arranger and Sole Book Manager and each Bank and their directors, officers, agents, attorneys, and employees (collectively, the "indemnities") from any claim, liability, loss, cost or expense (including reasonable attorneys' fees (including the allocated cost of in-house counsel)) directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of any Hazardous Materials if such Hazardous Materials are on, under, about or relate to Borrower's Property or operations, so long as such claim, liability, loss, cost or expense arises out of or relates to a Commitment, the use of proceeds of any Loans, any transaction contemplated pursuant to this Agreement, or any relationship or alleged relationship of any indemnitee to Borrower related to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. KAUFMAN AND BROAD HOME CORPORATION By /s/ Bryan A. Binyon -------------------------------------------- Bryan A. Binyon Vice President and Treasurer 10990 Wilshire Boulevard Los Angeles, California 90024 Attention: Bryan A. Binyon Vice President and Treasurer Telecopier: 310.231.4140 Telephone: 310.231.4025 92 BANK OF AMERICA, N.A., as Administrative Agent and a Bank By: /s/ Kelly M. Allred ------------------------------------------------- Kelly M. Allred Principal Domestic Lending Office Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614 Attention: Kelly M. Allred Principal Telecopier: 949.260.5639 Telephone: 949.260.5654 LIBOR Lending Office Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614 Attention: Jean Ashley Telecopier: 949.260.5637 Telephone: 949.260.5682 93 CREDIT LYONNAIS LOS ANGELES BRANCH By: /s/ DIANNE M. SCOTT ----------------------------------------- DIANNE M. SCOTT FIRST VICE PRESIDENT AND MANAGER Printed Name and Title Address: Credit Lyonnais Los Angeles Branch 515 South Flower Street, 22nd Floor Suite 2200 Los Angeles, California 90071 Attn: Frank Herrera Vice President Telephone: 213.362.5957 Telecopier: 213.623.3437 94 BANK ONE, NA By: /s/ KENNETH S. NELSON ----------------------------------------- KENNETH S. NELSON SENIOR VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: Bank One, NA One Bank One Plaza Chicago, Illinois 60670 Attn: F. Pat Schiewitz Telephone: 312.732.1148 Telecopier: 312.732.1117 95 BANK UNITED By: /s/ THOMAS S. GRIFFIN ----------------------------------------- THOMAS S. GRIFFIN, SVP ----------------------------------------- Printed Name and Title Address: Bank United 3200 South West Fwy. Houston, Texas 77027 Attn: Tom Griffin Senior Vice President Telephone: 760.804.8595 Telecopier: 760.804.8590 96 PNC BANK, N.A. By: /s/ DOUGLAS G. PAUL ----------------------------------------- DOUGLAS G. PAUL, SR. VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: PNC Bank, N.A. Two Tower Center, 18th Floor East Brunswick, New Jersey 08816 Attn: Douglas G. Paul Telephone: 732.220.3566 Telecopier: 732.220.3744 97 COMERICA BANK By: /s/ SAM MEEHAN ----------------------------------------- SAM MEEHAN - ASSISTANT V.P. ----------------------------------------- Printed Name and Title Address: Comerica Bank One Detroit Center - MC3256 500 Woodward Avenue, 7th Floor Detroit, Michigan 48226-3256 Attn: Sam Meehan Telephone: 313.222.5461 Telecopier: 313.222.3295 98 SUNTRUST BANK By: /s/ DON GAUDETTE ----------------------------------------- DON GAUDETTE DIRECTOR ----------------------------------------- Printed Name and Title Address: SunTrust Bank 303 Peachtree Street MC1931 Atlanta, Georgia 30308 Attn: Don Gaudette Telephone: 404.658.4925 Telecopier: 404.827.6270 99 GUARANTY FEDERAL BANK, F.S.B. By: /s/ JENNIFER E. RAY ----------------------------------------- JENNIFER E. RAY, VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: Guaranty Federal Bank, F.S.B. 8333 Douglas Avenue Dallas, Texas 75225 Attn: Jenny Ray Telephone: 214.360.2837 Telecopier: 214.360.1661 100 KBC BANK N.V. By: /s/ ROBERT SNAUFFER ----------------------------------------- ROBERT SNAUFFER FIRST VICE PRESIDENT ----------------------------------------- Printed Name and Title By: /s/ KENNETH D. CONNOR ----------------------------------------- KENNETH D. CONNOR VICE PRESIDENT REAL ESTATE ----------------------------------------- Printed Name and Title Address: KBC Bank N.V. 515 South Figueroa Street, Suite 1920 Los Angeles, California 90071 Attn: Kevin McKenna Vice President Telephone: 213.996.7529 Telecopier: 213.629.5801 101 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ VICENTE L. TIMIRAOS ----------------------------------------- VICENTE L. TIMIRAOS JOINT GENERAL MANAGER ----------------------------------------- Printed Name and Title Address: The Industrial Bank of Japan, Limited Los Angeles Agency 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Attn: Mr. Takeshi Kubo Vice President Telephone: 213.893.6447 Telecopier: 213.488.9840 102 CITICORP USA, INC. By: /s/ JAMES M. BUCHANAN ----------------------------------------- James M. Buchanan, Vice President ----------------------------------------- Printed Name and Title Address: Citicorp USA, Inc. c/o Salomon Smith Barney, Inc. 390 Greenwich Street New York, New York 10013 Attn: Suzanne Crymes Vice President Telephone: 212.723.6532 Telecopier: 212.723.8547 103 EXHIBIT A COMMITMENT ASSIGNMENT AND ACCEPTANCE THIS COMMITMENT ASSIGNMENT AND ACCEPTANCE ("Agreement") dated as of ______________ is made with reference to that certain 2000 Revolving Loan Agreement, dated as of October 3, 2000 (the "Loan Agreement") among KBHC, the Banks party thereto, Credit Lyonnais Los Angeles Branch, as Syndication Agent, Bank One, NA, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, and is entered into between the "Assignor" described below, in its capacity as a Bank under the Loan Agreement, and the "Assignee" described below. Assignor and Assignee hereby represent, warrant and agree as follows: 1. Definitions. Capitalized terms defined in the Loan Agreement are used herein with the meanings set forth for such terms in the Loan Agreement. As used in this Agreement, the following capitalized terms shall have the meanings set forth below: "Assignee" means_________________________________________. "Assigned Pro Rata Share" means (a)______ % of the Commitment of the Banks under the Loan Agreement, being equal to the following dollar amount: $____________. "Assignor" means______________________________________. "Effective Date" means______________, the effective date of this Agreement determined in accordance with Section 11.8 of the Loan Agreement. "KBHC" means Kaufman and Broad Home Corporation, a Delaware corporation, and its successors. 2. Representations and Warranties of the Assignor. The Assignor represents and warrants, as of the date hereof, as follows: (a) The Pro Rata Share of the Assignor is _______% of the Commitment (without giving effect to assignments thereof which have not yet become effective). The Assignor is the legal and beneficial owner of the Assigned Pro Rata Share and the Assigned Pro Rata Share is free and clear of any adverse claim. (b) The outstanding principal balance of Advances made by Assignor under the Commitment is $___________. (c) The Assignor has full power and authority, and has taken all action necessary to execute and deliver this Agreement and any and all other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement, and no governmental authorizations or other authorizations are required in connection therewith. (d) This Agreement constitutes the legal, valid and binding obligation of the Assignor. (Exhibit A, Page 1 of 7) 104 Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of KBHC or the performance by KBHC of its obligations under the Loan Agreement, and assumes no responsibility with respect to any statements, warranties or representations made or in connection with the Loan Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of the Loan Agreement or any Loan Document other than as expressly set forth above. 3. Representations and Warranties of the Assignee. The Assignee hereby represents and warrants to the Assignor as follows: (a) The Assignee is an Eligible Assignee; (b) The Assignee has full power and authority, and has taken all action necessary to execute and deliver this Agreement, and any and all other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement, and no governmental authorizations or other authorizations are required in connection therewith; (c) This Agreement constitutes the legal, valid and binding obligation of the Assignee; (d) The Assignee has independently and without reliance upon the Assignor and based on such information as the Assignee has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Assignee will, independently and without reliance upon the Administrative Agent or any Bank, and based upon 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 the Loan Agreement; (e) The Assignee has received copies of the Loan Agreement and such of the Loan Documents as it has requested, together with copies of the most recent financial statements delivered pursuant to the Loan Agreement; and (f) If Assignee is organized under the Laws of a jurisdiction outside the United States of America, attached hereto are the forms prescribed by the Code and the Loan Agreement certifying Assignee's exemption from United States withholding taxes with respect to all payments to be made to Assignee under the Loan Agreement. 4. Assignment. On the terms set forth herein, Assignor, as of the Effective Date, hereby irrevocably sells, assigns and transfers to the Assignee all of the rights and obligations of the Assignor under the Loan Agreement and the other Loan Documents, in each case to the extent of the Assigned Pro Rata Share, and the Assignee irrevocably accepts such assignment of rights and assumes such obligations from the Assignor on such terms and as of the Effective Date. As of the Effective Date, Assignee shall have the rights and obligations of a "Bank" (as defined in the Loan Agreement) under the Loan Documents, except to the extent of any arrangements with respect to payments referred to in Section 5 hereof Assignee hereby appoints and authorizes the Administrative Agent to take such action and to exercise such powers as are delegated to the Administrative Agent by the Loan Agreement. 5. Payment. On the Effective Date, Assignee shall pay to the Assignor, in immediately available funds, an amount equal to the purchase price, as agreed between the Assignor and the Assignee, of the Assigned Pro Rata Share. The Assignor and the Assignee have entered into a letter (Exhibit A, Page 2 of 7) 105 agreement, of even date herewith, which sets forth their agreement with respect to the amount of interest, fees, and other payments with respect to the Assigned Pro Rata Share which are to be retained by the Assignor. The Assignor and the Assignee hereby agree that if either receives any payment of interest, principal, fees or any other amount under the Loan Agreement, their respective Notes and other Loan Documents which is for the account of the other, it shall hold the same in trust for such party to the extent of such party's interest therein and shall promptly pay the same to such party. 6. Principal, Interest, Fees, etc. Any principal that would be payable and any interest, fees and other amounts that would accrue from and after the Effective Date to or for the account of the Assignor pursuant to the Loan Agreement and the Notes shall be payable to or for the account of the Assignor and the Assignee, in accordance with their respective interests as adjusted pursuant to this Agreement. 7. Notes. The Assignor and Assignee shall make appropriate arrangements with KBHC concurrently with the execution and delivery hereof so that a replacement Note is issued to the Assignor, if necessary, and a new Note is issued to the Assignee in principal amounts reflecting their Pro Rata Shares of the Commitment or their outstanding Advances (as adjusted pursuant to this Agreement). As of the Effective Date, the Pro Rata Shares of Assignor and Assignee to be reflected on Schedule 1.1 to the Loan Agreement shall be: Pro Rata Share of Commitment ---------------- Assignor __% ($________) Assignee __% ($________) 8. Further Assurances. Concurrently with the execution of this Agreement, Assignor shall execute four counterpart original Requests for Registration, in the form of Exhibit A to this Agreement, to be forwarded to the Administrative Agent. The Assignor and the Assignee further agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Agreement, and Assignor specifically agrees to cause the delivery of (i) four original counterparts of this Agreement and (ii) the Requests for Registration, to the Administrative Agent for the purpose of registration of Assignee as a "Bank" pursuant to the Loan Agreement. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL OBLIGATION UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. 10. Notices. All communications among the parties or notices in connection herewith shall be in writing, hand delivered or sent by registered airmail, postage prepaid, or by telex, telegram (Exhibit A, Page 3 of 7) 106 or cable, addressed to the appropriate party at its address set forth on the signature pages hereof. All such communications and notices shall be effective upon receipt. 11. Binding Effect. This Agreement shall become effective upon the execution of the Request for Registration in the form of Exhibit A to this Agreement by KBHC and the execution of the Consent in the form of Exhibit B to this Agreement by the Administrative Agent, and shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that Assignee shall not assign its rights or obligations without the prior written consent of the Assignor and any purported assignment, absent such consent, shall be void. 12. Interpretation. The headings of the various sections hereof are for convenience of reference only and shall not affect the meaning or construction of any provision hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officials, officers or agents thereunto duly authorized as of the date first above written. "Assignor" ____________________________________ By:_________________________________ _________________________________ Printed Name and Title Address:____________________________ ____________________________ ____________________________ Attn:_______________________ "Assignee" ____________________________________ By:_________________________________ _________________________________ Printed Name and Title Address:____________________________ ____________________________ ____________________________ Attn:_______________________ (Exhibit A, Page 4 of 7) 107 Exhibit A to Commitment Assignment and Acceptance REQUEST FOR REGISTRATION TO: BANK OF AMERICA, N.A., as Administrative Agent THIS REQUEST FOR REGISTRATION OF ASSIGNEE is made as of the date of the enclosed Commitment Assignment and Acceptance with reference to that certain 2000 Revolving Loan Agreement dated as of October 3, 2000 among KBHC, the Banks who are parties thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent. Assignor and Assignee hereby request that the Administrative Agent approve of Assignee as a Bank, and that the Administrative Agent register Assignee as a Bank pursuant to the Loan Agreement effective as of the Effective Date described in the enclosed Commitment Assignment and Acceptance and, in connection with this request certify to the Administrative Agent that the enclosed Commitment Assignment and Acceptance sets forth the correct Commitment and the Assigned Pro Rata Share of the Assignee. Enclosed with this Request are four counterpart originals of the Commitment Assignment and Acceptance as well as the original Note issued to Assignor. IN WITNESS WHEREOF, Assignor and Assignee have executed this Request for Registration by their duly authorized officers as of______________. "Assignor" ____________________________________ By:_________________________________ _________________________________ Printed Name and Title Exhibit A Page 1 of 2 (Exhibit A, Page 5 of 7) 108 "Assignee" ____________________________________ By:_________________________________ _________________________________ Printed Name and Title THE UNDERSIGNED HEREBY CONSENTS TO THE ABOVE ASSIGNMENT: KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation By:_________________________________ _________________________________ Printed Name and Title Exhibit A Page 2 of 2 (Exhibit A, Page 6 of 7) 109 Exhibit B to Commitment Assignment and Acceptance CONSENT TO: THE ASSIGNOR AND ASSIGNEE REFERRED TO IN THE ABOVE REQUEST FOR REGISTRATION When countersigned by the Administrative Agent below, this document shall certify that: 1. The Administrative Agent has consented, pursuant to the terms of the Loan Documents, to the assignment by Assignor to Assignee of the Assigned Pro Rata Share. 2. The Administrative Agent has registered Assignee as a Bank under the Loan Agreement, effective as of the Effective Date described above, with a Pro Rata Share of the Commitment corresponding to the Assigned Pro Rata Share and has adjusted the registered Pro Rata Share of the Commitment of Assignor to reflect the assignment of the Assigned Pro Rata Share. BANK OF AMERICA, N.A., as Administrative Agent By:________________________________ ________________________________ Printed Name and Title Exhibit B Page 1 Of 1 (Exhibit A, Page 7 of 7) 110 EXHIBIT B COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2 ARTICLE 6.9 - CONSOLIDATED TANGIBLE NET WORTH
11/30/1999A 2/28/00A 5/31/00A 8/31/00E 11/30/00E 2/28/01E 5/31/01E 8/31/01E 11/30/01E ----------- -------- -------- -------- --------- -------- -------- ------- --------- $000 $000 $000 $000 $000 $000 $000 $000 $000 Consolidated Net Income (commencing 06/01/00) 50% cumulative Consolidated Net Income 6.9 MINIMUM CONSOLIDATED TANGIBLE NET WORTH (a) Base Amount 575 575 575 575 575 575 575 575 575 (b) Plus - 50% of cumulative Consolidated Net Income (c) Plus - 50% cumulative proceeds from issuance of capital stock (d) Plus - 50% of proceeds Feline Prides after 10/6/00 (e Stock Repurchase Stepdown Stock Repurchase Cap Actual Stock Repurchase Stepdown (70) (50) (50) (20) (20) (20) ---- ---- ---- ---- ---- ---- ---- ---- ---- MINIMUM CONSOLIDATED TANGIBLE NET WORTH 575 575 575 575 575 575 575 575 575 ---- ---- ---- ---- ---- ---- ---- ---- ---- 1.1 "CONSOLIDATED TANGIBLE NET WORTH" Consolidated Shareholder's Equity Plus - Feline Prides /Plus any cumulative foreign currency translation adjustment ---- ---- ---- ---- ---- ---- ---- ---- ---- CONSOLIDATED TANGIBLE NET WORTH 0 0 0 0 0 0 0 0 0 ---- ---- ---- ---- ---- ---- ---- ---- ---- CTNW MIN CTNW (575) (575) (575) (575) (575) (575) (575) (575) (575) ==== ==== ==== ==== ==== ==== ==== ==== ====
KAUFMAN & BROAD CONFIDENTIAL Page 1 111 EXHIBIT C NOTE $__________________ October____, 2000 Los Angeles, California FOR VALUE RECEIVED, the undersigned promises to pay to the order of___________________________("the Bank") the principal amount of DOLLARS ($___________), or such lesser aggregate amount of Advances as may be made pursuant to the Bank's Pro Rata Share of the Commitment under the Term Loan Agreement hereinafter described, payable as hereinafter set forth. The undersigned promises to pay interest on the principal amount of each Advance made hereunder and remaining unpaid from time to time from the date of each Advance until the date of payment in full, payable as hereinafter set forth. Reference is made to the 2000 Term Loan Agreement dated as of October 3, 2000, among the undersigned, as Borrower, the Banks that are parties thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent and Bank One, NA, as Documentation Agent (as amended from time to time, the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is one of the Notes referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified, amended, renewed, extended or supplanted. The Loan Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Note shall be payable as provided in the Loan Agreement and in any event on the Maturity Date. Interest shall be payable on the outstanding daily unpaid principal amount of each Advance hereunder from the date thereof until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Loan Agreement to the fullest extent permitted by applicable Law, before and after default, before and after maturity, before and after any 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 rate set forth in Section 3-6 of the Loan Agreement. The amount of each payment hereunder shall be made to the Administrative Agent at the Administrative Agent's Office, for the account of the Bank, in lawful money of the United States of America, without deduction, offset or counterclaim and in immediately available funds on the day of payment (which must be a Banking Day). All payments of principal received after 10:00 a.m., Los Angeles time, on any Banking Day, shall be deemed received on the next succeeding Banking Day for purposes of calculating interest thereon. The Bank shall use its best efforts to keep a record of the (Exhibit C, Page 1 of 4) 112 Advances made by it and payments of principal with respect to this Note, and such record shall be presumptive evidence of the principal amount owing under this Note. The undersigned hereby promises to pay, within thirty (30) days after demand, the reasonable costs and expenses of any holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of any holder's rights hereunder, including attorneys' fees and disbursements, whether or not an action is filed in connection therewith, in accordance with Section 11.3 of the Loan Agreement. The undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable Laws. This Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local Laws thereof. KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation By__________________________________ Bryan A. Binyon Vice President and Treasurer (Exhibit C, Page 2 of 4) 113 ADVANCES AND PAYMENTS OF PRINCIPAL (Prime Rate Loans) ________________________________________________________________________________ Amount of Loan or Amount of Principal of Redesignation Paid or Redesignated From Another Type Into Another Type of Unpaid Principal Notation Date of Loan Loan Balance Made By ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Exhibit C, Page 3 of 4) 114 ADVANCES AND PAYMENTS OF PRINCIPAL (LIBOR Loans) ________________________________________________________________________________ Amount of Loan or Amount of Principal of Redesignation Paid or Redesignated From Another Type Into Another Type of Unpaid Principal Notation Date of Loan Loan Balance Made By ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Exhibit C, Page 4 of 4) 115 EXHIBIT D-1 [KAUFMAN/BROAD LOGO] October 6 , 2000 To: Bank of America, N.A., as Administrative Agent The Banks That Are Party to the Revolving Loan Agreement Referred to Below Re: Kaufman and Broad Home Corporation Ladies and Gentlemen: I am Senior Vice President and General Counsel of Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"). I have acted as such in connection with the 2000 Revolving Loan Agreement (the "Revolving Loan Agreement") dated as of October 3, 2000, by and among Borrower; the Banks which are parties thereto; Bank of America, N.A., as Administrative Agent; Credit Lyonnais Los Angeles Branch, as Syndication Agent; Bank One, NA, as Documentation Agent; and Bank of America Securities LLC as Lead Arranger and Sole Book Manager (all such parties other than Borrower are collectively referred to herein as "Bank Parties"). This Opinion is furnished to you pursuant to Section 8.1(a)(vi) of the Revolving Loan Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Revolving Loan Agreement. For the purposes of this opinion, I have examined originals, or copies identified to my satisfaction as being true copies, of the following documents: (a) the Revolving Loan Agreement; 116 Page 2 (b) the Notes of even date herewith; (c) the Subsidiary Guaranty; (d) the promissory note of even date herewith executed by Borrower in favor of the Swing Line Bank in connection with the Swing Line; and (e) the letters executed and delivered between the Administrative Agent and Borrower, dated as of October 3, 2000, which concern agency fees, upfront fees and arrangement fees. The documents described in (a) through (e) above are sometimes referred to herein as the "Loan Documents". I have also made such investigations of fact and law, obtained such certificates from public officials, Responsible Officials of Borrower and certain of its Subsidiaries, reviewed incorporation and partnership documentation, resolutions, secretary's certificates, good standing certificates and other documents as appropriate of and for the Borrower and the Guarantor Subsidiaries, as applicable, and done such other things as I have deemed necessary for the purpose of this Opinion. I have assumed (i) that all natural persons have legal capacity, (ii) the genuineness of all signatures of all parties other than Borrower and its Guarantor Subsidiaries, (iii) the conformity to authentic original documents of all documents submitted to me as copies and the authenticity of all documents submitted to me as originals, (iv) as to all parties other than Borrower and its Guarantor Subsidiaries, the due authorization, execution and delivery of the Loan Documents, (v) that each of the Bank Parties has full power, authority and legal right, under its charter and other governing documents and laws applicable to it to perform its respective obligations thereunder, (vi) that all parties to any Loan Document have filed all required franchise tax returns, if any, and paid all required taxes, if any, under the California Revenue & Taxation Code and under the laws of the State of Delaware and the respective states of incorporation or formation of the Guarantor Subsidiaries, (vii) that each of the Bank Parties has the requisite power and authority, has obtained all necessary consents, licenses and permits, has taken all necessary action and has complied with any and all applicable laws with which such Bank Party is required to comply, in each case relating to or affecting the matters and actions contemplated by the Loan Documents, (viii) that each of the Bank Parties (other than Banc of America Securities LLC) is a national bank, state bank or similar financial institution and is an exempt lender under Article XV of the California Constitution or statutes enacted pursuant thereto and (ix) that the Loan Documents have not been modified, amended, terminated or revoked in any respect, and remain in full force and effect as of the date hereof. With respect to those opinions expressed below to be to "knowledge" or "to the knowledge of the undersigned," or similar such wording, I am referring solely to my individual, actual knowledge. Except as expressly set forth herein, I did not undertake a review or examination of the activities or business records of Borrower or any Subsidiaries specifically for the purpose of rendering this opinion or to determine the existence or absence of such facts. As 117 Page 3 Senior Vice President and General Counsel of Borrower, however, material information respecting the matters covered by such opinions is brought to my attention on a regular basis as a matter of internal policy and I intend the phrase "to the knowledge of the undersigned" to mean that, in reviewing such information, nothing has come to my attention which caused or should have caused me not to render such opinions. On the basis of the foregoing, and relying thereon, and with the qualifications herein set forth, I am of the opinion that: 1. Borrower is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, and its certificate of incorporation does not provide for the termination of its existence. Borrower is duly qualified or registered to transact business and is in good standing as a foreign corporation in the State of California and each other jurisdiction in which the conduct of its business or the ownership of its Properties makes such qualifications 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. 2. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute, deliver and perform all of its Obligations under the Loan Documents to which it is a Party. 3. To the knowledge of the undersigned, Borrower is in substantial compliance with all Laws and other legal requirements applicable to its business, 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 Government Agency that are necessary for the transaction of its business, except where the failure so to comply, file, register, qualify, or obtain exemptions would not constitute a Material Adverse Effect. 4. The execution, delivery and performance by Borrower and by each Guarantor Subsidiary of each of the Loan Documents to which they are a Party have been duly authorized by all necessary corporate action, and do not: a. require under the charter documents of Borrower or any Guarantor Subsidiary any consent or approval not heretofore obtained of any partner, director, stockholder, security holder, or creditor of such Party; b. violate or conflict with the Party's charter, certificate or articles of incorporation, or bylaws; c. to the knowledge of the undersigned, result in or require the creation or imposition of any Lien or Right of Others (other than as provided under the Loan Documents) upon or with respect to any Property now owned or leased by such Party; 118 Page 4 d. violate any Requirement of Law known to the undersigned to be applicable to such Party; or 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 known to the undersigned or any other Contractual Obligation known to the undersigned to which such Party is a party or by which such Party or any of its Property is bound or affected; and, to the knowledge of the undersigned, neither Borrower nor any Subsidiary of Borrower is in violation of, or default under, any Requirement of Law or contractual obligation, or any indenture, loan, or credit agreement described in subparagraph (e) above in any respect that would constitute a Material Adverse Effect. 5. The Loan Documents to which either Borrower or any Guarantor Subsidiary is Party have each been validly executed and delivered to the Administrative Agent by Borrower or such Guarantor Subsidiary, as the case may be, and constitute the legal, valid and binding obligation of Borrower or such Guarantor Subsidiary, as the case may be, enforceable against such Borrower or such Guarantor Subsidiary, as the case may be, in accordance with its terms. 6. Except as have heretofore been obtained, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption from any of the foregoing from, any Governmental Agency under any Requirement of Law imposed on Borrower or any Guarantor Subsidiary by the laws of the United States of America or the State of California, in each case as the same exists on the date hereof, is or will be required to authorize or permit the execution, delivery and performance by Borrower or by any Significant Subsidiary of the Loan Documents to which it is a Party. 7. Each Significant Subsidiary which is a Domestic Subsidiary is a legal entity of the form described for that Subsidiary in Schedule 4.4 to the Agreement, duly organized, validly existing and in good standing under the Laws of its jurisdiction of formation, is duly qualified or registered to do business as a foreign organization (if applicable) 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 qualifications or registration necessary (except where the failure to be so qualified or registered 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 and to execute, deliver and perform the obligations under the Loan Documents to which it is a Party. 8. To the knowledge of the undersigned, each Significant Subsidiary is in substantial compliance with all Laws and other requirements applicable to its business, 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 119 Page 5 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. 9. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940. 10. To the knowledge of the undersigned, there are no actions, suits or proceedings pending or threatened against or affecting Borrower or any of its Subsidiaries or any Property of any of them in any court of Law or before any Governmental Agency in which there is a reasonable probability of a decision that would constitute a Material Adverse Effect. 11. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" or "margin security" within the meanings of Regulation U of the Board of Governors of the Federal Reserve System, and no loan under the Agreement will be used to purchase or carry any such margin stock in violation of Regulation U. 12. To the knowledge of the undersigned, Borrower and its Subsidiaries are in substantial compliance with all applicable Laws relating to environmental protection where the failure to comply would constitute a Material Adverse Effect and have not received any notice from any Governmental Agency respecting the alleged violation by Borrower or any Subsidiary of such Laws which would constitute a Material Adverse Effect which has not been or is not being corrected. In addition to any assumptions, qualifications and other matters set forth elsewhere herein, the opinions set forth above are subject to the following: (a) My opinion with respect to the legality, validity, binding effect and enforceability of any Loan Document, agreement, or provision is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer and equitable subordination, reorganization, moratorium, or similar law affecting creditors' rights generally and to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, estoppel, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). I express no opinion as to the availability of equitable remedies. In applying such equitable principles, a court, among other things, might not allow a creditor to accelerate the maturity of a debt or enforce a guaranty thereof upon the occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants. Such principles applied by a court might also include a requirement that a creditor act with reasonableness and in good faith. (b) Certain rights, remedies and waivers of the Loan Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Loan Documents taken as a whole and, except as set forth in subparagraph (a) above, the 120 Page 6 Loan Documents taken as a whole contain adequate provisions for enforcing payment of the Obligations; however, the unenforceability of such provisions may result in delays in or limitations on the enforcement of the parties' rights and remedies under the Loan Documents (and I express no opinion as to the economic consequences, if any, of such delays or limitations). (c) I call your attention to the following matters on which I express no opinion: (i) the agreements in the Loan Documents to indemnify the Bank Parties against costs or expenses or liability notwithstanding such parties' acts of negligence or willful misconduct; (ii) provisions in the Loan Documents for payment or reimbursement of costs, fees and expenses or indemnification for claims, losses, or liabilities to the extent any such provision may be determined by a court or other tribunal to be in an unreasonable amount, to constitute a penalty, or to be contrary to public policy; (iii) the agreements in the Loan Documents to the jurisdiction or venue of a particular court, to the waiver of the right to jury trial, or to be served with process by service upon a designated third party; (iv) any of the waivers or remedies contained in the Loan Documents, whether or not any Loan Document deems any such waiver or remedy commercially reasonable, if such waivers or remedies are determined (1) not to be commercially reasonable under applicable law, (2) to conflict with mandatory provisions of applicable law, (3) to be taken in a manner determined to be unreasonable or not performed in good faith or with fair dealing or with honesty in fact, or (4) to be broadly or vaguely stated or not to describe the right or duty purportedly waived with reasonable specificity; (v) provisions in the Loan Documents which may be construed as imposing penalties or forfeitures, late payment charges, or an increase in interest rate, upon delinquency in payment or the occurrence of a default; (vi) any power of attorney granted under the Loan Documents; (vii) provisions in the Loan Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others, or that failure to exercise or a delay in exercising 121 Page 7 rights or remedies will not operate as a waiver of any such right or remedy; (viii) provisions in the Loan Documents which expressly or by implication waive or limit the benefits of statutory, regulatory, or constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allow such waiver or other limitation; (ix) the effect of Section 1698 of the California Civil Code which, among other matters, provides that a written contract may be modified by an oral agreement to the extent such agreement is performed by the parties; (x) the effect of Section 1670.5 of the California Civil Code which provides that a court may not enforce or may limit the application of a contract or portions thereof which it finds as a matter of law to have been unconscionable at the time the contract was made; (xi) the effect of any Bank Party's compliance or noncompliance with any state or federal laws or regulations applicable to it or applicable to the transactions contemplated by the Loan Documents due to the nature of such Bank Party's business; (xii) the effect of (1) any modification or alteration of the Loan Documents or other agreements with Borrower affecting the obligations of Borrower, (2) an election of remedies by the Bank Parties, or (3) any other action by the Bank Parties that materially prejudices any Guarantor Subsidiary if such modification, election, or action occurs without notice to the Guarantor Subsidiaries and without giving the Guarantor Subsidiaries an opportunity to cure any default by Borrower; (xiii) the enforceability of any provision in the Loan Documents which provide that such Loan Documents may only be modified in writing; and (xiv) the validity and enforceability of covenants set forth in the Loan Documents which purport to survive the repayment of the indebtedness evidenced therein. My opinions expressed herein are limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the federal laws of the United States of America, and I do not express any opinion herein concerning any other law, including, but not limited to, ordinances, regulations or practices of any county, city, or other government agency or body within the State of California. 122 Page 8 This Opinion is being provided in connection with the transaction referred to above and may not be relied upon (x) by any person other than the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party or (y) by the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party in any other context. This Opinion is being provided in connection with the transaction referred to above and may not be relied upon by any person other than the Bank Parties or by the Bank Parties in any other context. Copies hereof may be furnished (a) to your independent auditors and attorneys, (b) to any governmental agency or authority having regulatory jurisdiction over you, (c) pursuant to an order of legal process of any court or of any governmental agency or authority, or (d) in connection with any legal action to which you are a party arising out of the transaction referred to above. This opinion is rendered as of the date hereof, and I hereby disclaim any obligation to advise any person entitled to rely hereon of any change in the matters stated herein. Very truly yours, /s/ BARTON P. PACHINO Barton P. Pachino Senior Vice President and General Counsel Kaufman and Broad Home Corporation 123 EXHIBIT D-2 [MUNGER, TOLLES & OLSON LLP LETTERHEAD] October 6, 2000 To: Bank of America, N.A., as Administrative Agent The Banks That Are Party to the Revolving Loan Agreement Referred to Below Re: Kaufman and Broad Home Corporation Ladies and Gentlemen: We have acted as counsel to Kaufman and Broad Home Corporation, a Delaware corporation (the "Borrower"), in connection with the 2000 Revolving Loan Agreement (the "Revolving Loan Agreement") dated as of October 3, 2000, by and among Borrower; the Banks which are parties thereto; Bank of America, N.A., as Administrative Agent; Credit Lyonnais Los Angeles Branch, as Syndication Agent; Bank One, NA, as Documentation Agent; and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager (all such parties other than Borrower are collectively referred to herein as "Bank Parties"). This Opinion is furnished to you pursuant to Section 8.1(a)(vi) of the Revolving Loan Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Revolving Loan Agreement. For the purposes of this opinion, we have examined originals, or copies identified to our satisfaction as being true copies, of the following documents: (a) the Revolving Loan Agreement; 124 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 2 (b) the Notes of even date herewith; (c) the Subsidiary Guaranty; (d) the promissory note of even date herewith executed by Borrower in favor of the Swing Line Bank in connection with the Swing Line; and (e) the letters executed and delivered between the Administrative Agent and Borrower, dated as of October 3, 2000, which concern agency fees, upfront fees and arrangement fees. The documents described in (a) through (e) above are sometimes referred to herein as the "Loan Documents". We have also examined such other corporate documents and records, and other certificates, opinions and instruments and have conducted such investigations as we have deemed necessary as a basis for the opinions expressed below. As to factual matters relevant to our opinions expressed below, we have, without independent investigation, relied upon certificates from public officials and from Borrower's officers and upon public records, and have further assumed and relied upon, without independent investigation, the truth and accuracy of all factual representations and warranties of all parties to the Loan Documents. We have assumed (i) that all natural persons have legal capacity, (ii) the genuineness of all signatures of all parties other than Borrower, (iii) the conformity to authentic original documents of all documents submitted to us as copies and the authenticity of all documents submitted to us as originals, (iv) that each of the Guarantor Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and in each other jurisdiction where the conduct of its business or the ownership of its Properties makes qualification or registration to transact business necessary, (v) as to all parties other than Borrower, the due authorization, execution and delivery of the Loan Documents, (vi) the validity and enforceability of the Loan Documents against all parties thereto other than Borrower and the Guarantor Subsidiaries, (vii) that each of the Bank Parties has the requisite power and authority, has obtained all necessary consents, licenses and permits, has taken all necessary action and has complied with any and all applicable laws with which such Bank Party is required to comply, in each case relating to or affecting the matters and actions contemplated by the Loan Documents, (viii) that each of the Bank Parties (other than Banc of America Securities LLC) is a national bank, state bank or similar financial institution and is an exempt lender under Article XV of the California Constitution or statutes enacted pursuant thereto, (ix) that the Loan Documents have not been modified, amended, terminated or revoked in any respect, and remain in full force and effect as of the date hereof and (x) that the parties to the Loan Documents are not subject to any special laws, regulations or restrictions that are not generally applicable to parties participating in transactions of the type contemplated by the Loan Documents and that would affect the validity, binding effect or enforceability of the Loan Documents or the performance by such parties of their obligations thereunder. 125 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 3 On the basis of the foregoing, and relying thereon, and with the qualifications herein set forth, we are of the opinion that: 1. Borrower is a corporation duly incorporated, validly existing and in good standing under the General Corporation Law of the State of Delaware, and its certificate of incorporation does not limit the term of its existence. 2. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute, deliver and perform all of its obligations under the Loan Documents to which it is a party. 3. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized by all necessary corporate action. 4. The execution, delivery and performance of the Loan Documents by Borrower do not violate any provision of Borrower's certificate of incorporation or bylaws, and the execution, delivery and performance by Borrower and each Guarantor Subsidiary of the Loan Documents to which it is a party do not violate any Requirement of Law applicable to Borrower or such Guarantor Subsidiary imposed by the laws of the United States of America or the State of California that, in our experience, is normally applicable to general business entities in relation to transactions of the type contemplated by the Loan Documents. 5. Except as have heretofore been obtained, no authorization, consent, approval, order, license, or permit from, or filing, registration, or qualification with, or exemption from any of the foregoing from any Governmental Agency under any Requirement of Law imposed on Borrower or any Guarantor Subsidiary by the laws of the United States of America or the State of California, in each case as such Requirements of Law exist on the date hereof, is or will be required to authorize or permit the execution, delivery and performance by Borrower or any Guarantor Subsidiary of the Loan Documents to which it is a party. 6. Each of the Loan Documents to which Borrower or any Guarantor Subsidiary is a party will, when executed and delivered by Borrower or such Guarantor Subsidiary, as the case may be, constitute the legal, valid and binding obligation of Borrower or such Guarantor Subsidiary, as the case may be, enforceable against Borrower or such Guarantor Subsidiary, as the case may be, in accordance with its terms. In addition to any assumptions, qualifications and other matters set forth elsewhere herein, the opinions set forth above are subject to the following: (a) Our opinion with respect to the legality, validity, binding effect and enforceability of any Loan Document, agreement, or provision is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer and equitable subordination, reorganization, moratorium, or similar law affecting creditors' rights generally and to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, estoppel, good faith and fair dealing (regardless of whether 126 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 4 considered in a proceeding in equity or at law). We express no opinion as to the availability of equitable remedies. In applying such equitable principles, a court, among other things, might not allow a creditor to accelerate the maturity of a debt or enforce a guaranty thereof upon the occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants. Such principles applied by a court might also include a requirement that a creditor act with reasonableness and in good faith. (b) Certain rights, remedies and waivers of the Loan Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Loan Documents taken as a whole and, except as set forth in subparagraph (a) above, the Loan Documents taken as a whole contain adequate provisions for enforcing payment of the Obligations; however, the unenforceability of such provisions may result in delays in or limitations on the enforcement of the parties' rights and remedies under the Loan Documents (and we express no opinion as to the economic consequences, if any, of such delays or limitations). (c) We call your attention to the following matters on which we express no opinion: (i) the agreements in the Loan Documents to indemnify the Bank Parties against costs or expenses or liability notwithstanding such parties' acts of negligence or willful misconduct; (ii) provisions in the Loan Documents for payment or reimbursement of costs, fees and expenses or indemnification for claims, losses, or liabilities to the extent any such provision may be determined by a court or other tribunal to be in an unreasonable amount, to constitute a penalty, or to be contrary to public policy; (iii) the agreements in the Loan Documents to the jurisdiction or venue of a particular court, to the waiver of the right to jury trial, or to be served with process by service upon a designated third party; (iv) any of the waivers or remedies contained in the Loan Documents, whether or not any Loan Document deems any such waiver or remedy commercially reasonable, if such waivers or remedies are determined (1) not to be commercially reasonable under applicable law, (2) to conflict with mandatory provisions of applicable law, (3) to be taken in a manner determined to be unreasonable or not performed in good faith or with fair dealing or with honesty in fact, or (4) to be broadly or vaguely stated or not to describe the right or duty purportedly waived with reasonable specificity; (v) provisions in the Loan Documents which may be construed as imposing penalties or forfeitures, late payment charges, or an 127 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 5 increase in interest rate, upon delinquency in payment or the occurrence of a default; (vi) any power of attorney granted under the Loan Documents; (vii) provisions in the Loan Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others, or that failure to exercise or a delay in exercising rights or remedies will not operate as a waiver of any such right or remedy; (viii) provisions in the Loan Documents which expressly or by implication waive or limit the benefits of statutory, regulatory, or constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allow such waiver or other limitation; (ix) the effect of Section 1698 of the California Civil Code which, among other matters, provides that a written contract may be modified by an oral agreement to the extent such agreement is performed by the parties; (x) the effect of Section 1670.5 of the California Civil Code which provides that a court may not enforce or may limit the application of a contract or portions thereof which it finds as a matter of law to have been unconscionable at the time the contract was made; (xi) the effect of any Bank Party's compliance or noncompliance with any state or federal laws or regulations applicable to it or applicable to the transactions contemplated by the Loan Documents due to the nature of such Bank Party's business; (xii) the effect of (1) any modification or alteration of the Loan Documents or other agreements with Borrower affecting the obligations of Borrower, (2) an election of remedies by the Bank Parties, or (3) any other action by the Bank Parties that materially prejudices any Guarantor Subsidiary if such modification, election, or action occurs without notice to the Guarantor Subsidiaries and without giving the Guarantor Subsidiaries an opportunity to cure any default by Borrower; (xiii) the enforceability of any provision in the Loan Documents which provide that such Loan Documents may only be modified in writing; and 128 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 6 (xiv) the validity and enforceability of covenants set forth in the Loan Documents which purport to survive the repayment of the indebtedness evidenced therein. Our opinions expressed herein are limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the federal laws of the United States of America, and we do not express any opinion herein concerning any other law, including, but not limited to, ordinances, regulations or practices of any county, city, or other government agency or body within the State of California. This Opinion is being provided at the specific request of our client, is rendered to you in connection with the transaction referred to above and may not be relied upon (x) by any person other than the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party or (y) by the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party in any other context. Copies hereof may be furnished (a) to your independent auditors and attorneys, (b) to any governmental agency or authority having regulatory jurisdiction over you, (c) pursuant to an order of legal process of any court or of any governmental agency or authority, or (d) in connection with any legal action to which you are a party arising out of the transaction referred to above. This opinion is rendered as of the date hereof, and we hereby disclaim any obligation to advise any person entitled to rely hereon of any change in the matters stated herein. Very truly yours, /s/ MUNGER, TOLLES & OLSON LLP 129 EXHIBIT E BORROWER: KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation GUARANTORS: See Schedule 1 hereto TO: BANK OF AMERICA, N.A., for itself and as Administrative Agent SUBSIDIARY GUARANTY THIS SUBSIDIARY GUARANTY ("Guaranty") dated as of October 3, 2000, is made by each of the parties listed on Schedule 1 hereto, together with each other person who may become a party hereto pursuant to Section 10 of this Guaranty (each, a "Guarantor" and collectively, "Guarantors"), jointly and severally, in favor of Bank of America, N.A., as Administrative Agent, the Syndication Agent, the Documentation Agent and the Banks (as those terms are defined in the below-referenced Loan Agreement), with reference to the following facts: RECITALS A. Pursuant to the 2000 Revolving Loan Agreement of even date herewith entered into by and among Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"), the Banks signatory thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent (as the same may be amended from time to time, the "Loan Agreement"), the Banks are making a credit facility available to Borrower. B. As a condition of the availability of such credit facility, Guarantors are required to enter into this Guaranty. C. Guarantors expect to realize direct and indirect benefits as the result of the availability of the aforementioned credit facility, and as the result of the execution of this Guaranty. AGREEMENT NOW, THEREFORE, in order to induce the Banks to extend the aforementioned credit facility, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, each Guarantor hereby represents, warrants, covenants, agrees and guaranties as follows: (1) Terms used in this Guaranty but not defined herein shall have the meanings defined for them in the Loan Agreement. (2) Guarantors unconditionally guarantee and promise to pay to Bank of America, N.A., as the Administrative Agent for the Banks, on demand, in lawful money of the United States, any and all Indebtedness of Borrower then due to the Banks. The word "Indebtedness" means any and all (Exhibit E, Page 1 of 9) 130 advances, debts, obligations and liabilities of Borrower heretofore, now, or hereafter made, incurred or created under the Loan Agreement and under the Loan Documents, and whether Borrower may be liable individually or jointly with others, or whether such Indebtedness may be or hereafter becomes otherwise unenforceable. (3) This Guaranty is irrevocable in nature, is a guaranty of prompt and punctual payment and performance of all Indebtedness of Borrower, and is not merely a guaranty of collection. The Indebtedness guaranteed hereunder includes that arising under successive transactions which shall either continue the Indebtedness from time to time or renew it after it has been satisfied. Anything in this Guaranty to the contrary notwithstanding, the maximum liability of any Guarantor hereunder shall be limited to the extent required for the obligation of such Guarantor to be valid, binding and enforceable and not otherwise voidable or avoidable. (4) The obligations hereunder are joint and several, and independent of the obligations of Borrower and any of its other Subsidiaries. Separate action or actions may be brought and prosecuted against any Guarantor whether action is brought against the Borrower or any of its other Subsidiaries, including any other Guarantor, or whether Borrower or any of its other Subsidiaries, including any other Guarantor, may be joined in any such action or actions. (5) Each Guarantor authorizes the Banks, without notice or demand and without affecting its liability hereunder, from time to time to (a) renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Indebtedness guaranteed, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent or any Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. (6) Each Guarantor waives, to the fullest extent permitted by applicable law, any right to require any Bank to (a) proceed against Borrower or any of its other Subsidiaries, including any other Guarantor; (b) proceed against or exhaust any security held from Borrower or any of its Subsidiaries; or (c) pursue any other remedy in the Banks' power whatsoever. Each Guarantor waives any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower, other than payment in full of the Indebtedness. Until all Indebtedness of Borrower to the Banks shall have been paid in full, each Guarantor waives any right to enforce any remedy which the Banks now have or may hereafter have against Borrower or any of its other Subsidiaries, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Banks. Guarantors waive all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise. Guarantors expressly waive to the fullest extent permitted by applicable Law all other suretyship defenses they otherwise might or would have under any Law. Each Guarantor waives any right of subrogation that it may have in respect to the obligations of Borrower to the Banks. Each Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Indebtedness. (Exhibit E, Page 2 of 9) 131 (7) After demand upon the Guarantors for payment under this Guaranty, each Guarantor hereby specifically authorizes each Bank (subject to the approval of the Majority Banks) in which such Guarantor maintains a deposit account (whether a general or special deposit account, other than trust accounts) or a certificate of deposit to setoff any Obligations owed to the Banks against such deposit account or certificate of deposit without prior notice to any Guarantor (which notice is hereby waived) whether or not such deposit account or certificate of deposit has then matured. Nothing in this paragraph shall limit or restrict the exercise by a Bank of any right to setoff or banker's lien under applicable Law, subject to the approval of the Majority Banks. (8) Each Guarantor represents and warrants to the Banks that it has established adequate means of obtaining from Borrower and its Subsidiaries, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of Borrower and its Subsidiaries, and that Guarantor now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of Borrower and its Subsidiaries. Each Guarantor hereby expressly waives and relinquishes any duty on the part of the Banks (should any such duty exist) to disclose to any Guarantor any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of Borrower or its Subsidiaries, whether now known or hereafter known by the Banks during the life of this Guaranty. (9) Guarantors agree to pay, within 30 days after demand, the reasonable out-of-pocket costs and expenses of the Administrative Agent and each of the Banks in connection with the enforcement of this Guaranty, including without limitation the reasonable fees and out-of-pocket expenses of any legal counsel retained by the Administrative Agent or any of the Banks. (10) Any other Person may become a Guarantor under, and become bound by the terms and conditions of, this Guaranty by executing and delivering to the Administrative Agent an Instrument of Joinder substantially in the form attached hereto as Exhibit A. (11) This Guaranty shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. "GUARANTORS" KAUFMAN AND BROAD OF ARIZONA, INC., an Arizona corporation By:_________________________________ William R. Hollinger Vice President and Assistant Secretary KAUFMAN AND BROAD - CENTRAL VALLEY, INC., a California corporation By:_________________________________ William R. Hollinger Vice President and Assistant Secretary (Exhibit E, Page 3 of 9) 132 KAUFMAN AND BROAD COASTAL, INC., a California corporation By:_________________________________ William R. Hollinger Vice President and Assistant Secretary KAUFMAN AND BROAD OF NORTHERN CALIFORNIA, INC., a California corporation By:_________________________________ William R. Hollinger, Assistant Secretary KAUFMAN AND BROAD OF SACRAMENTO, INC., a California corporation By:_________________________________ William R. Hollinger Vice President, Chief Financial Officer and Assistant Secretary KAUFMAN AND BROAD - SOUTH BAY, INC., a California corporation By:_________________________________ William R. Hollinger, Assistant Secretary KAUFMAN AND BROAD OF SOUTHERN CALIFORNIA, INC., a California corporation By:_________________________________ William R. Hollinger, Chief Financial Officer, Treasurer and Assistant Secretary (Exhibit E, Page 4 of 9) 133 KB HOLDINGS ONE, INC., a California corporation By:_________________________________ William R. Hollinger Vice President, Treasurer, Chief Financial Officer and Assistant Secretary KAUFMAN AND BROAD OF COLORADO, INC., a Colorado corporation By:_________________________________ William R. Hollinger, Vice President and Assistant Secretary KAUFMAN AND BROAD OF NEVADA, INC., a Nevada corporation By:_________________________________ William R. Hollinger Vice President, Treasurer and Assistant Secretary KAUFMAN AND BROAD OF TEXAS, LTD., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By:_________________________________ William R. Hollinger, Treasurer and Assistant Secretary (Exhibit E, Page 5 of 9) 134 KAUFMAN AND BROAD DEVELOPMENT OF TEXAS, L.P., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By:_________________________________ William R. Hollinger, Treasurer and Assistant Secretary KAUFMAN AND BROAD LONE STAR, L.P., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By:_________________________________ William R. Hollinger, Treasurer and Assistant Secretary (Exhibit E, Page 6 of 9) 135 SCHEDULE I TO GUARANTY List of Guarantors Kaufman and Broad of Arizona, Inc. Kaufman and Broad - Central Valley, Inc. Kaufman and Broad Coastal, Inc. Kaufman and Broad of Northern California, Inc. Kaufman and Broad of Sacramento, Inc. Kaufman and Broad - South Bay, Inc. Kaufman and Broad of Southern California, Inc. KB Holdings One, Inc. Kaufman and Broad of Colorado, Inc. Kaufman and Broad of Nevada, Inc. Kaufman and Broad of Texas, Ltd. Kaufman and Broad Development of Texas, L.P. Kaufman and Broad Lone Star, L.P. (Exhibit E, Page 7 of 9) 136 INSTRUMENT OF JOINDER THIS INSTRUMENT OF JOINDER ("Joinder") is executed as of_____________________, by__________________________________, a____________________ ("Joining Party"), and delivered to the Administrative Agent pursuant to the Subsidiary Guaranty dated as of October 3, 2000 (the "Guaranty"). Terms used but not defined in this Joinder shall have the meanings defined for those terms in the Guaranty. RECITALS A. The Guaranty was made by the Guarantors in favor of the Banks that are parties to that certain 2000 Revolving Loan Agreement, dated as of October 3, 2000 (the "Loan Agreement") among Kaufman and Broad Home Corporation, as Borrower, the Banks signatory thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent. B. Joining Party has become a Significant Subsidiary (as defined in the Loan Agreement) or has been designated by Borrower as a Guarantor Subsidiary (as defined in the Loan Agreement), and as such is required pursuant to Section 5.9 of the Loan Agreement to become a Guarantor. C. Joining Party expects to realize direct and indirect benefits as a result of the availability to Borrower of a credit facility pursuant to the Loan Agreement, and as a result of becoming a party to the Guaranty. NOW THEREFORE, Joining Party agrees as follows: AGREEMENT 1. By this Joinder, Joining Party becomes a "Guarantor" under and pursuant to Section 10 of the Guaranty. Joining Party agrees that, upon its execution hereof, it will become a Guarantor under the Guaranty with respect to all Indebtedness of Borrower heretofore or hereafter incurred under the Loan Agreement, and will be bound by all terms, conditions, and duties applicable to a Guarantor under the Guaranty. Page 1 of 2 (Exhibit E, Page 8 of 9) 137 2. The effective date of this Joinder is_______________________. "Joining Party" _____________________________________ a____________________________________ By:__________________________________ __________________________________ Printed Name and Title ACKNOWLEDGED: BANK OF AMERICA, N.A., as Administrative Agent By:___________________________________ ___________________________________ Printed Name and Title KAUFMAN AND BROAD HOME CORPORATION By:___________________________________ ___________________________________ Printed Name and Title Page 2 of 2 (Exhibit E, Page 9 of 9) 138 EXHIBIT F
31-Aug-00 31-Aug-00 ------------------------------------------------- ------------------------------------------------- - ------------ Deliveries Sales Backlog Avg Price Backlog Deliveries Sales Backlog Avg Price Backlog Division Quarter Quarter Units (000's) Value Quarter Quarter Units (000's) Value - ------------ ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Greater LA............. 0 0 0 $0 $0 0 0 0 $0 $0 Orange County.......... 0 0 0 0 0 0 0 0 0 0 San Diego.............. 0 0 0 0 0 0 0 0 0 0 Northbay............... 0 0 0 0 0 0 0 0 0 0 Southbay............... 0 0 0 0 0 0 0 0 0 0 Monterey Bay........... 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Total California...... 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Las Vegas*............. 0 0 0 0 0 0 0 0 0 0 Reno................... 0 0 0 0 0 0 0 0 0 0 Phoenix................ 0 0 0 0 0 0 0 0 0 0 Tuscon................. 0 0 0 0 0 0 0 0 0 0 New Mexico............. 0 0 0 0 0 0 0 0 0 0 Dallas................. 0 0 0 0 0 0 0 0 0 0 Houston................ 0 0 0 0 0 0 0 0 0 0 San Antonio............ 0 0 0 0 0 0 0 0 0 0 Austin................. 0 0 0 0 0 0 0 0 0 0 Colorado............... 0 0 0 0 0 0 0 0 0 0 Utah................... 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Total Other US........ 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Total United States... 0 0 0 0 0 0 0 0 0 0 Maisons Individuelles.. 0 0 0 0 0 0 0 0 0 0 KBD.................... 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Total France.......... 0 0 0 0 0 0 0 0 0 0 Mexico................. 0 0 0 0 0 0 0 0 0 0 ---------- ------- -------- --------- ------- ---------- ------- ------- --------- ------- Total................. 0 0 0 $0 $0 0 0 0 $0 $0 ========== ======= ======== ========= ======= ========== ======= ======= ========= ======= *Includes unconsolidated Monaco joint venture......... 0 0 0 $0 $0 0 0 0 $0 $0 ========== ======= ======== ========= ======= ========== ======= ======= ========= ======= California............. 0% 0% 0% 0% 0% 0% 0% 0% Other US............... 0% 0% 0% 0% 0% 0% 0% 0% Total United States... 0% 0% 0% 0% 0% 0% 0% 0% France................. 0% 0% 0% 0% 0% 0% 0% 0% Mexico................. 0% 0% 0% 0% 0% 0% 0% 0% Total................. 0% 0% 0% 0% 0% 0% 0% 0%
Difference ------------------------------------------------- - ------------ Deliveries Sales Backlog Avg Price Backlog Division Quarter Quarter Units (000's) Value - ------------ ---------- ------- -------- --------- ------- Greater LA............. 0 0 0 $0 $0 Orange County.......... 0 0 0 0 0 San Diego.............. 0 0 0 0 0 Northbay............... 0 0 0 0 0 Southbay............... 0 0 0 0 0 Monterey Bay........... 0 0 0 0 0 ---------- ------- -------- --------- ------- Total California...... 0 0 0 0 0 ---------- ------- -------- --------- ------- Las Vegas*............. 0 0 0 0 0 Reno................... 0 0 0 0 0 Phoenix................ 0 0 0 0 0 Tuscon................. 0 0 0 0 0 New Mexico............. 0 0 0 0 0 Dallas................. 0 0 0 0 0 Houston................ 0 0 0 0 0 San Antonio............ 0 0 0 0 0 Austin................. 0 0 0 0 0 Colorado............... 0 0 0 0 0 Utah................... 0 0 0 0 0 ---------- ------- -------- --------- ------- Total Other US........ 0 0 0 0 0 ---------- ------- -------- --------- ------- Total United States... 0 0 0 0 0 Maisons Individuelles.. 0 0 0 0 0 KBD.................... 0 0 0 0 0 ---------- ------- -------- --------- ------- Total France.......... 0 0 0 0 0 Mexico................. 0 0 0 0 0 ---------- ------- -------- --------- ------- Total................. 0 0 0 $0 $0 ========== ======= ======== ========= ======= *Includes unconsolidated Monaco joint venture......... 0 0 0 $0 $0 ========== ======= ======== ========= =======
139 EXHIBIT G KAUFMAN AND BROAD HOME CORPORATION SUMMARY OF INVENTORY AS OF MAY 31, 2000
Inventory Book Value (Thousands) Size of Project (Lots/Acres) --------------------------------- ------------------------------------------------------------- Homes/Lots Land Under Secured Total Total Land in Production Land Under Development Total in Prod Development Debt Lots Acres W/Homes WO/Homes Lots Acres ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- CALIFORNIA Greater LA Orange County San Diego Northbay Southbay ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- TOTAL CALIFORNIA - - - - - - - - - - ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- OTHER US LAS VEGAS RENO PHOENIX TUCSON NEW MEXICO DALLAS HOUSTON SAN ANTONIO AUSTIN COLORADO UTAH ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- TOTAL OTHER US - - - - - - - - - - ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- TOTAL UNITED STATES - - - - - - - - - - FRANCE Maisons Individuelles KBD ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- TOTAL FRANCE - - - - - - - - - - ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- MEXICO OTHER PROPERTIES #REF! ----- ---------- ----------- ------- ----- ----- ------- ---------- ---------- ----------- TOTAL INVENTORY $ - $ - $ - $ - - - - - #REF! - ===== ========== =========== ======= ===== ===== ======= ========== ========== =========== -------------------------------------------------------------- Key: SFD Single Family Detached OPT Option SFA Single Family Attached OFF Office Buildings APP Apartments IND Industrial MPC Master Planned Community COM Commercial CON Condominium REN Renovation --------------------------------------------------------------
140 SCHEDULE 1.1 KAUFMAN & BROAD HOME CORP. NEW 2000 TERM COMMITMENTS
PRORATA SHARE AS OF ------------------- PERCENT DOLLARS BANK COMMITMENT COMMITMENTS - ---- ------------- ------------------- BANK OF AMERICA 33.519726623% $ 53,950,000.00 CREDIT LYONNAIS 13.793103448% $ 22,200,000.00 BANK ONE 13.793103448% $ 22,200,000.00 GUARANTY FEDERAL 6.896551724% $ 11,100,000.00 BANK UNITED 8.275862069% $ 13,320,000.00 SUN TRUST 6.896551724% $ 11,100,000.00 IBJ 2.758620690% $ 4,440,000.00 COMERICA 4.137931034% $ 6,660,000.00 KBC 1.652687170% $ 2,660,000.00 PNC BANK 4.827586207% $ 7,770,000.00 CITICORP USA, INC. 3.448275862% $ 5,550,000.00 TOTAL 100.00% $160,950,000.00
141 SCHEDULE 3.18 STANDBY CENTERS OF CREDIT KAUFMAN AND BROAD HOME CORPORATION EXISTING LETTER OF CREDITS AS OF OCTOBER 3, 2000
ISSUE AMEND FINANCIAL OR SBLC No. DATE DATE ISSUED ON BEHALF OF: PERFORMANCE - -------- ----- ----- -------------------- ------------ 3004804 06/02/97 4/1/2000 Kaufman & Broad of San Diego Performance 3005229 07/01/97 5/10/2000 Kaufman & Broad Coastal Inc. Financial 3007535 11/10/97 5/25/00 Kaufman & Broad of Colorado, Inc. Performance 3007536 11/10/97 5/28/00 Kaufman & Broad of Colorado, Inc. Performance (EFF. 5/28/2000) 3008153 12/23/97 10/22/99 Affordable Multi-Family, Inc. Financial 3008963 02/24/98 4/4/00 Kaufman & Broad of Southern Calif. Inc. Financial Notice per Exhibit C 3011985 09/15/98 9/11/00 Kaufman and Broad of Utah, Inc. Performance 3011986 09/15/98 9/11/00 Kaufman and Broad of Utah, Inc. Performance 3012004 09/16/98 9/11/00 Kaufman and Broad of Utah, Inc. Performance 3012005 09/16/98 9/11/00 Kaufman and Broad of Utah, Inc. Performance 3012521 10/13/98 9/20/99 Kaufman and Broad of Colorado, Inc. Financial 3012542 10/13/98 9/20/99 Kaufman and Broad of Colorado, Inc. Financial 3012617 11/05/98 5/12/00 Kaufman and Broad of Utah, Inc. Performance (EFF. 5/12/2000) 3012828 11/05/98 5/25/00 Kaufman and Broad of Northern Calif. Inc. Financial 3013665 12/22/98 12/22/99 Kaufman and Broad of San Diego, Inc. Performance 3014319 01/27/99 5/24/00 Kaufman and Broad of Utah, Inc. Performance (EFF. 5/24/2000) 3015041 03/09/99 3/8/00 Kaufman and Broad of San Diego, Inc. Performance (EFF. 3/8/2000) 3015165 03/16/99 9/15/00 Kaufmann and Broad of Utah, Inc. Performance (EFF. 9/15/2000) 3015184 03/17/99 3/9/00 Kaufman and Broad Multi-Housing Group, Inc. Performance 3015835 04/22/99 Kaufman and Broad of San Diego, Inc. Performance 3016273 06/14/99 5/12/00 Kaufman and Broad of Arizona Financial (EFF. 5/12/2000) 3016770 06/14/99 5/8/00 Kaufman and Broad Lone Star, L.P. Financial 3016635 08/11/99 5/9/00 Kaufman and Broad of Sacramento, Inc. Financial
SBLC SBLC AMOUNT SBLC No. BENEFICIARY EXPIRY DATE 100% - -------- ----------- ----------- ------ 3004804 City of Oceanside 04/30/01 15,431.00 3005229 Brea-Olinda Joint Venture & Bank One, Arizona, NA 04/30/01 1,859,914.00 AUTO RENEWAL 6 MOS 3007535 Town of Superior &/or Superior Metro 04/30/01 305,277.00 District #2 3007536 Town of Superior &/or Superior Metro 04/30/01 698,223.00 Exlred 3008153 State Street Bank & Trust Co. of MO, NA 12/31/00 100,000.00 3008963 Union Bank of California, NA 02/01/01 325,136.84 Auto Extended 3011985 Ogden City Corporation Utah, a Utah Municipal Corporation 03/15/01 42,282.00 3011986 Ogden City Corporation Utah, a Utah Municipal Corporation 03/15/01 56,245.00 3012004 Ogden City Corporation Utah, a Utah Municipal Corporation 03/15/01 48,059.40 3012005 Ogden City Corporation Utah, a Utah Municipal Corporation 03/15/01 131,014.83 3012521 Board of County Commissioners of Arapahoe County 10/13/00 574,993.00 3012542 Board of County Commissioners of Arapahoe County 10/13/00 25,000.00 3012617 Lehi City Corporation 12/31/00 38,215.00 3012828 City of Dublin 10/30/00 336,500.00 3013665 City of Oceanside 12/22/00 57,000.00 3014319 Lehi City Corporation 12/31/00 102,155.00 3015041 Rainbow Municipal Water District 03/09/01 579,072.00 3015105 Woods Cross City a Municipal Corporation 03/17/01 77,811.83 of the State of Utah 3015184 Virginia Housing Development Authority 03/17/01 2,500,000.00 3015835 City of Oceanside 04/22/01 26,900.00 3016273 First American Title Company 11/14/00 882,610.87 3016770 Mission Glenn South, L.T.D. 04/30/01 200,000.00 3016635 City of Rocklin 04/30/01 542,287.00
142 STANDBY LETTERS OF CREDIT KAUFMAN AND BROAD HOME CORPORATION
FINANCIAL ISSUE AMEND OR SBLC NO. DATE DATE ISSUED ON BEHALF OF: PERFORMANCE - ------------ -------- ------------------ ------------------------------------------ ----------- 3018494 08/18/99 Kaufman and Broad Multi-Housing Group Inc. Performance 3018551 08/30/99 7/7/00 Kaufman and Broad Home Corporation Financial Effective 7/6/2000 3018745 09/03/99 Kaufman and Broad Multi-Housing Group Inc. Performance 3018973 09/07/99 Kaufman and Broad Multi-Housing Group Inc. Performance 3019204 10/08/99 9/6/00 Kaufman and Broad Home Corporation Financial 3020671 11/13/99 Kaufman and Broad Multi-Housing Group Inc. Financial 3021899 12/28/99 Kaufman and Broad of Southern Calif. Inc. Financial 3021233 12/30/99 Kaufman and Broad of Northern California Financial 3021773 12/30/99 Kaufman and Broad of Northern California Financial 3022124 01/06/00 Kaufman and Broad of Tucson, Inc. Financial 3022137 01/07/00 Kaufman and Broad Multi-Housing Financial 3022368 01/14/00 Kaufman and Broad Multi-Housing Financial 3022482 01/19/00 8/1/00 Kaufman and Broad of Colorado, Inc. Financial 3022739 01/28/00 Kaufman and Broad of Utah Performance 3023152 02/11/00 Kaufman and Broad of Southern Calif. Performance 3022941 02/17/00 Kaufman and Broad - South Bay Inc. Financial 3023351 02/23/00 Kaufman and Broad Multi-Housing Financial 3023350 02/23/00 Kaufman and Broad Multi-Housing Financial 3023707 03/03/00 Kaufman and Broad of Colorado, Inc. Financial 3024018 03/17/00 Kaufman and Broad Lone Star, LP Financial 3024241 03/20/00 Kaufman and Broad of Southern California Financial 3024742 04/06/00 Kaufman and Broad Multi-Housing Financial 3028383 08/14/00 Kaufman and Broad of Tucson, Inc. Financial 3028810 08/25/00 Kaufman and Broad Lone Star LP Financial 3029279 09/11/00 Kaufman and Broad of San Diego Performance 3029552 10/03/00 Kaufman and Broad of San Diego Financial TOTAL NUMBER 49 OF L/CS
SBLC SBLC EXPIRY AMOUNT SBLC NO. BENEFICIARY DATE 100% - ------------ ----------- ------ ------ 3018494 FNMA 04/09/01 91,350.00 3018551 SLF Hasley & Wells Fargo Bank 04/30/01 5,690,000.00 Effective 12/1/99 3018745 FNMA 04/30/01 53,460.00 3018973 FNMA 4/30/2001 68,000.00 3019204 Bank One Arizona NA 04/30/01 1,088,000.00 3020671 FNMA 04/15/01 39,360.00 3021899 Metropolitan Escrow Co. 04/30/01 2,170,500.00 3021233 City of Patterson 04/30/01 4,975,000.00 3021773 City of Patterson 12/08/00 853,855.00 3022124 Vistoso Partners, LLC 10/31/00 480,000.00 3022137 FNMA 04/30/01 23,200.00 3022368 FNMA 04/30/01 43,920.00 3022482 Board of Commissions of Arapaho County 01/31/01 78,126.13 3022730 Woods Cross City a Municipal Corp. 04/30/01 622,654.20 3023152 Coachella Valley Water District 04/30/01 12,717.50 3022841 City of San Jose 01/31/01 403,537.52 3023351 FNMA 04/30/01 18,600.00 3023350 FNMA 04/30/01 31,000.00 3023707 Board of Commissions of Arapaho County 03/01/01 90,539.10 3024018 Lawyers Title Company 03/15/01 266,000.00 3024241 Wells Fargo Bank 04/15/01 800,000.00 3024742 FNMA 04/30/01 88,000.00 3028383 First American Title 04/30/01 75,000.00 3028810 Hillwood Services LP 04/30/01 428,960.00 3029270 City of Oceanside 04/30/01 207,349.00 3029552 City of Chula Vista 04/30/01 35,840.00 TOTAL NUMBER L/C OUTSTANDINGS 27,835,198.47 OF L/CS ALLOCATION AVAILABLE: 72,164,801.53 ALLOCATION AT 100%: 100,000,000.00
143 SCHEDULE 4.4 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES KEY TO "TYPES" S = SIGNIFICANT SUBSIDIARY G = GUARANTOR SUBSIDIARY Fo = FOREIGN SUBSIDIARY Fi = FINANCIAL SUBSIDIARY (NOTE: ALL GUARANTOR SUBSIDIARIES ARE ALSO SIGNIFICANT SUBSIDIARIES)
ARIZONA CORPORATIONS % TYPE(S) - -------------------- --- ------- Kaufman and Broad of Arizona, Inc. 100 S/G Kaufman and Broad Home Sales of Arizona, Inc. 100 Kaufman and Broad of Tucson, Inc. 100 Kaufman and Broad Home Sales of Tucson, Inc. 100 CALIFORNIA CORPORATIONS - ----------------------- BPP Holdings, Inc. 100 Branching Tree Corp. 100 Cable Associates, Inc. 100 Custom Decor, Inc. 100 First Northern Builders Servicing, Inc. 100 KBASW Mortgage Acceptance Corporation 100 Fi KBI/Mortgage Acceptance Corporation 100 Fi KBRAC IV Mortgage Acceptance Corporation 100 Fi Kaufman and Broad Architecture, Inc. 100 Kaufman and Broad - Central Valley, Inc. 100 S/G Kaufman and Broad Coastal, Inc. 100 S/G Kaufman and Broad Communities, Inc. 100 Kaufman and Broad Development Group 100 Kaufman and Broad Embarcadero, Inc. 100 Kaufman and Broad Holdings, Inc. 100 Kaufman and Broad Home Sales, Inc. 100 Kaufman and Broad Home Sales of Northern California, Inc. 100 Kaufman and Broad Insurance Agency, Inc. 100 Kaufman and Broad International, Inc. 100 Kaufman and Broad Land Company 100 Kaufman and Broad Land Development Venture, Inc. 100 Kaufman and Broad - Monterey Bay, Inc. 100 Kaufman and Broad - Moreno/Perris Valleys, Inc. 100 Kaufman and Broad Multi-Family, Inc. 100 Kaufman and Broad of Northern California, Inc. 100 S/G Kaufman and Broad Patterson, Inc. 100 Kaufman and Broad Properties 100
144 Kaufman and Broad of Sacramento, Inc. 100 S/G Kaufman and Broad of San Diego, Inc. 100 Kaufman and Broad - South Bay, Inc. 100 S/G Kaufman and Broad of Southern California, Inc. 100 S/G Kaufman and Broad of Utah, Inc. 100 KB Holdings One, Inc. 100 S/G Kent Land Company 100 Kingsbay Escrow Company 100 Lewis Homes Management Corp. 100 Mather Housing Company, LLC 100 CANADIAN CORPORATIONS - --------------------- Margreen Investments, Inc. 100 Fo 3238865 Canada Inc. 100 Fo COLORADO CORPORATION - -------------------- Kaufman and Broad of Colorado, Inc. 100 S/G DELAWARE CORPORATIONS/LLCs - -------------------------- Eden Land Development Corp. 100 e.KB, Inc. 100 Estes Homebuilding Co. 100 General Homes Corporation 100 General Homes of Arizona 100 General Homes of Dallas 100 General Homes of Florida 100 General Homes of Houston 100 General Homes Development LLC 100 GH Homebuilding Holdings, Inc. 100 HomeSafe Escrow Company 100 KB City Ranch, Inc. 100 International Mortgage Acceptance Corporation 100 Fi Kaufman and Broad Development Company 100 Kaufman and Broad Limited 100 KBHC Financing I 3 LHE Arctic LLC 100 LHN Arctic LLC 100 LDC Arctic LLC 100 LP Arctic LLC 100 LHC Arctic LLC 100 rateOne Home Loans, LLC 100 Fi Rate One Associates, Inc. 100 Fi Rate One Holdings, Inc. 100 Fi
145 FRENCH CORPORATIONS - ------------------- Kaufman and Broad Developpement SA. 57.47 Fo/S Kaufman and Broad SA. 57.47 Fo/S Kaufman and Broad Promotion Maisons Individuelles SA. 57.47 Fo Kaufman and Broad Renovation S.A.R.L. 57.47 Fo SMCI Developpement. SA. 57.47 Fo Gie KB 57.47 Fo Park SA 57.46 Fo Millet, S. A. R. L. 57.47 Fo LMP Chancy S. A. R. L. 57.47 Fo ILLINOIS CORPORATIONS - --------------------- Kaufman and Broad of Illinois, Inc. 100 Kaufman and Broad Mortgage Company 100 Fi/S MASSACHUSETTS CORPORATION - ------------------------- Kaufman and Broad Homes, Inc. 100 MEXICAN CORPORATIONS - -------------------- Kaufman y Broad de Mexico 100 Fo Kaufman y Broad Asesoria Administrativa 100 Fo Operadora Los Robles 100 Fo Desarrollos Los Robles 100 Fo MICHIGAN CORPORATION - -------------------- Keywick, Inc. 100 MINNESOTA CORPORATION - --------------------- Kaufman and Broad Custom Homes, Inc. 100 NEVADA CORPORATION - ------------------ Desert Inn Development, LLC 100 Kaufman and Broad Home Sales of Nevada, Inc. 100 Kaufman and Broad of Nevada, Inc. 100 S/G Kaufman and Broad Home Sales of Reno, Inc. 100 Kaufman and Broad of Reno, Inc. 100 Lewis Homes - Carlyle Venture L. L. C. 50
146 NEW MEXICO CORPORATIONS - ----------------------- Kaufman and Broad Home Sales of New Mexico, Inc. 100 Kaufman and Broad of New Mexico, Inc. 100 NEW YORK CORPORATION - -------------------- Kaufman and Broad Homes of Long Island, Inc. 100 TEXAS CORPORATIONS AND PARTNERSHIPS - ----------------------------------- Eden Corporation 100 Envirographic, Inc. 100 FGMC, Inc. 100 Hallmark Residential Group, Inc. 100 Kaufman and Broad of Texas, Ltd. 100 S/G Kaufman and Broad Development of Texas, L. P. 100 S/G Kaufman and Broad Lone Star, LP 100 S/G KBSA Inc. 100 Rayco Land Development, Inc. 100 San Antonio Title Co. 100 SATEX Properties, Inc. 100 Quoin Investments, Inc. 100
147 SCHEDULE 4.7 EXISTING LIENS OR RIGHTS OF OTHERS AS OF AUGUST 31, 2000 NONE (Schedule 4.7 -Page 1 of 1) 148 SCHEDULE 4.9 Existing Indebtedness and Contingent Guaranty Obligations as of August 31, 2000
Amount Total --------- -------- $ (000) $ (000) DEBT: KBHC SECURED DEBT: California 12,007 Other U.S. 6,671 International 8,659 27,337 KBMC SECURED DEBT: Commercial Paper 305,895 Mortgage Warehouse Facility 31,245 337,140 UNSECURED DEBT: Senior Debt 7-3/4% 175,000 Senior Sub Debt 9-3/8% 174,491 Senior Sub Debt 9-5/8% 124,568 Revolving Credit Line 397,000 Other Unsecured 94,848 965,907 --------- TOTAL DEBT 1,330,384 ========= CONTINGENT GUARANTEE OBLIGATIONS: KBHC Letters of Credit 37,445 Simpson Housing 45,146 TOTAL CONTINGENT GUARANTEE OBLIGATIONS 82,591 ========= TOTAL DEBT AND CONTINGENT CONTINGENT GUARANTEE OBLIGATIONS 1,412,975 =========
149 SCHEDULE 6.4 G INVESTMENTS IN AND ADVANCES TO JOINT VENTURES FYE 11-30-00 (000'S)
11-30-99 2-29-00 5-31-00 8-31-00 11-30-00 --------------------------------------------------------- CONSTRUCTION GREATER LA City Ranch 15,906 16,469 16,431 16,451 -- --------------------------------------------------------- Total 15,906 16,469 16,431 16,451 -- --------------------------------------------------------- LAS VEGAS Carlyle 907 1,872 1,848 2,398 -- --------------------------------------------------------- Total 907 1,872 1,848 2,398 -- --------------------------------------------------------- NEW MEXICO Paradise Green 2 2 2 2 -- Las Ventanas 251 252 301 301 -- --------------------------------------------------------- Total 253 254 303 303 -- --------------------------------------------------------- HOUSTON Southwyck Management 35 35 -- -- -- Performance Mortgage Partners, Ltd. 25 25 -- -- -- --------------------------------------------------------- Total 60 60 -- -- -- --------------------------------------------------------- MAISONS INDIVIDUELLES Villabe Les Heurts (8) (8) (10) (9) -- --------------------------------------------------------- Total (8) (8) (10) (9) -- --------------------------------------------------------- KBD Issy Guynemer (104) (1) (1) (1) -- Des Pepinieres (26) 3 2 2 -- Emile Meunier 62 61 57 55 -- Haussmann 1,302 1,248 1,213 1,113 -- Hoche Monceau 24 11 11 10 -- Meudon Les Montalets (2) (2) (2) (2) -- Villa D'Auteuil 2,409 2,306 2,240 2,121 -- Terrasse De Chatillon (134) (127) (94) (118) -- Domaine De Verneuil 558 537 100 64 -- Park D'Alembert (102) (25) 2 1 -- Sarl Samlou 185 503 550 737 -- Rouselle -- 1 2 14 -- Quai de la Marne -- 87 4 4 -- Archeveche -- -- (1) (1) -- Ave du Maine -- 376 4 39 -- Quadrilatere -- (360) (2) (27) -- Dohomey -- (2) -- -- -- Illot Paille -- (82) (19) 204 -- Briand -- 80 328 34 -- --------------------------------------------------------- Total 4,172 4,614 4,395 4,249 -- --------------------------------------------------------- Total 21,290 23,261 22,967 23,392 -- =========================================================
EX-10.21 6 v65422ex10-21.txt EXHIBIT 10.21 1 EXHIBIT 10.21 EXECUTION ---------------------------------- 2000 TERM LOAN AGREEMENT Dated as of October 3, 2000 among KAUFMAN AND BROAD HOME CORPORATION as Borrower THE BANKS PARTY HERETO BANK OF AMERICA, N.A., as Administrative Agent CREDIT LYONNAIS LOS ANGELES BRANCH, as Syndication Agent BANK ONE, NA, as Documentation Agent and BANC OF AMERICA SECURITIES LLC, as Lead Arranger and Sole Book Manager ---------------------------------- 2 TABLE OF CONTENTS
Page ---- RECITALS ................................................................................... 1 Article 1 DEFINITIONS AND ACCOUNTING TERMS ................................................. 1 1.1 Defined Terms .................................................................. 1 1.2 Use of Defined Terms ........................................................... 24 1.3 Accounting Terms ............................................................... 24 1.4 Rounding ....................................................................... 24 1.5 Miscellaneous Terms ............................................................ 24 1.6 Exhibits and Schedules ......................................................... 24 1.7 References to "Borrower and its Subsidiaries" .................................. 24 Article 2 LOANS ............................................................................ 25 2.1 Loans-General .................................................................. 25 2.2 Prime Rate Loans ............................................................... 26 2.3 LIBOR Loans .................................................................... 26 2.4 Initial Request for Loan ....................................................... 26 2.5 Administrative Agent's Right to Assume Funds Available ......................... 26 2.6 Optional Increase to Commitment ................................................ 27 Article 3 PAYMENTS AND FEES ................................................................ 29 3.1 Principal and Interest ......................................................... 29 3.2 Upfront Fee .................................................................... 30 3.3 Agency Fee ..................................................................... 30 3.4 Capital Adequacy ............................................................... 30 3.5 LIBOR Fees and Costs ........................................................... 32 3.6 Late Payments/Default Interest ................................................. 34 3.7 Computation of Interest and Fees ............................................... 34 3.8 Holidays ....................................................................... 34 3.9 Payment Free of Taxes .......................................................... 35 3.10 Funding Sources ............................................................... 35 3.11 Failure to Charge or Making of Payment Not Subsequent Waiver .................. 35 3.12 Time and Place of Payments; Evidence of Payments; Application of Payments ..... 36 3.13 Administrative Agent's Right to Assume Payments Will be Made .................. 36 3.14 Survivability ................................................................. 36 3.15 Bank Calculation Certificate .................................................. 36 3.16 Transition .................................................................... 36 Article 4 REPRESENTATIONS AND WARRANTIES ................................................... 38 4.1 Existence and Qualification; Power; Compliance with Law ........................ 38 4.2 Authority; Compliance with Other Instruments and Government Regulations ........ 38
- i - 3 4.3 No Governmental Approvals Required ............................. 39 4.4 Subsidiaries ................................................... 39 4.5 Financial Statements ........................................... 40 4.6 No Other Liabilities; No Material Adverse Effect ............... 40 4.7 Title to Assets ................................................ 40 4.8 Intangible Assets .............................................. 40 4.9 Existing Indebtedness and Contingent Guaranty Obligations ...... 40 4.10 Governmental Regulation ....................................... 41 4.11 Litigation .................................................... 41 4.12 Binding Obligations ........................................... 41 4.13 No Default .................................................... 41 4.14 Pension Plans ................................................. 41 4.15 Tax Liability ................................................. 41 4.16 Regulation U .................................................. 41 4.17 Environmental Matters ......................................... 41 4.18 Disclosure .................................................... 42 4.19 Projections ................................................... 42 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) .............. 43 5.1 Payment of Taxes and Other Potential Liens ..................... 43 5.2 Preservation of Existence ...................................... 43 5.3 Maintenance of Properties ...................................... 43 5.4 Maintenance of Insurance ....................................... 43 5.5 Compliance with Laws ........................................... 43 5.6 Inspection Rights .............................................. 44 5.7 Keeping of Records and Books of Account ........................ 44 5.8 Use of Proceeds ................................................ 44 5.9 Subsidiary Guaranty ............................................ 44 Article 6 NEGATIVE COVENANTS ............................................... 45 6.1 Payment or Prepayment of Subordinated Obligations .............. 45 6.2 [Intentionally Omitted] ........................................ 45 6.3 Mergers and Sale of Assets ..................................... 45 6.4 Investments and Acquisitions ................................... 45 6.5 ERISA Compliance ............................................... 46 6.6 Change in Business ............................................. 47 6.7 Liens and Negative Pledges ..................................... 47 6.8 Transactions with Affiliates ................................... 48 6.9 Consolidated Tangible Net Worth ................................ 48 6.10 Consolidated Leverage Ratio ................................... 49 6.11 Consolidated Interest Coverage Ratio .......................... 50 6.12 Distributions ................................................. 50 6.13 Amendments .................................................... 50 6.14 Hostile Tender Offers ......................................... 50 6.15 Inventory ..................................................... 50 6.16 Investment in Subsidiaries and Joint Ventures ................. 50
- ii - 4 6.17 Money Market Indebtedness .............................................. 50 6.18 Domestic Standing Inventory ............................................ 51 Article 7 INFORMATION AND REPORTING REQUIREMENTS .................................... 52 7.1 Financial and Business Information of Borrower and Its Subsidiaries ..... 52 7.2 Compliance Certificate .................................................. 54 Article 8 CONDITIONS ................................................................ 55 8.1 Initial Advances ........................................................ 55 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT ..................... 57 9.1 Events of Default ....................................................... 57 9.2 Remedies Upon Event of Default .......................................... 58 Article 10 THE ADMINISTRATIVE AGENT ................................................. 60 10.1 Appointment and Authorization .......................................... 60 10.2 Administrative Agent and Affiliates .................................... 60 10.3 Banks' Credit Decisions ................................................ 60 10.4 Action by Administrative Agent ......................................... 60 10.5 Liability of Administrative Agent ...................................... 61 10.6 Indemnification ........................................................ 62 10.7 Successor Administrative Agent ......................................... 62 10.8 No Obligations of Borrower ............................................. 63 10.9 Defaulting Banks ....................................................... 63 Article 11 MISCELLANEOUS ............................................................ 64 11.1 Cumulative Remedies; No Waiver ......................................... 64 11.2 Amendments; Consents ................................................... 64 11.3 Costs, Expenses and Taxes .............................................. 64 11.4 Nature of Banks' Obligations ........................................... 65 11.5 Representations and Warranties ......................................... 66 11.6 Notices ................................................................ 66 11.7 Execution in Counterparts .............................................. 66 11.8 Binding Effect; Assignment ............................................. 66 11.9 Sharing of Setoffs ..................................................... 68 11.10 Indemnity by Borrower ................................................. 69 11.11 Nonliability of Banks ................................................. 70 11.12 Confidentiality ....................................................... 70 11.13 No Third Parties Benefited ............................................ 70 11.14 Other Dealings ........................................................ 71 11.15 Right of Setoff - Deposit Accounts .................................... 71 11.16 Further Assurances .................................................... 71 11.17 Integration ........................................................... 71 11.18 Governing Law ......................................................... 71
- iii - 5 11.19 Severability of Provisions ............................................ 71 11.20 Headings .............................................................. 71 11.21 Conflict in Loan Documents ............................................ 71 11.22 Waiver Of Jury Trial .................................................. 71 11.23 Purported Oral Amendments ............................................. 72 11.24 Hazardous Materials Indemnity ......................................... 73
- iv - 6
Exhibits A - Commitment Assignment and Acceptance B - Compliance Certificate C - Note D-1 - Opinion of Counsel D-2 - Opinion of Counsel E - Subsidiary Guaranty F - Quarterly Report - Sales G - Quarterly Report - Inventory
Schedules 1.1 Pro Rata Shares 4.4 Subsidiaries 4.7 Existing Liens and Rights of Others 4.9 Existing Indebtedness and Contingent Obligations 6.4 Investments
- v - 7 2000 TERM LOAN AGREEMENT Dated as of October 3, 2000 This 2000 Term Loan Agreement ("Agreement") is entered into by and among Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"), each bank set forth on the signature pages of this Agreement or which from time to time becomes party hereto (collectively, the "Banks" and individually, a "Bank") and Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, Bank One, NA, as Documentation Agent, and Banc of America Securities LLC as Lead Arranger and Sole Book Manager. RECITALS This Agreement establishes a new credit facility replacing that certain Term Loan Agreement dated as of January 7, 1999 by and among Borrower, the banks named therein, Bank of America National Trust and Savings Association, as Administrative Agent and various other banks in various agent capacities, as amended (the "Prior Term Loan Agreement"). Subject to the transition provisions of Section 3.16, and as contemplated by Section 8.1(a)(viii), the terms and provisions of this Agreement shall become effective, and the Prior Term Loan Agreement shall terminate, as of the 2000 Closing Date. WHEREFORE, 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: "2000 Closing Date" means the time and Banking Day on which the conditions set forth in Section 8.1 are satisfied or waived pursuant to Section 11.2, as evidenced by the return of one or more of the promissory notes under the Prior Loan Agreements by the Administrative Agent to Borrower. "2000 Revolving Loan Agreement" means the 2000 Revolving Loan Agreement dated as of October 3, 2000 among Borrower, Bank of America, as administrative agent, and the banks party thereto, and as the same may from time to time be amended, modified, refinanced or replaced. "Acquisition" means any transaction, or any series of related transactions, consummated after the 2000 Closing Date, by which Borrower and/or any of its Subsidiaries directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise, (b) acquires control of securities of a corporation representing 50% or more of the ordinary voting power for the election of directors or (c) acquires control of a 50% or more ownership interest in any partnership, joint venture or other business entity. -1- 8 "Administrative Agent" means Bank of America or any successor administrative agent. "Administrative Agent's Office" means Bank of America, N.A., 5 Park Plaza, Suite 500, Irvine, California 92614, or such other office as the Administrative Agent may designate in writing to Borrower and the Banks. "Advance" means an advance made or to be made to Borrower by a Bank pursuant to Article 2. "Affiliate" means, with respect 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" (including its correlative meanings, "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 which 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 record holders of such interests will be deemed to control such corporation or other Person. "Agents" mean the Administrative Agent, the Syndication Agent, the Documentation Agent, and the Lead Arranger and Sole Book Manager. "Agreement" means this 2000 Term Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Applicable LIBOR 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 Applicable Pricing Level LIBOR Spread ------------- ------------ I 1.400% II 1.625% III 1.750% IV 1.950% V 2.200%
"Applicable Minimum Hold Requirement" means, in the case of any Bank, the amount of the Pro Rata Share of the Commitment held by that Bank plus the amount, if any, of the Pro Rata Share (as defined in the 2000 Revolving Loan Agreement) of the Commitment (as defined in the 2000 Revolving Loan Agreement) held by that Bank, as reduced by (a) the amount of any assignment of a portion thereof made by that Bank to an Eligible Assignee that is not an Affiliate of that Bank and (b) the amount of any participation therein granted by that Bank to a participant that is not an Affiliate of that Bank, which net amount, after giving effect to clauses (a) and (b), shall not be less than $20,000,000 (unless approved in writing by the -2- 9 Administrative Agent or unless an Event of Default has occurred and is continuing), but subject to the provisions of Section 11.8(b) and (e). "Applicable Pricing Level" means, Pricing Level "I" for any day on which Borrower holds an Investment Grade Credit Rating and, for any day during a Pricing Period on which Borrower does not hold an Investment Grade Credit Rating, means the following: Consolidated Leverage Ratio Applicable Pricing Level Applicable to Pricing Period - ------------------------ ---------------------------- II Consolidated Leverage Ratio of less than or equal to 1.25 to 1.00 III Consolidated Leverage Ratio of greater than 1.25 to 1.00, but less than or equal to 1.80 to 1.00 IV Consolidated Leverage Ratio of greater than 1.80 to 1.00, but less than or equal to 2.25 to 1.00 V Consolidated Leverage Ratio of greater than 2.25 to 1.00. Borrower is responsible pursuant to Section 7.1(k) to provide the Administrative Agent with notice of each change in the Applicable Pricing Level that is due to the inception or cessation of an Investment Grade Credit Rating. "Applicable Prime Rate 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 Applicable Prime Rate Pricing Level Spread ------------- ---------- I 0.00% II 0.00% III 0.00% IV 0.00% V 0.25%
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Authorizations" has the meaning set forth for that term in Section 4.1. "Bank" means each bank whose name is set forth in the signature pages of this Agreement and each lender which may hereafter become a party to this Agreement pursuant to Section 11.8. -3- 10 "Bank of America" means Bank of America, N.A., formerly known as 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 California or New York. "Bond Facility" means any bond facility pursuant to which a municipality, or a community facilities district formed by a municipality, has or will issue bonds to finance a portion of the costs of acquisition of and/or improvements to real property located in such municipality (or district) owned by Borrower, one of its Subsidiaries or by another Person acquired by Borrower or one of its Subsidiaries (or to pay development or "impact" fees in lieu thereof), and with respect to which Borrower or one of its Subsidiaries will provide a letter of credit or other reimbursement support. The real property that is the subject of any such bond facility will be subject to a Lien for special taxes to repay the Indebtedness evidenced by such bonds. "Borrower" means Kaufman and Broad Home Corporation, a Delaware corporation, and its successors and permitted assigns. "Bridge Loan Agreement" means the 2000 Bridge Loan Agreement dated as of May 10, 2000 by and among Borrower, the banks named therein, Bank of America, as administrative agent, and various other banks in various agent capacities. "Capital Lease" means, with respect to any Person, a lease of any Property by that Person as lessee that is, or should be in accordance with Financial Accounting Standards Board Statement No. 13, recorded as a "capital lease" on a balance sheet of that Person prepared in accordance with Generally Accepted Accounting Principles. "Cash" means all monetary items (including currency, coin and bank demand deposits) that are treated as cash under Generally Accepted Accounting Principles. "Cash Equivalents" means, with respect to any Person, that Person's Investments in: (a) Government Securities due within one year of the making of the Investment; (b) readily marketable direct obligations of any State of the United States of America or any political subdivision of any such State or any public agency or instrumentality thereof given on the date of such Investment a credit rating of at least Aa3 by Moody's or AA- by S&P, in each case due within one year from the making of the Investment; (c) certificates of deposit issued by, deposits in, eurodollar deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by, (i) any Bank or (ii) any bank and/or savings and loan association doing business in and incorporated under the Laws of the United States of America, any state thereof or the District of Columbia and having on the date of such Investment combined capital, surplus and undivided profits of at least $500,000,000 and which carries on the date of such Investment a credit rating of P-1 or higher by -4- 11 Moody's or A-1 or higher by S&P, 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 and which carries on the date of such Investment a credit rating of P-1 or higher by Moody's or A-1 or higher by S&P, in each case due within one year after the date of the making of the Investment; (e) readily marketable commercial paper or other debt securities of (i) any Bank that is a Bank as of the 2000 Closing Date, (ii) corporations, commercial banks or financial institutions doing business in and incorporated under the Laws of the United States of America or any state thereof or the District of Columbia or (iii) a holding company for a bank described in clause (c) or (d) above, given on the date of such Investment a credit rating of P-1 or higher by Moody's, of A-1 or higher by S&P, or F-1 or higher by Fitch, in each case due within one year of the making of the Investment; (f) repurchase agreements covering Government Securities executed by a broker or dealer registered under Section 15(b) of the Exchange Act, having on the date of the Investment capital of at least $50,000,000, due within 90 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 Government Securities on the books of a "primary dealer" in such government Securities or on the books of such registered broker or dealer, as soon as practicable after 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 (i) given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P, in each case having an investment period not exceeding 50 days or (ii) to the extent that investors therein have the benefit of a standby letter of credit issued by a Bank or a bank described in clauses (c) or (d) above; provided, that (y) the amount of all such Investments issued by the same issuer does not exceed $10,000,000 and (z) the aggregate amount of all such Investments does not exceed $25,000,000; (h) a readily redeemable "money market mutual fund" sponsored by a bank described in clause (c) or (d) hereof, or a registered broker or dealer described in clause (f) 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 given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P; and (i) corporate notes or bonds having an original term to maturity of not more than one year issued by a corporation incorporated under the Laws of the United States of America or any state thereof, or a participation interest therein; provided, that -5- 12 (i) commercial paper issued by such corporation is given on the date of such Investment a credit rating of at least Aa3 by Moody's and AA- by S&P, (ii) the amount of all such Investments issued by the same issuer does not exceed $10,000,000 and (iii) the aggregate amount of all such Investments does not exceed $25,000,000. "Change in Control" means, and shall be deemed to have occurred at such time as any of the following events shall occur: (a) there shall be consummated any consolidation or merger of Borrower in which Borrower is not the continuing or surviving corporation or pursuant to which the Voting Stock would be converted into Cash, securities or other property, other than a merger or consolidation of Borrower where the Borrower is not the continuing or surviving corporation and in which the holders of Voting Stock immediately prior to the merger have 75% ownership, directly or indirectly, of the Voting Stock of the surviving corporation immediately after such merger or consolidation; or (b) there is a report filed by any person, including its Affiliates and Associates, on Schedule 13D or 14D-1 (or any successor schedule, form or report) pursuant to the Exchange Act, disclosing that such person (for the purposes of the definition of Change in Control only, the term "person" is used as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the voting power of Borrower's Voting Stock then outstanding; provided, however, that a person shall not be deemed beneficial owner of, or to own beneficially (1) any Securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tendered Securities are accepted for purchase or exchange thereunder, or (2) any Securities if such beneficial ownership (a) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act, and (b) is not also then reportable on Schedule 13D (or any successor schedule) under the Exchange Act; or (c) a "Change in Control" (or analogous term) as defined in one or more indentures or agreements governing any Subordinated Obligations occur and $25,000,000 of Subordinated Obligations thereupon become due and payable by Borrower or its Subsidiaries. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred if at any time Borrower, any Subsidiary of Borrower, any employee stock ownership plan or any other employee benefit plan, including any Pension Plan of Borrower or any Subsidiary of Borrower, or any person holding Voting Stock for or pursuant to the terms of such employee benefit plan, files or becomes obligated to file a report under or in response to Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report) under the Exchange Act disclosing beneficial ownership by it of shares of Voting Stock, whether in excess of 50% or otherwise. "Code" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. -6- 13 "Commission" means the Securities and Exchange Commission and any successor commission. "Commitment" means, subject to Section 2.6, $160,950,000. The Pro Rata Shares of the Banks with respect to the Commitment 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 $1.00 par value common stock and special common stock of Borrower. "Compliance Certificate" means a compliance certificate in the form of Exhibit B signed, on behalf of Borrower, by a Senior Officer of Borrower. "Consolidated Adjusted EBITDA" means, for any fiscal period, Consolidated EBITDA for that fiscal period plus (a) the amount of capitalized interest that was included in cost of sales in determining Consolidated Net Income for that fiscal period plus (b) all non-Cash Net Realizable Value Adjustments made during that fiscal period. "Consolidated EBITDA" means, for any fiscal period, the sum of (a) Consolidated Net Income for that period, plus (b) any extraordinary loss reflected in such Consolidated Net Income, minus (c) any extraordinary gain reflected in such Consolidated Net Income, plus (d) Consolidated Interest Expense for that period plus (e) the aggregate amount of federal and state taxes on or measured by income for that period (whether or not payable during that period), plus (f) depreciation, amortization and all other non-cash expenses for that period, in each case as determined in accordance with Generally Accepted Accounting Principles, in the case of items (d), (e) and (f), only to the extent deducted in the determination of Consolidated Net Income for that period. "Consolidated Interest Coverage Ratio" means, with respect to any Fiscal Quarter of Borrower and its Consolidated Subsidiaries, the ratio of (a) Consolidated Adjusted EBITDA for the twelve month period ending on the last day of such Fiscal Quarter to (b) the sum of (i) Consolidated Interest Expense (including any non-cash items included in Consolidated Interest Expense) plus (ii) to the extent not included in Consolidated Interest Expense, any charge to Consolidated Net Income which reflects the distribution paid or accrued to or for the holders of the Trust Preferred Capital Securities (including any such charge denominated "minority interest in net income of consolidated subsidiaries") plus (iii) all dividends (other than dividends paid in the same class of stock) paid on any preferred stock of Borrower, in each case for the twelve month period ending on the last day of such Fiscal Quarter. "Consolidated Interest Expense" means, with respect to any fiscal period of Borrower and its Consolidated Subsidiaries, the aggregate amount of interest, fees, charges and related expenses paid or payable to a lender in connection with borrowed money that is treated as interest (including accretion of original issue discount on long-term debt existing during such fiscal period) and the interest portion of any capitalized lease payment of Borrower and its Consolidated Subsidiaries (other than any such items properly attributable to Financial Subsidiaries). -7- 14 "Consolidated Joint Venture" means, as of any date of determination, a Joint Venture that is consolidated in the consolidated financial statements of Borrower and its Subsidiaries as of such date. "Consolidated Leverage Ratio" means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness on that date to (b) [Consolidated Tangible Net Worth on that date minus the amount, if any, by which the portion of Shareholders' Equity of Borrower and its Consolidated Subsidiaries attributable to Borrower's equity interest in the Shareholders' Equity of all Joint Ventures (other than any Consolidated Joint Venture) exceeds $30,000,000]. "Consolidated Net Income" means, with respect to any fiscal period, the consolidated net income of Borrower and its Consolidated Subsidiaries for that period, determined in accordance with Generally Accepted Accounting Principles, consistently applied. "Consolidated Subsidiaries" means, with respect to Borrower, all of the Subsidiaries of Borrower whose financial statements are consolidated with the consolidated financial statements of Borrower under Generally Accepted Accounting Principles. "Consolidated Tangible Net Worth" means, as of any date of determination, the Shareholders' Equity of Borrower and its Consolidated Subsidiaries on a consolidated basis on that date plus, if that date is on or prior to the Settlement Date with respect to an issuance of securities treated as Trust Preferred Capital Securities, an amount equal to 100% of the aggregate book value of such Trust Preferred Capital Securities outstanding on that date minus the aggregate book value on that date of any Intangible Assets consisting of goodwill arising from Acquisitions completed after November 30, 1996, provided that any cumulative positive or negative adjustment to Consolidated Tangible Net Worth attributable to foreign currency translations shall be ignored. "Consolidated Total Indebtedness" means, as of any date of determination, all Indebtedness and Contingent Guaranty Obligations of Borrower and its Subsidiaries on that date (without duplication for any guaranty by Borrower of a Subsidiary's Indebtedness or any guaranty by a Subsidiary of either Borrower's or another Subsidiary's Indebtedness) plus (a) if that date is after the Settlement Date with respect to an issuance of securities treated as Trust Preferred Capital Securities, an amount equal to 100% of the aggregate book value of such Trust Preferred Capital Securities outstanding on that date, minus (b) all Indebtedness and Contingent Guaranty Obligations of the Financial Subsidiaries on that date, and minus (c) the amount, if any, by which the aggregate Cash and Cash Equivalents of Borrower and its Subsidiaries (other than the Financial Subsidiaries) on that date are in excess of $15,000,000. "Contingent Guaranty Obligation" means, as to any Person, any (a) direct or indirect guarantee of Indebtedness of, or other obligation performable by, any other Person (other than a performance obligation undertaken in the ordinary and usual course of business), including any endorsement (other than for collection or deposit in the ordinary course of business), co-making or sale with recourse of the obligations of any other Person or (b) assurance given to an obligee with respect to the performance of an obligation (other than a performance obligation undertaken in the ordinary and usual course of business) by, or the financial condition of, any other Person, whether direct, indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any -8- 15 agreement to support the solvency or level of any balance sheet item of such other Person, or any "keep-well", "take-or-pay", "through put" or other arrangement of whatever nature having the effect of assuring or holding harmless any obligee against loss with respect to any obligation of such other Person. The amount of any Contingent Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation (unless the Contingent Guaranty Obligation is limited by its terms to a lesser amount, in which case to the extent of such amount) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Contractual Obligation" means, as to any Person, any provision of any outstanding Securities 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, other than, in the case of Borrower and its Subsidiaries, any of the Loan Documents. "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, 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 notice or passage of time, or both, would be an Event of Default. "Default Rate" means the interest rate described in Section 3.6. "Designated Deposit Account" means a demand deposit account to be maintained by Borrower with Bank of America, as from time to time designated by Borrower by written notification to the Administrative Agent. "Distribution" means, with respect to any shares of capital stock or any warrant or right to acquire shares of capital stock or any other equity security issued by a Person, (a) the retirement, redemption, purchase, or other acquisition for value (other than for capital stock of the same type of such Person) by such Person of any such security, (b) the declaration or payment by such Person of any dividend in Cash or in Property (other than in capital stock of the same type of such Person) on or with respect to any such security, and (c) any Investment by such Person in any holder of 5% or more of the capital stock (or other equity securities) of such Person, if a purpose of such Investment is to avoid the characterization of the transaction between such Person and such holder as a Distribution under clause (a) or (b) above. In addition, to the extent any loan or advance by Borrower to one of its Subsidiaries is deemed to be an "Investment" for purposes of this Agreement, then any principal payment made by such Subsidiary in respect of such loan or advance shall be considered a Distribution for purposes of Section 6.16. "Documentation Agent" means Bank One, NA, so long as such bank is a Bank hereunder. The Documentation Agent shall have no duties under the Loan Documents beyond those of a Bank. "Dollars" means the national currency of the United States of America. -9- 16 "Domestic Lending Office" means, with respect to each Bank, its office, branch or affiliate identified on the signature pages hereof as its Domestic Lending Office or such other office, branch or affiliate as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent. "Domestic Standing Inventory" means, as of any date of determination, the number of items of unsold housing inventory (other than Model Homes) of Borrower and its Domestic Subsidiaries with respect to which either (a) 90% of the then reasonably anticipated direct construction costs have been incurred on such date or (b) at least 12 months have elapsed from the date its construction was commenced through and including such date. Construction for purposes of this definition shall be deemed to have commenced upon the pouring of foundation concrete. "Domestic Subsidiary" means, with respect to any Person and as of any date of determination, a Subsidiary of such Person (a) that is organized under the Laws of the United States of America or any state thereof and (b) the majority of the assets of which (as reflected on a balance sheet of such Subsidiary prepared in accordance with Generally Accepted Accounting Principles) is located in the United States of America; provided that Kaufman and Broad International, Inc., a California corporation, shall in no event be considered a Domestic Subsidiary of Borrower. "Domestic Unimproved Land" means, as of any date of determination, real Property located in the United States of America that is: (a) owned by Borrower or any of its Subsidiaries if on that date there has been expended by Borrower and its Subsidiaries less than 50% of the physical construction costs reasonably estimated by Borrower (in accordance with its past practices as of the 2000 Closing Date) to bring such real Property to "finished lot" status; or (b) owned by Persons other than Borrower or any of its Subsidiaries but which, if owned by Borrower or any of its Subsidiaries on that date, would have satisfied the requirement set forth in clause (a) and if on that date Borrower or any of its Domestic Subsidiaries holds an option to purchase such real Property for which it has paid an amount equal to 33% or more of the purchase price provided for in such option to purchase, provided, that in the event an option to purchase land covers more than one parcel, phase or lot, any deposit paid by Borrower or any of its Subsidiaries shall be allocated to each parcel, phase or lot pro rata in accordance with the purchase price of the parcels, phases or lots. The "book value" with respect to Domestic Unimproved Land referred to in Section 6.15 shall be calculated as if the option to purchase had been exercised as of the date of determination, and otherwise in accordance with Generally Accepted Accounting Principles, consistently applied. "Eligible Assignee" means (a) another Bank, (b) any commercial bank, savings bank, savings and loan association or similar financial institution which, (i) has total assets of $5,000,000,000 or more, (ii) is "well capitalized" within the meaning of such term under the Federal Depository Institutions Control Act, (iii) is engaged in the business of lending money and extending credit under credit facilities substantially similar to those extended under this Agreement and (iv) is operationally and procedurally able to meet the obligations of a Bank hereunder to the same degree as a commercial bank, (c) any insurance company engaged in the business of writing insurance which (i) has total assets of $5,000,000,000 or more, (ii) is "best capitalized" under applicable regulations of the National Association of Insurance Commissioners, and (iii) meets the requirements set forth in subclauses (iii) and (iv) of clause (b) above and (d) any other financial institution having total assets of $5,000,000,000 or more -10- 17 (including a mutual fund or other fund under management of an investment manager having under its management total assets of $5,000,000,000 or more) which meets the requirements set forth in subclauses (iii) and (iv) of clause (b) above; provided that each Eligible Assignee must (A) be organized under the Laws of the United States of America, any state thereof or the District of Columbia or (B) if a commercial bank, be organized under the Laws set forth in clause (A) or under the Laws of the Cayman Islands or any country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, and (C) act under the Loan Documents through a branch, agency or funding office located in the United States of America and (D) be exempt from withholding of tax on interest and deliver the documents related thereto pursuant to the Code. "ERISA" means, at any date, the Employee Retirement Income Security Act of 1974 and the regulations thereunder, all as the same shall be in effect at such date. "ERISA Affiliate" means, with respect to any Person, any other Person (or any trade or business, whether or not incorporated) that is under common control with that Person within the meaning of Section 414 of the Code. "Event of Default" has the meaning provided in Section 9.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exposure" means for any Bank, as of any date of determination, the product obtained by multiplying that Bank's then effective Pro Rata Share by the then effective Commitment. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Banking Day opposite the caption "Federal funds (effective)"; or, if for any relevant day such rate is not so published on any such preceding Banking Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Financial Subsidiary" means (a) the Mortgage Company and its Subsidiaries, so long as such entities continue to engage in the mortgage banking business, (b) a Trust Issuer, so long as it engages in no activities other than those incident to the Trust Preferred Capital Securities, (c) any Subsidiary of Borrower that is organized and operates solely to issue (i) collateralized mortgage obligations or (ii) other similar asset-backed obligations, and (d) any other Subsidiary of Borrower that (i) is engaged primarily in the business of origination, marketing, and servicing of residential mortgage loans, the sale of servicing rights, or the financing of long term residential mortgage loans, (ii) holds not less than 95% of its total assets in the form of Cash, Cash Equivalents, notes and mortgages receivable, Cash held by a trustee for the benefit of such Subsidiary or other financial instruments and (iii) is the subject of an Officer's Certificate of Borrower delivered to the Administrative Agent stating that such Subsidiary is a Financial Subsidiary within the meaning hereof. As of the 2000 Closing Date, the Financial Subsidiaries are International Mortgage Acceptance Corporation, KBASW Mortgage Acceptance Corporation, KBI/Mortgage Acceptance Corporation, KBRAC IV Mortgage Acceptance -11- 18 Corporation, Kaufman and Broad Mortgage Company, rateOne Home Loans, LLC, Rate One Associates, Inc. and Rate One Holdings, Inc. "Fiscal Quarter" means each of the fiscal quarters of Borrower ending on each February 28 (or 29, if a leap year), May 31, August 31 and November 30. "Fiscal Year" means each of the fiscal years of Borrower ending on each November 30 or as otherwise changed by the Borrower upon advance written notice to the Administrative Agent, but subject to the requirements of Section 1.3. "Fitch" means Fitch and its successors. "Foreign Subsidiary" means, with respect to any Person, a Subsidiary of that Person which is not a Domestic Subsidiary and with respect to Borrower, includes Kaufman and Broad International, Inc., a California corporation. "Generally Accepted Accounting Principles" means, as of any date of determination, accounting principles set forth as "generally accepted" in then currently effective Statements of the Auditing Standards Board of the American Institute of Certified Public Accountants, or, if such Statements are not then in effect, accounting principles that are then 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 to financial statements of a Person as of any date or for any period are consistent in all material respects (subject to Section 1.3) to those applied to financial statements of that Person as of recent prior dates and for recent prior periods. "Government Securities" means (a) readily marketable direct full faith and credit obligations of the United States of America or obligations unconditionally 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 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, (c) any court or administrative tribunal, or (d) any arbitration tribunal or other non-governmental authority to whose jurisdiction a Person has consented, in each case whether of the United States of America or any other nation. "Guarantor Subsidiary" means (a) any Domestic Subsidiary which is a Significant Subsidiary, other than any Financial Subsidiary and (b) any other Domestic Subsidiary, other than any Financial Subsidiary, that is designated in writing by Borrower as a Guarantor 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. Section 9601 et seq., or as "hazardous", "toxic" or "pollutant" substances or as "solid waste" pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the -12- 19 Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or as "friable asbestos" pursuant to the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. or any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "Hazardous Materials Laws" means all Laws governing the treatment, transportation or disposal of Hazardous Materials applicable to any real Property of Borrower or its Subsidiaries. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person for borrowed money, (b) that portion of the obligations of such Person under Capital Leases which should properly be recorded as a liability on a balance sheet of that Person prepared in accordance with Generally Accepted Accounting Principles, (c) any obligation of such Person that is evidenced by a promissory note or other instrument representing an extension of credit to such Person, whether or not for borrowed money, (d) any obligation of such Person for the deferred purchase price of Property or services (other than trade or other accounts payable in the ordinary course of business in accordance with customary industry terms), (e) any obligation of the types referred to in clauses (a) through (d) above that is secured by a Lien (other than a Permitted Encumbrance) on assets of such Person, whether or not that Person has assumed such obligation or whether or not such obligation is non-recourse to the credit of such Person, but only to the extent of the fair market value of the assets so subject to the Lien, (f) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person and (g) any obligation of such Person under letters of credit issued for the account of such Person and that is not otherwise a Contingent Guaranty Obligation. "Intangible Assets" means assets that are considered intangible assets under Generally Accepted Accounting Principles, including (a) customer lists, goodwill, computer software, unamortized deferred charges, unamortized debt discount, capitalized research and development costs and other intangible assets and (b) any write-up in book value of any asset subsequent to its acquisition, but excluding any existing write-up in book value of any asset acquired by Borrower or any of its Subsidiaries prior to the 2000 Closing Date, as such write-up may decrease (but not increase) from time to time. "Interest Period" means, as to each LIBOR Loan, a period of one, two, three or six months, as designated by Borrower; provided that (a) the first day of each Interest Period must be a LIBOR Market Day, (b) any Interest Period that would otherwise end on a day that is not a LIBOR Market Day shall be extended to the next succeeding LIBOR Market Day, unless such LIBOR Market Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding LIBOR Market Day, and (c) no Interest Period may extend beyond the Maturity Date. "Investment" means, with respect to any Person, any investment by that Person, whether by means of purchase or other acquisition of capital stock or other Securities of any other Person or by means of loan, advance, capital contribution, or other debt or equity participation or interest in any other Person, including any partnership or joint venture interest in any other Person; provided that an Investment of a Person shall not include any trade or account receivable arising in the ordinary course of the business of such Person, whether or not evidenced by a note or other writing. The amount of any Investment shall be the amount -13- 20 actually invested, less any return of capital, without adjustment for subsequent increases or decreases in the market value of such Investment. "Investment Grade Credit Rating" means, as of any date of determination, that at least two (2) Rating Agencies have as of that date issued credit ratings for Borrower's long-term senior unsecured debt of (a) at least BBB- in the case of S&P, (b) at least Baa3 in the case of Moody's and (c) at least BBB- in the case of Fitch. "Joint Venture" means any Person, other than a Subsidiary, (a) in which Borrower or any Subsidiary of Borrower holds an equity Investment which entitles Borrower or such Subsidiary to more than 10% of (i) the ordinary voting power for the election of the board of directors or other governing body of such Person or (ii) the partnership, membership or other ownership interest in such Person, and (b) which has at least one holder of its equity interests that is not an Affiliate of Borrower or any Subsidiary of Borrower. Notwithstanding the foregoing, for the purposes of Section 6.16, the term "Joint Venture" will not include any equity Investment in any Person if the dollar amount of that investment is less than $1,000,000, computed in accordance with Generally Accepted Accounting Principles, but only to the extent that the aggregate dollar amount of such equity Investments is less than $25,000,000. "Laws" means, collectively, all foreign, federal, state and local statutes, treaties, codes, ordinances, rules, regulations and controlling precedents of any Governmental Agency. "Lead Arranger and Sole Book Manager" means Banc of America Securities LLC. "Lewis Homes Stock Repurchase" means the purchase of up to 4 million shares of Borrower's common stock issued in connection with the acquisition of the Lewis Homes group of companies for $26.00 per share payable in cash or by promissory note. "LIBOR" means, for each LIBOR Loan, that rate per annum, determined solely by the Administrative Agent, pursuant to the following formula (with each component expressed as a decimal and rounded upward to the nearest 1/100 of 1%): London Interbank Offered Rate for that LIBOR Loan ------------------------------------------------- 1.00 - Reserve Percentage "LIBOR Advance" means an Advance made by a Bank to fund its Pro Rata Share of a LIBOR Loan. "LIBOR Lending Office" means, with respect to each Bank, its office, branch or affiliate identified on the signature page hereof as its LIBOR Lending Office or such other office, branch or affiliate as such Bank may hereafter designate as its LIBOR Lending Office by notice to Borrower and the Administrative Agent. "LIBOR Loan" means a Loan made hereunder and designated or redesignated as a LIBOR Loan in accordance with Article 2. "LIBOR Market" means the London, England market established by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. -14- 21 "LIBOR Market Day" means any Banking Day on which commercial banks are open for international business (including dealing in Dollar deposits) in London, England. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, 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 (other than an agreement which gives to a Person the right to become equally and ratably secured with any other Person to whom a Lien is granted on any item of Property) 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. "Loan" means the aggregate of the Advances made at any one time by the Banks pursuant to Article 2. "Loan Documents" means, collectively, this Agreement, the Notes, the Subsidiary Guaranty, any Request for Loan, any Compliance Certificate and any other instruments, documents or agreements of any type or nature hereafter executed and delivered by Borrower or any of its Subsidiaries or Affiliates to the Administrative Agent or any other 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. "London Interbank Offered Rate" means, for each LIBOR Loan, the per annum rate (rounded upward to the nearest 1/100 of 1%) determined by the Administrative Agent as the rate for deposits in Dollars for a period equal to the applicable Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the date that is 2 LIBOR Market Days prior to the commencement of such Interest Period. If such rate does not appear on the Telerate Page 3750, the rate for that Interest Period will be determined by the Administrative Agent and will be equal to the rate at which deposits in Dollars are offered by the Administrative Agent to prime banks in the LIBOR Market at or about 11:00 a.m., London time, on the date that is 2 LIBOR Market Days prior to the commencement of such Interest Period in an aggregate amount approximately equal to the amount of the Advance to be made by the Administrative Agent (as a Bank) with respect to such LIBOR Loan and for a period of time comparable to the number of days in the applicable Interest Period. "Majority Banks" means (a) as of any date of determination if the Commitment is then in effect, Banks having in the aggregate in excess of 50% of the Commitment then in effect and (b) as of any date of determination if the Commitment has then been terminated or suspended and there is then any Indebtedness evidenced by the Notes, Banks holding in the aggregate in excess of 50% the aggregate Indebtedness then evidenced by the Notes. "Material Adverse Effect" means any circumstance or event, or any set of circumstances or events which, individually or when aggregated with any other circumstances or events, (a) has or is reasonably likely to have any material adverse effect upon the validity or enforceability of any Loan Document, (b) is or is reasonably likely to be material and adverse to the condition (financial or otherwise) or operations of Borrower and its Subsidiaries, taken as -15- 22 a whole, or (c) materially impairs or is reasonably likely to materially impair the ability of Borrower and its Subsidiaries, taken as a whole, to perform the Obligations. "Material Amount of Assets" means, as of any date of determination, more than 10% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date. "Maturity Date" means October 6, 2005. "Model Homes" means housing units which have been completed, furnished and landscaped and are used in the marketing efforts with respect to a residential home community, provided that the total number of units considered as Model Homes at any time shall not exceed an amount equal to (a) the number of domestic residential home communities open for sale at such time, times (b) four (4). "Money Market Facility" means any unsecured credit facility the advances under which have a maturity of not in excess of 180 days and which have been extended to Borrower from time to time other than under this Agreement, either by a Bank or by any other financial institution. "Moody's" means Moody's Investor's Service, Inc. and its successors. "Mortgage Company" means Kaufman and Broad Mortgage Company, an Illinois corporation and a wholly owned Financial Subsidiary of Borrower. "Mortgage Warehousing Agreements" mean that certain Amended and Restated Mortgage Loan Warehousing Agreement dated as of February 18, 2000 among Mortgage Company, rateOne, the banks party thereto and Bank of America, N.A., as administrative agent, and Bank One Texas, N.A., as managing agent, and that certain Master Loan and Security Agreement dated as of May 25, 1999 between Mortgage Company and Morgan Stanley Mortgage Capital, Inc., as lender, as amended by Amendment No. 1 to Master Loan and Security Agreement, dated as of May 19, 2000, among Mortgage Company, rateOne and Morgan Stanley Mortgage Capital, Inc., as the foregoing may from time to time be amended, modified, refinanced or replaced, and substantially similar loan or credit agreements or arrangements entered into from time to time by Mortgage Company for loans to be used for the purpose of funding the origination of residential mortgage loans, secured by a pledge of such mortgage loans. "Multiemployer Plan" means any employee benefit plan of a type described in Section 4001(a)(3) of ERISA. "Net Orders" means, as of any date of determination, the number of items of housing inventory that are in the process of being sold and with respect to which a purchase contract has been signed, as reported in Borrower's filings with the Commission. "Net Realizable Value Adjustment" means the adjustment required pursuant to Generally Accepted Accounting Principles (including FAS 121 issued by the Financial Accounting Standards Board) to reflect a decrease in the book value of assets below their historical costs. -16- 23 "New Bank" has the meaning set forth in Section 2.6(a). "Non-Recourse Indebtedness" means Indebtedness incurred in connection with the purchase or improvement of Property (a) that is secured solely by the Property purchased or improved, (b) with respect to which the holder of such Indebtedness has recourse only to such Property, and (c) that is otherwise non-recourse (whether by contract or under applicable Law) to any Person. "Note" means each promissory note made by Borrower to a Bank evidencing the Advances under that Bank's Pro Rata Share of the 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. "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 Administrative 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 to the extent permitted by applicable Law after the commencement of any proceeding under any Debtor Relief Law by or against Borrower. "Officer's Certificate" means, when used with reference to any Person, a certificate signed by a Senior Officer of such Person. "Operating Loss" means, for any Fiscal Quarter, that the sum of (a) Consolidated Net Income for that Fiscal Quarter plus (b) all taxes on or measured by income payable by Borrower with respect to such Consolidated Net Income plus (c) all non-Cash Net Realizable Value Adjustments made during that Fiscal Quarter is less than zero; provided that each amount described in clauses (a), (b) and (c) shall be adjusted to eliminate any portion thereof, or effect thereon, attributable to a Financial Subsidiary. "Opinions of Counsel" means the favorable written legal opinions of (a) Munger, Tolles & Olson LLP, special counsel to Borrower, and (b) Barton P. Pachino, Senior Vice President and General Counsel of Borrower substantially in the form of Exhibits D-1 and D-2, respectively, together with copies of all factual certificates and legal opinions upon which such counsel has relied. "Party" means any Person other than the Banks or the Agents which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto established under ERISA. "Pension Plan" means any "employee pension benefit plan" (as such term is defined in ERISA) which is subject to Title IV of ERISA and which is maintained for employees of Borrower or any of its ERISA Affiliates. "Permitted Encumbrances" means: -17- 24 (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 and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no material property is subject to a material risk of loss or forfeiture; (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, by reason of nonpayment of the obligations secured by such Liens, no material 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 for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, utilities, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting real property, facilities, or equipment 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; (e) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of property 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; (f) rights reserved to or vested in any Governmental Agency to control or regulate the use of any real property; (g) any obligations or duties affecting any real property to any Governmental Agency with respect to any right, power, franchise, grant, license, or permit; (h) present or future zoning laws and ordinances or other laws and ordinances restricting the occupancy, use, or enjoyment of real property; (i) statutory Liens, including warehouseman's liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith, provided that, if delinquent, adequate reserves have been set aside with respect thereto and, by reason of nonpayment, no material property is subject to a material risk of loss or forfeiture; (j) 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; -18- 25 (k) 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; (l) 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; (m) 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 the 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 25% of the annual fixed rentals payable under such lease; (n) Liens consisting of deposits of property to secure statutory obligations of the Borrower or a Subsidiary of Borrower in the ordinary course of its business; and (o) Liens consisting of deposits of property to secure (or in lieu of) surety, appeal or customs bonds in proceedings to which Borrower or a Subsidiary of Borrower is a party in the ordinary course of its business. "Permitted Right of Others" means a Right of Others consisting of (a) an interest (other than a legal or equitable co-ownership interest, an option or right to acquire a legal or equitable co-ownership interest and any interest of a ground lessor under a ground lease), that does not materially impair the value or use of property for the purposes for which it is or may reasonably be expected to be held, (b) an option or right to acquire a Lien that would be a Permitted Encumbrance or (c) the reversionary interest of a landlord under a lease of Property. "Person" means an individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, trust, estate, unincorporated organization, union, tribe, business association or firm, joint venture, Governmental Agency, or other entity. "Pricing Period" means the 3 calendar month periods of (a) May 1 through July 31, (b) August 1 through October 31, (c) November 1 through January 31, and (d) February 1 through April 30, and the Consolidated Leverage Ratio applicable to any Pricing Period shall be the one that is calculated as of the Fiscal Quarter end that falls approximately 60 days prior to the beginning of such Pricing Period. "Prime Rate" means, on any day, the rate of interest per annum then most recently established by the Administrative Agent as its "prime rate." Any such rate is a general reference rate of interest, may not be related to any other rate, and may not be the lowest or best rate actually charged by the Administrative Agent to any customer or a favored rate and may not correspond with future increases or decreases in interest rates charged by other lenders or market rates in general, and that the Administrative Agent may make various business or other loans at rates of interest having no relationship to such rate. If the Administrative Agent ceases to exist or to establish or publish a prime rate from which the Prime Rate is then determined, the applicable variable rate from which the Prime Rate is determined thereafter shall be instead the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low -19- 26 prime rate are therein reported), and the Prime Rate shall change without notice with each change in such prime rate as of the date such change is reported. If The Wall Street Journal does not then or ceases to report such a prime rate, the Prime Rate shall thereafter be determined by such alternate method as may be reasonably selected by the Administrative Agent. "Prime Rate Advance" means an Advance made by a Bank to fund its Pro Rata Share of a Prime Rate Loan. "Prime Rate Loan" means a Loan made hereunder and designated or redesignated as a Prime Rate Loan in accordance with Article 2, or converted to a Prime Rate Loan in accordance with Article 3. "Prior Loan Agreements" means the Bridge Loan Agreement, the Prior Revolving Loan Agreement and the Prior Term Loan Agreement. "Prior Revolving Loan Agreement" means the 1997 Revolving Loan Agreement dated as of April 21, 1997, as amended, by and among Borrower, the Banks named therein, and Bank of America, as Administrative Agent and various other Banks in various agent capacities. "Prior Term Loan Agreement" has the meaning set forth for that term in the Recitals hereto. "Pro Rata Share" of a Bank, as pertains to the Commitment, means the applicable percentage set forth opposite the name of that Bank on Schedule 1.1 to this Agreement. "Projections" means the financial projections of Borrower delivered to the Banks and dated as of August 24, 2000. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "rateOne" means rateOne Home Loan, LLC, a Delaware limited liability company and a Subsidiary of Mortgage Company. "Rating Agencies" means S&P, Moody's and Fitch. "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. "Regulatory Development" means (a) any change in the Laws, (b) change in the application of any existing Laws or the interpretation thereof by any Governmental Agency or central bank or comparable authority (whether or not having the force of Law), or (c) compliance by any Bank with any request or directive (whether or not having the force of Law) of any Governmental Agency or central bank or comparable authority. "Request for Loan" means a request for a Loan signed by a Responsible Official of Borrower, in a form reasonably designated from time to time by the Administrative Agent. -20- 27 "Request for Redesignation" means a written request for redesignation of Loans signed by a Responsible Official of Borrower, in a form reasonably designated from time to time by the Administrative Agent. "Requirement of Law" means, as to any Person, any Law or any judgment, award, decree, writ or determination of, or any consent or similar agreement with, 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. "Reserve Percentage" means, for each LIBOR Loan, the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Regulation D. The Reserve Percentage shall be expressed in decimal form and rounded upward, if necessary, to the nearest 1/100th of one percent, and shall include marginal, emergency, supplemental, special and other reserve percentages. The Reserve Percentage shall be determined solely by the Administrative Agent, which determination shall be conclusive absent manifest error. "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 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 a Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of that Person. "Revolving Loan Commitment Increases" means the aggregate of increases to the Commitment requested under Section 2.8 of the 2000 Revolving Loan Agreement. "Revolving Loan Exposure" means for any Bank, as of any date of determination, the product obtained by multiplying that Bank's then effective Pro Rata Share under the 2000 Revolving Loan Agreement by the then effective Commitment under the 2000 Revolving Loan Agreement. "Right of Others" means, with respect to any Property in which a Person has an interest, (a) any legal or equitable claim or other interest (other than a Lien) in or with respect to that Property held by any other Person, and (b) any option or right held by any other Person to acquire any such claim or other interest (including a Lien). "S&P" means Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) and its successors. "Securities" means any capital stock, share, voting trust certificate, bonds, debentures, notes or other evidences of indebtedness, limited partnership interests, or any warrant, option or other right to purchase or acquire any of the foregoing. "Senior Officer" means the (a) chief executive officer, (b) chief operating officer, (c) chief financial officer, (d) vice president and controller, or (e) treasurer, in each case whatever the title nomenclature may be, of the Person designated. -21- 28 "Settlement Date" means the settlement date specified in the forward contract for the sale and purchase of Common Stock which is a component of any Trust Preferred Capital Securities. The Settlement Date for the Trust Preferred Capital Securities referred to in clause (a) of the definition thereof is August 16, 2001. "Shareholders' Equity" means, as of any date of determination, shareholders' equity as of that date determined in accordance with Generally Accepted Accounting Principles; provided that there shall be excluded from Shareholders' Equity any amount attributable to capital stock that is, directly or indirectly, required to be redeemed or repurchased by the issuer thereof prior to the date which is one year after the Maturity Date or upon the occurrence of specified events or at the election of the holder thereof. "Significant Subsidiary" means, as of May 31 2000, those Subsidiaries of Borrower identified as such in Schedule 4.4 and, as of any other date of determination, any Subsidiary of Borrower (other than a Joint Venture) with respect to which any of the following conditions is met: (a) the aggregate book value of all Investments of Borrower and its Subsidiaries in such Subsidiary exceeds 5% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date; or (b) the proportionate share of Borrower and its Subsidiaries in the total assets of such Subsidiary (after intercompany eliminations) exceeds 5% of the consolidated total assets (other than assets of Financial Subsidiaries) of Borrower and its Subsidiaries as of such date; or (c) the equity of Borrower and its Subsidiaries in the net income of such Subsidiary (before income taxes, extraordinary items and cumulative effect of a change in accounting principles) as of the end of the most recently ended fiscal year of such Subsidiary exceeds the greater of (i) an amount equal to 5% of the consolidated net income of Borrower and its Subsidiaries (computed as aforesaid) as of the end of the most recent Fiscal Year ended prior to such date or (ii) $3,000,000. "Subordinated Obligations" means, collectively, all obligations of Borrower or any of its Subsidiaries that (a) do not provide for any payment of principal, any sinking fund payment or any scheduled redemption prior to the Maturity Date, (b) are expressly subordinated to the Obligations by a written instrument containing subordination and related provisions (including interest payment blockage, standstill and related provisions) not materially less favorable to the Banks in any respect whatsoever from those applicable to Borrower's 9-5/8% Senior Subordinated Notes due 2006 (the "Subordinated Notes") (or such other subordination and related provisions as may be approved in writing by the Majority Banks), (c) are subject to financial covenants not materially more burdensome to Borrower taken as a whole than those applicable to the Subordinated Notes, except such covenants as may be approved in writing by the Majority Banks and (d) are subject to other covenants (other than the covenant to pay interest) and events of default which in the aggregate are not materially more burdensome to Borrower than those applicable to the Subordinated Notes, except such covenants or events of default as may be approved in writing by the Majority Banks. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership or joint venture whether now existing or hereafter organized or acquired: -22- 29 (a) in the case of a corporation or limited liability company, of which securities having a majority of the ordinary voting power for the election of the board of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by such Person and/or one or more Subsidiaries of such Person or (b) in the case of a partnership, joint venture or other business entity, in which such Person or a Subsidiary of such Person is a general partner. "Subsidiary Guaranty" means the guaranty of the Indebtedness of Borrower under this Agreement executed by each Guarantor Subsidiary of Borrower substantially in the form of Exhibit E, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Syndication Agent" means Credit Lyonnais Los Angeles Branch, so long as such bank is a Bank hereunder. The Syndication Agent shall have no duties under the Loan Documents beyond those of a Bank. "Termination Event" means (a) a "reportable event" as defined in Section 4043 of ERISA (other than a "reportable event" that is not subject to the provision for 30 day notice to the PBGC), (b) the withdrawal of Borrower or any of its ERISA Affiliates from a Pension Plan during any plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Pension Plan or the treatment of an amendment to a Pension Plan as a termination thereof pursuant to Section 4041 of ERISA, other than pursuant to Section 4041(b) of ERISA, (d) the institution of proceedings to terminate a Pension Plan by the PBGC or (e) any other event or condition which might reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "to the best knowledge of" means, when modifying a representation, warranty or other statement of any Person, that such representation, warranty or statement is a representation, warranty or statement that (a) the Person making it has no actual knowledge of the inaccuracy of the matters therein stated and (b) assuming the exercise by the Person making it of reasonable due diligence under the circumstances (in accordance with the standard of what a reasonable Person would have done under similar circumstances), the Person making it would have no actual knowledge of the inaccuracy of the matters therein stated. Where the Person making the representation, warranty or statement is not a natural Person, the aforesaid actual or constructive knowledge shall be that of any Senior Officer of that Person. "Trust Issuer" means a business trust formed by Borrower as a special purpose grantor trust for the purpose of facilitating the issuance of Trust Preferred Capital Securities, and which engages in no activities other than those incident to the Trust Preferred Capital Securities. "Trust Preferred Capital Securities" means the securities issued by Borrower and a Trust Issuer (a) covered by Borrower's Prospectus dated June 30, 1998 filed with the Commission and (b) such other similar securities as may from time to time be issued by Borrower after being approved in writing by the Majority Banks in their sole and absolute discretion to be treated as Trust Preferred Capital Securities. -23- 30 "Voting Stock" means, with respect to any Person, the capital stock of such Person having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 1.2 Use of Defined Terms. Any defined term used in the plural preceded by the definite article shall be taken to encompass all members of the relevant class. Any defined term used in the singular preceded by "any" shall be taken to indicate any number of the members of the relevant class. 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, consistently applied, except as otherwise specifically prescribed herein. In the event that Generally Accepted Accounting Principles change during the term of this Agreement such that the financial covenants contained in Sections 6.9, 6.10 or 6.11 would then be calculated in a different manner or with different components or would render the same not meaningful criteria for evaluating Borrower's financial condition, (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 financial covenants contained in such Sections during the 90 day period following 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. In the event that the Borrower changes its Fiscal Year during the term of this Agreement, Borrower and the Banks agree to amend this Agreement and the other Loan Documents in such respects as are necessary to conform the definitions, the financial covenants, the reporting requirements and the other provisions thereof to fairly reflect such change in the Borrower's Fiscal Year. 1.4 Rounding. Any financial ratios required to be maintained 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 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. 1.6 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 reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.7 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. -24- 31 Article 2 LOANS 2.1 Loans-General. (a) Subject to the terms and conditions set forth in this Agreement, on the 2000 Closing Date, each Bank shall, pro rata according to that Bank's Pro Rata Share of the Commitment, make Advances, to Borrower under the Commitment in such amounts as Borrower may request in one or more Request(s) for Loan(s); provided that after giving effect to such Advance(s), the aggregate outstanding principal evidenced by the Notes shall equal but not exceed the Commitment. Borrower may not borrow under this Section 2.1(a) subsequent to the 2000 Closing Date, or repay and reborrow under this Section 2.1(a). (b) Subject to the next sentence, each Loan shall be made pursuant to a Request for Loan which shall be in a form and shall contain information specified from time to time by the Administrative Agent and which shall specify the requested (i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan and (iv) in the case of a LIBOR Loan, Interest Period for such Loan. Unless the Administrative Agent, in its sole and absolute discretion, has notified Borrower to the contrary, each Loan may be requested by telephone (promptly confirmed in writing) or telecopier by a Responsible Official of Borrower, and Borrower shall confirm such request by promptly mailing a Request for Loan conforming to the preceding sentence to the Administrative Agent. (c) Promptly following receipt of a Request for Loan, the Administrative Agent shall notify each Bank by telephone, telecopier or telex of the date and type of the Loan, the applicable Interest Period in the case of a LIBOR Loan, and that Bank's Pro Rata Share of the Loan. Not later than 11:00 a.m., California time, on the date specified for any Loan, each Bank shall make its Pro Rata Share of the Loan in immediately available funds available to the Administrative Agent at the Administrative Agent's Office. Upon fulfillment of the applicable conditions set forth in Article 8, all Advances shall be credited in immediately available funds to the Designated Deposit Account. (d) The principal amount of each Loan shall be an integral multiple of $1,000,000 and shall be in an amount not less than (i) $1,000,000 if such Loan is a Prime Rate Loan and (ii) $5,000,000 if such Loan is a LIBOR Loan. (e) A Request for Loan shall be irrevocable upon the Administrative Agent's first notification thereof. The obligation of each Bank to make any Advance is several, and not joint or joint and several, and is not conditioned upon the performance by any other Bank of its obligation to make Advances. The failure by any Bank to perform its obligation to make any Advance will not increase the obligation of any other Bank to make Advances. (f) Borrower may redesignate a Prime Rate Loan as a LIBOR Loan, or a LIBOR Loan as a Prime Rate Loan or a LIBOR Loan with a new Interest Period, by delivering a Request for Redesignation to the Administrative Agent, within the time periods and pursuant to the conditions set forth in Section 2.1(b), 2.2 or 2.3, as applicable, and elsewhere in this Agreement. If no Request for Redesignation (or telephonic or other request referred to in the second sentence of Section 2.1(b), if applicable) has been made prior to the last day of the Interest Period for an outstanding LIBOR Loan within the requisite notice periods set forth in -25- 32 Section 2.3, then Borrower shall be deemed to have requested that such LIBOR Loan be redesignated as a Prime Rate Loan. (g) The Advances made by each Bank on the 2000 Closing Date shall be evidenced by that Bank's Note. 2.2 Prime Rate Loans. Each request by Borrower for a Prime 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 Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m., California time, on the Banking Day on which the requested Prime Rate Loan is to be made. The Administrative Agent shall notify each Bank of a request for a Prime Rate Loan as soon as practicable after receipt of the same. All Loans shall constitute Prime Rate Loans unless properly designated as LIBOR Loans pursuant to Section 2.3. 2.3 LIBOR Loans. (a) Each request by Borrower for a LIBOR 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 Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m., California time, at least 3 LIBOR Market Days before the first day of the applicable Interest Period, provided that such advance notice period may be reduced by the Administrative Agent in its discretion with respect to any LIBOR Loan made on the 2000 Closing Date. The Administrative Agent shall notify each Bank of a request for a LIBOR Loan as soon as practicable after receipt of the same. (b) At or about 10:00 a.m., California time, 2 LIBOR Market Days before the first day of the applicable Interest Period, the Administrative Agent shall determine the applicable LIBOR (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, telecopier or, in the case of Banks, telex. (c) No more than 10 LIBOR Loans may be outstanding at any particular time. (d) Unless the Majority Banks otherwise consent, no LIBOR Loan may be requested during the continuance of an Event of Default. 2.4 Initial Request for Loan. The Borrower's initial Request(s) for Loan on the 2000 Closing Date shall be in an aggregate amount equal to the full amount of the Commitment. 2.5 Administrative Agent's Right to Assume Funds Available. Unless the Administrative Agent shall have been notified by any Bank at least two hours prior to the funding by the Administrative Agent of each Loan that such Bank does not intend to make available to the Administrative Agent such Bank's Pro Rata Share of such Loan, the Administrative Agent may, in its discretion (but shall not be so obligated), assume that such Bank has made such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be -26- 33 entitled to recover such corresponding amount on demand from such Bank, which demand shall be made in a reasonably prompt manner. If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent promptly shall notify Borrower and Borrower shall pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also 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 Administrative Agent to Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to the Federal Funds Rate as notified by the Administrative Agent to such Bank or the Borrower, as the case may be. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Pro Rata Share of the Commitment hereunder or to prejudice any rights which the Administrative Agent or Borrower may have against any Bank as a result of any default by such Bank hereunder. 2.6 Optional Increase to Commitment. (a) Subject to the limitations set forth in this Section, during the period beginning on the 2000 Closing Date and ending 6 months prior to the Maturity Date, if no Default or Event of Default then exists, Borrower may from time to time request in writing that the Commitment be increased to an aggregate amount that is not greater than $175,000,000 less Revolving Loan Commitment Increases. Any such increase shall be accomplished by (i) the addition of new Banks who qualify as Eligible Assignees that are reasonably acceptable to the Administrative Agent (each, a "New Bank") or (ii) one or more of the existing Banks increasing its Exposure in accordance with the provisions of this Section. Each such increase shall be effective, if at all, not later than 6 months prior to the Maturity Date. (b) Any request under this Section shall be submitted by the Borrower to the Administrative Agent, shall specify the proposed effective date and amount of such increase and be accompanied by (i) a certificate signed by a Responsible Official of the Borrower, stating that no Default or Event of Default exists as of the date of the request or will result from the requested increase and (ii) a written consent to the increase in the amount of the Commitment executed by each Guarantor Subsidiary. No consent of the Banks shall be required for an increase in the amount of the Commitment pursuant to this Section. The Administrative Agent shall prepare and circulate to the Borrower and Banks a new Schedule 1.1 after each increase in the Commitment. (c) No Bank shall be obligated to increase the amount of its Exposure, nor shall any Bank have the right to do so unless designated by the Borrower. (d) Each New Bank designated by the Borrower and reasonably acceptable to the Administrative Agent shall become an additional party hereto as a New Bank concurrently with the effectiveness of the proposed increase in the Commitment upon its execution of an instrument of joinder to this Agreement which is in form and substance acceptable to the Administrative Agent and which, in any event, contains the representations, warranties, indemnities and other protections afforded to the Administrative Agent and the other Banks which would be granted or made by an Eligible Assignee by means of the execution of an Assignment and Acceptance. -27- 34 (e) Subject to the foregoing, any increase to the Commitment requested under this Section shall be effective as of the effective date proposed by the Borrower (but not later than 6 months prior to the Maturity Date) and shall be in the principal amount equal to (i) the amount that consenting Banks have agreed to assume as increases to the amount of their respective Exposures plus (ii) the amount that any New Banks have agreed to be the amount of their respective Exposures. (f) Concurrently with the effectiveness of any increase to the Commitment under this Section, each New Bank and each existing Bank which has increased its Exposure shall make additional Advances available to the Administrative Agent (the proceeds of which shall be paid to the other Banks or used in part to refinance expiring LIBOR Loans) in the amount required to result in the aggregate outstanding Advances of each Bank being equal to its Pro Rata Share of the Commitment, as so increased. (g) The Borrower confirms (i) its obligation pursuant to Section 3.5(d) to repay any breakage fees resulting from the prepayment of any LIBOR Loans resulting under this Section, and (ii) that unless the initial Loans being made by each New Bank and each Bank increasing its Exposure under this Section are LIBOR Loans being made by all of the Banks in accordance with their respective Pro Rata Shares, then the initial Loans by the New Banks and by each increasing Bank shall be Prime Rate Loans. (h) No amount borrowed by the Borrower pursuant to this Section 2.6 may be repaid and reborrowed. (i) Notwithstanding any other provision of this Agreement or the 2000 Revolving Loan Agreement, the Borrower agrees that it will not exercise its rights under this Section 2.6 unless and until the sum (such sum being referred to as "Collective Exposure") of Bank of America's Exposure and its "Exposure" (as defined in the 2000 Revolving Loan Agreement) is reduced to $200,000,000 or less. Thus, Bank of America must first assign or grant participations in at least $43,000,000 of its Collective Exposure before the Borrower may exercise its rights under this Section 2.6. Bank of America agrees to waive any LIBOR breakage fees that may be owing to it (but not to any other Bank) with respect to any assignment or participation by it of the first $43,000,000 of its Collective Exposure. Bank of America may from time to time, in its sole and absolute discretion, waive the application of this Section 2.6(i) with respect to a particular increase in the Commitment pursuant to this Section 2.6, but any such waiver(s) shall not affect the continuing enforceability of this Section 2.6(i). -28- 35 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 of such Advance until payment in full and shall accrue and be payable at the rates set forth herein, to the extent permitted by applicable Laws, before and after default, before and after maturity, before and after any 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. (b) Interest accrued on each Prime Rate Loan shall be due and payable on the last day of each calendar month. Except as otherwise provided in Section 3.6, the unpaid principal amount of any Prime Rate Loan shall bear interest at a fluctuating rate per annum equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread. Each change in the interest rate hereunder shall take effect simultaneously with the corresponding change in the Prime Rate. Each change in the Prime Rate shall be effective as of the Banking Day on which the change in the Prime Rate is announced, unless otherwise specified in such announcement, in which case the change shall be effective as so specified. (c) Interest accrued on each LIBOR Loan with an Interest Period of one month shall be due and payable on the last day of the related Interest Period. Interest accrued on each LIBOR Loan with an Interest Period in excess of one month shall be due and payable on the last day of each calendar month and on the last day of the related Interest Period. Except as otherwise provided in Section 3.6, the unpaid principal amount of any LIBOR Loan shall bear interest at a rate per annum equal to the sum of LIBOR for that LIBOR Loan plus the Applicable LIBOR Spread. (d) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be immediately payable in Cash on the Maturity Date. (e) The Notes may, at any time and from time to time, voluntarily be prepaid at the election of Borrower in whole or in part without premium or penalty; provided that: (i) any partial prepayment shall be in integral multiples of $1,000,000, (ii) any partial prepayment shall be in an amount not less than $1,000,000 on a Prime Rate Loan, and not less than $5,000,000 on a LIBOR Loan, (iii) the Administrative Agent must have received written notice (or telephonic notice confirmed promptly in writing) of any prepayment at least three Banking Days before the date of prepayment in the case of a LIBOR Loan and by 10:00 a.m., California time, on the date of prepayment in the case of a Prime Rate Loan, (iv) each prepayment of principal, except for partial prepayments on Prime Rate Loans, shall be accompanied by prepayment of interest accrued to the date of payment on the amount of principal paid and (v) in the case of any prepayment of any LIBOR Loan, Borrower shall promptly upon demand reimburse each Bank for any loss or cost directly or indirectly resulting from the prepayment, determined as set forth in Section 3.5. -29- 36 (f) Change in Control. (i) If a Change in Control shall have occurred, at the option of the Majority Banks, Borrower shall repay in Cash the entire principal Indebtedness evidenced by the Notes, together with interest thereon and all other amounts due in connection with the Notes and this Agreement (the "Change in Control Repayment"), on the date that is no more than 27 Banking Days after the occurrence of the Change in Control (the "Change in Control Payment Date"), subject to receipt by Borrower of a Change in Control Payment Notice as set forth in Section 3.1(f)(iii). On the Change in Control Payment Date, the Commitment shall automatically terminate. (ii) Within 15 Banking Days after the occurrence of a Change in Control, Borrower shall provide written notice of the Change in Control to the Administrative Agent and each Bank. The notice shall state: (A) the events causing a Change in Control and the date of such Change in Control; (B) the date by which the Change in Control Payment Notice (as defined in Section 3.1(f)(iii)) must be given; and (C) the Change in Control Payment Date. (iii) At the direction of the Majority Banks, the Administrative Agent shall, on behalf of the Banks, exercise the rights specified in Section 3.1(f)(i) by delivery of a written notice (a "Change in Control Payment Notice") to Borrower at any time prior to or on the Change in Control Payment Date, stating that the Notes shall be prepaid on the Change in Control Payment Date. On the Change in Control Payment Date, Borrower shall make the Change in Control Repayment to the Administrative Agent for the benefit of the Banks. 3.2 Upfront Fee. In addition to fees specified in the letter referred in Section 3.3, on the 2000 Closing Date, Borrower shall pay to the Administrative Agent, for the account of each Bank, an upfront fee as set forth in the letter agreement between the Borrower and the Administrative Agent. 3.3 Agency Fee. Borrower shall pay to the Administrative Agent an agency fee in such amounts and at such times as heretofore agreed upon by letter agreement between Borrower and the Administrative Agent. 3.4 Capital Adequacy. (a) If any Bank (an "Affected Bank") determines that compliance with any Law or regulation or with any guideline or request from any central bank or other Governmental Agency (whether or not having the force of Law) enacted or issued after the 2000 Closing Date relating to the capital adequacy of banks or corporations in control of banks has or would have the effect of reducing the rate of return on the capital of such Affected Bank or any corporation controlling such Affected Bank as a consequence of, or with reference to, such Affected Bank's -30- 37 Pro Rata Share of the Commitment below the rate which the Bank or such other corporation could have achieved but for such compliance (taking into account the policies of such Bank or corporation with regard to capital adequacy), then Borrower shall from time to time, upon demand by such Affected Bank in accordance with this Section 3.4 (with a copy of such demand to the Administrative Agent), within 15 days after demand pay to such Affected Bank additional amounts sufficient to compensate such Affected Bank or other corporation for such reduction. (b) An Affected Bank may not seek compensation under Section 3.4(a) unless the demand for such compensation is delivered to Borrower within six months following the date of enactment or issuance of the Law, regulation, guideline or request giving rise to such demand for compensation. (c) A certificate as to any amounts for which an Affected Bank is seeking compensation under Section 3.4(a), submitted to Borrower and the Administrative Agent by such Affected Bank, shall be conclusive and binding for all purposes, absent manifest error. Each Affected Bank shall calculate such amounts in a manner which is consistent with the manner in which it makes calculations for comparable claims with respect to similarly situated borrowers from such Affected Bank, will not allocate to Borrower a proportionately greater amount of such compensation than it allocates to each of its other commitments to lend or other loans with respect to which it is entitled to demand comparable compensation, and will not include amounts already factored into the rates of interest or fees already provided for herein. Each Bank agrees promptly to notify Borrower and the Administrative Agent of any circumstances that would cause Borrower to pay additional amounts pursuant to this Section, provided that the failure to give such notice shall not affect Borrower's obligation to pay such additional amounts hereunder. (d) Without limiting its obligation to reimburse an Affected Bank for compensation theretofore claimed by an Affected Bank pursuant to Section 3.4(a), Borrower may, within 60 days following any demand by an Affected Bank, request that one or more Persons that are Eligible Assignees and that are acceptable to Borrower and approved by the Administrative Agent (which approval shall not be unreasonably withheld) purchase all (but not part) of the Affected Bank's then outstanding Advances, its Note, and assume its Pro Rata Share of the Commitment and its obligations hereunder. If one or more such Banks or banks so agree in writing (each, an "Assuming Bank" and collectively, the "Assuming Banks"), the Affected Bank shall assign its Pro Rata Share of the Commitment, together with the Indebtedness then evidenced by its Note, to the Assuming Bank or Assuming Banks in accordance with Section 11.8. On the date of any such assignment, the Affected Bank which is being so replaced shall cease to be a "Bank" for all purposes of this Agreement and shall receive (x) from the Assuming Bank or Assuming Banks the principal amount of its Advances then outstanding and (y) 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. -31- 38 3.5 LIBOR Fees and Costs. (a) If the occurrence of any Regulatory Development after the 2000 Closing Date: (i) shall subject any Bank or its LIBOR Lending Office to any tax, duty or other charge or cost with respect to any LIBOR Advance or its obligation to make LIBOR Advances, or shall change the basis of taxation of payments to any Bank of the principal of or interest on any LIBOR Advance or any other amounts due under this Agreement in respect of any LIBOR Advance or its obligation to make LIBOR Advances (except for changes in any tax on the overall net income, gross income or gross receipts of such Bank or its LIBOR Lending Office); (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirements (excluding any such requirement included in any applicable Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank or its LIBOR Lending Office; or (iii) shall impose on any Bank or its LIBOR Lending Office or the LIBOR Market any other condition affecting any LIBOR Advance or its obligation to make LIBOR Advances, 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 LIBOR Lending Office of making or maintaining any LIBOR Advance or in respect of any LIBOR Advance or its obligation to make LIBOR Advances or reduces the amount of any sum received or receivable by such Bank or its LIBOR Lending Office with respect to any LIBOR Advance or its obligation to make LIBOR Advances (assuming such Bank's LIBOR Lending Office had funded 100% of its LIBOR Advance in the LIBOR Market), then, within 15 days after demand by such Bank (with a copy to the Administrative 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 LIBOR Lending Office had funded 100% of its LIBOR Advance in the LIBOR Market); provided that Borrower shall not be liable to any Bank for any such increased cost or reduction pursuant to this Section in respect of any period which is more than six months prior to such Bank's demand for such compensation. 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 which will entitle such Bank to compensation pursuant to this Section, and agrees to designate a different LIBOR 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 disadvantageous to such Bank. If any Bank claims compensation under this Section, Borrower may at any time, upon at least four (4) LIBOR Market Days' prior notice to the Administrative 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 3.5(d), pay in full the affected LIBOR Advances of such Bank or request that such LIBOR Advances be converted to Prime Rate Advances. -32- 39 (b) If after the 2000 Closing Date the occurrence of any Regulatory Development shall, in the opinion of any Bank, make it unlawful or impossible for such Bank or its LIBOR Lending Office to make, maintain or fund its portion of any LIBOR Loan, or to take deposits of, dollars in the LIBOR Market, or to determine or charge interest rates based upon the LIBOR, and such Bank shall so notify the Administrative Agent, then such Bank's obligation to make LIBOR Advances shall be suspended for the duration of such illegality or impossibility and the Administrative Agent forthwith shall give notice thereof to the other Banks and Borrower. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. Upon receipt of such notice, the outstanding principal amount of such Bank's LIBOR Advances, together with accrued interest thereon, automatically shall be converted to Prime Rate Advances with Interest Periods corresponding to the LIBOR Loans of which such LIBOR Advances were a part on either (1) the last day of the Interest Period(s) applicable to such LIBOR Advances if such Bank may lawfully continue to maintain and fund such LIBOR Advances to such day(s) or (2) immediately if such Bank may not lawfully continue to fund and maintain such LIBOR Advances to such day(s), provided that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.5(d). In the event that any Bank is unable, for the reasons set forth above, to make, maintain or fund its portion of any LIBOR Loan, such Bank shall fund such amount as a Prime Rate Advance for the same period of time, and such amount shall be treated in all respects as a Prime Rate Advance. (c) If, with respect to any proposed LIBOR Loan: (i) the Administrative Agent reasonably determines that, by reason of circumstances affecting the LIBOR Market generally that are beyond the reasonable control of the Banks, deposits in dollars (in the applicable amounts) are not being offered to each of the Banks in the LIBOR Market for the applicable Interest Period; or (ii) the Majority Banks advise the Administrative Agent that the LIBOR as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of making the applicable LIBOR Advances; then the Administrative Agent forthwith shall give notice thereof to Borrower and the Banks, whereupon until the Administrative Agent notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of the Banks to make any future LIBOR Advances shall be suspended. If at the time of such notice there is then pending a Request for Loan that specifies a LIBOR Loan, such Request for Loan shall be deemed to specify a Prime Rate Loan. (d) Upon payment or prepayment of any LIBOR Advance (other than as the result of a conversion required under Section 3.5(b)) on a day other than the last day in the applicable Interest Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of Borrower to borrow on the date or in the amount specified for a LIBOR Loan in any Request for Loan, Borrower shall pay to each Bank an amount equal to the sum of (i) $250; plus -33- 40 (ii) the amount, if any, by which (x) the additional interest that would have accrued (without any Applicable LIBOR Spread) on the principal amount prepaid on account of the LIBOR Advance had it remained outstanding until the last day of the applicable Interest Period, exceeds (y) the interest that Bank could recover by placing funds in the amount of the prepayment on deposit in the LIBOR Market selected by that Bank for a period beginning on the date of the prepayment and ending on the last day of the applicable Interest Period, or for a comparable period for which an appropriate rate quote may be obtained; plus (iii) an amount equal to all costs and expenses which that Bank incurred or reasonably expects to incur in liquidating and reinvesting the prepayment. Each Bank's determination of the amount of any prepayment fee or failure to borrow fee payable under this Section 3.5(d) shall be conclusive in the absence of manifest error. (e) Any statement or certificate given by a Bank under this Section 3.5 shall satisfy the requirements set forth in Section 3.5(c) with respect to requests for reimbursement under Section 3.5(a). (f) Should any Bank demand payment under the provisions of Section 3.5(a) or should any Bank's LIBOR Advances be suspended under the provisions of Section 3.5(b), then without limiting its obligation to reimburse any Bank for compensation claimed by such Bank pursuant to this Section 3.5, Borrower may, within 60 days following such occurrence, treat that Bank as an "Affected Bank" under Section 3.4(d), and exercise the remedies set forth in such Section 3.4(d). 3.6 Late Payments/Default Interest. If any installment of principal or interest under the Notes or any other amount payable to the Banks under any Loan Document is not paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread plus 2%, to the extent permitted by applicable Law, until paid in full (whether before or after judgment). Upon and during the continuance of any Event of Default, the Indebtedness evidenced by the Notes shall, at the election of the Majority Banks and upon notice to Borrower (and in lieu of interest provided for in the preceding sentence), bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Prime Rate plus the Applicable Prime Rate Spread plus 2%, to the extent permitted by applicable Law, until no Event of Default exists (whether before or after judgment). Notwithstanding the preceding sentence, after the occurrence of any Event of Default under Sections 6.7, 6.10 or 6.16, the Indebtedness evidenced by the Notes may not bear interest at the increased rate provided for in the preceding sentence until such Event of Default has continued for at least 15 days, in the case of Section 6.7, or 30 days, in the case of Sections 6.10 or 6.16. 3.7 Computation of Interest and Fees. All computations of interest and fees hereunder shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day and excluding the last day), which results in greater interest than if a year of 365 days were used. Any Loan that is repaid on the same day on which it is made shall bear interest for one day. 3.8 Holidays. If any principal payment to be made by Borrower on a Prime Rate Loan shall come due on a day other than a Banking Day, payment shall be made on the next succeeding -34- 41 Banking Day and the extension of time shall be reflected in computing interest. If any principal payment to be made by Borrower on a LIBOR Loan shall come due on a day other than a LIBOR Market Day, payment shall be made on the next preceding or succeeding LIBOR Market Day as determined by the Administrative Agent in accordance with the then current banking practice in the LIBOR Market and the adjustment shall be reflected in computing interest. 3.9 Payment Free of Taxes. (a) Any payments made by any Party under the Loan Documents shall be made free and clear of, and without reduction by reason of, any tax, assessment or other charge imposed by any Governmental Agency, central bank or comparable authority (other than taxes on income or gross receipts generally applicable to banks). To the extent that Borrower is obligated by applicable Laws to make any deduction or withholding on account of taxes, assessments or other charges imposed by any Governmental Agency from any amount payable to any Bank under this Agreement, Borrower shall (a) make such deduction or withholding and pay the same to the relevant Governmental Agency and (b) pay such additional amount to that Bank as is necessary to result in that Bank's receiving a net after-tax (or after-assessment or after-charge) 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, assessments or other charges, that Bank shall refund such excess to Borrower. 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 Administrative Agent, within twenty days after the 2000 Closing Date (or such later date on which such Bank becomes a "Bank" hereunder), a certificate signed by a Responsible Official of that Bank to the effect that such Bank is entitled to receive payments of interest and other amounts payable under this Agreement without deduction or withholding on account of United States of America federal income taxes, which certificate shall be accompanied by two copies of Internal Revenue Service Form 1001 or Form 4224, as applicable, also executed by a Responsible Official of that Bank. Each such Bank agrees (i) promptly to notify the Administrative Agent and Borrower if any fact set forth in such certificate ceases to be true and correct and (ii) to take such steps as may be reasonably necessary to avoid any requirement of applicable Laws that Borrower make any deduction or withholding for taxes from amounts payable to that Bank under this Agreement. (b) Without limiting its obligation to pay any additional amount to a Bank pursuant to Section 3.9(a), Borrower may, within 60 days following any such payment by that Bank, treat that Bank as an "Affected Bank" under Section 3.4(d), and exercise the remedies set forth in such Section 3.4(d). 3.10 Funding Sources. Nothing in this Agreement shall be deemed to obligate any Bank to obtain the funds for its share of any Loan in any particular place or manner or to constitute a representation by any Bank that it has obtained or will obtain the funds for its share of any Loan in any particular place or manner. 3.11 Failure to Charge or Making of Payment Not Subsequent Waiver. Any decision by any Bank not to require payment of any fee or costs, or to reduce the amount of the payment required for any fee or costs, or to calculate any fee or any cost in any particular manner, shall not limit or be deemed a waiver of any Bank's right to require full payment of any fee or costs, or to calculate any fee or any costs in any other manner. Any decision by Borrower to pay any fee or costs shall not -35- 42 limit or be deemed a waiver of any right of Borrower to protest or dispute the payment amount of such fee or costs. 3.12 Time and Place of Payments; Evidence of Payments; Application of Payments. The amount of each payment hereunder, under the Notes or under any Loan Document shall be made to the Administrative Agent at the Administrative Agent's Office, for the account of each of the Banks or the Administrative Agent, as the case may be, in lawful money of the United States of America without deduction, offset or counterclaim and in immediately available funds on the day of payment (which must be a Banking Day). All payments of principal received after 10:00 a.m., California time, on any Banking Day, shall be deemed received on the next succeeding Banking Day for purposes of calculating interest thereon. The amount of all payments received by the Administrative Agent for the account of a Bank shall be promptly paid by the Administrative Agent to that Bank in immediately available funds. Each Bank shall keep a record of Advances made by it and payments of principal with respect to each Note, and such record shall be presumptive evidence of the principal amount owing under such Note; provided that failure to keep such record shall in no way affect the Obligations of Borrower hereunder. Prior to the Maturity Date or an acceleration of the maturity of the Loans, payments under the Loan Documents shall be applied first to amounts owing thereunder other than the outstanding principal balance under the Notes and second to the outstanding principal balance under the Notes in a manner designated by Borrower or, if no such designation is made prior to payment or, if an Event of Default shall have occurred and be continuing, as may be designated by the Majority Banks. Following the Maturity Date or an acceleration of the maturity of the Loans, payments and recoveries under the Loan Documents shall be applied in a manner designated in Section 9.2(d). 3.13 Administrative Agent's Right to Assume Payments Will be Made. Unless the Administrative Agent shall have been notified by Borrower prior to the date on which any payment to be made by Borrower hereunder is due that Borrower does not intend to remit such payment, the Administrative Agent may, in its discretion (but shall not be so obligated), assume that Borrower has remitted such payment when so due and the Administrative 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 Pro Rata Share of such assumed payment. If Borrower has not in fact remitted such payment to the Administrative Agent, each Bank shall forthwith on demand repay to the Administrative 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 Administrative Agent to such Bank to but excluding the date such amount is repaid to the Administrative Agent at a rate per annum equal to the actual cost to the Administrative Agent of funding such amount as notified by the Administrative Agent to such Bank. 3.14 Survivability. All of Borrower's obligations under this Article 3 shall survive for 3 months following the date on which all Loans hereunder are fully paid. 3.15 Bank Calculation Certificate. Any request for compensation pursuant to Section 3.4 or 3.5 shall be accompanied by a statement of an officer of the Bank requesting such compensation and describing the methodology used by such Bank in calculating the amount of such compensation, which methodology (i) may consist of any reasonable averaging and attribution methods and (ii) in the case of Section 3.4 hereof shall be consistent with the methodology used by such Bank in making similar calculations in respect of loans or commitments to other borrowers. 3.16 Transition. Borrower warrants and covenants that as of the 2000 Closing Date there will be no loans of any nature outstanding under the Prior Loan Agreements. The parties hereto -36- 43 agree that as of the 2000 Closing Date all commitments to extend credit under the Prior Loan Agreements shall terminate. -37- 44 Article 4 REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to the Banks that: 4.1 Existence and Qualification; Power; Compliance with Law. Borrower is a corporation duly organized, validly existing and in good standing under the Laws of Delaware, and its certificate of incorporation does not provide for the termination of its existence. Borrower is duly qualified or registered to transact business as a foreign corporation in the State of California, and in each other jurisdiction in which the conduct of its business or the ownership of its properties makes such qualification or registration necessary, except where the failure so to qualify or register 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, deliver and perform all of its obligations under the Loan Documents. All outstanding shares of capital stock of Borrower are duly authorized, validly issued, fully paid, non-assessable, and were issued in compliance with all applicable state and federal securities Laws, except where the failure to so comply would not constitute a Material Adverse Effect. Borrower is in substantial compliance with all Laws and other legal requirements applicable to its business, has obtained all authorizations, consents, approvals, orders, licenses and permits (collectively, "Authorizations") 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 obtain Authorizations, comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.2 Authority; Compliance with Other Instruments and Government Regulations. The execution, delivery, and performance by Borrower, and by each Guarantor Subsidiary of Borrower, of the Loan Documents to which it is a Party, have been duly authorized by all necessary corporate action, and do not: (a) require any consent or approval not heretofore obtained of any stockholder, partner, security holder, or creditor of such Party; (b) violate or conflict with any provision of such Party's charter, certificate or articles of incorporation, bylaws, certificate or articles of organization, operating agreement, partnership agreement or other organizational or governing documents of such Party; (c) result in or require the creation or imposition of any Lien or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by such Party; (d) constitute a "transfer of an interest" or an "obligation incurred" that is avoidable by a trustee under Section 548 of the Bankruptcy Code of 1978, as amended, or constitute a "fraudulent transfer" or "fraudulent obligation" within the meaning of the Uniform Fraudulent Transfer Act as enacted in any jurisdiction or any analogous Law; (e) violate any Requirement of Law applicable to such Party; or (f) 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 or any of its Property is bound or affected; -38- 45 and neither Borrower nor any Subsidiary of Borrower 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(f) in any respect that would constitute a Material Adverse Effect. 4.3 No Governmental Approvals Required. Except such as have heretofore been obtained, no authorization, consent, approval, order, license or permit from, or filing, registration, or qualification with, or exemption from any of the foregoing from, any Governmental Agency is or will be required to authorize or permit the execution, delivery and performance by Borrower or any Significant Subsidiary of Borrower of the Loan Documents to which it is a Party. 4.4 Subsidiaries. (a) Schedule 4.4 correctly sets forth the names, the form of legal entity and jurisdictions of organization of all Subsidiaries of Borrower as of the 2000 Closing Date and identifies each such Subsidiary that is a Consolidated Subsidiary, a Significant Subsidiary, a Guarantor Subsidiary, a Foreign Subsidiary and a Financial Subsidiary. As of the 2000 Closing Date, 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 indicated thereon are owned of record and beneficially by Borrower or one of such Subsidiaries, and all such shares or equity interests so owned were issued in compliance with all state and federal securities Laws and are duly authorized, validly issued, fully paid and non-assessable (other than with respect to required capital contributions to any joint venture in accordance with customary terms and provisions of the related joint venture agreement), except where the failure to so comply would not constitute a Material Adverse Effect, and are free and clear of all Liens and Rights of Others, except for Permitted Encumbrances and Permitted Rights of Others. (b) Each Significant Subsidiary is as of the date of this Agreement, and will be as of the 2000 Closing Date, a legal entity of the form described for that Subsidiary in Schedule 4.4, and is duly organized, 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, to own and lease its Properties and to execute, deliver and perform the Loan Documents to which it is a Party. (c) Each Significant Subsidiary is in substantial compliance with all Laws and other requirements applicable to its business and has obtained all Authorizations from, and each such Significant 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 so to obtain Authorizations, comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. -39- 46 4.5 Financial Statements. Borrower has furnished to each Bank the following financial statements: (a) the audited consolidated financial statements of Borrower and its Consolidated Subsidiaries as at November 30, 1999 and for the Fiscal Year then ended; and (b) the unaudited consolidating financial statements of Borrower and its Consolidated Subsidiaries as at May 31, 2000 for the Fiscal Quarter then ended and for the portion of the Fiscal Year ended with such Fiscal Quarter. The audited financial statements described in clause (a) are in accordance with the books and records of Borrower and its Consolidated Subsidiaries, were prepared in accordance with Generally Accepted Accounting Principles and fairly present in accordance with Generally Accepted Accounting Principles consistently applied the consolidated financial condition and results of operations of Borrower and its Consolidated Subsidiaries as at the date and for the period covered thereby. The unaudited financial statements described in clause (b), are in accordance with the books and records of Borrower and its Consolidated Subsidiaries, were prepared in accordance with Generally Accepted Accounting Principles and fairly present in accordance with Generally Accepted Accounting Principles consistently applied the consolidating financial condition and results of operation of Borrower and its Consolidated Subsidiaries as at the date and for the period covered thereby. 4.6 No Other Liabilities; No Material Adverse Effect. Borrower and its Consolidated Subsidiaries do not have any material liability or material contingent liability not reflected or disclosed in the financial statements or in the notes to the financial statements described in Section 4.5, other than liabilities and contingent liabilities arising in the ordinary course of business subsequent to November 30, 1999. Since November 30, 1999, no event or circumstance has occurred that constitutes a Material Adverse Effect with respect to Borrower and its Subsidiaries. 4.7 Title to Assets. As of the 2000 Closing Date, Borrower and its Consolidated Subsidiaries have good and valid title to all of the assets reflected in the financial statements described in Section 4.5 owned by them or any of them (other than assets disposed of in the ordinary course of business) and all other assets owned on the date of this Agreement, free and clear of all Liens and Rights of Others other than (a) those reflected or disclosed in the notes to the financial statements described in Section 4.5, (b) immaterial Liens or Rights of Others not required under Generally Accepted Accounting Principles to be so reflected or disclosed, (c) Liens permitted pursuant to Section 6.7, (d) Permitted Rights of Others, and (e) such existing Liens or Rights of Others as are described on Schedule 4.7 hereto. 4.8 Intangible Assets. Borrower and its Subsidiaries own, or possess the unrestricted right to use, all trademarks, trade names, copyrights, patents, patent rights, licenses and other intangible assets that are necessary in the conduct of their businesses as 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 would constitute a Material Adverse Effect. 4.9 Existing Indebtedness and Contingent Guaranty Obligations. As of the 2000 Closing Date, except as set forth in Schedule 4.9, neither Borrower nor any of its Subsidiaries has (a) any Indebtedness owed to any Person or (b) outstanding any Contingent Guaranty Obligation with respect to obligations of another Person that is not a Subsidiary of Borrower. -40- 47 4.10 Governmental Regulation. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940. 4.11 Litigation. There are no actions, suits, or proceedings pending 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 which would constitute a Material Adverse Effect. 4.12 Binding Obligations. Each of the Loan Documents to which Borrower or any Guarantor Subsidiary of Borrower is a Party will, when executed and delivered by Borrower or the Guarantor Subsidiary, as the case may be, constitute the legal, valid and binding obligation of Borrower or the Guarantor Subsidiary, as the case may be, enforceable against Borrower or the Guarantor Subsidiary, as the case may be, in accordance with its terms, except as enforcement may be limited by Debtor Relief Laws or by equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.13 No Default. No event has occurred and is continuing that is a Default or an Event of Default. 4.14 Pension Plans. As of the 2000 Closing Date, all contributions required to be made under any Pension Plan maintained by Borrower or any of its ERISA Affiliates (or to which Borrower or any ERISA Affiliate contributes or is required to contribute) have been made or accrued in the balance sheet of Borrower and its Consolidated Subsidiaries as at November 30, 1999. There is no "accumulated funding deficiency" within the meaning of Section 302 of ERISA or any liability to the PBGC (other than for premiums) with respect to any such Pension Plan other than a Multiemployer Plan. 4.15 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 which have become due pursuant to said returns or pursuant to any assessment received by Borrower or any Subsidiary, except (a) such taxes, if any, as are being contested in good faith by appropriate proceedings (and with respect to which Borrower or its Subsidiary has established adequate reserves for the payment of the same), and (b) such taxes the failure of which to pay will not constitute a Material Adverse Effect. 4.16 Regulation U. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the meanings of Regulation U of the Board of Governors of the Federal Reserve System, and no Loan hereunder will be used to purchase or carry any such margin stock in violation of Regulation U. 4.17 Environmental Matters. To the best knowledge of Borrower, Borrower and its Subsidiaries are in substantial compliance with all applicable Laws relating to environmental protection where the failure to comply would constitute a Material Adverse Effect. To Borrower's best knowledge, neither Borrower nor any of its Subsidiaries has received any notice from any Governmental Agency respecting the alleged violation by Borrower or any Subsidiary of such Laws which would constitute a Material Adverse Effect and which has not been or is not being corrected. -41- 48 4.18 Disclosure. The information provided by Borrower to the Banks in connection with this Agreement or any Loan, taken as a whole, has not contained any untrue statement of a material fact and has not omitted a material fact necessary to make the statements contained therein, taken as a whole, not misleading under the totality of the circumstances existing at the date such information was provided and in the context in which it was provided. 4.19 Projections. Except with respect to the effect of the Lewis Homes Stock Repurchase, which is not reflected in the Projections, as of the 2000 Closing Date, the assumptions upon which the Projections are based are reasonable and consistent with each other assumption and with all facts known to Borrower and that the Projections are reasonably based on those assumptions. Nothing in this Section 4.19 shall be construed as a representation or warranty as of any date other than the 2000 Closing Date or that the Projections will in fact be achieved by Borrower. -42- 49 Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION AND REPORTING REQUIREMENTS) As long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall, and shall cause each of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing: 5.1 Payment of Taxes and Other Potential Liens. Pay and discharge promptly, all taxes, assessments, and governmental charges or levies imposed upon Borrower or any of its Subsidiaries, upon their respective Property or any part thereof, upon their respective income or profits or any part thereof, except any tax, assessment, charge, or levy that is not yet past due, or is being contested in good faith by appropriate proceedings, as long as Borrower or its Subsidiary has established and maintains adequate reserves for the payment of the same and by reason of such nonpayment no material Property of Borrower or its Subsidiaries is subject to a risk of loss or forfeiture. 5.2 Preservation of Existence. Preserve and maintain their respective existence, licenses, rights, franchises, and privileges in the jurisdiction of their formation and all authorizations, consents, approvals, orders, licenses, permits, or exemptions from, or registrations with, any Governmental Agency that are necessary for the transaction of their respective business, and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties; provided that (a) the failure to preserve and maintain any particular right, franchise, privilege, authorization, consent, approval, order, license, permit, exemption, or registration, or to qualify or remain qualified in any jurisdiction, that does not constitute a Material Adverse Effect will not constitute a violation of this covenant, and (b) nothing in this Section 5.2 shall prevent any consolidation or merger or disposition of assets permitted by Section 6.3 or shall prevent the termination of the business or existence (corporate or otherwise) of any Subsidiary of Borrower which in the reasonable judgment of the management of Borrower is no longer necessary or desirable. 5.3 Maintenance of Properties. Maintain, preserve and protect all of their respective real Properties in good order and condition, subject to wear and tear in the ordinary course of business and damage caused by the natural elements, and not permit any waste of their respective real Properties, except that the failure to so maintain, preserve or protect any particular real Property, or the permitting of waste on any particular real Property, where such failure or waste with respect to all real Properties of Borrower and its Subsidiaries, in the aggregate, would not constitute a Material Adverse Effect will not constitute a violation of this covenant. 5.4 Maintenance of Insurance. Maintain insurance with responsible insurance companies in such amounts and against such risks as in Borrower's reasonable business judgment is adequate in light of Borrower's and its Subsidiaries' size, business, assets and location of operations. 5.5 Compliance with Laws. Comply with all Requirements of Laws noncompliance with which would constitute a Material Adverse Effect, except that Borrower and its Subsidiaries need not comply with a Requirement of Law then being contested by any of them in good faith by appropriate procedures, so long as such contest (or a bond or surety posted in connection -43- 50 therewith) operates as a stay of enforcement of any penalty that would otherwise apply as a result of such failure to comply. 5.6 Inspection Rights. At any time during regular business hours and as often as reasonably requested (and, in any event, upon 24 hours' prior notice), permit any Bank or any appropriately designated employee, agent or representative thereof at the expense of such Bank 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 or employees; provided that none of the foregoing unreasonably interferes with the normal business operations of Borrower or any of its Subsidiaries and that the Banks shall engage in any such inspections on a cooperative basis, if there has been no Default or Event of Default. 5.7 Keeping of Records and Books of Account. Keep adequate records and books of account fairly reflecting all financial transactions in conformity with Generally Accepted Accounting Principles applied on a consistent basis (except for changes concurred with by Borrower's independent certified public accountants) and all applicable requirements of any Governmental Agency having jurisdiction over Borrower or any of its Subsidiaries. 5.8 Use of Proceeds. Use the proceeds of all Loans solely for working capital, Acquisitions permitted hereunder and other general corporate purposes of Borrower and its Subsidiaries. 5.9 Subsidiary Guaranty. Cause each of its Guarantor Subsidiaries hereafter formed, acquired or qualifying as a Guarantor Subsidiary, to execute and deliver a joinder of the Subsidiary Guaranty promptly following such formation, acquisition or qualification. -44- 51 Article 6 NEGATIVE COVENANTS As long as any Loan remains unpaid, or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall not, and shall not permit any of its Subsidiaries to, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing: 6.1 Payment or Prepayment of Subordinated Obligations. Make an optional or unscheduled payment or prepayment of any principal (including an optional or unscheduled sinking fund payment), interest or any other amount with respect to any Subordinated Obligation, or make a purchase or redemption of any Subordinated Obligation, or make any payment with respect to any Subordinated Obligation in violation of the subordination provisions in the instruments governing such Subordinated Obligation if a Default or Event of Default then exists or would result therefrom. Notwithstanding the preceding sentence, if no Default or Event of Default then exists or would result therefrom, Borrower may refinance the entire outstanding amount of a Subordinated Obligation, provided the new obligation constitutes a Subordinated Obligation with a maturity date no earlier than and an interest rate no higher than those of the Subordinated Obligation being refinanced. 6.2 [Intentionally Omitted] 6.3 Mergers and Sale of Assets. Merge or consolidate with or into any Person, or sell a Material Amount of Assets to any Person, except, subject to Section 6.6; (a) a merger of Borrower into a wholly-owned Subsidiary of Borrower that has nominal assets and liabilities, the primary purpose of which is to effect the reincorporation of Borrower in another state; (b) mergers or consolidations of a Subsidiary of Borrower into Borrower (with Borrower as the surviving corporation) or into any other Subsidiary of Borrower, provided that (i) the reduction in the proportionate share of Borrower and its Subsidiaries in the total assets of such resulting Subsidiary (after intercompany eliminations) does not constitute a Material Amount of Assets and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (c) mergers, consolidations, liquidations, or sales of all or substantially all of the assets of a Subsidiary; provided that (i) any such transaction does not involve a transfer by Borrower or its Subsidiaries of a Material Amount of Assets and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; or (d) a merger or consolidation of Borrower with another Person if (i) no Change of Control results therefrom, (ii) Borrower does not transfer a Material Amount of Assets to one or more Persons in connection with the merger or consolidation and (iii) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing. 6.4 Investments and Acquisitions. Make any Acquisition, or enter into an agreement to make any Acquisition, or make or suffer to exist any Investment, other than: -45- 52 (a) Investments consisting of Cash or Cash Equivalents; (b) advances to officers, directors and employees of Borrower or its Subsidiaries for travel, entertainment, housing expenses, relocation, stock option plans, or otherwise in connection with their employment or the business of Borrower or any of its Subsidiaries; (c) Investments of Borrower in any of its wholly-owned Subsidiaries and Investments of any Subsidiary of Borrower in Borrower or any of Borrower's wholly-owned Subsidiaries; (d) Acquisitions of or Investments in Persons engaged in the same businesses as Borrower and its Subsidiaries, or in a business reasonably related to such businesses, including electronic commerce and similar activities related to real estate; (e) Acquisitions and Investments by the Mortgage Company permitted under the Mortgage Warehousing Agreements; (f) Acquisitions of or Investments in Persons engaged primarily in businesses in addition to those permitted by Sections 6.4(d), provided that the aggregate cost of all such Acquisitions and Investments made in any fiscal year does not exceed $25,000,000; (g) Investments in a Trust Issuer and Investments by a Trust Issuer in Borrower; (h) Investments in Subsidiaries in existence on the 2000 Closing Date or as otherwise disclosed on Schedule 6.4; (i) Investments received in connection with the settlement of a bona fide dispute with another Person; (j) Investments consisting of readily marketable securities actively traded on a public exchange, provided that the aggregate amount of any such Investments at any one time do not exceed $25,000,000; and (k) Investments consisting of the extension of credit to suppliers in the ordinary course of business and any Investments received in satisfaction or partial satisfaction thereof, provided that the aggregate amount of any such Investments at any one time do not exceed $25,000,000; but in all events, subject to the restrictions of Section 6.16. 6.5 ERISA Compliance. Permit any Pension Plan maintained by Borrower or any of its ERISA Affiliates (or to which Borrower or any ERISA Affiliate contributes or is required to contribute), other than a Multiemployer Plan, to incur any material "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, unless waived, or permit any Pension Plan maintained by any of them to suffer a Termination Event or incur withdrawal liability under any Multiemployer Plan if any of such events would result in a liability of Borrower or any ERISA affiliate exceeding in the aggregate $25,000,000. -46- 53 6.6 Change in Business. Engage in any business other than the businesses as now conducted by Borrower or its Subsidiaries, and any business the Board of Directors of Borrower determine in good faith is reasonably related to such businesses, other than: (a) businesses in which Borrower and its Subsidiaries have invested no more than $25,000,000 in any Fiscal Year; and (b) as permitted pursuant to Section 6.4(f). 6.7 Liens and Negative Pledges. 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, or enter or suffer to exist any Contractual Obligation wherein Borrower or any of its Subsidiaries agrees not to grant any Lien on any of their Properties, except: (a) Liens and Contractual Obligations existing on the date hereof and described in Schedule 4.7, provided that the obligations secured by such Liens are not increased and that no such Lien extends to any Property of Borrower or any Subsidiary other than the Property subject to such Lien on the 2000 Closing Date; (b) Liens on Property of any Financial Subsidiary or Foreign Subsidiary securing Indebtedness of that Financial Subsidiary or Foreign Subsidiary; (c) Liens on Property securing Indebtedness of Borrower or any of its Subsidiaries provided that (i) aggregate Indebtedness secured by all such Liens shall at no time exceed $100,000,000 and (ii) the aggregate book value of the Property so encumbered shall at no time exceed 3 times the aggregate amount of Indebtedness so secured; (d) Liens that may exist from time to time under the Loan Documents; (e) Liens consisting of a Capital Lease covering personal Property; (f) Permitted Encumbrances; (g) attachment, judgment and other similar Liens arising in connection with court proceedings; provided that the execution or enforcement of such Lien is effectively stayed and the claims secured thereby do not in the aggregate exceed $25,000,000 and are being contested in good faith by appropriate proceedings timely commenced and diligently prosecuted; (h) Liens existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event; (i) Liens on any asset of any Person existing at the time such Person is merged or consolidated with or into Borrower or any of its Subsidiaries and not created in contemplation of such event; (j) Liens existing on any asset prior to the acquisition thereof by Borrower or any of its Subsidiaries and not created in contemplation of such acquisition; -47- 54 (k) Liens arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Indebtedness is not increased and is not secured by additional assets; (l) Liens arising in the ordinary course of business which (i) do not secure Indebtedness, (ii) do not secure any obligation in an amount exceeding $500,000 individually, or $2,000,000 in the aggregate, and (iii) do not in the aggregate materially detract from the value of the assets covered by such Liens or materially impair the use thereof in the operation of Borrower's business; (m) Liens not otherwise permitted by the foregoing clauses of this Section which secure Indebtedness not exceeding $2,000,000 in the aggregate; (n) Liens referred to in the last sentence of the definition of "Bond Facility" encumbering (i) real property owned by Borrower or one of its Subsidiaries on November 30, 1999 or (ii) other real property of Borrower or one of its Subsidiaries provided that the aggregate obligations secured by such Liens does not at any time exceed $25,000,000 plus the amount by which aggregate Indebtedness then secured by Liens described in Section 6.7(c) is less than $100,000,000; (o) a Contractual Obligation wherein Borrower or any of its Subsidiaries agrees not to a grant any Lien on any of their Properties, if such Contractual Obligation does not, by its terms, prohibit the grant of a Lien in favor of the Administrative Agent and the Banks with respect to the Obligations (and Borrower shall, as soon as reasonably possible, provide to the Banks a copy of such Contractual Obligation); and (p) Liens on Property of a Joint Venture. 6.8 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of Borrower other than (a) a transaction that results in Subordinated Obligations, (b) a transaction between or among Borrower and its wholly-owned Subsidiaries, (c) a transaction that has been authorized by the board of directors of Borrower with the favorable vote of a majority of the directors who have no financial or other interest in the transaction or by the vote of a majority of the outstanding shares of capital stock of Borrower, (d) a transaction entered into on terms and under conditions not less favorable to Borrower or any of its Subsidiaries than could be obtained from a Person that is not an Affiliate of Borrower, (e) salary, bonus, employee stock options and other compensation arrangements and indemnification arrangements with directors or officers, (f) transactions permitted by Sections 6.4 or 6.16, or (g) the Lewis Homes Stock Repurchase. 6.9 Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth to be, at the end of any Fiscal Quarter, less than an amount equal to (a) $575,000,000, plus (b) an amount equal to 50% of aggregate of Consolidated Net Income for each Fiscal Quarter contained in the fiscal period commencing on June 1, 2000 and ending as of the last day of such Fiscal Quarter (provided that there shall be no reduction hereunder in the event of a consolidated net loss in any such Fiscal Quarter), plus (c) an amount equal to 50% of the cumulative net proceeds received by Borrower from the issuance of its capital stock subsequent to the 2000 Closing Date, plus (d) an amount equal to 50% of the cumulative net proceeds received by Borrower from the issuance of the Trust Preferred Capital Securities subsequent to the 2000 Closing Date, minus (e) the cumulative cost to Borrower for the repurchase, if any, of its capital stock (provided that such deduction shall have an aggregate cap of -48- 55 $70,000,000 for the measurement at the end of the Fiscal Quarter ending on August 31, 2000, a cumulative aggregate $50,000,000 cap for the measurements at the end of the Fiscal Quarters ending on November 30, 2000 and February 28, 2001, and an aggregate $20,000,000 cap for the measurement at the end of any Fiscal Quarter thereafter). 6.10 Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio to be, at the end of any Fiscal Quarter, greater than 2.25 to 1.00; provided that: (a) in the event that $30,000,000 or more is used to finance an Acquisition by Borrower or its Subsidiaries, the foregoing maximum permitted ratio may, upon the request of Borrower to the Administrative Agent, be increased to 2.65 to 1.00 for up to 3 consecutive Fiscal Quarters next ending after such Acquisition is consummated, provided that: (i) an increase under this clause (a) has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is to be made; (ii) Borrower's request is accompanied by 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent and for delivery to the Banks, demonstrating that, giving effect to the Acquisition and to Borrower's election under this Section, Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 4 Fiscal Quarters; (iii) Borrower must remain in compliance with Section 6.11 (without giving effect to any adjustment permitted thereunder) during each Fiscal Quarter for which an adjustment is applicable under this Section 6.10(a); and (iv) Borrower must elect on or before 60 days after the end of the first, second and third of such Fiscal Quarters next ending after the consummation of an Acquisition whether the 2.65 to 1.00 maximum Consolidated Leverage Ratio is to be in effect for the Pricing Period related to that Fiscal Quarter, it being understood and agreed that (a) the Borrower may only make such an election for the second and third of such Fiscal Quarters if Borrower made a similar election for the prior Fiscal Quarter and (b) if Borrower makes such an election, Applicable Pricing Level V shall be in effect for the entire Pricing Period regardless of the actual Consolidated Leverage Ratio. (b) if an election under Section 6.10(a) is not then in effect, the foregoing ratio shall, if needed, be increased to 2.50 to 1.00 for a period of up to 2 consecutive Fiscal Quarters, provided that: (i) this clause (b) has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is needed; (ii) no other Default or Event of Default then exists; (iii) Borrower furnishes to the Administrative Agent no later than 60 days after the end of the first Fiscal Quarter for which such adjustment is needed, 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent and for delivery to the Banks, demonstrating that Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 2 Fiscal Quarters; (iv) as of the end of each Fiscal Quarter for which such adjustment is applicable, the Consolidated Interest Coverage Ratio is not less than 2.50 to 1.00; and (v) Borrower has not incurred Operating Losses for the first Fiscal Quarter for which such adjustment is needed and the immediately preceding Fiscal Quarter; and (c) notwithstanding Section 6.10(a) or 6.10(b), the foregoing ratio shall automatically be reduced to 1.75 to 1.00 as of the end of any Fiscal Quarter if Borrower has incurred an Operating Loss for that Fiscal Quarter and the immediately preceding Fiscal Quarter and shall remain at 1.75 to 1.00 until the first Fiscal Quarter thereafter for which there is no Operating Loss. -49- 56 6.11 Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio to be, at the end of any Fiscal Quarter, less than 2.25 to 1.00; provided that the foregoing ratio shall, upon the request of Borrower to the Administrative Agent, be decreased for a period of 2 Fiscal Quarters provided that (a) an adjustment under this Section 6.11 has not been in effect with respect to any of the 4 Fiscal Quarters prior to the first Fiscal Quarter for which an adjustment is to be made, (b) no Default or Event of Default then exists and (c) Borrower furnishes to the Administrative Agent 12-month cash flow, balance sheet and income statement projections, reasonably acceptable to the Administrative Agent, demonstrating that Borrower will be in compliance with Sections 6.9, 6.10 and 6.11 for at least the next ending 4 Fiscal Quarters. Subject to satisfaction of the foregoing conditions, the decrease in the ratio for the first Fiscal Quarter shall be to 1.75 to 1.00 and the decrease for the second Fiscal Quarter shall be to a level (in no event higher than 2.25:1.00) that is 0.25 higher than the actual Consolidated Interest Coverage Ratio for such first Fiscal Quarter (e.g., from 1.80 to 1.00 improving to at least 2.05 to 1.00). 6.12 Distributions. Make any Distribution (other than a Distribution made to Borrower or to a Guarantor Subsidiary) if an Event of Default then exists or if an Event of Default or Default would result therefrom. 6.13 Amendments. Amend, waive or terminate any provision in any instrument or agreement governing Subordinated Obligations unless such amendment, waiver or termination would not be materially adverse to the interests of the Banks under this Agreement. 6.14 Hostile Tender Offers. Make any offer to the shareholders of a publicly held corporation or business entity to purchase or acquire, or consummate such a purchase or acquisition of, more than 5% of the shares of capital stock or analogous ownership interests in such a corporation or business entity if the board of directors or analogous body of such corporation or business entity has notified Borrower that it opposes such offer or purchase, except for consideration which consists solely of shares of capital stock or other equity securities of Borrower or any of its Subsidiaries. 6.15 Inventory. Permit, as of the end of any Fiscal Quarter, the book value of Domestic Unimproved Land to exceed an amount equal to 100% of Consolidated Tangible Net Worth. 6.16 Investment in Subsidiaries and Joint Ventures. Permit, as of the last day of any Fiscal Quarter, Borrower's equity interest, computed in accordance with Generally Accepted Accounting Principles, in all Subsidiaries of Borrower (other than Guarantor Subsidiaries), Financial Subsidiaries, Foreign Subsidiaries, all Joint Ventures and all other entities with financial statements not consolidated with those of Borrower under with Generally Accepted Accounting Principles to exceed: (a) 35% of Consolidated Tangible Net Worth for the Fiscal Quarter ending on November 30, 2000; (b) 25% of Consolidated Tangible Net Worth for Fiscal Quarters ending after November 30, 2000 but on or before November 30, 2002; and (c) 20% of Consolidated Tangible Net Worth for Fiscal Quarters ending after November 30, 2002. 6.17 Money Market Indebtedness. So long as any Advance (as defined in the 2000 Revolving Loan Agreement) remains unpaid or any other Obligation (as defined in the 2000 Revolving Loan Agreement) remains unpaid, or any portion of the Commitment (as defined in the 2000 Revolving Loan Agreement) remains in force, permit, for any consecutive period of more than one (1) Banking Day, at any time the sum of the aggregate outstanding principal amount of the Loans (as such term is defined in the Revolving Loan Agreement) plus the Letter of Credit Usage (as such term is defined in the Revolving Loan Agreement) plus the Money Market Outstandings (as such term is defined in the -50- 57 Revolving Loan Agreement) plus the Swing Line Outstandings (as such term is defined in the Revolving Loan Agreement) to exceed the Commitment (as such term is defined in the 2000 Revolving Loan Agreement). 6.18 Domestic Standing Inventory. Permit, as of the last day of any Fiscal Quarter that immediately follows a Fiscal Quarter on the last day of which the Consolidated Leverage Ratio was in excess of 2.25:1.00, Domestic Standing Inventory to exceed an amount equal to 15% of Net Orders received during the four most recently ended Fiscal Quarters. -51- 58 Article 7 INFORMATION AND REPORTING REQUIREMENTS 7.1 Financial and Business Information of Borrower and Its Subsidiaries. As long as any Loan remains unpaid or any other Obligation remains unpaid, or any portion of the Commitment remains outstanding, Borrower shall, unless the Administrative Agent (with the approval of the Majority Banks) otherwise consents in writing, deliver to the Administrative Agent and each of the Banks (except as otherwise provided below) at its own expense: (a) As soon as reasonably possible, and in any event within 60 days after the close of each Fiscal Quarter of Borrower (other than the fourth Fiscal Quarter), (i) the consolidated and consolidating balance sheet of Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter, setting forth in comparative form the corresponding figures for the corresponding Fiscal Quarter of the preceding Fiscal Year, if available, and (ii) the consolidated and consolidating statements of profit and loss and the consolidated statements of cash flows of Borrower and its Consolidated Subsidiaries for such Fiscal Quarter and for the portion of the Fiscal Year ended with such Fiscal Quarter, setting forth in comparative form the corresponding periods of the preceding Fiscal Year. Such consolidated and consolidating balance sheets and statements shall be prepared in reasonable detail in accordance with Generally Accepted Accounting Principles (other than those which require footnote disclosure of certain matters) consistently applied, and shall be certified by the principal financial officer of Borrower, subject to normal year-end accruals and audit adjustments; (b) As soon as reasonably possible, and in any event within 90 days after the close of each Fiscal Year of Borrower, (i) the consolidated and consolidating (in accordance with past practices of Borrower) balance sheets of Borrower and its Consolidated Subsidiaries as at the end of such Fiscal Year, setting forth in comparative form the corresponding figures at the end of the preceding Fiscal Year and (ii) the consolidated and consolidating (in accordance with past practices of Borrower) statements of profit and loss and the consolidated statements of cash flows of Borrower and its Consolidated Subsidiaries for such Fiscal Year, setting forth in comparative form the corresponding figures for the previous Fiscal Year. Such consolidated and consolidating balance sheet and statements shall be prepared in reasonable detail in accordance with Generally Accepted Accounting Principles consistently applied. Such consolidated balance sheet and statements shall be accompanied by a report and opinion of Ernst & Young or other independent certified public accountants of recognized national standing selected by Borrower (i.e., a "big five" firm), which report and opinion shall state that the examination of such consolidated financial statements by such accountants was made in accordance with generally accepted auditing standards and that such consolidated financial statements fairly present the financial condition, results of operations and of cash flows of Borrower and its Subsidiaries subject to no exceptions as to scope of audit and subject to no other exceptions or qualifications (other than changes in accounting principles in which the auditors concur) unless such other exceptions or qualifications are approved by the Majority Banks in their reasonable discretion. Such accountants' report and opinion shall be accompanied by a certificate stating that, in conducting the audit examination of books and records necessary for the certification of such financial statements, such accountants have obtained no knowledge of any Default or Event of Default hereunder or, if in the opinion of such accountants, any such Default or Event of Default shall exist, stating the nature and status of such event, and setting forth the applicable calculations under Sections 6.9, 6.10, 6.11, 6.15 (without requiring any physical count of inventory) and 6.16, as of the date of the balance sheet. -52- 59 Such consolidating balance sheet and statements shall be certified by the principal financial officer of Borrower; (c) Promptly after the receipt thereof by Borrower, copies of any audit or management reports submitted to it by independent accountants in connection with any audit or interim audit submitted to the board of directors of Borrower or any of its Subsidiaries; (d) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to its stockholders, and copies of all annual, regular, periodic and special reports and registration statements which Borrower may file or be required to file with the Commission or any similar or corresponding Governmental Agency or with any securities exchange; (e) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within ten Banking Days after becoming aware, of the occurrence of any (i) "reportable event" (as such term is defined in Section 4043 of ERISA) other than any such event as to which the PBGC has by regulation waived the requirement of 30 days' notice or (ii) "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) in connection with any Pension Plan, other than a Multiemployer Plan, or any trust created thereunder, a written notice specifying the nature thereof, what action Borrower and 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; (f) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, of the existence of a Default or an Event of Default, a written notice specifying the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto; (g) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, that the holder of any evidence of Indebtedness (in a principal amount in excess of $15,000,000) of Borrower or any of its Subsidiaries has given notice or taken any other action with respect to a default or event of default, a written notice specifying the notice given or action taken by such holder and the nature of such default or event of default and what action Borrower or its Subsidiary is taking or proposes to take with respect thereto; (h) Promptly upon a Senior Officer of Borrower becoming aware, and in any event within five Banking Days after becoming aware, of the existence of any pending or threatened litigation or any investigation by any Governmental Agency that would constitute a Material Adverse Effect (provided, that no failure of a Senior Officer to provide notice of any such event shall be the sole basis for any Default or Event of Default hereunder); (i) As soon as possible, and in any event within 60 days after the close of each Fiscal Quarter of Borrower (except 90 days after the close of the Fiscal Year of Borrower), (i) a sales report by geographical region, in the form of Exhibit F hereto, certified by a Senior Officer of Borrower, setting forth the number of homes or other units sold and delivered during such period and in backlog at the end of such period, (ii) an inventory report for such Fiscal Quarter summarizing such inventory by type and geographical region, in the form of Exhibit G hereto and (iii) a report of any change, as of the last day of such Fiscal Quarter, in the listing of -53- 60 Subsidiaries set forth in Schedule 4.4 (as the same may have been revised by previous reports under this clause (i)(iii)); (j) As soon as reasonably possible, and in any event prior to the date that is 60 days after the commencement of each Fiscal Year, deliver to the Administrative Agent the business plan of Borrower and its Subsidiaries for that Fiscal Year, together with projections (in substantially the same format as the Projections) covering the next 2 Fiscal Years; (k) Promptly following obtaining knowledge thereof by a Senior Officer of Borrower, written notice to the Administrative Agent of the inception or cessation of the Investment Grade Credit Rating; and (l) Such other data and information as from time to time may be reasonably requested by any of the Banks. 7.2 Compliance Certificate. Not later than 60 days after the close of each Fiscal Quarter and 90 days after the close of each Fiscal Year, a Compliance Certificate dated as of the last day of the Fiscal Quarter or Fiscal Year, as the case may be, (a) setting forth computations showing, in detail reasonably satisfactory to the Administrative Agent, whether Borrower and its Subsidiaries were in compliance with their obligations to the Banks pursuant to Sections 6.9, 6.10, 6.11, 6.15, 6.16, and 6.18, (b) setting forth a list of the Guarantor Subsidiaries of Borrower, based upon the most current financial statements then available, (c) either (i) stating that to the best knowledge of the certifying officer as of the date of such certificate there is no Default or Event of Default, or (ii) if there is a Default or Event of Default as of the date of such certificate, specifying all such Defaults or Events of Default and their nature and status and (d) stating, to the best knowledge of the certifying officer, whether any event or circumstance constituting a Material Adverse Effect (other than a Material Adverse Effect which is not particular to the Borrower and which is generally known) has occurred since the date of the most recent Compliance Certificate delivered under this Section and, if so, describing such Material Adverse Effect in reasonable detail. No failure of the certifying officer to describe the existence of an event or circumstance constituting a Material Adverse Effect shall be the sole basis for any Default or Event of Default hereunder. -54- 61 Article 8 CONDITIONS 8.1 Initial Advances, Etc. The obligation of each Bank to make the Advance to be made by it is subject to the following conditions precedent, each of which shall be satisfied prior to the making of the initial Advances (unless all of the Banks, in their sole and absolute discretion, shall agree otherwise): (a) The Administrative Agent shall have received all of the following, each dated as of the 2000 Closing Date (unless otherwise specified or unless the Administrative Agent otherwise agrees) and all in form and substance satisfactory to the Administrative Agent and legal counsel for the Administrative Agent: (i) executed counterparts of this Agreement, sufficient in number for distribution to the Banks and Borrower; (ii) a Note executed by Borrower in favor of each Bank, each in a principal amount equal to that Bank's Pro Rata Share of the Commitment. Promptly following the 2000 Closing Date, the promissory notes delivered to the Banks pursuant to the Prior Loan Agreements shall be canceled and promptly returned to Borrower; (iii) the Subsidiary Guaranty executed by each Subsidiary which is a Guarantor Subsidiary as of the 2000 Closing Date; (iv) with respect to Borrower and each Subsidiary which is a Guarantor Subsidiary as of the 2000 Closing Date, such documentation as the Administrative Agent may reasonably require to establish the due organization, valid existence and good standing of Borrower and each such Subsidiary, its qualification to engage in business in each jurisdiction in which it is required to be so qualified, its authority to execute, deliver and perform any Loan Documents to which it is a Party, and the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, including, without limitation, 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, and the like; (v) the Opinions of Counsel; (vi) an Officer's Certificate of Borrower affirming, to the best knowledge of the certifying Senior Officer, that the conditions set forth in Sections 8.1(c) and 8.1(d) have been satisfied; (vii) a side letter executed by each "Bank" under the Prior Revolving Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitments" under the Prior Revolving Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.16; -55- 62 (viii) a side letter executed by each "Bank" under the Prior Term Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitment" under the Prior Term Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.16; (ix) a side letter executed by each "Bank" under the Bridge Loan Agreement that is not a "Bank" hereunder acknowledging a termination of the "Commitment" under the Bridge Loan Agreement without charge to Borrower (except for LIBOR breakage fees, if any) and agreeing to the other matters specified in Section 3.16; and (x) such other assurances, certificates, documents, consents or opinions relevant hereto as the Administrative Agent may reasonably require. (b) The upfront fee payable pursuant to Section 3.2 shall have been paid and any fees then payable under the letter agreement referred to in Section 3.3 shall have been paid. (c) The representations and warranties of Borrower contained in Article 4 shall be true and correct in all material respects on and as of the 2000 Closing Date. (d) Borrower and its Subsidiaries and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and after giving effect to the initial Advance, no Default or Event of Default shall have occurred and be continuing. (e) The Banks shall have received the written legal opinion of Sheppard, Mullin, Richter & Hampton LLP, legal counsel to the Administrative Agent, to the effect that the Opinions of Counsel are acceptable and such other matters relating to the Loan Documents as the Administrative Agent may request. -56- 63 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENTS OF DEFAULT 9.1 Events of Default. There will be a default hereunder if any one or more of the following events ("Events of Default") occurs and is continuing, whatever the reason therefor: (a) failure to pay any installment of principal on any of the Notes on the date when due; or (b) failure to pay any installment of interest on any of the Notes, or to pay any fee or other amounts due the Administrative Agent or any Bank hereunder, within 5 Banking Days after the date when due; or (c) any failure to comply with Sections 6.1, 6.3, 6.4 (with respect to Acquisitions), 6.7, 6.10, 6.11, 6.14, 6.17 or 7.1(f); or (d) any failure to comply with Sections 5.8, 5.9, 6.4 (with respect to Investments), 6.8, 6.9, 6.15, 6.16, or 6.18 that remains unremedied for a period of 15 calendar days after notice by the Administrative Agent of such Default or 20 calendar days after a Senior Officer becomes aware of such Default, whichever occurs first; or (e) Borrower or any other Party fails to perform or observe any other term, covenant, or agreement contained in any Loan Document on its part to be performed or observed within 30 calendar days after notice by the Administrative Agent of such Default; or (f) any representation or warranty in any Loan Document or in any certificate, agreement, instrument, or other document made or delivered, on or after the 2000 Closing Date, pursuant to or in connection with any Loan Document proves to have been incorrect when made in any respect material to the ability of Borrower to duly and punctually perform all of the Obligations; or (g) Any failure to pay any interest or principal when due (following any applicable cure period) under the Mortgage Warehousing Agreement to which Administrative Agent is a party or under any Money Market Facility; or (h) Borrower or any of its Significant Subsidiaries (i) fails to pay the principal, or any principal installment, of any present or future Indebtedness (other than Non-Recourse Indebtedness, and in the case of the Mortgage Company, arising under the Mortgage Warehousing Agreements), or any guaranty of present or future Indebtedness (other than Non-Recourse Indebtedness) 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 in excess of $25,000,000 individually or $50,000,000 in the aggregate or (ii) fails to perform or observe any other material term, covenant, or agreement on its part to be performed or observed, or suffers to exist any condition, in connection with any present or future Indebtedness (other than Non-Recourse Indebtedness, and in the case of the Mortgage Company, arising under the Mortgage Warehousing Agreements) or any guaranty of present or future Indebtedness (other than Non-Recourse Indebtedness), in excess of $25,000,000 individually or $50,000,000 in the aggregate, if as a result of such failure or such condition any -57- 64 holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare it due before the date on which it otherwise would become due; or (i) any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of all 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 is, in the reasonable opinion of the Majority Banks, materially adverse to the interest of the Banks; or (j) a final judgment (or judgments) against Borrower or any of its Significant Subsidiaries is entered for the payment of money in excess of $25,000,000 individually or $50,000,000 in the aggregate over the amount of any insurance proceeds reasonably expected to be received and remains unsatisfied without procurement of a stay of execution within thirty (30) calendar days after the issuance of any writ of execution or similar legal process or the date of entry of judgment, whichever is earlier, or in any event at least 5 calendar days prior to the sale of any assets pursuant to such legal process; or (k) Borrower or any Significant Subsidiary of Borrower institutes or consents to any proceeding under a Debtor Relief Law relating to it or to all or any part of its Property, or fails generally to pay its debts as they mature, or makes a general 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 60 calendar days; or any proceeding under any 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 60 calendar days; or (l) the occurrence of a Termination Event with respect to any Pension Plan if the aggregate liability of Borrower and its ERISA Affiliates under ERISA as a result thereof exceeds $25,000,000; or the complete or partial withdrawal by Borrower or any of its ERISA Affiliates from any Multiemployer Plan if the aggregate liability of Borrower and its ERISA Affiliates as a result thereof exceeds $25,000,000; or (m) any determination is made by a court of competent jurisdiction that payment of principal or interest or both is due to the holder of any Subordinated Obligations which would not be permitted by Section 6.1 or that any Subordinated Obligation is not subordinated in accordance with its terms to the Obligations; or (n) the occurrence of an Event of Default (as defined in the 2000 Revolving Loan Agreement), so long as any Advance (as defined in the 2000 Revolving Loan Agreement) remains unpaid or any other Obligation (as defined in the 2000 Revolving Loan Agreement) remains unpaid, or any portion of the Commitment (as defined in the 2000 Revolving Loan Agreement) remains in force. 9.2 Remedies Upon Event of Default. Without limiting any other rights or remedies of the Administrative Agent or the Banks provided for elsewhere in this Agreement or the Loan Documents, or by applicable Law or in equity, or otherwise: -58- 65 (a) Upon the occurrence of any Event of Default, and so long as any such Event of Default shall be continuing (other than an Event of Default described in Section 9.1(k) with respect to Borrower or a Guarantor Subsidiary), the Majority Banks may request the Administrative Agent to, and the Administrative Agent thereupon shall, declare the unpaid principal of all Obligations due to the Banks hereunder and under the Notes, all interest accrued and unpaid thereon, and all other amounts payable to the Banks under the Loan Documents to be forthwith due and payable, whereupon the same shall become and 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; provided that the Administrative Agent shall notify Borrower (by telecopy and, if practicable, by telephone) substantially concurrently with any such acceleration (but the failure of Borrower to receive such notice shall not affect such acceleration). (b) Upon the occurrence of any Event of Default described in Section 9.1(k) with respect to Borrower or a Guarantor Subsidiary, the unpaid principal of all Obligations due to the Banks hereunder and under the Notes and all interest accrued and unpaid on such Obligations, 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 an Event of Default, the Banks and the Administrative Agent, or any of them, may proceed to protect, exercise, and enforce their rights and remedies under the Loan Documents against Borrower or any other Party and such other rights and remedies as are provided by Law or equity, without notice to or demand upon Borrower (which are expressly waived by Borrower) except to the extent required by applicable Laws. The order and manner in which the rights and remedies of the Banks under the Loan Documents and otherwise are exercised shall be determined by the Majority Banks. (d) All payments received by the Administrative Agent and the Banks, or any of them, after the acceleration of the maturity of the Loans shall be applied first to the costs and expenses (including attorneys' fees and disbursements) of the Administrative Agent, acting as Administrative Agent, and of the Banks and thereafter paid pro rata to the Banks in the same proportion that the aggregate of the unpaid principal amount owing on the Obligations of Borrower to each Bank, plus accrued and unpaid interest thereon, bears to the aggregate of the unpaid principal amount owing on all the Obligations, plus accrued and unpaid interest thereon. Regardless of how each Bank may treat the payments for the purpose of its own accounting, for the purpose of computing Borrower's Obligations, the payments shall be applied first, to the costs and expenses of the Administrative Agent, acting as Administrative Agent, and the Banks as set forth above, second, to the payment of accrued and unpaid fees hereunder and interest on all Obligations to the Banks, to and including the date of such application (ratably according to the accrued and unpaid interest on the Loans), third, to the ratable payment of the unpaid principal of all Obligations to the Banks, and fourth, to the payment of all other amounts then owing to the Administrative Agent or the Banks under the Loan Documents. Subject to Section 9.2(a), no application of the payments will cure any Event of Default or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents or prevent the exercise, or continued exercise, of rights or remedies of the Banks hereunder or under applicable Law unless all amounts then due (whether by acceleration or otherwise) have been paid in full. -59- 66 Article 10 THE ADMINISTRATIVE AGENT 10.1 Appointment and Authorization. Subject to Section 10.7, each Bank hereby irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof or are reasonably incidental, as determined by the Administrative Agent, thereto. This appointment and authorization does not constitute appointment of the Administrative Agent as trustee for any Bank and, except as specifically set forth herein to the contrary, the Administrative Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 Administrative Agent and Affiliates. Bank of America (and each successor Administrative Agent) has the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" includes Bank of America in its individual capacity. Bank of America (and each successor Administrative Agent) and its respective Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Borrower and any Affiliate of Borrower, as if it were not the Administrative Agent and without any duty to account therefor to the Banks. Bank of America (and each successor Administrative Agent) need not account to any other Bank for any monies received by it for reimbursement of its costs and expenses as Administrative Agent hereunder, or for any monies received by it in its capacity as a Bank hereunder, except as otherwise provided herein. 10.3 Banks' Credit Decisions. Each Bank agrees that it has, independently and without reliance upon the Administrative Agent, any other Bank, or the directors, officers, agents, or employees of the Administrative Agent or of any other Bank, and instead in reliance upon information supplied to it by or on behalf of Borrower and its Subsidiaries and upon such other information as it has deemed 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 Administrative Agent, any other Bank, or the directors, officers, agents, or employees of the Administrative 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. 10.4 Action by Administrative Agent. (a) The Administrative Agent may assume that no Default or Event of Default has occurred and is continuing, unless the Administrative Agent has actual knowledge of the Default or Event of Default, has received notice from Borrower stating the nature of the Default or Event of Default, or has received notice from a Bank stating the nature of the Default or Event of Default and that Bank considers the Default or Event of Default to have occurred and to be continuing. (b) The Administrative Agent has only those obligations under the Loan Documents that are expressly set forth therein. Without limitation on the foregoing, the Administrative Agent shall have no duty to inspect any property of Borrower or any of its Subsidiaries, although the Administrative Agent may in its discretion periodically inspect any property from time to time. -60- 67 (c) Except for any obligation expressly set forth in the Loan Documents and as long as the Administrative Agent may assume that no Event of Default has occurred and is continuing, the Administrative Agent may, but shall not be required to, exercise its discretion to act or not act, except that the Administrative Agent shall be required to act or not act upon the instructions of the Majority Banks (or of all the Banks, to the extent required by Section 11.2) and those instructions shall be binding upon the Administrative Agent and all the Banks, provided that the Administrative Agent shall not be required to act or not act if to do so would, in the reasonable judgment of the Administrative Agent, expose the Administrative Agent to significant liability or would be contrary to any Loan Document or to applicable law. (d) If the Administrative Agent has received a notice specified in clause (a), the Administrative Agent shall give notice thereof to the Banks and shall act or not act upon the instructions of the Majority Banks (or of all the Banks, to the extent required by Section 11.2). If the Majority Banks fail for three (3) Banking Days after the receipt of notice from the Administrative Agent, to instruct the Administrative Agent, then the Administrative Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Banks. (e) The Administrative 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), notwithstanding any other provision hereof. 10.5 Liability of Administrative Agent. Neither the Administrative Agent, the Lead Arranger and Sole Book Manager or any of their Affiliates nor any of its respective directors, officers, agents, or employees shall be liable to any Bank 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 Administrative Agent and its respective directors, officers, agents, and employees: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives notice of the assignment or transfer thereof in form satisfactory to the Administrative Agent, signed by the payee and may treat each Bank as the owner of that Bank's interest in the obligations due to Banks for all purposes of this Agreement until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Bank; (b) may consult with legal counsel, in-house legal counsel, independent public accountants, in-house accountants and other professionals, or other experts selected by it, or with legal counsel, independent public accountants, or other experts for Borrower, and shall not be liable to any Bank for any action taken or not taken by it or them in good faith in accordance with the advice of such legal counsel, independent public accountants, or experts; (c) will 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) in connection with any of the Loan Documents; (d) except to the extent expressly set forth in the Loan Documents, will have no duty to ascertain or inquire as to the performance or observance by Borrower or any other -61- 68 Person of any of the terms, conditions, or covenants of any of the Loan Documents or to inspect the property, books, or records of Borrower or any of its Subsidiaries or other Person; (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; (f) will not incur any liability to any Bank by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, or other instrument or writing believed by it or them to be genuine and signed or sent by the proper party or parties; and (g) will not incur any liability for any arithmetical error in computing any amount payable to or receivable from any Bank hereunder, including without limitation payment of principal and interest on the Notes, payment of commitment fees, Loans, and other amounts; provided that promptly upon discovery of such an error in computation, the Administrative Agent, the Banks, and (to the extent applicable) Borrower 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. 10.6 Indemnification. Each Bank shall, ratably in accordance with its respective Pro Rata Share of the Commitment, indemnify and hold the Administrative Agent, the Lead Arranger and Sole Book Manager and their Affiliates and their respective directors, officers, agents, and employees harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever (including, without limitation, attorney's fees and disbursements) that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of this Agreement (other than losses incurred by reason of the failure by Borrower to pay the obligations due to the Administrative Agent under a Note) or any action taken or not taken by it as Administrative Agent thereunder, except for the Administrative Agent's gross negligence or willful misconduct. Without limitation on the foregoing, each Bank shall reimburse the Administrative Agent upon demand for that Bank's ratable share of any cost or expense incurred by the Administrative Agent in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver, refinancing, restructuring, reorganization (including a bankruptcy reorganization), or enforcement of the Loan Documents, to the extent that Borrower is required by Section 11.3 to pay that cost or expense but fails to do so upon demand. Any such reimbursement shall not relieve Borrower of its obligations under Section 11.3. 10.7 Successor Administrative Agent. The Administrative Agent may resign as such at any time by written notice to Borrower and the Banks, to be effective upon a successor's acceptance of appointment as Administrative Agent. The Majority Banks may at any time remove the Administrative Agent by written notice to that effect to be effective on such date as the Majority Banks designate. In either event, the Majority Banks shall appoint a successor Administrative Agent or Agents, who must be from among the Banks and who shall be subject to the prior approval of Borrower, which approval shall not be unreasonably withheld or delayed, provided, that the Administrative Agent shall be entitled to appoint a successor Administrative Agent from among the Banks, subject to acceptance of appointment by that successor Administrative Agent, if the Majority Banks have not appointed a successor Administrative Agent within thirty (30) days after the date the Administrative Agent gave notice of resignation or was removed. Upon a successor's acceptance of appointment as Administrative Agent, the successor will thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the Administrative Agent under the Loan Documents, -62- 69 and the resigning or removed Administrative Agent will thereupon be discharged from its duties and obligations thereafter arising under the Loan Documents. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 10 and Sections 11.3 and 11.10 shall inure to its benefit as to any action taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 10.8 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 Administrative Agent of its obligations to the Banks under any provision of this Agreement, and Borrower shall have no liability to the Administrative Agent or any of the Banks in respect of any failure by the Administrative Agent or any Bank to perform any of its obligations to the Administrative 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 Administrative 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 Administrative Agent in the manner provided by this Agreement. 10.9 Defaulting Banks. If for any reason any Bank wrongfully (in violation of this Agreement) fails or refuses to timely make any Advance required of it, or otherwise defaults on any of its material obligations under this Agreement, and fails to cure its default within 5 Banking Days of receiving notice of its failure to perform (such Bank being a "Defaulting Bank"), then in addition to the rights and remedies that may be available to the Administrative Agent and the Banks at law or in equity, the Defaulting Bank's right to participate in the Loan and the Agreement will be suspended during the pendency of the Defaulting Bank's uncured default, and (without limiting the foregoing) the Administrative Agent may (or at the direction of the Majority Banks, shall) withhold from the Defaulting Bank any interest payments, fees, principal payments or other sums otherwise payable to such Defaulting Bank under the Loan Documents until such default of such Defaulting Bank has been cured. Each non-defaulting Bank will have the right, but not the obligation, in its sole discretion, to acquire at par a proportionate share (based on the ratio of its Pro Rata Share of the Commitment to the aggregate amount of the Pro Rata Shares of the Commitments of all of the non-defaulting Banks that elect to acquire a share of the Defaulting Bank's Pro Rata Share of the Commitment) of the Defaulting Bank's Pro Rata Share of the Commitment, including without limitation its proportionate share in the outstanding principal balance of the Loans. The Defaulting Bank will pay and protect, defend and indemnify Administrative Agent and each of the other Banks against, and hold Administrative Agent, and each of the other Banks harmless from, all claims, actions, proceedings, liabilities, damages, losses, and expenses (including without limitation attorneys' fees and costs, and interest at the Prime Rate plus 2.0% per annum for the funds advanced by Administrative Agent or any Banks on account of the Defaulting Bank) they may sustain or incur by reason of or in consequence of the Defaulting Bank's failure or refusal to perform its obligations under the Loan Documents. Administrative Agent may set off against payments due to the Defaulting Bank for the claims of Administrative Agent and the other Banks against the Defaulting Bank. The exercise of these remedies will not reduce, diminish or liquidate the Defaulting Bank's Pro Rata Share of the Commitment (except to the extent that part or all of such Pro Rata Share of the Commitment is acquired by the other Banks as specified above) or its obligations to share losses and reimbursement for costs, liabilities and expenses under this Agreement. This indemnification will survive the payment and satisfaction of all of the Borrower's obligations and liabilities to the Banks. The foregoing provisions of this Section 10.9 are solely for the benefit of the Administrative Agent and the Banks, and may not be enforced or relied upon by the Borrower. -63- 70 Article 11 MISCELLANEOUS 11.1 Cumulative Remedies; No Waiver. The rights, powers, and remedies of the Administrative Agent or any Bank provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, or remedy provided by law or equity. No failure or delay on the part of the Administrative Agent or any Bank in exercising any right, power, or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, or remedy preclude any other or further exercise of any other right, power, or remedy. The terms and conditions of Section 8.1 hereof are inserted for the sole benefit of the Banks and the Administrative Agent may (with the approval of the Majority Banks) waive them in whole or in part with or without terms or conditions in respect of any Loan, without prejudicing the Banks' rights to assert them in whole or in part in respect of any other Loans. 11.2 Amendments; Consents. No amendment, modification, supplement, termination, or waiver of any provision of this Agreement or any other Loan Document, 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 Administrative Agent with the approval of the Majority Banks and 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 the principal of, or the amount of principal or principal prepayments, payable on any Obligation or the amount of the Commitment or to decrease the rate of any interest or fee payable to any Bank; (b) to postpone any date fixed for any payment of principal of, prepayment of principal of, or any installment of interest on, any Obligation or any installment of any fee or to extend the term of the Commitment; (c) to amend or modify the provisions of the definition in Section 1.1 of "Majority Banks" or of Sections 11.2, 11.9, 11.10, or 11.11; (d) release any Guarantor Subsidiary from liability under the Subsidiary Guaranty (except as provided below); or (e) to amend or modify any provision of this Agreement or the Loan Documents 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 Agents. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 that permits the sale or other transfer of the capital stock of (or all or substantially all of the assets of) a Guarantor Subsidiary shall automatically release the Guarantor Subsidiary effective concurrently with such sale or other transfer. 11.3 Costs, Expenses and Taxes. Borrower shall pay within 30 days after demand (which demand shall be accompanied by an invoice in reasonable detail) the reasonable actual out-of-pocket costs and expenses of the Administrative Agent and Lead Arranger and Sole Book -64- 71 Manager in connection with (a) the negotiation, preparation, execution, delivery, arrangement, syndication and closing of the Loan Documents, provided that such costs and expenses do not exceed the amounts referred to in a letter agreement between Borrower and the Administrative Agent and Lead Arranger and Sole Book Manager, (b) administration of the Loan Documents, provided that such costs and expenses do not exceed the amounts set forth in a letter agreement between Borrower and the Administrative Agent and Lead Arranger and Sole Book Manager and (c) any amendment, waiver or modification of the Loan Documents. Borrower shall pay within 30 days after demand the reasonable actual out-of-pocket costs and expenses of the Administrative Agent and each of the Banks in connection with the enforcement of any Loan Documents following the occurrence of a Default or an Event of Default, including in connection with any refinancing, restructuring, reorganization (including a bankruptcy reorganization, if such payment is approved by the bankruptcy court or any similar proceeding). The costs and expenses referred to in the first sentence above (for which Borrower shall be liable solely with respect to costs and expenses of the Administrative Agent and Lead Arranger and Sole Book Manager) and the second sentence above (which shall apply to costs and expenses of the Administrative Agent and the Banks) shall include filing fees, recording fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket expenses and the reasonable actual fees and out-of-pocket expenses of any legal counsel retained by the Administrative Agent and Lead Arranger and Sole Book Manager or any of the Banks (including the allocated costs of in-house counsel), as the case may be, or independent public accountants and other outside experts retained by the Administrative Agent and Lead Arranger and Sole Book Manager (provided that (i) Borrower shall not be liable under this Section 11.3 for fees and expenses of more than one firm of independent public accountants, or more than one expert with respect to a specific subject matter, at any one time and (ii) with respect to the costs and expenses referred to in the second sentence above (pertaining to enforcement matters), Borrower shall not be liable for the fees and expenses of more than one firm of outside legal counsel retained to represent the Administrative Agent and the Banks, but if any of such parties does not consent to such joint representation, Borrower shall be liable for the fees and expenses of not more than one firm of outside legal counsel retained to represent the Administrative Agent and also for not more than one additional firm of outside legal counsel retained to otherwise represent one or more of the Banks). Nothing herein shall obligate Borrower to pay any costs and expenses in connection with an assignment of or participation in a Bank's Pro-Rata Share of a Commitment. Borrower shall pay any and all documentary and transfer taxes, assessments or charges made by any Governmental Agency and all reasonable actual costs, expenses, fees, and charges of Persons (other than the Administrative Agent and Lead Arranger and Sole Book Manager or the Banks) payable or determined to be payable in connection with the execution, delivery, filing or recording of this Agreement, any other Loan Document, or any other instrument or writing to be delivered hereunder or thereunder, and shall reimburse, hold harmless, and indemnify the Administrative Agent and Lead Arranger and Sole Book Manager and each Bank 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 Borrower to perform any of its Obligations. Any amount payable to the Administrative Agent and Lead Arranger and Sole Book Manager or any Bank under this Section shall bear interest from the date which is 30 days after Borrower's receipt of demand (together with reasonable supporting documentation) for payment at the rate then in effect for Prime Rate Loans. 11.4 Nature of Banks' Obligations. Nothing contained in this Agreement or any other Loan Document and no action taken by the Administrative 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. Each Bank's obligation to make any Advance pursuant hereto is several and not joint or joint and several, and is not conditioned -65- 72 upon the performance by any other Bank of its obligation to make Advances. A default by any Bank will not increase the Pro Rata Share of the Commitment of 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. 11.5 Representations and Warranties. All representations and warranties of Borrower and any other Party contained herein or in any other Loan Document (including, for this purpose, all representations and warranties contained in any certificate or other writing required to be delivered by or on behalf of Borrower or such Party pursuant to any Loan Document) will survive the making of the loans hereunder and the execution and delivery of the Notes, and, in the absence of actual knowledge by the Administrative Agent or a Bank of the untruth of any representation or warranty, have been or will be relied upon by the Administrative Agent and that Bank, notwithstanding any investigation made by the Administrative Agent or that Bank or on their behalf. 11.6 Notices. Except as otherwise provided in any Loan Document, all notices, requests, demands, directions, and other communications provided for hereunder and under any other Loan Document must be in writing and must be mailed (provided that communications related to any Default or Event of Default or proposed action under Section 11.2 shall not be sent solely by mail), telegraphed, delivered, or sent by telex, telecopier or cable to the appropriate party at the address set forth on the signature pages of this Agreement or, as to any Party, at any other address as may be designated by it in the applicable Loan Document or in a written notice sent to the Administrative Agent and Borrower in accordance with this Section. Except as otherwise provided in any Loan Document if any notice, request, demand, direction, or other communication is given by mail it will be effective on the earlier of actual receipt or the third Banking Day after deposited in the United States mails 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; if given by telex, when confirmed by answerback; or if given by personal delivery, when delivered. The Administrative Agent will endeavor to forward to Borrower a list of the contact persons and addresses of each of the Banks on a quarterly basis, but the Administrative Agent's failure to do so will not relieve Borrower from any notice or other requirements set forth in this Agreement. 11.7 Execution in Counterparts. This Agreement and any other Loan Document to which Borrower is a Party 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, taken together will be deemed to be but one and the same instrument. Such counterparts may be sent by telecopy, with the original counterparts to follow by mail or courier. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until executed counterparts hereof or thereof (or other evidence of execution satisfactory to the Administrative Agent and Borrower) have been delivered to the Administrative Agent and Borrower. 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 Agents, each of the Banks, and their respective successors and assigns, except that except as permitted in Section 6.3, Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of all the Banks. Any Bank may at any time pledge its Notes or any other instrument evidencing its rights as a Bank hereunder to a Federal Reserve Bank, -66- 73 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 2000 Closing Date, each Bank may assign to one or more Eligible Assignee all or any portion of its Pro Rata Share of the Commitment; provided that (i) such Eligible Assignee, if not then a Bank, shall be approved by each of the Administrative Agent (which approval shall not be unreasonably withheld) and by Borrower (which approval shall not be unreasonably withheld and which approval shall not be necessary after an Event of Default has occurred and is continuing), (ii) such assignment shall be evidenced by a Commitment Assignment and Acceptance, a copy of which shall be furnished to the Administrative Agent as hereinbelow provided; (iii) except in the case of an assignment to an Affiliate of the assigning Bank, to another Bank or of the entire remaining Commitment of the assigning Bank, the assignment shall not assign a Pro Rata Share of the Commitment equivalent to less than $20,000,000 and that is not an integral multiple of $5,000,000 (which restrictions shall not apply while an Event of Default has occurred and is continuing), (iv) except in the case of an assignment of the entire remaining Commitment of the assigning Bank, giving effect to the assignment, the assigning Bank will not be in violation of its Applicable Minimum Hold Requirement (unless an Event of Default has occurred and is continuing) and (v) 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 5 Banking Days after the date the Administrative Agent has received the Commitment Assignment and Acceptance. 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 Shares of the Commitment therein set forth and, to the extent of such Pro Rata Shares, 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 under this Agreement) to such assignee Bank, Notes evidencing that assignee Bank's Pro Rata Share, and to the assigning Bank, Notes evidencing the remaining balance Pro Rata Share retained by the assigning Bank. (c) By executing and delivering a Commitment Assignment and Acceptance, the Eligible Assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Shares of the Commitment 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 its obligations under this Agreement; (iii) it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to this Agreement 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 Administrative 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 Administrative Agent to take such action and to exercise such powers as are delegated to the Administrative Agent by this Agreement; and (vi) it will perform -67- 74 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) After receipt of a completed Commitment Assignment and Acceptance executed by any Bank and an Eligible Assignee, and receipt of an assignment fee of $5,000 from such Eligible Assignee, the Administrative Agent shall, at least one Banking Day prior to 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 one or more banks or other financial institutions (including another Bank) in its Pro Rata Share of the Commitment; provided, however, that (i) such participant, if not an Affiliate of the granting Bank, shall be approved by Borrower (which approval shall not be unreasonably withheld and which approval shall not be necessary after an Event of Default has occurred and is continuing), (ii) such Bank's obligations under this Agreement shall remain unchanged, (iii) such Bank shall remain solely responsible to the other parties hereto and thereto for the performance of such obligations, (iv) the participating bank or other financial institution shall not be a Bank hereunder for any purpose except, if the participation agreement so provides, for the purposes of recovery of eurodollar costs or capital adequacy expenses or indemnifications provided to the Banks under this Agreement but only to the extent that the cost of such benefits to Borrower does not exceed the cost which Borrower would have incurred in respect of such Bank absent the participation, (v) the participating bank or other financial institution shall be prohibited from transferring, encumbering or granting any sub-participation interest in the participation interest, (vi) Borrower, the Administrative Agent, and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, (vii) the participation interest granted shall not be with respect to a Pro Rata Share of the Commitment equivalent to less than $20,000,000 (which restriction shall not apply while an Event of Default has occurred and is continuing), (viii) giving effect to the participation, the granting Bank will not be in violation of its Applicable Minimum Hold Requirement (unless an Event of Default has occurred and is continuing), (ix) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than those which (A) extend the maturity dates or any other date upon which any payment of money is due to the Banks, (B) reduce the rate of interest, any fee or any other monetary amount payable to the Banks, (C) reduce the amount of any installment of principal due to the Banks thereunder, (D) release any Guarantor Subsidiary from its obligations under the Subsidiary Guaranty (except as provided in Section 11.2), or (E) release any material portion of any collateral securing any of the obligations of Borrowers to the Banks and (x) to the extent that the holder of the participation interest is granted consent rights with respect to the matters described in clause (ix), such rights must be subject to a voting procedure whereby the holders of the entire Pro Rata Share of the Commitment held by the participating Bank shall act in such matters in accordance with the vote of a majority-in-interest of such Pro Rata Share of the Commitment. 11.9 Sharing of Setoffs. Each Bank severally agrees that if it, through the exercise of the right of setoff, banker's lien, or counterclaim against Borrower or otherwise, receives payment of the Obligations due it hereunder and under the Notes that is ratably more than that to which it is entitled hereunder pursuant to Section 3.12 or 9.2(d), then: (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 -68- 75 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 the provisions of Section 3.12 and 9.2(d), 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 shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement 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. Borrower expressly consents to the foregoing arrangements and agrees that, to the extent permitted by Law, any Bank holding a participation in an Obligation so purchased may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Bank were the original owner of the Obligation purchased. 11.10 Indemnity by Borrower. Borrower agrees to indemnify, save, and hold harmless the Administrative Agent and Lead Arranger and Sole Book Manager and each Bank and their directors, officers, agents, attorneys, and employees (collectively, the "indemnitees") from and against: (i) any and all claims, demands, actions or causes of action that are asserted against any indemnitee (other than by Borrower or by any other indemnitee) if the claim, demand, action or cause of action arises out of or relates to a Commitment, the use of proceeds of any Loans, any transaction contemplated pursuant to this Agreement, or any relationship or alleged relationship of any indemnitee to Borrower related to this Agreement; (ii) 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 (i) above; and (iii) any and all liabilities, losses, costs, or expenses (including reasonable attorneys' fees and disbursements (including the allocated cost of in-house counsel)) that any indemnitee suffers or incurs as a result of any of the foregoing; provided, that Borrower shall have no obligation under this Section to any indemnitee with respect to any of the foregoing arising out of the gross negligence or willful misconduct of that indemnitee or the breach by the indemnitee of this Agreement or from the transfer or disposition of any Note by any Bank. 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. If requested by Borrower in writing and so long as no Default or Event of Default shall have occurred and be continuing, such indemnitee shall in good faith contest the validity, applicability and amount of such claim, demand, action or cause of action, shall permit Borrower to participate in such contest and shall cooperate with Borrower to the extent their interests are aligned. 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 not so settle or compromise without Borrower's written approval thereof, which approval may be withheld in Borrower's sole discretion. Any voluntary settlement by an indemnitee of such a claim or proceeding without Borrower's written approval shall relieve Borrower of its obligation to indemnify that indemnitee with respect to such claim or proceeding. In any legal action involving more than one indemnitee, all indemnitees shall be represented by a single legal counsel unless -69- 76 such legal counsel determines that a defense or counterclaim is available to an indemnitee that is not available to all indemnitees and that to assert such a defense or counterclaim would create a conflict of interest, or a potential conflict of interest, in which case such indemnitee shall be entitled to separate legal counsel. Any obligation or liability of Borrower to any indemnitee under this Section shall survive the expiration or termination of this Agreement and the repayment of all Loans and all other Obligations owed to the Banks. 11.11 Nonliability of Banks. The relationship between Borrower and the Banks is, and shall at all times remain, solely that of borrower and lenders, and the Banks and the Administrative Agent neither undertake nor assume any responsibility or duty to Borrower to review, inspect, supervise, pass judgment upon, or inform Borrower of any matter in connection with any phase of Borrower's business, operations, or condition, financial or otherwise. Borrower shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment, or information supplied to Borrower by any Bank or the Agents in connection with any such matter is for the protection of the Banks and the Agents, and neither Borrower nor any third party is entitled to rely thereon. 11.12 Confidentiality. Each Bank agrees that it and its employees shall use any confidential information that such Bank may receive, directly or indirectly, from Borrower pursuant to this Agreement only for the purposes of this Agreement and shall hold such confidential information in confidence, except for disclosure: to Affiliates of the Bank (provided that any such Affiliate who is a "person" described in Rule 100(b)(1) of Regulation FD of the Commission expressly agrees to maintain the disclosed information in confidence or otherwise falls within the exceptions to Rule 100(a) of Regulation FD set forth in Rule 100(b)(2) of Regulation FD); to other Banks; to legal counsel, accountants and other professional advisors to that Bank; to regulatory officials having jurisdiction over that Bank; as required by Law or legal process (provided that the Bank shall, to the extent possible give sufficient notice to Borrower of such legal process to enable Borrower to oppose such legal process, and in any event, give written notice to Borrower of such legal process as soon as practicable) or in connection with any legal proceeding to which that Bank and Borrower are adverse parties; and 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 its Notes (provided that such disclosure is made subject to an appropriate confidentiality agreement by such institution on terms substantially similar to this Section). For purposes of the foregoing, "confidential information" shall mean any information respecting Borrower or its Subsidiaries reasonably considered by Borrower to be confidential, other than (a) information previously filed with any Governmental Agency and available to the public, (b) information previously published in any public medium from a source other than, directly or indirectly, the Agents or any Bank, and (c) information previously disclosed by Borrower to any Person not associated with Borrower without any reasonable expectation of confidentiality. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of the Agents or the Banks to Borrower. 11.13 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Borrower, the Agents and the Banks in connection with the Commitment, and is made for the sole benefit of Borrower, the Administrative Agent and the Banks, and the Administrative 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. -70- 77 11.14 Other Dealings. Any Bank may, without liability to account to the other Banks, accept deposits from, lend money or provide credit facilities to and generally engage in any kind of banking or other business with Borrower and its Subsidiaries. 11.15 Right of Setoff - Deposit Accounts. Upon the occurrence of an Event of Default and the acceleration of maturity of the principal indebtedness under any of the Notes pursuant to Section 9.2, Borrower hereby specifically authorizes each Bank in which Borrower maintains a deposit account (whether a general or special deposit account, other than trust accounts) or a certificate of deposit to setoff any Obligations owed to the Banks against such deposit account or certificate of deposit without prior notice to Borrower (which notice is hereby waived) whether or not such deposit account or certificate of deposit has then matured. Nothing in this Section shall limit or restrict the exercise by a Bank of any right to setoff or banker's lien under applicable Law, subject to the approval of the Majority Banks. 11.16 Further Assurances. Borrower shall, at its expense and without expense to the Banks or the Administrative Agent, do, execute, and deliver such further acts and documents as any Bank or the Administrative Agent from time to time reasonably requires for the assuring and confirming unto the Banks or the Administrative Agent 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; provided that this Section 11.16 is not intended to create any affirmative obligation on the part of Borrower to provide collateral security, additional guarantors or other credit enhancement with respect to the Obligations. 11.17 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 except as expressly provided herein to the contrary; provided that the foregoing is subject to Section 4.18 hereof. The Loan Documents were drafted with the joint participation of Borrower and the Banks and shall be construed neither against nor in favor of either, but rather in accordance with the fair meaning thereof. 11.18 Governing Law. The Loan Documents shall be governed by, and construed and enforced in accordance with, the Laws of California. 11.19 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.20 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. 11.21 Conflict in Loan Documents. To the extent there is any actual irreconcilable conflict between the provisions of this Agreement and any other Loan Document, the provisions of this Agreement shall prevail. 11.22 Waiver Of Jury Trial. EACH OF THE PARTIES HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR -71- 78 PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES, ANY OTHER LOAN DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.23 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 ANY AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OR THE OTHER LOAN DOCUMENTS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -72- 79 11.24 Hazardous Materials Indemnity. Without limiting any other indemnity provided for in the Loan Documents, Borrower agrees to indemnify the Administrative Agent, the Lead Arranger and Sole Book Manager and each Bank and their directors, officers, agents, attorneys, and employees (collectively, the "indemnities") from any claim, liability, loss, cost or expense (including reasonable attorneys' fees (including the allocated cost of in-house counsel)) directly or indirectly arising out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of any Hazardous Materials if such Hazardous Materials are on, under, about or relate to Borrower's Property or operations, so long as such claim, liability, loss, cost or expense arises out of or relates to a Commitment, the use of proceeds of any Loans, any transaction contemplated pursuant to this Agreement, or any relationship or alleged relationship of any indemnitee to Borrower related to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. KAUFMAN AND BROAD HOME CORPORATION By /s/ BRYAN A. BINYON -------------------------------------- Bryan A. Binyon Vice President and Treasurer 10990 Wilshire Boulevard Los Angeles, California 90024 Attention: Bryan A. Binyon Vice President and Treasurer Telecopier: 310.231.4140 Telephone: 310.231.4025 80 BANK OF AMERICA, N.A., as Administrative Agent and a Bank By: /s/ KELLY M. ALLRED -------------------------------------- Kelly M. Allred Principal Domestic Lending Office Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614 Attention: Kelly M. Allred Principal Telecopier: 949.260.5639 Telephone: 949.260.5654 LIBOR Lending Office Bank of America, N.A. 5 Park Plaza, Suite 500 Irvine, California 92614 Attention: Jean Ashley Telecopier: 949.260.5637 Telephone: 949.260.5682 81 CREDIT LYONNAIS LOS ANGELES BRANCH By: /s/ DIANNE M. SCOTT ----------------------------------------- DIANNE M. SCOTT FIRST VICE PRESIDENT AND MANAGER ----------------------------------------- Printed Name and Title Address: Credit Lyonnais Los Angeles Branch 515 South Flower Street, 22nd Floor Suite 2200 Los Angeles, California 90071 Attn: Frank Herrera Vice President Telephone: 213.362.5957 Telecopier: 213.623.3437 82 BANK ONE, NA By: /s/ KENNETH S. NELSON ----------------------------------------- KENNETH S. NELSON SENIOR VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: Bank One, NA One Bank One Plaza Chicago, Illinois 60670 Attn: F. Pat Schiewitz Telephone: 312.732.1148 Telecopier: 312.732.1117 83 BANK UNITED By: /s/ THOMAS S. GRIFFIN ----------------------------------------- THOMAS S. GRIFFIN, SVP ----------------------------------------- Printed Name and Title Address: Bank United 3200 South West Fwy. Houston, Texas 77027 Attn: Tom Griffin Senior Vice President Telephone: 760.804.8595 Telecopier: 760.804.8590 84 PNC BANK, N.A. By: /s/ DOUGLAS G. PAUL ----------------------------------------- DOUGLAS G. PAUL, SR. VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: PNC Bank, N.A. Two Tower Center, 18th Floor East Brunswick, New Jersey 08816 Attn: Douglas G. Paul Telephone: 732.220.3566 Telecopier: 732.220.3744 85 COMERICA BANK By: /s/ SAM MEEHAN ----------------------------------------- SAM MEEHAN ASSISTANT V.P. ----------------------------------------- Printed Name and Title Address: Comerica Bank One Detroit Center - MC3256 500 Woodward Avenue, 7th Floor Detroit, Michigan 48226-3256 Attn: Sam Meehan Telephone: 313.222.5461 Telecopier: 313.222.3295 86 SUNTRUST BANK By: /s/ DONALD L. GAUDETTE ----------------------------------------- DONALD L. GAUDETTE DIRECTOR ----------------------------------------- Printed Name and Title Address: SunTrust Bank 303 Peachtree Street MC1931 Atlanta, Georgia 30308 Attn: Don Gaudette Telephone: 404.658.4925 Telecopier: 404.827.6270 87 GUARANTY FEDERAL BANK, F.S.B. By: /s/ JENNIFER E. RAY ----------------------------------------- JENNIFER E. RAY, VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: Guaranty Federal Bank, F.S.B. 8333 Douglas Avenue Dallas, Texas 75225 Attn: Jenny Ray Telephone: 214.360.2837 Telecopier: 214.360.1661 88 KBC BANK N.V. By: /s/ ROBERT SNAUFFER ----------------------------------------- ROBERT SNAUFFER FIRST VICE PRESIDENT ----------------------------------------- Printed Name and Title By: /s/ KENNETH D. CONNOR ----------------------------------------- KENNETH D. CONNOR VICE PRESIDENT REAL ESTATE ----------------------------------------- Printed Name and Title Address: KBC Bank N.V. 515 South Figueroa Street, Suite 1920 Los Angeles, California 90071 Attn: Kevin McKenna Vice President Telephone: 213.996.7529 Telecopier: 213.629.5801 89 THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ VICENTE L. TIMIRAOS ----------------------------------------- VICENTE L. TIMIRAOS JOINT GENERAL MANAGER ----------------------------------------- Printed Name and Title Address: The Industrial Bank of Japan, Limited Los Angeles Agency 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Attn: Mr. Takeshi Kubo Vice President Telephone: 213.893.6447 Telecopier: 213.488.9840 90 CITICORP USA, INC. By: /s/ JAMES M. BUCHANAN ----------------------------------------- JAMES M. BUCHANAN, VICE PRESIDENT ----------------------------------------- Printed Name and Title Address: Citicorp USA, Inc. c/o Salomon Smith Barney, Inc. 390 Greenwich Street New York, New York 10013 Attn: Suzanne Crymes Vice President Telephone: 212.723.6532 Telecopier: 212.723.8547 91 EXHIBIT A COMMITMENT ASSIGNMENT AND ACCEPTANCE THIS COMMITMENT ASSIGNMENT AND ACCEPTANCE ("Agreement") dated as of _________ is made with reference to that certain 2000 Term Loan Agreement, dated as of October 3, 2000 (the "Loan Agreement") among KBHC, the Banks party thereto, Credit Lyonnais Los Angeles Branch, as Syndication Agent, Bank One, NA, as Documentation Agent, and Bank of America, N.A. as Administrative Agent, and is entered into between the "Assignor" described below, in its capacity as a Bank under the Loan Agreement, and the "Assignee" described below. Assignor and Assignee hereby represent, warrant and agree as follows: 1. Definitions. Capitalized terms defined in the Loan Agreement are used herein with the meanings set forth for such terms in the Loan Agreement. As used in this Agreement, the following capitalized terms shall have the meanings set forth below: "Assignee" means ____________________________. "Assigned Pro Rata Share" means ______% of the Commitment of the Banks under the Loan Agreement, being equal to the following dollar amount: $________. "Assignor" or" means ____________________________. "Effective Date" means ____________, the effective date of this Agreement determined in accordance with Section 11.8 of the Loan Agreement. "KBHC" means Kaufman and Broad Home Corporation, a Delaware corporation, and its successors. 2. Representations and Warranties of the Assignor. The Assignor represents and warrants, as of the date hereof, as follows: (a) The Pro Rata Share of the Assignor is ______% of the Commitment (without giving effect to assignments thereof which have not yet become effective). The Assignor is the legal and beneficial owner of the Assigned Pro Rata Share and the Assigned Pro Rata Share is free and clear of any adverse claim. (b) The outstanding principal balance of Advances made by Assignor under the Commitment is $_________. (c) The Assignor has full power and authority, and has taken all action necessary to execute and deliver this Agreement and any and all other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement, and no governmental authorizations or other authorizations are required in connection therewith. (d) This Agreement constitutes the legal, valid and binding obligation of the Assignor. (Exhibit A, Page 1 of 7) 92 Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of KBHC or the performance by KBHC of its obligations under the Loan Agreement, and assumes no responsibility with respect to any statements, warranties or representations made or in connection with the Loan Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of the Loan Agreement or any Loan Document other than as expressly set forth above. 3. Representations and Warranties of the Assignee. The Assignee hereby represents and warrants to the Assignor as follows: (a) The Assignee is an Eligible Assignee; (b) The Assignee has full power and authority, and has taken all action necessary to execute and deliver this Agreement, and any and all other documents required or permitted to be executed or delivered by it in connection with this Agreement and to fulfill its obligations under, and to consummate the transactions contemplated by, this Agreement, and no governmental authorizations or other authorizations are required in connection therewith; (c) This Agreement constitutes the legal, valid and binding obligation of the Assignee; (d) The Assignee has independently and without reliance upon the Assignor and based on such information as the Assignee has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Assignee will, independently and without reliance upon the Administrative Agent or any Bank, and based upon 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 the Loan Agreement; (e) The Assignee has received copies of the Loan Agreement and such of the Loan Documents as it has requested, together with copies of the most recent financial statements delivered pursuant to the Loan Agreement; and (f) If Assignee is organized under the Laws of a jurisdiction outside the United States of America, attached hereto are the forms prescribed by the Code and the Loan Agreement certifying Assignee's exemption from United States withholding taxes with respect to all payments to be made to Assignee under the Loan Agreement. 4. Assignment. On the terms set forth herein, Assignor, as of the Effective Date, hereby irrevocably sells, assigns and transfers to the Assignee all of the rights and obligations of the Assignor under the Loan Agreement and the other Loan Documents, in each case to the extent of the Assigned Pro Rata Share, and the Assignee irrevocably accepts such assignment of rights and assumes such obligations from the Assignor on such terms and as of the Effective Date. As of the Effective Date, Assignee shall have the rights and obligations of a "Bank" (as defined in the Loan Agreement) under the Loan Documents, except to the extent of any arrangements with respect to payments referred to in Section 5 hereof. Assignee hereby appoints and authorizes the Administrative Agent to take such action and to exercise such powers as are delegated to the Administrative Agent by the Loan Agreement. 5. Payment. On the Effective Date, Assignee shall pay to the Assignor, in immediately available funds, an amount equal to the purchase price, as agreed between the Assignor and the Assignee, of the Assigned Pro Rata Share. The Assignor and the Assignee have entered into a letter (Exhibit A, Page 2 of 7) 93 agreement, of even date herewith, which sets forth their agreement with respect to the amount of interest, fees, and other payments with respect to the Assigned Pro Rata Share which are to be retained by the Assignor. The Assignor and the Assignee hereby agree that if either receives any payment of interest, principal, fees or any other amount under the Loan Agreement, their respective Notes and other Loan Documents which is for the account of the other, it shall hold the same in trust for such party to the extent of such party's interest therein and shall promptly pay the same to such party. 6. Principal. Interest. Fees, etc. Any principal that would be payable and any interest, fees and other amounts that would accrue from and after the Effective Date to or for the account of the Assignor pursuant to the Loan Agreement and the Notes shall be payable to or for the account of the Assignor and the Assignee, in accordance with their respective interests as adjusted pursuant to this Agreement. 7. Notes. The Assignor and Assignee shall make appropriate arrangements with KBHC concurrently with the execution and delivery hereof so that a replacement Note is issued to the Assignor, if necessary, and a new Note is issued to the Assignee in principal amounts reflecting their Pro Rata Shares of the Commitment or their outstanding Advances (as adjusted pursuant to this Agreement). As of the Effective Date, the Pro Rata Shares of Assignor and Assignee to be reflected on Schedule 1.1 to the Loan Agreement shall be:
Pro Rata Share of Commitment ----------------- Assignor __% ($ ________) Assignee __% ($ ________)
8. Further Assurances. Concurrently with the execution of this Agreement, Assignor shall execute four counterpart original Requests for Registration, in the form of Exhibit A to this Agreement, to be forwarded to the Administrative Agent. The Assignor and the Assignee further agree to execute and deliver such other instruments, and take such other action, as either party may reasonably request in connection with the transactions contemplated by this Agreement, and Assignor specifically agrees to cause the delivery of (i) four original counterparts of this Agreement and (ii) the Requests for Registration, to the Administrative Agent for the purpose of registration of Assignee as a "Bank" pursuant to the Loan Agreement. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL OBLIGATION UNDER, AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. 10. Notices. All communications among the parties or notices in connection herewith shall be in writing, hand delivered or sent by registered airmail, postage prepaid, or by telex, telegram or cable, addressed to the appropriate party at its address set forth on the signature pages hereof. All such communications and notices shall be effective upon receipt. (Exhibit A, Page 3 of 7) 94 11. Binding Effect. This Agreement shall become effective upon the execution of the Request for Registration in the form of Exhibit A to this Agreement by KBHC and the execution of the Consent in the form of Exhibit B to this Agreement by the Administrative Agent, and shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that Assignee shall not assign its rights or obligations without the prior written consent of the Assignor and any purported assignment, absent such consent, shall be void. 12. Interpretation. The headings of the various sections hereof are for convenience of reference only and shall not affect the meaning or construction of any provision hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officials, officers or agents thereunto duly authorized as of the date first above written. "Assignor" --------------------------------------------- By: ------------------------------------------ ------------------------------------------ Printed Name and Title Address: ---------------------------------- ---------------------------------- ---------------------------------- Attn: ----------------------------- "Assignee" --------------------------------------------- By: ------------------------------------------ ------------------------------------------ Printed Name and Title Address: ---------------------------------- ---------------------------------- ---------------------------------- Attn: ----------------------------- (Exhibit A, Page 4 of 7) 95 Exhibit A to Commitment Assignment and Acceptance REQUEST FOR REGISTRATION TO: BANK OF AMERICA, N.A., as Administrative Agent THIS REQUEST FOR REGISTRATION OF ASSIGNEE is made as of the date of the enclosed Commitment Assignment and Acceptance with reference to that certain 2000 Term Loan Agreement dated as of October 3, 2000 among KBHC, the Banks who are parties thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent. Assignor and Assignee hereby request that the Administrative Agent approve of Assignee as a Bank, and that the Administrative Agent register Assignee as a Bank pursuant to the Loan Agreement effective as of the Effective Date described in the enclosed Commitment Assignment and Acceptance and, in connection with this request certify to the Administrative Agent that the enclosed Commitment Assignment and Acceptance sets forth the correct Commitment and the Assigned Pro Rata Share of the Assignee. Enclosed with this Request are four counterpart originals of the Commitment Assignment and Acceptance as well as the original Note issued to Assignor. IN WITNESS WHEREOF, Assignor and Assignee have executed this Request for Registration by their duly authorized officers as of ___________. "Assignor" --------------------------------------------- By: ------------------------------------------ ------------------------------------------ Printed Name and Title Exhibit A Page 1 of 2 (Exhibit A, Page 5 of 7) 96 "Assignee" --------------------------------------------- By: ------------------------------------------ ------------------------------------------ Printed Name and Title THE UNDERSIGNED HEREBY CONSENTS TO THE ABOVE ASSIGNMENT: KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation By: ----------------------------- ----------------------------- Printed Name and Title Exhibit A Page 2 of 2 (Exhibit A, Page 6 of 7) 97 Exhibit B to Commitment Assignment and Acceptance CONSENT TO: THE ASSIGNOR AND ASSIGNEE REFERRED TO IN THE ABOVE REQUEST FOR REGISTRATION When countersigned by the Administrative Agent below, this document shall certify that: 1. The Administrative Agent has consented, pursuant to the terms of the Loan Documents, to the assignment by Assignor to Assignee of the Assigned Pro Rata Share. 2. The Administrative Agent has registered Assignee as a Bank under the Loan Agreement, effective as of the Effective Date described above, with a Pro Rata Share of the Commitment corresponding to the Assigned Pro Rata Share and has adjusted the registered Pro Rata Share of the Commitment of Assignor to reflect the assignment of the Assigned Pro Rata Share. BANK OF AMERICA, N.A., as Administrative Agent By: -------------------------------------------- -------------------------------------------- Printed Name and Title Exhibit B Page 1 of 1 (Exhibit A, Page 7 of 7) 98 EXHIBIT B COMPLIANCE CERTIFICATE AS REQUIRED BY ARTICLE 7, SECTION 2 ARTICLE 6.9 - CONSOLIDATED TANGIBLE NET WORTH
11/30/1999A 2/28/00A 5/31/00A 8/31/00E 11/30/00E 2/28/01E 5/31/01E 8/31/01E 11/30/01E ----------------------------------------------------------------------------------------------- $000 $000 $000 $000 $000 $000 $000 $000 $000 Consolidated Net Income (commencing 06/01/00) 50% cumulative Consolidated Net Income proceeds from issuance capital stock (after 10/06/00) 50% cumulative proceeds issuance capital stock 6.9 MINIMUM CONSOLIDATED TANGIBLE NET WORTH ============================= (a) Base Amount 575 575 575 575 575 575 575 575 575 (b) Plus 50% of cumulative Consolidated Net Income (c) Plus - 50% cumulative proceeds from issuance of capital stock (d) Plus - 50% of proceeds Feline Prides after 10/6/00 (e) Stock Repurchase Stepdown Stock Repurchase Cap Actual Stock Repurchase Stepdown (70) (50) (50) (20) (20) (20) ------------------------------------------------------------------------------------------------ MINIMUM CONSOLIDATED TANGIBLE NET WORTH 575 575 575 575 575 575 575 575 575 ------------------------------------------------------------------------------------------------ 1.1 "CONSOLIDATED TANGIBLE NET WORTH" ============================= Consolidated Share- holder's Equity Plus - Feline Prides book value goodwill since 11/30/96 /Plus any cumulative foreign currency translation adjustment ------------------------------------------------------------------------------------------------ CONSOLIDATED TANGIBLE NET WORTH 0 0 0 0 0 0 0 0 0 ------------------------------------------------------------------------------------------------ CTNW Min CTNW (575) (575) (575) (575) (575) (575) (575) (575) (575) ================================================================================================
Kaufman & Broad Confidential Page 1 10/5/2000 99 EXHIBIT C NOTE $_______________ October ___, 2000 Los Angeles, California FOR VALUE RECEIVED, the undersigned promises to pay to the order of ___________________________________("the Bank") the principal amount of __________________________DOLLARS ($__________), or such lesser aggregate amount of Advances as may be made pursuant to the Bank's Pro Rata Share of the Commitment under the 2000 Revolving Loan Agreement hereinafter described, payable as hereinafter set forth. The undersigned promises to pay interest on the principal amount of each Advance made hereunder and remaining unpaid from time to time from the date of each such Advance until the date of payment in full, payable as hereinafter set forth. Reference is made to the 2000 Revolving Loan Agreement dated as of October 3, 2000 among the undersigned, as Borrower, the Banks that are parties thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent (as amended from time to time, the "Loan Agreement"). Terms defined in the Loan Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Loan Agreement. This is one of the Notes referred to in the Loan Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Loan Agreement as originally executed or as it may from time to time be supplemented, modified, amended, renewed, extended or supplanted. The Loan Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events upon the terms and conditions therein specified. The principal indebtedness evidenced by this Note shall be payable as provided in the Loan Agreement and in any event on the Maturity Date. Interest shall be payable on the outstanding daily unpaid principal amount of each Advance hereunder from the date thereof until payment in full and shall accrue and be payable at the rates and on the dates set forth in the Loan Agreement to the fullest extent permitted by applicable Law, before and after default, before and after maturity and before and after any judgment, with interest on overdue interest to bear interest at the rate set forth in Section 3.8 of the Loan Agreement. The amount of each payment hereunder shall be made to the Administrative Agent at the Administrative Agent's Office, for the account of the Bank, in lawful money of the United States of America, without deduction, offset or counterclaim and in immediately available funds on the day of payment (which must be a Banking Day). All payments of principal received after 10:00 a.m., Los Angeles time, on any Banking Day, shall be deemed received on the next succeeding Banking Day for purposes of calculating interest thereon. The Bank shall use its best efforts to keep a record of (Exhibit C, Page 1 of 4) 100 Advances made by it and payments of principal with respect to this Note, and such record shall be presumptive evidence of the principal amount owing under this Note. The undersigned hereby promises to pay, within thirty (30) days after demand, the reasonable costs and expenses of any holder hereof incurred in collecting the undersigned's obligations hereunder or in enforcing or attempting to enforce any of any holder's rights hereunder, including attorneys' fees and disbursements, whether or not an action is filed in connection therewith, in accordance with Section 11.3 of the Loan Agreement. The undersigned hereby waives presentment, demand for payment, dishonor, notice of dishonor, protest, notice of protest and any other notice or formality, to the fullest extent permitted by applicable Laws. This Note shall be delivered to and accepted by the Bank in the State of California, and shall be governed by, and construed and enforced in accordance with, the local Laws thereof. KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation By ------------------------------------------- Bryan A. Binyon Vice President and Treasurer (Exhibit C, Page 2 of 4) 101 ADVANCES AND PAYMENTS OF PRINCIPAL (Prime Rate Loans)
- ------------------------------------------------------------------------------------------------- Amount of Loan or Amount of Principal of Redesignation Paid or Redesignated From Another Type Into Another Type of Unpaid Principal Notation Date of Loan Loan Balance Made By - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(Exhibit C, Page 3 of 4) 102 ADVANCES AND PAYMENTS OF PRINCIPAL (LIBOR Loans)
- ----------------------------------------------------------------------------------------------------------------- Amount of Loan or Amount of Principal of Redesignation Paid or Redesignated From Another Type Into Another Type of Unpaid Principal Notation Date of Loan Loan Balance Made By - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
(Exhibit C, Page 4 of 4) 103 EXHIBIT D-1 [KAUFMAN & BROAD LOGO] October 6, 2000 To: Bank of America, N.A., as Administrative Agent The Banks That Are Party to the Term Loan Agreement Referred to Below Re: Kaufman and Broad Home Corporation Ladies and Gentlemen: I am Senior Vice President and General Counsel of Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"). I have acted as such in connection with the 2000 Term Loan Agreement (the "Term Loan Agreement") dated as of October 3, 2000, by and among Borrower; the Banks which are parties thereto; Bank of America, N.A., as Administrative Agent; Credit Lyonnais Los Angeles Branch, as Syndication Agent; Bank One, NA, as Documentation Agent; and Banc of America Securities LLC as Lead Arranger and Sole Book Manager (all such parties other than Borrower are collectively referred to herein as "Bank Parties"). This Opinion is furnished to you pursuant to Section 8.1(a)(v) of the Term Loan Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Term Loan Agreement. For the purposes of this opinion, I have examined originals, or copies identified to my satisfaction as being true copies, of the following documents: (a) the Term Loan Agreement; 104 Page 2 (b) the Notes of even date herewith; (c) the Subsidiary Guaranty; and (d) the letters executed and delivered between the Administrative Agent and Borrower, dated as of October 3, 2000, which concern agency fees and, upfront fees. The documents described in (a) through (d) above are sometimes referred to herein as the "Loan Documents". I have also made such investigations of fact and law, obtained such certificates from public officials, Responsible Officials of Borrower and certain of its Subsidiaries, reviewed incorporation and partnership documentation, resolutions, secretary's certificates, good standing certificates and other documents as appropriate of and for the Borrower and the Guarantor Subsidiaries, as applicable, and done such other things as I have deemed necessary for the purpose of this Opinion. I have assumed (i) that all natural persons have legal capacity, (ii) the genuineness of all signatures of all parties other than Borrower and its Guarantor Subsidiaries, (iii) the conformity to authentic original documents of all documents submitted to me as copies and the authenticity of all documents submitted to me as originals, (iv) as to all parties other than Borrower and its Guarantor Subsidiaries, the due authorization, execution and delivery of the Loan Documents, (v) that each of the Bank Parties has full power, authority and legal right, under its charter and other governing documents and laws applicable to it to perform its respective obligations thereunder, (vi) that all parties to any Loan Document have filed all required franchise tax returns, if any, and paid all required taxes, if any, under the California Revenue & Taxation Code and under the laws of the State of Delaware and the respective states of incorporation or formation of the Guarantor Subsidiaries, (vii) that each of the Bank Parties has the requisite power and authority, has obtained all necessary consents, licenses and permits, has taken all necessary action and has complied with any and all applicable laws with which such Bank Party is required to comply, in each case relating to or affecting the matters and actions contemplated by the Loan Documents, (viii) that each of the Bank Parties (other than Banc of America Securities LLC) is a national bank, state bank or similar financial institution and is an exempt lender under Article XV of the California Constitution or statutes enacted pursuant thereto and (ix) that the Loan Documents have not been modified, amended, terminated or revoked in any respect, and remain in full force and effect as of the date hereof. With respect to those opinions expressed below to be to "knowledge" or "to the knowledge of the undersigned," or similar such wording, I am referring solely to my individual, actual knowledge. Except as expressly set forth herein, I did not undertake a review or examination of the activities or business records of Borrower or any Subsidiaries specifically for the purpose of rendering this opinion or to determine the existence or absence of such facts. As Senior Vice President and General Counsel of Borrower, however, material information respecting the matters covered by such opinions is brought to my attention on a regular basis as a matter of internal policy and I intend the phrase "to the knowledge of the undersigned" to mean 105 Page 3 that, in reviewing such information, nothing has come to my attention which caused or should have caused me not to render such opinions. On the basis of the foregoing, and relying thereon, and with the qualifications herein set forth, I am of the opinion that: 1. Borrower is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, and its certificate of incorporation does not provide for the termination of its existence. Borrower is duly qualified or registered to transact business and is in good standing as a foreign corporation in the State of California and each other jurisdiction in which the conduct of its business or the ownership of its Properties makes such qualifications 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. 2. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute, deliver and perform all of its Obligations under the Loan Documents to which it is a Party. 3. To the knowledge of the undersigned, Borrower is in substantial compliance with all Laws and other legal requirements applicable to its business, 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 Government Agency that are necessary for the transaction of its business, except where the failure so to comply, file, register, qualify, or obtain exemptions would not constitute a Material Adverse Effect. 4. The execution, delivery and performance by Borrower and by each Guarantor Subsidiary of each of the Loan Documents to which they are a Party have been duly authorized by all necessary corporate action, and do not: a. require under the charter documents of Borrower or any Guarantor Subsidiary any consent or approval not heretofore obtained of any partner, director, stockholder, security holder, or creditor of such Party; b. violate or conflict with the Party's charter, certificate or articles of incorporation, or bylaws; c. to the knowledge of the undersigned, result in or require the creation or imposition of any Lien or Right of Others (other than as provided under the Loan Documents) upon or with respect to any Property now owned or leased by such Party; d. violate any Requirement of Law known to the undersigned to be applicable to such Party; or 106 Page 4 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 known to the undersigned or any other Contractual Obligation known to the undersigned to which such Party is a party or by which such Party or any of its Property is bound or affected; and, to the knowledge of the undersigned, neither Borrower nor any Subsidiary of Borrower is in violation of, or default under, any Requirement of Law or contractual obligation, or any indenture, loan, or credit agreement described in subparagraph (e) above in any respect that would constitute a Material Adverse Effect. 5. The Loan Documents to which either Borrower or any Guarantor Subsidiary is Party have each been validly executed and delivered to the Administrative Agent by Borrower or such Guarantor Subsidiary, as the case may be, and constitute the legal, valid and binding obligation of Borrower or such Guarantor Subsidiary, as the case may be, enforceable against such Borrower or such Guarantor Subsidiary, as the case may be, in accordance with its terms. 6. Except as have heretofore been obtained, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, or exemption from any of the foregoing from, any Governmental Agency under any Requirement of Law imposed on Borrower or any Guarantor Subsidiary by the laws of the United States of America or the State of California, in each case as the same exists on the date hereof, is or will be required to authorize or permit the execution, delivery and performance by Borrower or by any Significant Subsidiary of the Loan Documents to which it is a Party. 7. Each Significant Subsidiary which is a Domestic Subsidiary is a legal entity of the form described for that Subsidiary in Schedule 4.4 to the Agreement, duly organized, validly existing and in good standing under the Laws of its jurisdiction of formation, is duly qualified or registered to do business as a foreign organization (if applicable) 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 qualifications or registration necessary (except where the failure to be so qualified or registered 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 and to execute, deliver and perform the obligations under the Loan Documents to which it is a Party. 8. To the knowledge of the undersigned, each Significant Subsidiary is in substantial compliance with all Laws and other requirements applicable to its business, 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. 107 Page 5 9. Neither Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940. 10. To the knowledge of the undersigned, there are no actions, suits or proceedings pending or threatened against or affecting Borrower or any of its Subsidiaries or any Property of any of them in any court of Law or before any Governmental Agency in which there is a reasonable probability of a decision that would constitute a Material Adverse Effect. 11. Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" or "margin security" within the meanings of Regulation U of the Board of Governors of the Federal Reserve System, and no loan under the Agreement will be used to purchase or carry any such margin stock in violation of Regulation U. 12. To the knowledge of the undersigned, Borrower and its Subsidiaries are in substantial compliance with all applicable Laws relating to environmental protection where the failure to comply would constitute a Material Adverse Effect and have not received any notice from any Governmental Agency respecting the alleged violation by Borrower or any Subsidiary of such Laws which would constitute a Material Adverse Effect which has not been or is not being corrected. In addition to any assumptions, qualifications and other matters set forth elsewhere herein, the opinions set forth above are subject to the following: (a) My opinion with respect to the legality, validity, binding effect and enforceability of any Loan Document, agreement, or provision is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer and equitable subordination, reorganization, moratorium, or similar law affecting creditors' rights generally and to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, estoppel, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). I express no opinion as to the availability of equitable remedies. In applying such equitable principles, a court, among other things, might not allow a creditor to accelerate the maturity of a debt or enforce a guaranty thereof upon the occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants. Such principles applied by a court might also include a requirement that a creditor act with reasonableness and in good faith. (b) Certain rights, remedies and waivers of the Loan Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Loan Documents taken as a whole and, except as set forth in subparagraph (a) above, the Loan Documents taken as a whole contain adequate provisions for enforcing payment of the Obligations; however, the unenforceability of such provisions may result in delays in or limitations on the enforcement of the parties' rights and remedies under the Loan Documents (and I express no opinion as to the economic consequences, if any, of such delays or limitations). 108 Page 6 (c) I call your attention to the following matters on which I express no opinion: (i) the agreements in the Loan Documents to indemnify the Bank Parties against costs or expenses or liability notwithstanding such parties' acts of negligence or willful misconduct; (ii) provisions in the Loan Documents for payment or reimbursement of costs, fees and expenses or indemnification for claims, losses, or liabilities to the extent any such provision may be determined by a court or other tribunal to be in an unreasonable amount, to constitute a penalty, or to be contrary to public policy; (iii) the agreements in the Loan Documents to the jurisdiction or venue of a particular court, to the waiver of the right to jury trial, or to be served with process by service upon a designated third party; (iv) any of the waivers or remedies contained in the Loan Documents, whether or not any Loan Document deems any such waiver or remedy commercially reasonable, if such waivers or remedies are determined (1) not to be commercially reasonable under applicable law, (2) to conflict with mandatory provisions of applicable law, (3) to be taken in a manner determined to be unreasonable or not performed in good faith or with fair dealing or with honesty in fact, or (4) to be broadly or vaguely stated or not to describe the right or duty purportedly waived with reasonable specificity; (v) provisions in the Loan Documents which may be construed as imposing penalties or forfeitures, late payment charges, or an increase in interest rate, upon delinquency in payment or the occurrence of a default; (vi) any power of attorney granted under the Loan Documents; (vii) provisions in the Loan Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others, or that failure to exercise or a delay in exercising rights or remedies will not operate as a waiver of any such right or remedy; (viii) provisions in the Loan Documents which expressly or by implication waive or limit the benefits of statutory, regulatory, or 109 Page 7 constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allow such waiver or other limitation; (ix) the effect of Section 1698 of the California Civil Code which, among other matters, provides that a written contract may be modified by an oral agreement to the extent such agreement is performed by the parties; (x) the effect of Section 1670.5 of the California Civil Code which provides that a court may not enforce or may limit the application of a contract or portions thereof which it finds as a matter of law to have been unconscionable at the time the contract was made; (xi) the effect of any Bank Party's compliance or noncompliance with any state or federal laws or regulations applicable to it or applicable to the transactions contemplated by the Loan Documents due to the nature of such Bank Party's business; (xii) the effect of (1) any modification or alteration of the Loan Documents or other agreements with Borrower affecting the obligations of Borrower, (2) an election of remedies by the Bank Parties, or (3) any other action by the Bank Parties that materially prejudices any Guarantor Subsidiary if such modification, election, or action occurs without notice to the Guarantor Subsidiaries and without giving the Guarantor Subsidiaries an opportunity to cure any default by Borrower; (xiii) the enforceability of any provision in the Loan Documents which provide that such Loan Documents may only be modified in writing; and (xiv) the validity and enforceability of covenants set forth in the Loan Documents which purport to survive the repayment of the indebtedness evidenced therein. My opinions expressed herein are limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the federal laws of the United States of America, and I do not express any opinion herein concerning any other law, including, but not limited to, ordinances, regulations or practices of any county, city, or other government agency or body within the State of California. This Opinion is being provided in connection with the transaction referred to above and may not be relied upon (x) by any person other than the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party or (y) by the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party in any other context. This Opinion is being provided in connection with the transaction referred to above and may not be relied upon 110 Page 8 by any person other than the Bank Parties or by the Bank Parties in any other context. Copies hereof may be furnished (a) to your independent auditors and attorneys, (b) to any governmental agency or authority having regulatory jurisdiction over you, (c) pursuant to an order of legal process of any court or of any governmental agency or authority, or (d) in connection with any legal action to which you are a party arising out of the transaction referred to above. This opinion is rendered as of the date hereof, and I hereby disclaim any obligation to advise any person entitled to rely hereon of any change in the matters stated herein. Very truly yours, /s/ BARTON P. PACHINO Barton P. Pachino Senior Vice President and General Counsel Kaufman and Broad Home Corporation 111 EXHIBIT D-2 [MUNGER, TOLLES & OLSON LLP LETTERHEAD] October 6, 2000 WRITER'S DIRECT LINE To: Bank of America, N.A., as Administrative Agent The Banks That Are Party to the Term Loan Agreement Referred to Below Re: Kaufman and Broad Home Corporation Ladies and Gentlemen: We have acted as counsel to Kaufman and Broad Home Corporation, a Delaware corporation (the "Borrower"), in connection with the 2000 Term Loan Agreement (the "Term Loan Agreement") dated as of October 3, 2000, by and among Borrower; the Banks which are parties thereto; Bank of America, N.A., as Administrative Agent; Credit Lyonnais Los Angeles Branch, as Syndication Agent; Bank One, NA, as Documentation Agent; and Banc of America Securities LLC, as Lead Arranger and Sole Book Manager (all such parties other than Borrower are collectively referred to herein as "Bank Parties"). This Opinion is furnished to you pursuant to Section 8.1(a)(v) of the Term Loan Agreement. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Term Loan Agreement. For the purposes of this opinion, we have examined originals, or copies identified to our satisfaction as being true copies, of the following documents: (a) the Term Loan Agreement; 112 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 2 (b) the Notes of even date herewith; (c) the Subsidiary Guaranty; and (d) the letters executed and delivered between the Administrative Agent and Borrower, dated as of October 3, 2000, which concern agency fees and upfront fees. The documents described in (a) through (d) above are sometimes referred to herein as the "Loan Documents". We have also examined such other corporate documents and records, and other certificates, opinions and instruments and have conducted such investigations as we have deemed necessary as a basis for the opinions expressed below. As to factual matters relevant to our opinions expressed below, we have, without independent investigation, relied upon certificates from public officials and from Borrower's officers and upon public records, and have further assumed and relied upon, without independent investigation, the truth and accuracy of all factual representations and warranties of all parties to the Loan Documents. We have assumed (i) that all natural persons have legal capacity, (ii) the genuineness of all signatures of all parties other than Borrower, (iii) the conformity to authentic original documents of all documents submitted to us as copies and the authenticity of all documents submitted to us as originals, (iv) that each of the Guarantor Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization and in each other jurisdiction where the conduct of its business or the ownership of its Properties makes qualification or registration to transact business necessary, (v) as to all parties other than Borrower, the due authorization, execution and delivery of the Loan Documents, (vi) the validity and enforceability of the Loan Documents against all parties thereto other than Borrower and the Guarantor Subsidiaries, (vii) that each of the Bank Parties has the requisite power and authority, has obtained all necessary consents, licenses and permits, has taken all necessary action and has complied with any and all applicable laws with which such Bank Party is required to comply, in each case relating to or affecting the matters and actions contemplated by the Loan Documents, (viii) that each of the Bank Parties (other than Banc of America Securities LLC) is a national bank, state bank or similar financial institution and is an exempt lender under Article XV of the California Constitution or statutes enacted pursuant thereto, (ix) that the Loan Documents have not been modified, amended, terminated or revoked in any respect, and remain in full force and effect as of the date hereof and (x) that the parties to the Loan Documents are not subject to any special laws, regulations or restrictions that are not generally applicable to parties participating in transactions of the type contemplated by the Loan Documents and that would affect the validity, binding effect or enforceability of the Loan Documents or the performance by such parties of their obligations thereunder. On the basis of the foregoing, and relying thereon, and with the qualifications herein set forth, we are of the opinion that: 113 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 3 1. Borrower is a corporation duly incorporated, validly existing and in good standing under the General Corporation Law of the State of Delaware, and its certificate of incorporation does not limit the term of its existence. 2. Borrower has all requisite corporate power and authority to conduct its business, to own and lease its Properties and to execute, deliver and perform all of its obligations under the Loan Documents to which it is a party. 3. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized by all necessary corporate action. 4. The execution, delivery and performance of the Loan Documents by Borrower do not violate any provision of Borrower's certificate of incorporation or bylaws, and the execution, delivery and performance by Borrower and each Guarantor Subsidiary of the Loan Documents to which it is a party do not violate any Requirement of Law applicable to Borrower or such Guarantor Subsidiary imposed by the laws of the United States of America or the State of California that, in our experience, is normally applicable to general business entities in relation to transactions of the type contemplated by the Loan Documents. 5. Except as have heretofore been obtained, no authorization, consent, approval, order, license, or permit from, or filing, registration, or qualification with, or exemption from any of the foregoing from any Governmental Agency under any Requirement of Law imposed on Borrower or any Guarantor Subsidiary by the laws of the United States of America or the State of California, in each case as such Requirements of Law exist on the date hereof, is or will be required to authorize or permit the execution, delivery and performance by Borrower or any Guarantor Subsidiary of the Loan Documents to which it is a party. 6. Each of the Loan Documents to which Borrower or any Guarantor Subsidiary is a party will, when executed and delivered by Borrower or such Guarantor Subsidiary, as the case may be, constitute the legal, valid and binding obligation of Borrower or such Guarantor Subsidiary, as the case may be, enforceable against Borrower or such Guarantor Subsidiary, as the case maybe, in accordance with its terms. In addition to any assumptions, qualifications and other matters set forth elsewhere herein, the opinions set forth above are subject to the following: (a) Our opinion with respect to the legality, validity, binding effect and enforceability of any Loan Document, agreement, or provision is subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer and equitable subordination, reorganization, moratorium, or similar law affecting creditors' rights generally and to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, estoppel, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). We express no opinion as to the availability of equitable remedies. In applying such equitable principles, a court, among other things, might not allow a creditor to accelerate the maturity of a debt or enforce a guaranty thereof upon the 114 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 4 occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants. Such principles applied by a court might also include a requirement that a creditor act with reasonableness and in good faith. (b) Certain rights, remedies and waivers of the Loan Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Loan Documents taken as a whole and, except as set forth in subparagraph (a) above, the Loan Documents taken as a whole contain adequate provisions for enforcing payment of the Obligations; however, the unenforceability of such provisions may result in delays in or limitations on the enforcement of the parties' rights and remedies under the Loan Documents (and we express no opinion as to the economic consequences, if any, of such delays or limitations). (c) We call your attention to the following matters on which we express no opinion: (i) the agreements in the Loan Documents to indemnify the Bank Parties against costs or expenses or liability notwithstanding such parties' acts of negligence or willful misconduct; (ii) provisions in the Loan Documents for payment or reimbursement of costs, fees and expenses or indemnification for claims, losses, or liabilities to the extent any such provision may be determined by a court or other tribunal to be in an unreasonable amount, to constitute a penalty, or to be contrary to public policy; (iii) the agreements in the Loan Documents to the jurisdiction or venue of a particular court, to the waiver of the right to jury trial, or to be served with process by service upon a designated third party; (iv) any of the waivers or remedies contained in the Loan Documents, whether or not any Loan Document deems any such waiver or remedy commercially reasonable, if such waivers or remedies are determined (1) not to be commercially reasonable under applicable law, (2) to conflict with mandatory provisions of applicable law, (3) to be taken in a manner determined to be unreasonable or not performed in good faith or with fair dealing or with honesty in fact, or (4) to be broadly or vaguely stated or not to describe the right or duty purportedly waived with reasonable specificity; (v) provisions in the Loan Documents which may be construed as imposing penalties or forfeitures, late payment charges, or an increase in interest rate, upon delinquency in payment or the occurrence of a default; 115 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 5 (vi) any power of attorney granted under the Loan Documents; (vii) provisions in the Loan Documents to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others, or that failure to exercise or a delay in exercising rights or remedies will not operate as a waiver of any such right or remedy; (viii) provisions in the Loan Documents which expressly or by implication waive or limit the benefits of statutory, regulatory, or constitutional rights, unless and to the extent the statute, regulation, or constitution explicitly allow such waiver or other limitation; (ix) the effect of Section 1698 of the California Civil Code which, among other matters, provides that a written contract may be modified by an oral agreement to the extent such agreement is performed by the parties; (x) the effect of Section 1670.5 of the California Civil Code which provides that a court may not enforce or may limit the application of a contract or portions thereof which it finds as a matter of law to have been unconscionable at the time the contract was made; (xi) the effect of any Bank Party's compliance or noncompliance with any state or federal laws or regulations applicable to it or applicable to the transactions contemplated by the Loan Documents due to the nature of such Bank Party's business; (xii) the effect of (1) any modification or alteration of the Loan Documents or other agreements with Borrower affecting the obligations of Borrower, (2) an election of remedies by the Bank Parties, or (3) any other action by the Bank Parties that materially prejudices any Guarantor Subsidiary if such modification, election, or action occurs without notice to the Guarantor Subsidiaries and without giving the Guarantor Subsidiaries an opportunity to cure any default by Borrower; (xiii) the enforceability of any provision in the Loan Documents which provide that such Loan Documents may only be modified in writing; and 116 MUNGER, TOLLES & OLSON LLP Bank of America, N.A. October 6, 2000 Page 6 (xiv) the validity and enforceability of covenants set forth in the Loan Documents which purport to survive the repayment of the indebtedness evidenced therein. Our opinions expressed herein are limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the federal laws of the United States of America, and we do not express any opinion herein concerning any other law, including, but not limited to, ordinances, regulations or practices of any county, city, or other government agency or body within the State of California. This Opinion is being provided at the specific request of our client, is rendered to you in connection with the transaction referred to above and may not be relied upon (x) by any person other than the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party or (y) by the Bank Parties, an Eligible Assignee, or any successor in interest of any Bank Party in any other context. Copies hereof may be furnished (a) to your independent auditors and attorneys, (b) to any governmental agency or authority having regulatory jurisdiction over you, (c) pursuant to an order of legal process of any court or of any governmental agency or authority, or (d) in connection with any legal action to which you are a party arising out of the transaction referred to above. This opinion is rendered as of the date hereof, and we hereby disclaim any obligation to advise any person entitled to rely hereon of any change in the matters stated herein. Very truly yours, /s/ MUNGER, TOLLES & OLSON LLP 117 EXHIBIT E BORROWER: KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation GUARANTORS: See Schedule 1 hereto TO: BANK OF AMERICA, N.A., for itself and as Administrative Agent SUBSIDIARY GUARANTY THIS SUBSIDIARY GUARANTY ("Guaranty") dated as of October 3, 2000, is made by each of the parties listed on Schedule 1 hereto, together with each other person who may become a party hereto pursuant to Section 10 of this Guaranty (each, a "Guarantor" and collectively, "Guarantors"), jointly and severally, in favor of Bank of America, N.A., as Administrative Agent, the Syndication Agent, the Documentation Agent and the Banks (as those terms are defined in the below referenced Loan Agreement), with reference to the following facts: RECITALS A. Pursuant to the 2000 Term Loan Agreement of even date herewith entered into by and among Kaufman and Broad Home Corporation, a Delaware corporation ("Borrower"), the Banks signatory thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent (as the same may be amended from time to time, the "Loan Agreement"), the Banks are making a credit facility available to Borrower. B. As a condition of the availability of such credit facility, Guarantors are required to enter into this Guaranty. C. Guarantors expect to realize direct and indirect benefits as the result of the availability of the aforementioned credit facility, and as the result of the execution of this Guaranty. AGREEMENT NOW, THEREFORE, in order to induce the Banks to extend the aforementioned credit facility, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, each Guarantor hereby represents, warrants, covenants, agrees and guaranties as follows: (1) Terms used in this Guaranty but not defined herein shall have the meanings defined for them in the Loan Agreement. (2) Guarantors unconditionally guarantee and promise to pay to Bank of America, N.A. as the Administrative Agent for the Banks, on demand, in lawful money of the United States, any (Exhibit E, Page 1 of 9) 118 and all Indebtedness of Borrower then due to the Banks. The word "Indebtedness" means any and all advances, debts, obligations and liabilities of Borrower heretofore, now, or hereafter made, incurred or created under the Loan Agreement and under the Loan Documents, and whether Borrower may be liable individually or jointly with others, or whether such Indebtedness may be or hereafter becomes otherwise unenforceable. (3) This Guaranty is irrevocable in nature, is a guaranty of prompt and punctual payment and performance of all Indebtedness of Borrower, and is not merely a guaranty of collection. The Indebtedness guaranteed hereunder includes that arising under successive transactions which shall either continue the Indebtedness from time to time or renew it after it has been satisfied. Anything in this Guaranty to the contrary notwithstanding, the maximum liability of any Guarantor hereunder shall be limited to the extent required for the obligation of such Guarantor to be valid, binding and enforceable and not otherwise voidable or avoidable. (4) The obligations hereunder are joint and several, and independent of the obligations of Borrower and any of its other Subsidiaries. Separate action or actions may be brought and prosecuted against any Guarantor whether action is brought against the Borrower or any of its other Subsidiaries, including any other Guarantor, or whether Borrower or any of its other Subsidiaries, including any other Guarantor, may be joined in any such action or actions. (5) Each Guarantor authorizes the Banks, without notice or demand and without affecting its liability hereunder, from time to time to (a) renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Indebtedness guaranteed, and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent or any Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. (6) Each Guarantor waives, to the fullest extent permitted by applicable law, any right to require any Bank to (a) proceed against Borrower or any of its other Subsidiaries, including any other Guarantor; (b) proceed against or exhaust any security held from Borrower or any of its Subsidiaries; or (c) pursue any other remedy in the Banks' power whatsoever. Each Guarantor waives any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation from any cause whatsoever of the liability of Borrower, other than payment in full of the Indebtedness. Until all Indebtedness of Borrower to the Banks shall have been paid in full, each Guarantor waives any right to enforce any remedy which the Banks now have or may hereafter have against Borrower or any of its other Subsidiaries, and waives any benefit of, and any right to participate in, any security now or hereafter held by the Banks. Guarantors waive all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed the guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the Code of Civil Procedure or otherwise. Guarantors expressly waive to the fullest extent permitted by applicable Law all other suretyship defenses they otherwise might or would have under any Law. Each Guarantor waives any right of subrogation that it may have in respect to the obligations of Borrower to the Banks. Each Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Indebtedness. (Exhibit E, Page 2 of 9) 119 (7) After demand upon the Guarantors for payment under this Guaranty, each Guarantor hereby specifically authorizes each Bank (subject to the approval of the Majority Banks) in which such Guarantor maintains a deposit account (whether a general or special deposit account, other than trust accounts) or a certificate of deposit to setoff any Obligations owed to the Banks against such deposit account or certificate of deposit without prior notice to any Guarantor (which notice is hereby waived) whether or not such deposit account or certificate of deposit has then matured. Nothing in this paragraph shall limit or restrict the exercise by a Bank of any right to setoff or banker's lien under applicable Law, subject to the approval of the Majority Banks. (8) Each Guarantor represents and warrants to the Banks that it has established adequate means of obtaining from Borrower and its Subsidiaries, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of Borrower and its Subsidiaries, and that Guarantor now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of Borrower and its Subsidiaries. Each Guarantor hereby expressly waives and relinquishes any duty on the part of the Banks (should any such duty exist) to disclose to any Guarantor any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of Borrower or its Subsidiaries, whether now known or hereafter known by the Banks during the life of this Guaranty. (9) Guarantors agree to pay, within 30 days after demand, the reasonable out-of-pocket costs and expenses of the Administrative Agent and each of the Banks in connection with the enforcement of this Guaranty, including without limitation the reasonable fees and out-of-pocket expenses of any legal counsel retained by the Administrative Agent or any of the Banks. (10) Any other Person may become a Guarantor under, and become bound by the terms and conditions of, this Guaranty by executing and delivering to the Administrative Agent an Instrument of Joinder substantially in the form attached hereto as Exhibit A. (11) This Guaranty shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit. "GUARANTORS" KAUFMAN AND BROAD OF ARIZONA, INC., an Arizona corporation By: ------------------------------------------ William R. Hollinger Vice President and Assistant Secretary KAUFMAN AND BROAD - CENTRAL VALLEY, INC., a California corporation By: ------------------------------------------ William R. Hollinger Vice President and Assistant Secretary (Exhibit E, Page 3 of 9) 120 KAUFMAN AND BROAD COASTAL, INC., a California corporation By: ------------------------------------------ William R. Hollinger Vice President and Assistant Secretary KAUFMAN AND BROAD OF NORTHERN CALIFORNIA, INC., a California corporation By: ------------------------------------------ William R. Hollinger, Assistant Secretary KAUFMAN AND BROAD OF SACRAMENTO, INC., a California corporation By: ------------------------------------------ William R. Hollinger Vice President, Chief Financial Officer and Assistant Secretary KAUFMAN AND BROAD - SOUTH BAY, INC., a California corporation By: ------------------------------------------ William R. Hollinger, Assistant Secretary KAUFMAN AND BROAD OF SOUTHERN CALIFORNIA, INC., a California corporation By: ------------------------------------------ William R. Hollinger, Chief Financial Officer, Treasurer and Assistant Secretary (Exhibit E, Page 4 of 9) 121 KB HOLDINGS ONE, INC., a California corporation By: ------------------------------------------ William R. Hollinger Vice President, Treasurer, Chief Financial Officer and Assistant Secretary KAUFMAN AND BROAD OF COLORADO, INC., a Colorado corporation By: ------------------------------------------ William R. Hollinger, Vice President and Assistant Secretary KAUFMAN AND BROAD OF NEVADA, INC., a Nevada corporation By: ------------------------------------------ William R. Hollinger Vice President, Treasurer and Assistant Secretary KAUFMAN AND BROAD OF TEXAS, LTD., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By: ------------------------------------ William R. Hollinger, Treasurer and Assistant Secretary (Exhibit E, Page 5 of 9) 122 KAUFMAN AND BROAD DEVELOPMENT OF TEXAS, L.P., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By: ------------------------------------ William R. Hollinger, Treasurer and Assistant Secretary KAUFMAN AND BROAD LONE STAR, L.P., a Texas limited partnership By: KBSA, Inc., a Texas corporation, Its general partner By: ------------------------------------ William R. Hollinger, Treasurer and Assistant Secretary (Exhibit E, Page 6 of 9) 123 SCHEDULE 1 TO GUARANTY List of Guarantors Kaufman and Broad of Arizona, Inc. Kaufman and Broad - Central Valley, Inc. Kaufman and Broad Coastal, Inc. Kaufinan and Broad of Northern California, Inc. Kaufinan and Broad of Sacramento, Inc. Kaufinan and Broad - South Bay, Inc. Kaufman and Broad of Southern California, Inc. KB Holdings One, Inc. Kaufman and Broad of Colorado, Inc. Kaufinan and Broad of Nevada, Inc. Kaufman and Broad of Texas, Ltd. Kaufman and Broad Development of Texas, L.P. Kaufman and Broad Lone Star, L.P. (Exhibit E, Page 7 of 9) 124 INSTRUMENT OF JOINDER THIS INSTRUMENT OF JOINDER ("Joinder") is executed as of _____________________, by ___________________________ __________________________________, a ______________________________("Joining Party"), and delivered to the Administrative Agent pursuant to the Subsidiary Guaranty dated as of October 3, 2000 (the "Guaranty"). Terms used but not defined in this Joinder shall have the meanings defined for those terms in the Guaranty. RECITALS A. The Guaranty was made by the Guarantors in favor of the Banks that are parties to that certain 2000 Term Loan Agreement, dated as of October 3, 2000 (the "Loan Agreement") among Kaufman and Broad Home Corporation, as Borrower, the Banks signatory thereto, Bank of America, N.A., as Administrative Agent, Credit Lyonnais Los Angeles Branch, as Syndication Agent, and Bank One, NA, as Documentation Agent. B. Joining Party has become a Significant Subsidiary (as defined in the Loan Agreement) or has been designated by Borrower as a Guarantor Subsidiary (as defined in the Loan Agreement), and as such is required pursuant to Section 5.9 of the Loan Agreement to become a Guarantor. C. Joining Party expects to realize direct and indirect benefits as a result of the availability to Borrower of a credit facility pursuant to the Loan Agreement, and as a result of becoming a party to the Guaranty. NOW THEREFORE, Joining Party agrees as follows: AGREEMENT 1. By this Joinder, Joining Party becomes a "Guarantor" under and pursuant to Section 10 of the Guaranty. Joining Party agrees that, upon its execution hereof, it will become a Guarantor under the Guaranty with respect to all Indebtedness of Borrower heretofore or hereafter incurred under the Loan Agreement, and will be bound by all terms, conditions, and duties applicable to a Guarantor under the Guaranty. Page 1 of 2 (Exhibit E, Page 8 of 9) 125 2. The effective date of this Joinder is ________________. "Joining Party" - ------------------------------------------- a ------------------------------------------ By: ---------------------------------------- ---------------------------------------- Printed Name and Title ACKNOWLEDGED: BANK OF AMERICA, N.A., as Administrative Agent By: ---------------------------------------- ---------------------------------------- Printed Name and Title KAUFMAN AND BROAD HOME CORPORATION By: ---------------------------------------- ---------------------------------------- Printed Name and Title Page 2 of 2 (Exhibit E, Page 9 of 9) 126 EXHIBIT F
31-Aug-00 31-Aug-99 ------------------------------------------------- ------------------------------------------------- Deliveries Sales Backlog Avg. Price Backlog Deliveries Sales Backlog Avg. Price Backlog Division Quarter Quarter Units (000's) Value Quarter Quarter Units (000's) Value - --------------------------- ---------- ------- ------- ---------- ------- ---------- ------- ------- ---------- ------- Greater LA................. 0 0 0 $0 $0 0 0 0 $0 $0 Orange County.............. 0 0 0 0 0 0 0 0 0 0 San Diego.................. 0 0 0 0 0 0 0 0 0 0 Northbay................... 0 0 0 0 0 0 0 0 0 0 Southbay................... 0 0 0 0 0 0 0 0 0 0 Monterey Bay............... 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Total California......... 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Las Vegas*................. 0 0 0 0 0 0 0 0 0 0 Reno....................... 0 0 0 0 0 0 0 0 0 0 Phoenix.................... 0 0 0 0 0 0 0 0 0 0 Tucson..................... 0 0 0 0 0 0 0 0 0 0 New Mexico................. 0 0 0 0 0 0 0 0 0 0 Dallas..................... 0 0 0 0 0 0 0 0 0 0 Houston.................... 0 0 0 0 0 0 0 0 0 0 San Antonio................ 0 0 0 0 0 0 0 0 0 0 Austin..................... 0 0 0 0 0 0 0 0 0 0 Colorado................... 0 0 0 0 0 0 0 0 0 0 Utah....................... 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Total Other US........... 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Total United States...... 0 0 0 0 0 0 0 0 0 0 Maisons Individuelles...... 0 0 0 0 0 0 0 0 0 0 KBD........................ 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Total France............. 0 0 0 0 0 0 0 0 0 0 Mexico..................... 0 0 0 0 0 0 0 0 0 0 - - - -- -- - - - -- -- Total.................... 0 0 0 $0 $0 0 0 0 $0 $0 = = = == == = = = == == * Includes unconsolidated Monaco joint venture..... 0 0 0 $0 $0 0 0 0 $0 $0 = = = == == = = = == == California................. 0% 0% 0% 0% 0% 0% 0% 0% Other US................... 0% 0% 0% 0% 0% 0% 0% 0% Total United States...... 0% 0% 0% 0% 0% 0% 0% 0% France..................... 0% 0% 0% 0% 0% 0% 0% 0% Mexico..................... 0% 0% 0% 0% 0% 0% 0% 0% Total.................... 0% 0% 0% 0% 0% 0% 0% 0%
Difference ------------------------------------------------- Deliveries Sales Backlog Avg. Price Backlog Division Quarter Quarter Units (000's) Value - --------------------------- ---------- ------- ------- ---------- ------- Greater LA................. 0 0 0 $0 $0 Orange County.............. 0 0 0 0 0 San Diego.................. 0 0 0 0 0 Northbay................... 0 0 0 0 0 Southbay................... 0 0 0 0 0 Monterey Bay............... 0 0 0 0 0 - - - -- -- Total California......... 0 0 0 0 0 - - - -- -- Las Vegas*................. 0 0 0 0 0 Reno....................... 0 0 0 0 0 Phoenix.................... 0 0 0 0 0 Tucson..................... 0 0 0 0 0 New Mexico................. 0 0 0 0 0 Dallas..................... 0 0 0 0 0 Houston.................... 0 0 0 0 0 San Antonio................ 0 0 0 0 0 Austin..................... 0 0 0 0 0 Colorado................... 0 0 0 0 0 Utah....................... 0 0 0 0 0 - - - -- -- Total Other US........... 0 0 0 0 0 - - - -- -- Total United States...... 0 0 0 0 0 Maisons Individuelles...... 0 0 0 0 0 KBD........................ 0 0 0 0 0 - - - -- -- Total France............. 0 0 0 0 0 Mexico..................... 0 0 0 0 0 - - - -- -- Total.................... 0 0 0 $0 $0 = = = == == * Includes unconsolidated Monaco joint venture..... 0 0 0 $0 $0 = = = == ==
127 EXHIBIT G KAUFMAN AND BROAD HOME CORPORATION SUMMARY OF INVENTORY AS OF MAY 31, 2000
Site of Project (Lots/Acres) Inventory Book Value (Thousands) -------------------------------------------------------- -------------------------------- Land in Production Land Under Development Home/Lots Land Under Secured Total Total ------------------ ---------------------- Total in Prod Development Debt Lots Acres W/Homes WO/Homes Lots Acres --------- --------- ----------- ------- ----- ----- -------- -------- ---------- ---------- California Greater LA.............. Orange County........... San Diego............... Northbay................ Southbay................ --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Total California...... -- -- -- -- -- -- -- -- -- -- --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Other US Las Vegas............... Reno.................... Phoenix................. Tucson.................. New Mexico.............. Dallas.................. Houston................. San Antonio............. Austin.................. Colorado................ Utah.................... --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Total Other US........ -- -- -- -- -- -- -- -- -- -- --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Total United States... -- -- -- -- -- -- -- -- -- -- France Maisons Individuelles... KBD..................... --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Total France.......... -- -- -- -- -- -- -- -- -- -- --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Mexico Other Properties......... #REF1 --------- --------- ----------- ------- ------- ------- -------- -------- ---------- ---------- Total Inventory........... $ -- $ -- $ -- $ -- -- -- -- -- #REF1 -- ========= ========= =========== ======= ======= ======= ======== ======== ========== ========== ---------------------------------------------------- Key SFD Single Family Detached OPT Option SFA Single Family Attached OFF Office Buildings APP Apartments IND Industrial MPC Master Planned Community COM Commercial CON Condominium REN Renovation ----------------------------------------------------
128 SCHEDULE 1.1 KAUFMAN & BROAD HOME CORP. NEW 2000 REVOLVER COMMITMENTS
PRORATA SHARE AS OF ------------------------------- PERCENT DOLLARS BANK COMMITMENT COMMITMENTS - ---- ---------- ----------- BANK OF AMERICA 33.516532222% $189,050,000.00 CREDIT LYONNAIS 13.793103448% $ 77,800,000.00 BANK ONE 13.793103448% $ 77,800,000.00 GUARANTY FEDERAL 6.896551724% $ 38,900,000.00 BANK UNITED 8.275862069% $ 46,680,000.00 SUN TRUST 6.896551724% $ 38,900,000.00 IBJ 2.758620690% $ 15,560,000.00 COMERICA 4.137931034% $ 23,340,000.00 KBC 1.655881571% $ 9,340,000.00 PNC BANK 4.827586207% $ 27,230,000.00 CITICORP USA, INC. 3.448275862% $ 19,450,000.00 TOTAL 100.00% $564,050,000.00
129 SCHEDULE 4.4 KAUFMAN AND BROAD HOME CORPORATION AND CONSOLIDATED SUBSIDIARIES KEY TO "TYPES" S = SIGNIFICANT SUBSIDIARY G = GUARANTOR SUBSIDIARY Fo = FOREIGN SUBSIDIARY Fi = FINANCIAL SUBSIDIARY (NOTE: ALL GUARANTOR SUBSIDIARIES ARE ALSO SIGNIFICANT SUBSIDIARIES)
ARIZONA CORPORATIONS % TYPE(S) - -------------------- --- ------- Kaufman and Broad of Arizona, Inc. 100 S/G Kaufman and Broad Home Sales of Arizona, Inc. 100 Kaufman and Broad of Tucson, Inc. 100 Kaufman and Broad Home Sales of Tucson, Inc. 100 CALIFORNIA CORPORATIONS - ----------------------- BPP Holdings, Inc. 100 Branching Tree Corp. 100 Cable Associates, Inc. 100 Custom Decor, Inc. 100 First Northern Builders Servicing, Inc. 100 KBASW Mortgage Acceptance Corporation 100 Fi KBI/Mortgage Acceptance Corporation 100 Fi KBRAC IV Mortgage Acceptance Corporation 100 Fi Kaufman and Broad Architecture, Inc. 100 Kaufman and Broad - Central Valley, Inc. 100 S/G Kaufman and Broad Coastal, Inc. 100 S/G Kaufman and Broad Communities, Inc. 100 Kaufman and Broad Development Group 100 Kaufman and Broad Embarcadero, Inc. 100 Kaufman and Broad Holdings, Inc. 100 Kaufman and Broad Home Sales, Inc. 100 Kaufman and Broad Home Sales of Northern California, Inc. 100 Kaufman and Broad Insurance Agency, Inc. 100 Kaufman and Broad International, Inc. 100 Kaufman and Broad Land Company 100 Kaufman and Broad Land Development Venture, Inc. 100 Kaufman and Broad - Monterey Bay, Inc. 100 Kaufman and Broad - Moreno/Perris Valleys, Inc. 100 Kaufman and Broad Multi-Family, Inc. 100 Kaufman and Broad of Northern California, Inc. 100 S/G Kaufman and Broad Patterson, Inc. 100 Kaufman and Broad Properties 100
130 Kaufman and Broad of Sacramento, Inc. 100 S/G Kaufman and Broad of San Diego, Inc. 100 Kaufman and Broad - South Bay, Inc. 100 S/G Kaufman and Broad of Southern California, Inc. 100 S/G Kaufman and Broad of Utah, Inc. 100 KB Holdings One, Inc. 100 S/G Kent Land Company 100 Kingsbay Escrow Company 100 Lewis Homes Management Corp. 100 Mather Housing Company, LLC 100 CANADIAN CORPORATIONS - --------------------- Margreen Investments, Inc. 100 Fo 3238865 Canada Inc. 100 Fo COLORADO CORPORATION - -------------------- Kaufman and Broad of Colorado, Inc. 100 S/G DELAWARE CORPORATIONS/LLCs - -------------------------- Eden Land Development Corp. 100 e.KB, Inc. 100 Estes Homebuilding Co. 100 General Homes Corporation 100 General Homes of Arizona 100 General Homes of Dallas 100 General Homes of Florida 100 General Homes of Houston 100 General Homes Development LLC 100 GH Homebuilding Holdings, Inc. 100 HomeSafe Escrow Company 100 KB City Ranch, Inc. 100 International Mortgage Acceptance Corporation 100 Fi Kaufman and Broad Development Company 100 Kaufman and Broad Limited 100 KBHC Financing I 3 LHE Arctic LLC 100 LHN Arctic LLC 100 LDC Arctic LLC 100 LP Arctic LLC 100 LHC Arctic LLC 100 rateOne Home Loans, LLC 100 Fi Rate One Associates, Inc. 100 Fi Rate One Holdings, Inc. 100 Fi
131 FRENCH CORPORATIONS - ------------------- Kaufman and Broad Developpement SA. 57.47 Fo/S Kaufman and Broad SA. 57.47 Fo/S Kaufman and Broad Promotion Maisons Individuelles SA. 57.47 Fo Kaufman and Broad Renovation S.A.R.L. 57.47 Fo SMCI Developpement. SA. 57.47 Fo Gie KB 57.47 Fo Park SA 57.46 Fo Millet, S. A. R. L. 57.47 Fo LMP Chancy S. A. R. L. 57.47 Fo ILLINOIS CORPORATIONS - --------------------- Kaufman and Broad of Illinois, Inc. 100 Kaufman and Broad Mortgage Company 100 Fi/S MASSACHUSETTS CORPORATION - ------------------------- Kaufman and Broad Homes, Inc. 100 MEXICAN CORPORATIONS - -------------------- Kaufman y Broad de Mexico 100 Fo Kaufman y Broad Asesoria Administrativa 100 Fo Operadora Los Robles 100 Fo Desarrollos Los Robles 100 Fo MICHIGAN CORPORATION - -------------------- Keywick, Inc. 100 MINNESOTA CORPORATION - --------------------- Kaufman and Broad Custom Homes, Inc. 100 NEVADA CORPORATION - ------------------ Desert Inn Development, LLC 100 Kaufman and Broad Home Sales of Nevada, Inc. 100 Kaufman and Broad of Nevada, Inc. 100 S/G Kaufman and Broad Home Sales of Reno, Inc. 100 Kaufman and Broad of Reno, Inc. 100 Lewis Homes - Carlyle Venture L. L. C. 50
132 NEW MEXICO CORPORATIONS - ----------------------- Kaufman and Broad Home Sales of New Mexico, Inc. 100 Kaufman and Broad of New Mexico, Inc. 100 NEW YORK CORPORATION - -------------------- Kaufman and Broad Homes of Long Island, Inc. 100 TEXAS CORPORATIONS AND PARTNERSHIPS - ----------------------------------- Eden Corporation 100 Envirographic, Inc. 100 FGMC, Inc. 100 Hallmark Residential Group, Inc. 100 Kaufman and Broad Insurance Agency of Texas Holdings, Inc. 100 Kaufman and Broad of Texas, Ltd. 100 S/G Kaufman and Broad Development of Texas, L. P. 100 S/G Kaufman and Broad Lone Star, LP 100 S/G KBSA Inc. 100 Rayco Land Development, Inc. 100 San Antonio Title Co. 100 SATEX Properties, Inc. 100 Quoin Investments, Inc. 100
133 Schedule 4.7 Existing Liens or Rights of Others As of August 31, 2000 NONE (Schedule 4.7 - Page 1 of 1) 134 SCHEDULE 4.9 Existing Indebtedness and Contingent Guaranty Obligations as of August 31, 2000
Amount Total ------ ----- $(000) $(000) DEBT: KBHC SECURED DEBT: California 12,007 Other U.S. 6,671 International 8,659 27,337 KBMC SECURED DEBT: Commercial Paper 305,895 Mortgage Warehouse Facility 31,245 337,140 UNSECURED DEBT: Senior Debt 7-3/4% 175,000 Senior Sub Debt 9-3/8% 174,491 Senior Sub Debt 9-5/8% 124,568 Revolving Credit Line 397,000 Other Unsecured 94,848 965,907 --------- TOTAL DEBT 1,330,384 ========= CONTINGENT GUARANTEE OBLIGATIONS: KBHC Letters of Credit 37,445 Simpson Housing 45,146 TOTAL CONTINGENT GUARANTEE OBLIGATIONS 82,591 ========= TOTAL DEBT AND CONTINGENT CONTINGENT GUARANTEE OBLIGATIONS 1,412,975 =========
135 SCHEDULE 6.4 G INVESTMENTS IN AND ADVANCES TO JOINT VENTURES FYE 11-30-00 (000'S)
11-30-99 2-29-00 5-31-00 8-31-00 11-30-00 ------------------------------------------------------ Construction - ------------ Greater LA City Ranch 15,906 16,469 16,431 16,451 - ------------------------------------------------------ Total 15,906 16,469 16,431 16,451 - ------------------------------------------------------ Las Vegas Carlyle 907 1,872 1,848 2,398 - ------------------------------------------------------ Total 907 1,872 1,848 2,398 - ------------------------------------------------------ New Mexico Paradise Green 2 2 2 2 - Las Ventanas 251 252 301 301 - ------------------------------------------------------ Total 253 254 303 303 ------------------------------------------------------ Houston Southwyck Management 35 35 - - - Performance Mortgage Partners, Ltd. 25 25 - - - ------------------------------------------------------ Total 60 60 - - - ------------------------------------------------------ Maison Individuelles Villabe Les Heurts (8) (8) (10) (9) - ------------------------------------------------------ Total (8) (8) (10) (9) - ------------------------------------------------------ KBD Issy Guynemer (104) (1) (1) (1) - Des Pepinieres (26) 3 2 2 - Emile Meunier 62 61 57 55 - Haussmann 1,302 1,248 1,213 1,113 - Hoche Monceau 24 11 11 10 - Meudon Les Montalets (2) (2) (2) (2) - Villa D'Auteuil 2,409 2,306 2,240 2,121 - Terrasse De Chatillon (134) (127) (94) (118) - Domaine De Verneuil 558 537 100 64 - Park D'Alembert (102) (25) 2 1 - Sari Samlou 185 503 550 737 - Rouselle - 1 2 14 - Quai de la Marne - 87 4 4 - Archeveche - - (1) (1) - Ave du Maine - 376 4 39 - Quadrilatere - (360) (2) (27) - Dohomey - (2) - - - Illot Paille - (82) (19) 204 - Briand - 80 328 34 - ------------------------------------------------------ Total 4,172 4,614 4,395 4,249 ------------------------------------------------------ TOTAL 21,290 23,261 22,967 23,392 - ======================================================
EX-10.22 7 v65422ex10-22.txt EXHIBIT 10.22 1 EXHIBIT 10.22 [FORM OF OPERATING AGREEMENT UNDER THE E.KB EQUITY INCENTIVE PROGRAM] OPERATING AGREEMENT OF _____________, LLC MEMBERSHIP INTERESTS IN _____________, LLC, A DELAWARE LIMITED LIABILITY COMPANY, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE INTERESTS MAY NOT BE TRANSFERRED OR RESOLD WITHOUT (A) REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, UNLESS AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH LAWS IS THEN AVAILABLE, AND (B) COMPLIANCE WITH ALL OTHER RESTRICTIONS ON TRANSFER CONTAINED IN THIS OPERATING AGREEMENT. PROSPECTIVE MEMBERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. IN MAKING AN INVESTMENT DECISION, PROSPECTIVE MEMBERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE INTERESTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THE OPERATING AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS...............................................................1 ARTICLE 2 ORGANIZATIONAL MATTERS....................................................9 2.1 Formation....................................................................9 2.2 Name........................................................................10 2.3 Principal Place of Business; Other Places of Business.......................10 2.4 Business Purpose............................................................10 2.5 Certificate of Formation; Filing............................................10 2.6 Designated Agent for Service of Process.....................................10 2.7 Term........................................................................10 ARTICLE 3 CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS; CAPITAL ACCOUNTS............10 3.1 Capital Contributions.......................................................10 3.2 Additional Interests........................................................11 3.3 Capital Accounts............................................................11 3.4 Member Capital..............................................................11 3.5 Member Loans................................................................11 3.6 Loans by Third Parties......................................................11 3.7 Limited Liability of the Members............................................11 ARTICLE 4 DISTRIBUTIONS............................................................11 4.1 Distributions Generally.....................................................11 4.2 Withholding.................................................................12 4.3 Minimum Distribution........................................................12 4.4 Distributions In Kind.......................................................13 ARTICLE 5 ALLOCATIONS OF NET INCOME AND NET LOSSES.................................13 5.1 Net Losses..................................................................13 5.1.1 General..............................................................13 5.1.2 Loss Limitation......................................................13 5.2 Net Income..................................................................13 5.3 Special Allocations.........................................................13 5.3.1 Minimum Gain Chargeback..............................................13 5.3.2 Member Minimum Gain Chargeback.......................................14 5.3.3 Qualified Income Offset..............................................14 5.3.4 Gross Income Allocation..............................................14 5.3.5 Section 754 Adjustment...............................................14 5.3.6 Nonrecourse Deductions and Member Nonrecourse Deductions.............15 5.3.7 Curative Allocations.................................................15 5.4 Tax Allocations.............................................................15 5.5 Other Provisions............................................................16
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE 6 VOTING AND MANAGEMENT....................................................16 6.1 Manager Powers..............................................................16 6.2 Officers; Delegation of Authority...........................................18 6.3 Duties and Obligations; Liability...........................................18 6.3.1 Continuation of Existence............................................18 6.3.2 Limitation of Liability..............................................18 6.4 Reimbursements..............................................................19 6.5 Indemnification.............................................................19 6.5.1 Indemnification - Actions other than by the Company..................19 6.5.2 Indemnification - Actions by the Company.............................19 6.5.3 Expenses Payable in Advance..........................................20 6.5.4 Nonexclusivity of Indemnification and Advancement of Expenses........20 6.5.5 Insurance............................................................20 6.5.6 Survival of Indemnification and Advancement of Expenses..............20 6.5.7 Indemnification of Officers, Employees and Agents....................20 6.6 Lack of Authority...........................................................20 6.7 Member Voting...............................................................21 ARTICLE 7 BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS.............................21 7.1 Books and Records...........................................................21 7.2 Delivery of Records.........................................................21 7.3 Inspection..................................................................22 7.4 Reports to the Members......................................................22 7.5 Company Tax Elections, Tax Controversies....................................22 7.6 Confidentiality of Information..............................................22 ARTICLE 8 TRANSFERS OF INTERESTS...................................................22 8.1 Member Transfers............................................................22 8.2 Further Restrictions........................................................23 8.3 Effect of Transfer..........................................................24 8.4 Admissions, Withdrawals and Removals........................................24 8.5 Admission of Transferee as Substitute Member................................24 8.6 Vesting of Interests........................................................25 8.6.1 Vesting Schedule.....................................................25 8.6.2 Accelerated Vesting..................................................25 8.7 Repurchase Rights...........................................................25 8.7.1 Right to Repurchase..................................................25 8.7.2 Repurchase Price.....................................................25 8.7.3 Repurchase by the K&B Member.........................................25 8.7.4 Repurchase by the Company............................................25 8.7.5 Notice to the Holder of the Member's Interest........................25 8.7.6 Repurchase Closing...................................................26 8.7.7 Certain Restrictions.................................................26
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE 9 DISSOLUTION AND TERMINATION OF THE COMPANY...............................27 9.1 Limitations.................................................................27 9.2 Exclusive Causes............................................................27 9.3 Effect of Dissolution.......................................................28 9.4 Liquidation and Final Distribution Proceeds.................................28 9.5 Restoration of Deficit Capital Account Balances.............................28 ARTICLE 10 REPRESENTATIONS AND WARRANTIES...........................................29 10.1 Representations and Warranties of the Members...............................29 ARTICLE 11 MISCELLANEOUS............................................................30 11.1 Appointment of Company as Attorney-in-Fact..................................30 11.2 Amendments..................................................................31 11.3 Entire Agreement............................................................31 11.4 Further Assurances..........................................................31 11.5 Notices.....................................................................31 11.6 Governing Law...............................................................32 11.7 Binding Effect..............................................................32 11.8 Severability................................................................32 11.9 Confidentiality.............................................................32 11.10 Counterparts................................................................32 11.11 Waivers.....................................................................32 11.12 Preservation of Intent......................................................33 11.13 Certain Rules of Construction...............................................33 11.14 Company Advisers............................................................33 11.15 Arbitration.................................................................33 11.16 Determinations by the Manager...............................................34
-iii- 5 OPERATING AGREEMENT OF _____________, LLC THIS OPERATING AGREEMENT (this "Agreement") of _____________, LLC (the "Company"), is entered into by and among the Persons (each a "Member") listed in Exhibit A hereto as of _________ __, 20__. RECITALS WHEREAS, the Members have caused the Company to be formed as a limited liability company in accordance with the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq.; WHEREAS, the Members wish to adopt an operating agreement for the Company to provide for (i) management of the Company by the Manager and (ii) various other matters, all as more particularly described herein; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS As used herein, the following terms have the meaning set forth below: AAA Rules -- has the meaning specified in Section 11.15. Acceleration Event -- means a Change in Control, a liquidation of the Company pursuant to Section 9.2, sale of substantially all of the assets of the Company for cash or, with respect to a particular Member, such Member's death or Disability. In the event that the Company sells some but less than substantially all of its assets for cash, an Acceleration Event shall be deemed to have occurred with respect to a proportionate amount of a given Member's Interests. For example, if the Company sells 50% of its assets for cash, 50% of each Member's unvested Interest shall vest. Act -- means the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., in effect on the date hereof and as it may be amended hereafter from time to time, and any successor statute thereto. Additional Member -- means any Person admitted to the Company as a Member pursuant to Section 3.2. - 1 - 6 Adjusted Capital Account Deficit -- means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) decrease such deficit by any amounts which such Member is obligated to restore pursuant to this Agreement or is deemed to be obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c) or the penultimate sentence of each of Regulation Sections 1.704-2(i)(5) and 1.704-2(g)(1); and (b) increase such deficit by the items described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. Affiliate -- means, with respect to a specified Person, (a) any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person, (b) any Person that is an executive officer, general partner, manager or trustee of, or serves in a similar capacity with respect to, such specified Person, or for which such specified Person is an executive officer, general partner, manager or trustee, or serves in a similar capacity, or (c) any member of the immediate family of such specified Person. Agreement -- has the meaning specified in the preamble hereto. Available Securities -- has the meaning specified in Section 8.7.4. Bankruptcy -- means the occurrence of any event specified in Section 18-304 of the Act. Business Day -- means any weekday excluding any legal holiday observed pursuant to federal or California state law or regulation. Capital Account -- means the Capital Account maintained for each Member on the Company's books and records as reasonably determined by the Manager consistent with the following provisions: (a) To each Member's Capital Account there shall be added (i) such Member's Capital Contributions, (ii) such Member's allocable share of Net Income and any items in the nature of income or gain that are specially allocated to such Member pursuant to Article 5 or other provisions of this Agreement, and (iii) the amount of any Company liabilities assumed by such Member or which are secured by any property distributed to such Member. (b) From each Member's Capital Account there shall be subtracted (i) the amount of (A) cash and (B) the Gross Asset Value of any Company Assets (other than cash) distributed to such Member (other than any payment of principal and/or interest to such Member pursuant to the terms of a loan made by the Member to the Company) pursuant to any provision of this Agreement, (ii) such Member's allocable share of Net - 2 - 7 Losses and any other items in the nature of expenses or losses that are specially allocated to such Member pursuant to Article 5 or other provisions of this Agreement, and (iii) liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company. (c) In the event any Interest is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the Transferred Interest. (d) In determining the amount of any liability for purposes of clauses (a) and (b) above, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (e) The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied in a manner consistent with such Regulations. In the event that the Manager shall reasonably determine that it is prudent to modify the manner in which the Capital Accounts, or any additions or subtractions thereto, are computed in order to comply with such Regulations, the Manager may cause the Company to make such modification. The Manager shall also cause the Company to make (i) any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of Company capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) any appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Sections 1.704-1(b) and 1.704-2. Capital Contribution -- means, with respect to any Member at any time, the aggregate amount of cash and the initial Gross Asset Value of any property (other than cash) contributed to the Company by such Member as of such time. Cash Available for Distribution -- means cash of the Company available for distribution to Members as determined in the sole and absolute discretion of the Manager. Certificate -- means the certificate of formation filed with the Secretary of State of the State of Delaware pursuant to the Act to form the Company, as originally executed and amended, modified, supplemented or restated from time to time, as the context requires. Certificate of Cancellation -- means a certificate filed in accordance with 6 Del. C. Section 18-203. Change in Control -- means either (1) individuals who, as of the effective date of this Agreement, constitute the Board of Directors of Parent (the "Board of Directors" generally and as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the directors constituting the Board of Directors, provided that any person becoming a director subsequent to the effective date of this Agreement whose election, or nomination for election by Parent's shareholders, was approved by a vote of at least three-quarters (3/4) of the then directors who are members of the Incumbent Board (other than an election or nomination of an individual - 3 - 8 whose initial assumption of office is (i) in connection with the acquisition by a third person, including a "group" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), of beneficial ownership, directly or indirectly, of 20% or more of the combined voting securities ordinarily having the right to vote for the election of directors of Parent (unless such acquisition of beneficial ownership was approved by a majority of the Board of Directors who are members of the Incumbent Board), or (ii) in connection with an actual or threatened election contest relating to the election of the directors of Parent, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board, or (2) the Board of Directors (a majority of which shall consist of directors who are members of the Incumbent Board) has determined that a Change in Control has occurred for purposes of this Agreement. Code -- means the Internal Revenue Code of 1986, as previously or hereafter amended. Company Assets -- means all direct and indirect interests in real and personal property owned by the Company from time to time, and shall include both tangible and intangible property (including cash). Company Minimum Gain -- has the same meaning as the term "Partnership minimum gain" in Regulation Section 1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net increase or decrease in Company Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulation Section 1.704-2(d). Depreciation -- means, for each Fiscal Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Fiscal Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Fiscal Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such Fiscal Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Fiscal Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Manager. Disability -- means, in the case of a Member who has an employment agreement with the Company or the K&B Group that includes a definition of "Disability," the definition therein. Otherwise, Disability means, with respect to an individual, any mental or physical illness or disability that renders such individual unable to hold full-time employment for a period of 180 consecutive days. e.kb, inc. -- means e.kb, inc., a Delaware corporation. Effective Date -- means the date first set forth hereof. Encumbrance -- means a pledge, alienation, mortgage, hypothecation, encumbrance or similar collateral assignment by any other means, whether for value or no value and whether - 4 - 9 voluntary or involuntary (including, without limitation, by operation of law or by judgment, levy, attachment, garnishment, bankruptcy or other legal or equitable proceedings). ERISA -- means Title I of the Employee Retirement Income Security Act of 1974, as previously or hereafter amended. Fair Market Value -- (f) With respect to a specific Company asset, means the amount that the Manager determines the Company would receive in an all-cash sale of such asset in an arms-length transaction with an unaffiliated third party consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value (and after giving effect to any transfer taxes payable in connection with such sale). (g) With respect to the Company, means the amount that the Manager determines the Company would receive in an all-cash sale of all of its assets and businesses as a going concern in an arms-length transaction with an unaffiliated third party consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value. (h) After the Manager determines the Fair Market Value of the Company as provided above, the Manager will determine the Fair Market Value of an Interest by making a calculation reflecting the cash distributions which would be made to the Members in accordance with this Agreement if the Company were deemed to have received such Fair Market Value in cash and then distributed the same to the Members in accordance with the terms of this Agreement incident to the liquidation of the Company after payment to all of the Company's creditors from such cash receipts. (d) Notwithstanding paragraph (c) above, unless substantially all of the Company's assets are marketable securities, a Manager's determination of Fair Market Value of an Interest in connection with a repurchase of such Interest pursuant to Section 8.7 shall be made in good faith based on a valuation of such Interest by Merrill Lynch or a comparable firm (a "Valuation Firm") in accordance with this paragraph (d). In performing its valuation, the Valuation Firm shall first determine the amount the Company would receive in an all-cash sale of all of its assets and businesses as a going concern in an arms-length transaction with an unaffiliated third party consummated on the day immediately preceding the date on which the event occurred which necessitated the determination of the Fair Market Value. The Valuation Firm shall then determine the Fair Market Value of an Interest by making a calculation reflecting the cash distributions which would be made to the Member that holds the Interest being valued in accordance with this Agreement if the Company were deemed to have received such Fair Market Value in cash and then distributed the same to the Members in accordance with the terms of this Agreement incident to the liquidation of the Company after payment to all of the Company's creditors from such cash receipts. If substantially all of the Company's assets are marketable securities, a Manager's determination of Fair Market Value of an Interest in connection with a repurchase of such Interest pursuant to Section 8.7 shall be made in - 5 - 10 good faith based on the average of the closing prices of the sales of such securities on all securities exchanges that such securities are listed over the twenty business days preceding the date on which the event occurred which necessitated the determination of the Fair Market Value. Fiscal Quarter -- means each calendar quarter ending February 28 (February 29 in the case of a leap year), May 31, August 31 and November 30. Fiscal Year -- means (i) the period commencing on the Effective Date and ending on November 30, 2000, (ii) any subsequent twelve-month period commencing on December 1 and ending on November 30, and (iii) the period commencing on the immediately preceding December 1 and ending on the date on which all Company Assets are distributed to the Members pursuant to Article 9 hereof. Gross Asset Value -- means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as determined by the Manager and the contributing Member. (j) The Gross Asset Values of all Company Assets immediately prior to the occurrence of any event described in subsections (i) through (iv) hereof shall be adjusted to equal their respective gross fair market values, as determined by the Manager using such method of valuation as it may adopt in its reasonable discretion as of the following times: (i) the acquisition of an interest in the Company by a new or existing Member, if the Manager determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company Assets as consideration for an interest in the Company, if the Manager determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Members in the Company; (iii) the liquidation of the Company within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g); and (iv) at such other times as the Manager shall determine necessary or advisable in order to comply with Regulation Sections 1.704-1(b) and 1.704-2, or otherwise. (k) The Gross Asset Value of any Company Asset distributed to a Member shall be the gross fair market value of such asset on the date of distribution as determined by the Manager. - 6 - 11 (l) The Gross Asset Values of Company Assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that the Manager determines that an adjustment pursuant to subparagraph (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d). If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Net Income and Net Losses. Incapacity -- means the entry of an order of incompetence or of insanity, or the death, dissolution, Bankruptcy or termination (other than by merger or consolidation) of any Person. Investment Advisers Act -- means the Investment Advisers Act of 1940, as previously or hereafter amended. Investment Company Act -- means the Investment Company Act of 1940, as previously or hereafter amended. K&B Group -- means Parent and its Affiliates. K&B Member -- means __________ K&B Member Election -- has the meaning specified in Section 8.7.3. Majority in Interest -- means, at any time, Members whose combined Percentage Interest is greater than fifty percent (50%) or, in the case of a particular class of Members, Members of such class whose combined Percentage Interest is greater than fifty percent (50%) of the Percentage Interests held by all Members of such class. Manager -- means e.kb, inc. or any successor Manager selected in accordance with this Agreement. Member -- has the meaning specified in the preamble hereto. Member Nonrecourse Debt -- has the same meaning as the term "Partner nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations. Member Nonrecourse Debt Minimum Gain -- means an amount, with respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of the Regulations. - 7 - 12 Member Nonrecourse Deductions -- has the same meaning as the term "Partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations. Membership Interest or Interest -- means the entire ownership interest of a Member in the Company at any particular time, including without limitation, such Member's right to share in Net Income, Net Loss, or similar items of, and to receive distributions from, the Company, any and all rights to vote, and the rights to any and all benefits to which such Member is entitled as provided in this Agreement, together with the obligations of such Member to comply with all of the terms and provisions of this Agreement. Net Income or Net Loss -- means, for each Fiscal Year or other period, an amount equal to the Company's taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (m) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be added to such taxable income or loss; (n) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income or Net Loss pursuant to this definition of Net Income or Net Loss shall be subtracted from such taxable income or loss; (o) In the event the Gross Asset Value of any Company Asset is adjusted pursuant to the definition of Gross Asset Value, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (p) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (q) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of Depreciation; (r) To the extent an adjustment to the adjusted tax basis of any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulation Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment - 8 - 13 decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and (s) Notwithstanding any other provision of this definition of Net Income or Net Loss, any items which are specially allocated pursuant to Section 5.3 hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Company income, gain, loss or deduction available to be specially allocated pursuant to Section 5.3 hereof shall be determined by applying rules analogous to those set forth in this definition of Net Income or Net Loss. Nonrecourse Deductions -- has the meaning set forth in Regulation Sections 1.704-2(b)(1) and 1.704-2(c). Nonrecourse Liability -- has the meaning set forth in Regulation Sections 1.704-2(b)(3) and 1.752-1(a)(2). Parent -- means KB HOME, a Delaware corporation. Percentage Interest -- means, with respect to any Member, the Percentage Interest listed for such Member on Exhibit A hereto, as such Percentage Interest may be adjusted from time to time pursuant to this Agreement. The aggregate Percentage Interests of the Members shall at all times total to one hundred percent (100%). Person -- means and includes an individual, a partnership, a limited liability company, a joint venture, a corporation, a trust, an unincorporated organization, a government or any department or agency thereof or any entity similar to any of the foregoing. Prime Rate -- means the prime rate listed from time to time in The Wall Street Journal (which listing appears as of the date hereof under the caption "Money Rates") or, if such listing is no longer published, then the reference rate offered at such time by Bankers Trust New York Corporation. Records -- has the meaning specified in Section 7.1. Regulations -- means temporary and final regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). Regulatory Allocations -- has the meaning specified in Section 5.3.7. Repurchase Closing -- has the meaning specified in Section 8.7.5. Repurchase Notice -- has the meaning specified in Section 8.7.5. Repurchase Option -- has the meaning specified in Section 8.7.1. Securities Act -- has the meaning specified in Section 10.1(c). - 9 - 14 Subordinated Note -- has the meaning specified in Section 8.7.7. Substitute Member -- means any Person (a) to whom a Member (or Transferee thereof) Transfers all or any part of its Interest, and (b) which has been admitted to the Company as a Substitute Member pursuant to Section 8.5 of this Agreement. Transfer -- means, with respect to any Interest in the Company, a sale, transfer, assignment, gift, bequest or disposition by any other means (other than an Encumbrance), whether for value or no value and whether voluntary or involuntary (including, without limitation, by realization upon any Encumbrance or by operation of law or by judgment, levy, attachment, garnishment, bankruptcy or other legal or equitable proceedings), whether accomplished directly or in a series of steps designed to achieve such result indirectly. Transferee -- means a recipient of an Interest in the Company by way of Transfer. Unreturned Capital -- means, with respect to a Member, an amount equal to the excess, if any, of (a) the aggregate amount of Capital Contributions made by or for such Member, over (b) the aggregate amount of prior distributions made by the Company to such Member that constitute a return of such Capital Contributions pursuant to Section 4.1(a), Section 4.3 or Section 9.4(b). ARTICLE 2 ORGANIZATIONAL MATTERS 2.1 Formation. The Members have formed the Company as a limited liability company under the Act and for the purposes and upon the terms and conditions hereinafter set forth. The rights and liabilities of the Members shall be as provided in the Act, except as otherwise expressly provided herein. In the event of any inconsistency between any terms and conditions contained in this Agreement and any nonmandatory provisions of the Act, the terms and conditions contained in this Agreement shall govern. 2.2 Name. The name of the Company is _____________, LLC. The Company may also conduct business at the same time under one or more fictitious names if the Manager determines that it is in the best interests of the Company to do so. The Manager may change the name of the Company from time to time, in accordance with applicable law. 2.3 Principal Place of Business; Other Places of Business. The principal place of business of the Company is located at ___________________________________________, or such other place within or outside the State of Delaware as the Manager may from time to time designate. The Company may maintain offices and places of business at such other place or places within or outside the State of Delaware as the Manager deems advisable. 2.4 Business Purpose. The Company is being formed for the purpose of engaging in any lawful business determined by the Manager and permitted by the Act. 2.5 Certificate of Formation; Filing. The Members have caused the Certificate to be filed in the Office of the Secretary of State of the State of Delaware as required by the Act. The Manager may approve and cause to be executed and filed any duly authorized amendments to the - 10 - 15 Certificate from time to time in a form prescribed by the Act. The Manager shall also cause to be made, on behalf of the Company, such additional filings and recordings as the Manager shall deem necessary or advisable. 2.6 Designated Agent for Service of Process. So long as is required by the Act, the Company shall continuously maintain a registered office and a designated and duly qualified agent for service of process on the Company in the State of Delaware. As of the date of this Agreement, the name and address of the Company's designated agent and registered office in the State of Delaware is [Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.] 2.7 Term. The Company commenced on the date that the Certificate was filed with the Office of the Secretary of State of the State of Delaware, and shall continue until the first to occur of any of the events enumerated in Section 9.2. ARTICLE 3 CAPITAL CONTRIBUTIONS; ADDITIONAL INTERESTS; CAPITAL ACCOUNTS 3.1 Capital Contributions. The Capital Contributions of the Members and the Percentage Interests of the Members are set forth on Exhibit A hereto, and shall be reflected in a register maintained by the Company. The Company shall update such register to reflect the admission of Additional Members pursuant to Section 3.2, and Substitute Members pursuant to Section 8.5, as well as to reflect the issuance of other Interests or any changes in the Members' respective Interests pursuant to the terms of this Agreement. Any reduction in a Member's Interest initially issued in a compensatory transaction, whether pursuant to a redemption, withdrawal or otherwise, shall increase the Interest of the Member or Members initially diluted by the issuance of such Interest, as determined by the Manager. Except as otherwise required by law or pursuant to Section 3.1, no Member shall be required or, except as determined by the Manager in its sole and absolute discretion, be permitted, to make any additional Capital Contributions to the Company. 3.2 Additional Interests. Except as otherwise provided in this Agreement (and subject to Section 11.2 relating to amendments of this Agreement), the Company may issue additional Interests with such characteristics, at such times, on such terms, and to such Persons as the Manager determines to be in the best interests of the Company without obtaining the consent of any other Member, and any such additional issuance will dilute only the K&B Member. The Company shall admit the recipient(s) of any such additional Interests as additional Members ("Additional Members") of the Company. 3.3 Capital Accounts. A single Capital Account shall be established and maintained for each Member in accordance with the terms of this Agreement. 3.4 Member Capital. Except as otherwise provided in this Agreement: (a) no Member shall demand or be entitled to receive a return of or interest on its Capital Contributions or Capital Account and (b) no Member shall withdraw any portion of its Capital Contributions or be entitled to receive any distributions from the Company as a return of capital on account of such Capital Contributions. - 11 - 16 3.5 Member Loans. No Member shall be required or, except with the consent of the Manager, be permitted to make any loans or otherwise lend any funds to the Company. Notwithstanding the foregoing, any Member shall be permitted (but not required) to make loans to, act as surety or endorser for, assume one or more specific obligations of, provide collateral for, or enter into other similar credit, guarantee, financing or refinancing arrangements with, the Company for any purpose, to the extent the Manager reasonably determines that such loans are necessary or advisable for the business of the Company, provided that any loans made to the Company by a Member shall be on terms no less favorable to the Company than can be received from third parties under similar circumstances. No loans made by any Member to the Company shall have any effect on such Member's Percentage Interest, such loans representing a debt of the Company payable or collectible solely from the assets of the Company in accordance with the terms and conditions upon which such loans were made. 3.6 Loans by Third Parties. Without limiting Article 6, the Company, and the Manager on behalf of the Company, may borrow funds or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose. 3.7 Limited Liability of the Members. Notwithstanding anything to the contrary contained in this Agreement and except as otherwise required by law (including, without limitation, Section 18-607 of the Act), the liability of a Member for any losses of the Company in no event shall exceed, in the aggregate: (i) the amount of its Capital Contribution and (ii) its share of undistributed assets and profits of the Company. ARTICLE 4 DISTRIBUTIONS 4.1 Distributions Generally. Subject to Section 4.3, the timing and amount of any distribution shall be in the sole and absolute discretion of the Manager. Except as otherwise provided in Article 9 hereof relating to liquidating distributions, any such distribution shall be distributed to the Members in the following order of priority: (a) First, to the Members pro rata in proportion to their Unreturned Capital until the Unreturned Capital of each Member has been reduced to zero; (b) Second, the balance, if any, to the Members in accordance with their Percentage Interests. 4.2 Withholding. The Company may withhold distributions or portions thereof if it is required to do so by any applicable rule, regulation, or law. Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of federal, state, local or foreign taxes that the Manager determines that the Company is required to withhold or pay with respect to any amount distributable to such Member pursuant to this Agreement, or upon the exercise of any option issued by the Company with respect to Membership Interests. Any amounts so withheld or paid on behalf of or with respect to a Member pursuant to this Section 4.2 shall be deemed to have been distributed to such Member. To the extent that the cumulative amount of such withholding for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall - 12 - 17 be considered a loan from the Company to such Member, with interest at the Prime Rate, until discharged by such Member by repayment, which may, at the option of the Manager, be satisfied (i) out of distributions to which such Member would otherwise be subsequently entitled, or (ii) by the immediate payment in cash to the Company of such excess amount. The Manager, on behalf of the Company, shall be entitled to take any other action it determines to be necessary or appropriate in connection with any obligation or possible obligation to impose withholding pursuant to any tax law or to pay any tax with respect to a Member. Each Member hereby unconditionally and irrevocably grants to the Company a security interest in such Member's Interest to secure such Member's obligation to pay to the Company any amounts required to be paid pursuant to this Section 4.2. Each Member shall take such actions as the Company shall request in order to perfect or enforce the security interest created hereunder. Each Member's obligations hereunder shall survive the dissolution, liquidation or winding up of the Company. 4.3 Minimum Distribution. To the extent of Cash Available for Distribution, the Company shall distribute to each Member, within ninety (90) days after the close of each Fiscal Year, pursuant to Section 4.1 and/or this Section 4.3, at least an amount equal to forty percent (40%) of the excess, if any, of the federal taxable income and gain allocated to such Member for such Fiscal Year over the losses and deductions allocated to such Member for such Fiscal Year, in each case pursuant to Article 5; provided, however, that the minimum distribution required to be made to a Member pursuant to this Section 4.3 shall not exceed on a cumulative basis, forty percent (40%) of the excess, if any, of the federal taxable income and gain allocated to such Member for such Fiscal Year and all prior Fiscal Years, over the losses and deductions allocated to such Member for such Fiscal Year and all prior Fiscal Years, in each case pursuant to Article 5; provided, further, that the Manager may increase or decrease the forty percent (40%) rate applied for purposes of this Section 4.3, to the extent that it reasonably determines that an increased or decreased rate is appropriate, including without limitation as a result of any change in prevailing federal income tax rates. 4.4 Distributions In Kind. In the event that the Manager determines in its sole and absolute discretion to distribute property in kind, such property shall be deemed to be an amount of cash in an amount equal to the Fair Market Value of such property and shall be distributed in accordance with Section 4.1. ARTICLE 5 ALLOCATIONS OF NET INCOME AND NET LOSSES It is the overriding intent of this Article 5 that Net Profits, Net Losses and other items of Company income, gain, loss and deduction shall be allocated to the Members' Capital Accounts in such a manner that all cash or other assets distributed by the Company to the Members, including without limitation any cash or other assets distributable to the Members upon the liquidation of the Company in accordance with the Members' positive Capital Account balances, shall be distributed in accordance with the priority for cash distributions described in Section 4.1 of this Agreement. All provisions of this Article 5 shall be interpreted, and if necessary shall be modified by the Manager, to achieve this result. 5.1 Net Losses. - 13 - 18 5.1.1 General. After giving effect to the special allocations set forth in Section 5.3, and subject to the loss limitation set forth in Section 5.1.2, Net Losses for any Fiscal Year shall be allocated to the Members pro rata in accordance with their Percentage Interests. 5.1.2 Loss Limitation. Notwithstanding Sections 5.1.1 and 5.3.7 hereof, no Net Losses or items of loss or deduction shall be allocated to a Member to the extent that such allocation would create or increase an Adjusted Capital Account Deficit with respect to such Member, and such Net Losses or items of loss or deduction shall instead be allocated to the other Members pro rata in proportion to their Percentage Interests, subject to the limitations of this Section 5.1.2. 5.2 Net Income. After giving effect to the special allocations set forth in Section 5.3, Net Income for any Fiscal Year shall be allocated as follows: (a) First, to each Member until the aggregate Net Income allocated to the Member pursuant to this Section 5.2(a) for such Fiscal Year and all prior Fiscal Years is equal to the aggregate Net Losses allocated to the Member pursuant to Section 5.1.2 for all prior Fiscal Years; and (b) The balance, if any, to the Members pro rata in accordance with their Percentage Interests. 5.3 Special Allocations. Notwithstanding the foregoing provisions of this Article 5, the following special allocations shall be made in the following order of priority: 5.3.1 Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain during a Fiscal Year, then each Member shall be allocated items of Company income and gain for such Fiscal Year (and, if necessary, for subsequent years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Regulations Section 1.704-2(g)(2). This Section 5.3.1 is intended to comply with the minimum gain chargeback requirement of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. 5.3.2 Member Minimum Gain Chargeback. If there is a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt, determined in a manner consistent with the provisions of Regulations Section 1.704-2(g)(2). This Section 5.3.2 is intended to comply with the partner nonrecourse debt minimum gain chargeback requirement of Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. 5.3.3 Qualified Income Offset. If any Member unexpectedly receives an adjustment, allocation, or distribution of the type contemplated by Regulations Section - 14 - 19 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated to all such Members (in proportion to the amounts of their respective Adjusted Capital Account Deficits) in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit of such Member as quickly as possible. It is intended that this Section 5.3.3 qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d). 5.3.4 Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any Allocation Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of Company income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.3.4 shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article 5 have been made as if Section 5.3.3 and this Section 5.3.4 were not in the Agreement. 5.3.5 Section 754 Adjustment. To the extent that an adjustment to the adjusted tax basis of any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Member in complete liquidation of its Interest in the Company, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Members in accordance with their interests in the Company in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. 5.3.6 Nonrecourse Deductions and Member Nonrecourse Deductions. The Nonrecourse Deductions for each Fiscal Year shall be allocated to the Members pro rata in proportion to their Percentage Interests. The Member Nonrecourse Deductions for each Fiscal Year shall be allocated to the Member that bears the economic risk of loss (within the meaning of Regulations Section 1.752-2) for the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable. 5.3.7 Curative Allocations. The allocations set forth in Sections 5.3.1, 5.3.2, 5.3.3, 5.3.4, 5.3.5 and 5.3.6 (the "Regulatory Allocations") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.3.7. Therefore, notwithstanding any other provision of this Article 5 (other than the Regulatory Allocations), the Manager shall make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not - 15 - 20 part of the Agreement. In making its determination of the appropriate offsetting allocations, the Manager shall take into account future Regulatory Allocations under Sections 5.3.1 and 5.3.2 that, although not yet made, are likely to offset other Regulatory Allocations previously made under Section 5.3.6. 5.4 Tax Allocations. 5.4.1 Except as provided in Section 5.4.2 hereof, for federal, state and local income tax purposes, each Company item of income, gain, loss and deduction shall be allocated among the Members as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to this Article 5. 5.4.2 Tax items with respect to Company Assets that are contributed to the Company with a Gross Asset Value that varies from its basis in the hands of the contributing Member immediately preceding the date of contribution shall be allocated between the Members for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Company shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the Manager, including, without limitation, the "traditional method" as described in Regulations Section 1.704-3(b). If the Gross Asset Value of any Company Asset is adjusted pursuant to the definition of "Gross Asset Value," subsequent allocations of income, gain, loss and deduction with respect to such Company Asset shall take account of any variation between the adjusted basis of such Company Asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations promulgated thereunder under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the Manager. Allocations pursuant to this Section 5.4.2 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Net Income, Net Losses and any other items or distributions pursuant to any provision of this Agreement. 5.5 Other Provisions. 5.5.1 For any Fiscal Year during which a Membership Interest (or any part thereof) is Transferred between the Members or to another Person, the portion of the Net Income, Net Losses and other items of income, gain, loss, deduction and credit that are allocable with respect to such Membership Interest (or part thereof) shall be apportioned between the transferor and the transferee under any method allowed pursuant to Section 706 of the Code and the applicable Regulations as determined by the Manager. 5.5.2 In the event the Manager determines that the Code or any Regulations require allocations of items of income, gain, loss, deduction or credit different from those set forth in this Article 5, the Manager is hereby authorized to make new allocations in reliance on the Code and such Regulations (provided that such allocations shall require the consent of any Member whose right to receive distributions pursuant to Article 4 is likely to be materially and adversely affected), and no such new allocation shall give rise to any claim or cause of action by any Member. - 16 - 21 5.5.3 The Company's "excess nonrecourse liabilities" within the meaning of Regulations Section 1.752-3(a)(3) shall be allocated to the Members pro rata in proportion to their Percentage Interests. 5.5.4 The Members acknowledge and are aware of the income tax consequences of the allocations made by this Article 5 and hereby agree to be bound by the provisions of this Article 5 in reporting their shares of Net Income, Net Losses, and other items of income, gain, loss, deduction, and credit for federal, state, and local income tax purposes. ARTICLE 6 VOTING AND MANAGEMENT 6.1 Manager Powers. Except as otherwise expressly provided in this Agreement, all powers to control and manage the business and affairs of the Company shall be exclusively vested in the Manager and the Manager may exercise all powers of the Company and do all such lawful acts as are not by statute, the Certificate or this Agreement directed or required to be exercised or done by the Members and in so doing shall have the right and authority to take all actions which the Manager deems necessary, useful or appropriate for the management and conduct of the Company's business, including, without limitation, the following specific rights and powers: (a) Conduct its business, carry on its operations and have and exercise the powers granted by the Act in any state, territory, district or possession of the United States, or in any foreign country which may be necessary or convenient to effect any or all of the purposes for which it is organized; (b) Acquire by purchase, lease, or otherwise any real or personal property which may be necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (c) Operate, maintain, finance, improve, construct, own, grant operations with respect to, sell, convey, assign, mortgage, and lease any real estate and any personal property necessary, convenient, or incidental to the accomplishment of the purposes of the Company; (d) Execute any and all agreements, contracts, documents, certifications, and instruments necessary or convenient in connection with the management, maintenance, and operation of the Company's business, or in connection with managing the affairs of the Company, including, executing amendments to this Agreement and the Certificate in accordance with the terms of this Agreement, both as the Manager and, if required, as attorney-in-fact for the Members pursuant to any power of attorney granted by the Members to the Manager; (e) Borrow money and issue evidences of indebtedness necessary, convenient, or incidental to the accomplishment of the purposes of the Company, and secure the same by mortgage, pledge, or other lien on any Company Assets; - 17 - 22 (f) Execute, in furtherance of any or all of the purposes of the Company, any deed, lease, mortgage, deed of trust, mortgage note, promissory note, bill of sale, contract, or other instrument purporting to convey or encumber any or all of the Company Assets; (g) Prepay in whole or in part, refinance, recast, increase, modify, or extend any liabilities affecting the assets of the Company and in connection therewith execute any extensions or renewals of encumbrances on any or all of such assets; (h) Care for and distribute funds to the Members by way of cash income, return of capital, or otherwise, all in accordance with the provisions of this Agreement, and perform all matters in furtherance of the objectives of the Company or this Agreement; (i) Contract on behalf of the Company for the employment and services or employees and/or independent contractors, such as lawyers and accountants, and delegate to such Persons the duty to manage or supervise any of the assets or operations of the Company; (j) Engage in any kind of activity and perform and carry out contracts of any kind (including contracts of insurance covering risks to Company Assets and liability of the Manager) necessary or incidental to, or in connection with, the accomplishment of the purposes of the Company, as may be lawfully carried on or performed by a limited liability company under the laws of each state in which the Company is then formed or qualified; (k) Take, or refrain from taking, all actions, not expressly proscribed or limited by this Agreement, as may be necessary or appropriate to accomplish the purposes of the Company; (l) Institute, prosecute, defend, settle, compromise, and dismiss lawsuits or other judicial or administrative proceedings brought on or in behalf of, or against, the Company, the Members or the Manager in connection with activities arising out of, connected with, or incidental to this Agreement, and to engage counsel or others in connection therewith; (m) Adopt appropriate management incentive plans and employee benefit plans. (n) Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in or obligations of domestic or foreign corporations, associations, general or limited companies, other limited liability companies, or individuals or direct or indirect obligations of the United States or of any government, state, territory, government district or municipality or of any instrumentality of any of them. - 18 - 23 6.2 Officers; Delegation of Authority. The Manager shall be entitled to appoint the officers of the Company. The Manager shall have the power to delegate authority to such officers, employees, agents and representatives of the Company as it may from time to time deem appropriate. Any delegation of authority to take any action must be approved in the same manner as would be required for the Manager to approve such action directly. 6.3 Duties and Obligations; Liability. 6.3.1 Continuation of Existence. The Manager shall take all actions which may be necessary or appropriate (i) for the continuation of the Company's valid existence as a limited liability company under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Members or to enable the Company to conduct the business in which it is engaged and (ii) for the accomplishment of the Company's purposes, including the acquisition, development, maintenance, preservation, and operation of the Company Assets in accordance with the provisions of this Agreement and applicable laws and regulations. 6.3.2 Limitation of Liability. No Member or Manager shall be liable under a judgment, decree or order of court, or in any other manner, for a debt, obligation or liability of the Company. No Member or Manager or officer of the Company shall be personally liable to the Company or to any Member for monetary damages for breach of fiduciary duty as a Member or Manager or officer of the Company; provided, however, that this section shall not eliminate or limit the liability of the Manager (i) for any breach of the Manager's duty of loyalty to the Company or its Members; (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; or (iii) for any transaction from which the Manager derived an improper personal benefit. 6.4 Reimbursements. The Company shall reimburse the Members and the Manager for all expenses incurred and paid by any of them in the organization of the Company and as authorized by the Company, in the conduct of the Company's business, including, but not limited to, expenses of maintaining an office, telephones, travel, office equipment and secretarial and other personnel as may reasonably be attributable to the Company. Such expenses shall not include any expenses incurred in connection with a Member's exercise of its rights as a Member apart from the authorized conduct of the Company's business. Such reimbursement shall be treated as expenses of the Company and shall not be deemed to constitute distributions to any Member of profit, loss or capital of the Company. 6.5 Indemnification. 6.5.1 Indemnification - Actions other than by the Company. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that the person is or was the Manager or a Member of the Company, or is or was the Manager or a Member of the Company serving at the request of the Company as a director, officer, manager, employee or agent of another corporation, - 19 - 24 partnership, joint venture, limited liability company or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.5.2 Indemnification - Actions by the Company. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that the person is or was the Manager or a Member of the Company, or is or was serving at the request of the Company as a director, officer, manager, employee or agent of another corporation, partnership, joint venture, limited liability company or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 6.5.3 Expenses Payable in Advance. Expenses incurred by the Manager or a Member in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Manager or such Member to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company pursuant to this Section 6.5. 6.5.4 Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Section 6.5 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any agreement, contract, action of the Manager or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The provisions of this Section 6.5 shall not be deemed to preclude the indemnification of any person who is not - 20 - 25 specified in Section 6.5.1 but whom the Company has the power or obligation to indemnify under the provisions of the Act or otherwise. 6.5.5 Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a Member of the Company, or is or was serving as Manager of the Company or at the request of the Company as a director, officer, manager, employee or agent of another corporation, partnership, limited liability company, joint venture or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power or the obligation to indemnify him against such liability under the provisions of this Section 6.5. 6.5.6 Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 6.5 shall continue as to a person who has ceased to be the Manager or a Member and shall inure to the benefit of the heirs, executors and administrators of such a person. 6.5.7 Indemnification of Officers, Employees and Agents. The Company may, to the extent authorized from time to time by the Manager, provide rights to indemnification and to the advancement of expenses to officers, employees and agents of the Company similar to those conferred in this Section 6.5 to the Manager and Members of the Company. 6.6 Lack of Authority. Except as otherwise provided herein, no Member (other than the Member that is the Manager), in its capacity as such, shall (i) participate in the management of the Company or have any control over the Company business or (ii) have any right or authority to act for or to bind the Company or to vote on or consent to any other matter, act, decision or document involving the Company or its business. 6.7 Member Voting. For situations for which the approval of the Members is required by applicable law or under this Agreement, the Members shall act through meetings and written consents as described in this Section 6.7, and each Member shall be entitled to vote based on such Member's Percentage Interest. The actions by the Members permitted hereunder may be taken at a meeting called by the Manager on at least five (5) days' prior written notice to the other Members, which notice shall state the purpose or purposes for which such meeting is being called. Alternatively, the actions by the Members permitted hereunder may be taken by written consent (without a meeting and without a vote) so long as such consent is signed by the Members representing a sufficient amount of Percentage Interests that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. Prompt notice of the action so taken without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing. Any action taken pursuant to such written consent of the Members shall have the same force and effect as if taken by the Members at a meeting thereof. - 21 - 26 ARTICLE 7 BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS 7.1 Books and Records. The Company shall keep, at its principal place of business, or at such other location as the Manager shall deem appropriate, ledgers, other books of account, and financial records of receipts and disbursements, other financial activities, and the internal affairs of the Company for at least the current and past four Fiscal Years (collectively, the "Records"). Except as otherwise expressly set forth herein, all decisions as to accounting matters shall be made by the Manager in its sole judgment and discretion. 7.2 Delivery of Records. Upon the written request of a Member for any purpose reasonably related to the Member's Membership Interest, the Company, subject to such reasonable standards as may be established from time to time by the Manager, shall deliver to such requesting Member (or, to the extent so directed, to its agent or attorney), at such requesting Member's cost and expense, a copy of the following information, to the extent requested: (a) a copy of the Company's federal, state and local income tax or information returns for each Fiscal Year; (b) a copy of this Agreement, as amended, and any Certificates, together with executed copies of any written powers of attorney pursuant to which this Agreement, as amended, and any Certificate have been executed; (c) such other information as the Company shall be required to provide to the Members pursuant to applicable law (including, without limitation, the Act); (d) such additional information as a Member may reasonably request in order to comply with the requirements of any applicable laws, rules or regulations; and (e) a list of the names and addresses of all then-current Members. 7.3 Inspection. Members (personally or through an authorized representative) may, for purposes reasonably related to their Interests, examine and copy (at their own cost and expense) the Records of the Company at all reasonable business hours upon ten (10) days prior written notice to the Company. Such inspection shall not occur more than once in any twelve (12) month period without the consent of the Manager. 7.4 Reports to the Members. (a) Within ninety (90) days after the end of each Fiscal Year or as soon as practicable thereafter, the Company shall send to each Person who was a Member at any time during such year financial statements of the Company for such year prepared in accordance with generally accepted accounting principles. The Manager may, but shall not be required to, cause such annual financial statements to be audited by and reported upon by independent public accountants. - 22 - 27 (b) Within ninety (90) days after the end of each Fiscal Year or as soon as practicable thereafter, the Company shall send to each Member the calculation of any allocations under Article 5 (to the extent not set forth in the annual financial statements). (c) Within ninety (90) days following the end of each Fiscal Year of the Company or as soon as practicable thereafter, the Company shall send to each Member a report that shall include all necessary information required by the Members for preparation of their federal, state and local income or franchise tax or information returns, including each Member's pro rata share of Net Income, Net Loss and any other items of income, gain, loss and deduction for such Fiscal Year. 7.5 Company Tax Elections, Tax Controversies. The Manager shall have the right in its sole and absolute discretion to make all elections for the Company provided for in the Code, the Regulations or otherwise, including, but not limited to, the elections provided for in Section 754 of the Code. The K&B Member, or such other Member as may be designated by the Manager from time to time, is hereby designated as the "Tax Matters Partner" pursuant to the requirements of Section 6231(a)(7) of the Code and in such capacity shall represent the Company in any disputes, controversies or proceedings with the Internal Revenue Service or any other taxing authority. Except to the extent prohibited by law, each Member hereby waives the right to participate in any administrative or similar proceedings relating to the determination of partnership tax items at the Company level. 7.6 Confidentiality of Information. Except as permitted by the Manager or required by applicable law, each Member shall keep confidential from all Persons (except other Members or the Member's representatives on a need-to-know basis, which Persons shall be bound by this Section 7.6 as if they were Members) all of the information, documents or reports described in this Article 7. ARTICLE 8 TRANSFERS OF INTERESTS 8.1 Member Transfers. No Member shall Transfer any Interest without first obtaining the prior written consent of the Manager, which consent may be withheld in the Manager's sole and absolute discretion. Prior to Transferring any Interest to any Person, a Transferor shall (i) cause the prospective Transferee to execute a counterpart to this Agreement pursuant to which such Transferee shall agree to be bound by the provisions of this Agreement and (ii) deliver an opinion of counsel which (to the Company's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such Transfer of such Interest may be effected without registration of such Interest under the Securities Act, and is otherwise in compliance with all state and federal laws. 8.2 Further Restrictions. Notwithstanding any contrary provision in this Agreement, unless expressly waived in writing by the Company, which waiver may be given or withheld in the Manager's sole and absolute discretion, any otherwise permitted Transfer shall be null and void if: - 23 - 28 (a) such Transfer would cause a termination of the Company for federal or state, if applicable, income tax purposes; (b) such Transfer would, in the opinion of counsel to the Company, cause the Company to cease to be classified as a partnership for federal or state income tax purposes; (c) such Transfer requires the registration of such Transferred Interest pursuant to any applicable federal or state securities laws; (d) such Transfer would cause the Company to become a "Publicly Traded Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the Code; (e) such Transfer would cause the Company to have more than one hundred (100) members (for purposes of this Section 8.2(e), the term "members" includes those Persons indirectly owning an Interest through a partnership, limited liability company, "S" corporation or grantor trust (each such entity, a "flow-through entity"), but only if substantially all of the value of such Person's interest in the flow-through entity is attributable to the flow-through entity's Interest (direct or indirect) in the Company); (f) such Transfer involves Interests being traded on an "established securities market" or a "secondary market or the substantial equivalent thereof" as those terms are defined in Regulation Section 1.7704-1 (in addition, such Transfers shall not be "recognized" (as that term is defined in Regulation Section 1.7704-1(d)(2)) by the Company); (g) such Transfer subjects the Company to regulation under the Investment Company Act, the Investment Advisers Act or ERISA, each as amended; (h) such Transfer results in a violation of applicable laws; (i) such Transfer is made to any Person who lacks the legal right, power or capacity to own such Interest; or (j) the Company does not receive written instruments (including, without limitation, copies of any instruments of Transfer accompanied by representations and warranties of the Transferee substantially identical to those contained in Article 10 and such Transferee's consent to be bound by this Agreement) that are in a form satisfactory to the Company (as determined in the Manager's sole and absolute discretion). 8.3 Effect of Transfer. 8.3.1 Any Member who shall transfer any Interest in the Company shall cease to be a Member of the Company with respect to such Interest and shall no longer have any rights or privileges of a Member with respect to such Interest. 8.3.2 Any Person who acquires in any manner whatsoever any Interest in the Company, irrespective of whether such Person has executed a counterpart to this - 24 - 29 Agreement, shall be deemed by the acceptance of the benefits of the acquisition thereof to have agreed to be subject to and bound by all of the terms and conditions of this Agreement that any predecessor in such Interest in the Company was subject to or by which such predecessor was bound. 8.4 Admissions, Withdrawals and Removals. No Person shall be admitted to the Company as a Member, except in accordance with Section 3.2 (with respect to Persons receiving Interests directly from the Company) and Section 8.5 (with respect to Persons receiving Interests from a Member). No Member shall be entitled to withdraw from being a Member of the Company except with the written consent of the Manager. Except as otherwise provided in Section 9.2(c), no admission, withdrawal or removal of a Member shall cause the dissolution of the Company. Any purported admission, withdrawal or removal which is not in accordance with this Agreement shall be null and void. 8.5 Admission of Transferee as Substitute Member. Upon the Transfer by a Member of a Membership Interest to a Transferee, such Transferee shall be admitted as a Member (a "Substitute Member") only if and when each of the following conditions in clauses (a) through (d) below are satisfied. (a) the Company consents in writing to such admission, which consent may be given or withheld, or made subject to such conditions as are determined by the Manager, in the Manager's sole and absolute discretion; (b) the Company receives written instruments (including, without limitation, copies of any instruments of Transfer and such Transferee's consent to be bound by this Agreement as a Substitute Member) that are in a form satisfactory to the Manager (as determined in its sole and absolute discretion); (c) the Company receives an opinion of counsel, which opinion and counsel shall be reasonably acceptable to the Manager, to the effect that such Transfer is in compliance with this Agreement and all applicable laws; and (d) the parties to the Transfer, or any one of them, pays all of the Company's reasonable expenses connected with such Transfer (including, but not limited to, the reasonable legal and accounting fees of the Company). 8.6 Vesting of Interests. 8.6.1 Vesting Schedule. Except as otherwise determined by the Manager, the Interests of each Member other than the Interests held by the K&B Member shall vest 100% on the date of the third anniversary of the admission of the Member holding such interest. Until such date, all the Member's Interest shall be unvested. Upon a Member's ceasing to provide services to a member of the K&B Group, such Member's unvested Interests (whether held by the Member or one or more of the Member's transferees) and any payments due thereon shall be automatically forfeited. 8.6.2 Accelerated Vesting. Upon an Acceleration Event, any unvested Interests of a Member shall be deemed to have vested in full immediately prior to such - 25 - 30 Acceleration Event. The Manager may elect in it sole discretion to accelerate the vesting of an Interest. 8.7 Repurchase Rights. 8.7.1 Right to Repurchase. Upon a Member's death or Disability or ceasing to provide services to a member of the KB Group, that Member's vested Interest (whether held by the Member or one or more of the Member's transferees) shall be subject to repurchase first by the KB Member and second by the Company pursuant to the terms and conditions set forth in this Section 8.7 (the "Repurchase Option"). The Repurchase Option will continue until the liquidation of the Company pursuant to Section 9.2. 8.7.2 Repurchase Price. With regard to vested Interests, the Repurchase Price shall be the Fair Market Value of such Interest on the date of the Repurchase Notice (defined below). 8.7.3 Repurchase by the K&B Member. The KB Member may elect to purchase all or any portion of the Interest subject to repurchase by delivering written notice (the "KB Member Election") to the Company. The KB Member Election shall set forth the amount of the Interest (measured by Percentage Interest) to be acquired from the Member. 8.7.4 Repurchase by the Company. If for any reason the KB Member does not elect to purchase all of the Interest pursuant to the Repurchase Option, the Company shall be entitled to exercise the Repurchase Option for all or a portion of the Interest the KB Member has not elected to purchase (the "Available Securities"). 8.7.5 Notice to the Holder of the Member's Interest. The Company shall notify each holder of Member's Interest as to the amount of the Interest being purchased from such holder by the KB Member and/or the Company (the "Repurchase Notice"). The Repurchase Notice shall set forth the amount of the Interest (measured by Percentage Interest) to be acquired from the Member, the aggregate consideration to be paid for such Interest, and the time and place for the closing of the transaction (the "Repurchase Closing"). Upon delivery of the Repurchase Notice, the Member's Interest to be repurchased shall automatically represent solely the right to receive the applicable repurchase price and such Member's Interest shall no longer be deemed to be outstanding. 8.7.6 Repurchase Closing. Subject to Section 8.7.7, the closing of the purchase of the Member's Interest pursuant to the Repurchase Option shall take place on the date designated in the Repurchase Notice. Subject to Section 8.7.7, the K&B Member and/or the Company shall pay for the Member's Interest to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds (except that the K&B Member and the Company shall be permitted to reduce the payments to the Member hereunder by the aggregate of all bona fide debts to the K&B Member and/or the Company, respectively, by the Member). The purchasers of the Member's Interest hereunder shall be entitled to receive customary representations and warranties from the - 26 - 31 sellers regarding such sale of securities (including representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances) and to require that signatures be guaranteed by a national bank or reputable securities broker. 8.7.7 Certain Restrictions. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of a Member's Interest by the KB Member and/or the Company shall be subject to applicable restrictions contained in the Act. If any such restrictions prohibit the repurchase of Member's Interest hereunder which the KB Member and/or the Company is otherwise entitled or required to make, the time periods provided in this Section 8.7 shall be suspended, and the KB Member and/or the Company may make such repurchases as soon as it is permitted to do so under such restrictions. In addition, if any such restrictions prohibit the repurchase of Member's Interest hereunder with a check or wire transfer of funds or if the K&B Member and/or the Company otherwise do not have sufficient available cash, then the KB Member and/or the Company may make such repurchases with a five-year subordinate note bearing interest (payable at maturity) at a rate per annum equal to the Prime Rate (a "Subordinated Note"). Any notes issued by the Company pursuant to this Section 8.7.7 shall be subject to any restrictive covenants to which the Company is subject at the time of such purchase and any subordination provisions required by the Company's lenders. ARTICLE 9 DISSOLUTION AND TERMINATION OF THE COMPANY 9.1 Limitations. The Company may be dissolved, liquidated, and terminated and have its affairs wound up only pursuant to the provisions of this Article 9, and the Members hereto do hereby irrevocably waive any and all other rights they may have to cause a dissolution of the Company or a sale or partition of any or all of the Company Assets. 9.2 Exclusive Causes. The following and only the following events shall cause the Company to be dissolved, liquidated, and terminated: (a) A determination be the Manager to dissolve the Company; (b) The Incapacity of the sole remaining Member; or (c) A judicial dissolution. Any dissolution of the Company other than as provided in this Section 9.2 shall be a dissolution in contravention of this Agreement. 9.3 Effect of Dissolution. The dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until it has been wound up, its assets have been distributed as provided in Section 9.4 and its Certificate of Cancellation has been filed in accordance with the Act. Notwithstanding the dissolution of the Company, prior to the termination of the Company, the business of the Company and the affairs of the Members, as such, shall continue to be governed by this Agreement. Nothing in this section is intended to limit the survival of provisions of this Agreement that expressly survive the dissolution and termination of the Company. - 27 - 32 9.4 Liquidation and Final Distribution Proceeds. Upon the dissolution of the Company pursuant to Section 9.2, the Company shall thereafter engage in no further business other than that which is necessary to wind up the business and the Manager, after the establishment of appropriate reserves, shall liquidate all Company Assets and distribute the cash proceeds therefrom. The cash proceeds from the liquidation of the Company Assets shall be applied or distributed by the Company in the following order: (a) First, to the payment and discharge of all of the Company's debts and other liabilities to creditors (including Members that are creditors); and (b) The balance, if any, to the Members in proportion to their positive Capital Account balances, after giving effect to all contributions, distributions and allocations for all periods. Notwithstanding the foregoing, in the event that the Manager determines that an immediate sale of all or any portion of the Company Assets would cause undue loss to the Members, the Manager, in order to avoid such loss, may, to the extent not then prohibited by the Act, either defer liquidation of and withhold from distribution for a reasonable time any Company Assets except those necessary to satisfy the Company's debts and obligations, or distribute such Company Assets to the Members in kind, provided that, with respect to distributions in kind of Company Assets other than marketable securities, the Manager shall give advance written notice of any such in-kind distribution and, if after receiving such notice a Member shall determine that there is a reasonable likelihood that any such distribution in kind would cause such Member to be in violation of any applicable law, regulation or order, such Member shall give written notice thereof to the Manager within five (5) Business Days following its receipt of the notice of distribution, and the Member and the Manager shall each use its best efforts to make alternative arrangements. 9.5 Restoration of Deficit Capital Account Balances. If any Member has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all Fiscal Years, including the year during which the liquidation occurs), then such Member shall have no obligation to make any Capital Contribution with respect to such deficit, and such deficit shall not be considered a debt owed to the Company or to any other Person for any purpose whatsoever. ARTICLE 10 REPRESENTATIONS AND WARRANTIES 10.1 Representations and Warranties of the Members. Each Member hereby makes the following representations and warranties to the Company and each other Member: (a) This Agreement constitutes a valid and binding obligation of such Member, and is enforceable against such Member in accordance with its terms. (b) The execution and delivery of this Agreement and the consummation of the transactions contemplated herein will not conflict with or result in any violation of or default under any material agreement or other instrument to which such Member is a party or by which such Member, or any of its property is bound, or any permit, franchise, - 28 - 33 judgment, decree, statute, order, writ, rule or regulation applicable to such Member or its business or property. (c) Such Member is acquiring its Membership Interest solely for investment, for its account and not with a view to, or for resale in connection with, the distribution or other disposition thereof, except for such distributions and dispositions which are (A) explicitly permitted or contemplated under the terms of this Agreement as well as (B) effected in compliance with the Securities Act of 1933, as amended (the "Securities Act"), the rules and regulations of the Securities and Exchange Commission promulgated thereunder and all applicable state securities and "blue sky" laws. (d) Such Member understands that the purchase of Membership Interests is a speculative investment which involves a high degree of risk of loss of its investment therein, there are substantial restrictions on the transferability of the Membership Interests under the provisions of this Agreement and the Securities Act, and there will never be a public market for the Membership Interests and, accordingly, it may not be possible to liquidate its investment in the Company prior to the dissolution and liquidation of the Company. (e) Such Member's financial situation is such that it can afford to bear the economic risk of holding the Membership Interests for an indefinite period of time and can afford to suffer a complete loss of its investment in the Company. (f) Such Member's knowledge and experience in financial and business matters are such that it is capable of evaluating the merits and risks of its acquisition of its Membership Interests. (g) No representations or warranties have been made to such Member or its representatives concerning the Membership Interests or the Company, their prospects or other matters except as set forth in this Agreement. (h) Such Member is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. The foregoing representations and warranties shall survive the expiration or termination of this Agreement. Each Member agrees to indemnify, defend, protect, and hold harmless the Company against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty made by the Member herein. ARTICLE 11 MISCELLANEOUS 11.1 Appointment of Company as Attorney-in-Fact. - 29 - 34 11.1.1 Each Member, including each Additional Member, by its execution of this Agreement, irrevocably constitutes and appoints the Company as its true and lawful attorney-in-fact with full power and authority in its name, place and stead to execute, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to carry out the provisions of this Agreement, including but not limited to: (a) All Certificates and other instruments (including counterparts of this Agreement), and all amendments thereto, which the Manager deems appropriate to form, qualify, continue or otherwise operate the Company as a limited liability company (or other entity in which the Members will have limited liability comparable to that provided in the Act) in accordance with this Agreement, in the State of Delaware and the jurisdictions in which the Company may conduct business or in which such formation, qualification or continuation is, in the opinion of the Manager, necessary or desirable to protect the limited liability of the Members. (b) All amendments to this Agreement adopted in accordance with the terms hereof, and all instruments which the Manager deems appropriate to reflect a change or modification of the Company in accordance with the terms of this Agreement. (c) All conveyances of Company Assets, and other instruments which the Manager reasonably and in good faith deems necessary for the orderly conduct of the Company's business. 11.1.2 The appointment by all Members of the Company as attorney-in-fact shall be deemed to be a power coupled with an interest, in recognition of the fact that each of the Members under this Agreement will be relying upon the power of the Company to act as contemplated by this Agreement in any filing and other action by it and shall survive the disability or Incapacity of any Person hereby giving such power, and the transfer or assignment of all or any portion of the Interest of such Person in the Company. 11.2 Amendments. 11.2.1 Amendments to this Agreement may be made from time to time as determined by the Manager, provided, however, except as otherwise contemplated by other provisions of this Agreement, no amendment may be made that diminishes the rights or increases the obligations of a Member without the consent of such Member. If any Member withholds consent to an amendment that diminishes the rights or increases the obligations of such Member, the amendment may nonetheless be made upon a vote of a majority of the Members in accordance with Section 6.7, except that each Member shall have one vote without regard to Percentage Interest. 11.2.2 In addition to other amendments authorized herein, amendments may be made to this Agreement from time to time by the Company, at the direction of the Manager, without the consent of any Member: (a) to cure any ambiguity, to correct or - 30 - 35 supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Agreement that are not inconsistent with the provisions of this Agreement; (b) to delete or add any provision of this Agreement required to be so deleted or added by any federal or state official, which addition or deletion is deemed by such official to be for the benefit or protection of all of the Members; (c) to take such actions as may be necessary (if any) to ensure that the Company will be treated as a partnership for federal income tax purposes; and (d) to amend this Agreement, pursuant to the power of attorney granted to the Company, to reflect the admission of any Additional Member or the issuance of additional Interests. The Company shall provide prompt written notice of any such amendments to the Members. 11.2.3 In making any amendments, there shall be prepared and filed by, or for, the Company, such documents and certificates as may be required under the Act and under the laws of any other jurisdiction applicable to the Company. 11.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and fully supersedes any and all prior or contemporaneous agreements or understandings between the parties hereto pertaining to the subject matter hereof. 11.4 Further Assurances. Each of the parties hereto does hereby covenant and agree on behalf of itself, its successors, and its assigns, without further consideration, to prepare, execute, acknowledge, file, record, publish, and deliver such other instruments, documents and statements, and to take such other action as may be required by law or reasonably necessary to effectively carry out the purposes of this Agreement. 11.5 Notices. Any notice, consent, payment, demand, or communication required or permitted to be given by any provision of this Agreement shall be in writing and shall be (a) delivered personally to the Person or to an officer of the Person (as designated by such Person to receive any such notice or, in the absence of such designation, any officer of such Person) to whom the same is directed, or (b) sent by facsimile, recognized overnight courier service or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to the Company, to the Company at the address set forth in Section 2.3 hereof, or to such other address as the Company may from time to time specify by notice to the Members; if to a Member, to such Member at the address set forth in Exhibit A, or to such other address as such Member may from time to time specify by notice to the Company. Any such notice shall be deemed to be delivered, given and received for all purposes as of: (i) the date so delivered, if delivered personally, (ii) upon receipt, if sent by facsimile or courier service, or (iii) on the date of receipt or refusal indicated on the return receipt, if sent by registered or certified mail, return receipt requested, postage and charges prepaid and properly addressed. 11.6 Governing Law. This Agreement, including its existence, validity, construction, and operating effect, and the rights of each of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law. - 31 - 36 11.7 Binding Effect. Except as otherwise expressly provided herein, this Agreement shall be binding on and inure to the benefit of the parties hereto, their heirs, executors, administrators, successors and all other Persons hereafter holding, having or receiving an interest in the Company, whether as assignees, Transferees, Substitute Members or otherwise. 11.8 Severability. In the event that any provision of this Agreement as applied to any party or to any circumstance, shall be adjudged by a court to be void, unenforceable or inoperative as a matter of law, then the same shall in no way affect any other provision in this Agreement, the application of such provision in any other circumstance or with respect to any other party, or the validity or enforceability of the Agreement as a whole. 11.9 Confidentiality. Without limiting the provisions of Section 7.6, each party hereto agrees that the provisions of this Agreement, all understandings, agreements and other arrangements between and among the parties, and all other non-public information received from, or otherwise relating to, the Company or any Member, shall be confidential, and that such parties shall not disclose or otherwise release to any other Person (other than another party hereto) such matters, without the written consent of the Company, as determined by the Manager. The obligations of the parties hereunder shall not apply: (a) to information already known to the general public other than as a result of a breach of this covenant, or (b) to any party to the extent that the disclosure by such party of such confidential information is required by applicable law or by any federal, state or local regulatory body with jurisdiction over such party, but only that portion of such confidential information which, in the written opinion of counsel for such Member, is required or would be required to be furnished to avoid liability for contempt or the suffering of other material judicial or governmental penalty or censure, provided that, prior to disclosing such confidential information, a party shall, to the extent practicable, notify the Company thereof, which notice shall include the basis upon which such party believes the information is required to be disclosed. 11.10 Counterparts. This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which shall constitute one agreement, binding on all parties hereto. 11.11 Waivers. No waiver by any Member of any default with respect to any provision, condition or requirement hereof shall be deemed to be a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Member to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. 11.12 Preservation of Intent. If any provision of this Agreement is determined by an arbitrator or any court having jurisdiction to be illegal or in conflict with any laws of any state or jurisdiction, then the Members agree that such provision shall be modified to the extent legally possible so that the intent of this Agreement may be legally carried out. If any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect or for any reason, then the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected, it being intended that all of the Members' rights and privileges shall be enforceable to the fullest extent permitted by law. - 32 - 37 11.13 Certain Rules of Construction. Any ambiguities shall be resolved without reference to which party may have drafted this Agreement. All Article or Section titles or other captions in this Agreement are for convenience only, and they shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (c) "or" is not exclusive; (d) words in the singular include the plural, and words in the plural include the singular; (e) provisions apply to successive events and transactions; (f) "herein," "hereof" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (g) all references to "clauses," "Sections" or "Articles" refer to clauses, Sections or Articles of this Agreement; and (h) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms. 11.14 Company Advisers. THE COMPANY AND THE MANAGER ARE NOT REPRESENTED BY SEPARATE COUNSEL. THE ATTORNEYS WHO PERFORM SERVICES FOR THE COMPANY ALSO PERFORM SERVICES FOR THE MANAGER. IT IS CONTEMPLATED THAT SUCH DUAL REPRESENTATION WILL CONTINUE. TO THE EXTENT THAT THE FOREGOING REPRESENTATION CONSTITUTES A CONFLICT OF INTEREST, THE COMPANY, THE MANAGER AND THE MEMBERS HEREBY EXPRESSLY WAIVE ANY SUCH CONFLICT OF INTEREST. THE MEMBERS ACKNOWLEDGE THAT (i) COUNSEL FOR THE COMPANY AND THE MANAGER ARE NOT REPRESENTING THE MEMBERS (OTHER THAN THE KB MEMBER) IN CONNECTION WITH THE COMPANY OR THIS AGREEMENT AND (ii) THE CONTINUED REPRESENTATION OF THE COMPANY AND THE MANAGER BY SUCH COUNSEL WILL NOT BE DEEMED TO BE THE REPRESENTATION BY SUCH COUNSEL OF ANY MEMBER (OTHER THAN THE KB MEMBER). 11.15 Arbitration. All claims, disputes and other matters in question arising out of, or relating to this Agreement or the performance thereof, including without limitation questions as to whether a matter is governed by this arbitration clause, shall be subject to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "AAA Rules") then pertaining, insofar as the AAA Rules are not inconsistent with the provisions expressly set forth in this Agreement, unless the parties mutually agree otherwise, and pursuant to the following procedures: (i) the arbitration shall take place in Los Angeles, California; (ii) each party shall select an arbitrator to agree on a single neutral arbitrator having at least ten (10) years experience in complex commercial arbitration involving corporate, partnership or limited liability company issues; (iii) each party will, upon the written request of the other party, provide the other with copies of documents relevant to the issues raised by any claim or counterclaim; (iv) each party shall have the right to take the deposition of one individual and any expert witness(es) designated by the other party; (v) other discovery may be ordered by the arbitrator to the extent the arbitrator deems additional discovery appropriate, and any dispute regarding discovery, including disputes as to the need therefor or the relevance or the scope thereof, shall be determined by the arbitrator, which determination shall be conclusive; (vi) the arbitrator shall have sixty (60) days following their appointment in which to resolve the question at issue, unless the parties agree in writing to extend such period; (vii) the award rendered by the arbitrator may grant any remedy or relief that the arbitrator deems just and equitable within the scope of this - 33 - 38 Agreement, including without limitation damages, specific performance or injunctive relief, but may not include punitive damages or any remedy or relief that a court having jurisdiction thereof would not have the power to grant; (viii) judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof; (ix) all reasonable out of pocket costs and reasonable legal fees incurred by the prevailing party shall be paid by the nonprevailing party, except in the event that a non-arbitrated settlement is reached, in which case each party shall pay its own respective costs and fees incurred thereby; (x) subject to Section 11.15(ix), each party shall pay one-half of the costs and fees charged by the arbitrator with regard to the submitted dispute; and (xi) the parties shall be entitled to seek preliminary injunctive relief or other extraordinary remedies in any court having jurisdiction thereof, to preserve the status quo pending the outcome of arbitration. 11.16 Determinations by the Manager. Unless otherwise expressly specified in the Agreement, any determinations, decisions, consent, vote or judgment of, or exercise of discretion by, or action taken or omitted to be taken by the Manager under this Agreement shall be made, given, exercised, taken or omitted as the Manager shall determine in its sole and absolute discretion. In connection with the foregoing, the Manager shall be entitled to consider such interests and factors as the Manager deems appropriate, including its own interests and/or the interests of the KB Group to the exclusion of all other considerations. THE SIGNATURES OF THE MEMBERS ARE SET FORTH ON THE ATTACHED COUNTERPART SIGNATURE PAGES. - 34 - 39 OPERATING AGREEMENT OF _____________, LLC IN WITNESS WHEREOF, the undersigned Member has caused this counterpart signature page to the Operating Agreement of _____________, LLC, to be duly executed on the date set forth below, to be effective as of the date first above written. Date: By: -------------------- -------------------------------- Name: ------------------------------ - 35 - 40 EXHIBIT A SCHEDULE OF MEMBERS
Capital Percentage Name Address Contribution Interest - -------------------------------------------------------------------------------------------------
A-1 EX-13 8 v65422ex13.txt EXHIBIT 13 1 EXHIBIT 13 KB HOME AND CONSOLIDATED SUBSIDIARIES PAGES 34 THROUGH 72 AND PAGE 76 OF THE COMPANY'S 2000 ANNUAL REPORT TO STOCKHOLDERS This exhibit is incorporated in this Annual Report on Form 10-K between page F-1 and the List of Exhibits Filed. EX-22 9 v65422ex22.txt EXHIBIT 22 1 EXHIBIT 22 KB HOME AND CONSOLIDATED SUBSIDIARIES SUBSIDIARIES OF THE COMPANY The following subsidiaries of the Company were included in the November 30, 2000 consolidated financial statements:
PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY OF THE COMPANY NAME OF COMPANY ----------------------- Arizona KB Home Arizona Inc. ................................ 100 KB Home Sales Arizona Inc. .......................... 100 KB Home Sales Tucson Inc. ........................... 100 KB Home Tucson Inc. ................................. 100 California BPP Holdings, Inc. .................................. 100 Branching Tree Corp. ................................ 100 Cable Associates, Inc. .............................. 100 Custom Decor, Inc. .................................. 100 First Northern Builders Servicing, Inc. ............. 100 Kaufman and Broad Communities, Inc. ................. 100 Kaufman and Broad Development Group.................. 100 Kaufman and Broad Embarcadero, Inc. ................. 100 Kaufman and Broad Insurance Agency, Inc. ............ 100 Kaufman and Broad International, Inc. ............... 100 Kaufman and Broad Land Development Venture, Inc. .... 100 Kaufman and Broad -- Monterey Bay, Inc............... 100 Kaufman and Broad -- Moreno/Perris Valleys, Inc. .... 100 Kaufman and Broad Multi-Family, Inc. ................ 100 Kaufman and Broad of Utah, Inc....................... 100 Kaufman and Broad Properties......................... 100 KBASW Mortgage Acceptance Corporation................ 100 KB Holdings One, Inc. ............................... 100 KB Home Architecture Inc............................. 100 KB Home Central Valley Inc. ......................... 100 KB Home Coastal Inc. ................................ 100 KB Home Greater Los Angeles Inc. .................... 100 KB Home Holdings Inc. ............................... 100 KB Home Land Company................................. 100 KB Home Northern California Inc. .................... 100 KB Home Patterson, Inc. ............................. 100 KB Home Sacramento Inc. ............................. 100 KB Home Sales Inc. .................................. 100 KB Home Sales Northern California Inc. .............. 100 KB Home San Diego Inc. .............................. 100 KB Home South Bay Inc. .............................. 100 KBI/Mortgage Acceptance Corporation.................. 100 KBRAC IV Mortgage Acceptance Corporation............. 100 Kent Land Company.................................... 100
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PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY OF THE COMPANY NAME OF COMPANY ----------------------- Kingsbay Escrow Company.............................. 100 Lewis Homes Management Corp. ........................ 100 Mather Housing Company, LLC.......................... 100 Colorado Kaufman and Broad of Colorado, Inc. ................. 100 Delaware Bernal Funding, LLC ................................. 100 City Ranch, LLC ..................................... 100 Eden Land Development Corp. ......................... 100 e.KB, Inc. .......................................... 100 Estes Homebuilding Co. .............................. 100 General Homes Corporation............................ 100 General Homes Development LLC........................ 100 General Homes of Arizona............................. 100 General Homes of Dallas.............................. 100 General Homes of Florida............................. 100 General Homes of Houston............................. 100 GH Homebuilding Holdings, Inc. ...................... 100 HomeSafe Escrow Company.............................. 95 International Mortgage Acceptance Corporation........ 100 Kaufman and Broad Development Company................ 100 Kaufman and Broad Limited............................ 100 Kaufman & Broad NexGen, LLC ......................... 100 KB City Ranch, Inc. ................................. 100 KBHC Financing I..................................... 3 LDC Arctic LLC....................................... 100 LHC Arctic LLC....................................... 100 LHE Arctic LLC....................................... 100 LHN Arctic LLC....................................... 100 LP Arctic LLC........................................ 100 Rate One Associates, Inc. ........................... 100 Rate One Holdings, Inc. ............................. 100 rateOne Home Loans, LLC.............................. 100 Illinois Kaufman and Broad Mortgage Company................... 100 Kaufman and Broad of Illinois, Inc. ................. 100 Massachusetts Kaufman and Broad Homes, Inc. ....................... 100 Michigan Keywick, Inc. ....................................... 100 Minnesota Kaufman and Broad Custom Homes, Inc. ................ 100 Nevada Desert Inn Development, LLC.......................... 100 Kaufman and Broad of Reno, Inc. ..................... 100 KB Home Nevada Inc. ................................. 100 KB Home Sales Nevada Inc. ........................... 100 KB Home Sales Reno Inc. ............................. 100 Lewis Homes -- Carlyle Venture L.L.C. ............... 100
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PERCENTAGE OF VOTING SECURITIES OWNED BY THE COMPANY OR A SUBSIDIARY OF THE COMPANY NAME OF COMPANY ----------------------- New Mexico KB Home New Mexico Inc. ............................. 100 KB Home Sales New Mexico Inc. ....................... 100 New York Kaufman and Broad Homes of Long Island, Inc. ........ 100 Texas Eden Corporation..................................... 100 Envirographic, Inc. ................................. 100 FGMC................................................. 100 Hallmark Residential Group, Inc...................... 100 Kaufman and Broad Development of Texas, L.P.......... 100 Kaufman and Broad Insurance Agency of Texas Holdings, Inc................................................ 100 Kaufman and Broad of Texas, Ltd...................... 100 KB Home Lone Star LP................................. 100 KBSA, Inc. .......................................... 100 Rayco Land Development, Inc.......................... 100 San Antonio Title Co. ............................... 100 Satex Properties, Inc. .............................. 100 Quoin Investments, Inc. ............................. 100 Canadian Margreen Investments, Inc. .......................... 100 3238865 Canada Inc................................... 100 French Gie KB............................................... 100 Kaufman and Broad Developpement S.A. ................ 100 Kaufman and Broad Promotion Maisons Individuelles S.A................................................ 100 Kaufman and Broad Renovation S.A.R.L................. 100 Kaufman & Broad S.A.................................. 100 LMP Chancy S.A.R.L. ................................. 100 Millet S.A.R.L. ..................................... 100 Park S.A. ........................................... 100 SMCI Developpement S.A............................... 100 Mexican Kaufman y Broad de Mexico............................ 100 Kaufman y Broad Asesoria Administrativa.............. 100 Operadora Los Robles................................. 100 Desarrollos Los Robles............................... 100
EX-24 10 v65422ex24.txt EXHIBIT 24 1 EXHIBIT 24 KB HOME AND CONSOLIDATED SUBSIDIARIES CONSENT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of KB Home We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1986 Stock Option Plan (No. 33-11692), the 1988 Employee Stock Plan (No. 33-28624 and No. 333-49311), the 1998 Stock Incentive Plan, the Performance-Based Incentive Plan for Senior Management and the resale of certain shares by officers of the Company (No. 333-49309), the 401(k) Savings Plan (No. 333-49307), and the Registration Statements on Form S-3 (No. 333-14977, No. 333-41549, No. 333-51825 and No. 333-51825-01), as amended, of KB Home of our report dated December 21, 2000, with respect to the consolidated financial statements of KB Home included in the Annual Report (Form 10-K) for the year ended November 30, 2000. ERNST & YOUNG LLP Los Angeles, California February 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----