REVOLVING CREDIT AGREEMENT Dated as of October 19, 1999 among THE RYLAND GROUP, INC., as the Company, CERTAIN FINANCIAL INSTITUTIONS, as the Banks, BANK OF AMERICA, N.A., as the Administrative Agent, BANK ONE, NA, as the Syndication Agent, GUARANTY FEDERAL BANK F.S.B. AND BANK UNITED, as Co-Agents BANC OF AMERICA SECURITIES LLC, Lead Arranger and Lead Book Manager and BANC ONE CAPITAL MARKETS, INC., as the Co-Lead Arranger and Co-Book Manager TABLE OF CONTENTS PAGE I. RECITALS.................................................................1 ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS...............................1 1.1 Defined Terms..................................................1 1.2 Use of Defined Terms..........................................23 1.3 Accounting Terms..............................................23 1.4 Exhibits......................................................23 ARTICLE 2: BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT............24 2.1 Disbursement of Loan Proceeds.................................24 2.2 ABR Borrowings................................................26 2.3 LIBOR Borrowing...............................................27 2.4 Redesignation of Borrowings and Continuation of LIBOR Borrowings....................................................27 2.5 Calculation of Borrowing Base.................................29 2.6 Borrowing Base................................................31 2.7 Payments by the Banks to the Administrative Agent.............31 2.8 Sharing of Payments, Etc......................................32 2.9 Letter of Credit Sublimit.....................................32 2.9.1 Amount and Terms of the Credit.........................32 2.9.2 Letters of Credit......................................32 2.9.3 Request for Credit.....................................33 2.9.4 Other Banks'Participation..............................34 2.9.5 Nature of Reimbursement Obligations....................34 2.9.6 Letter of Credit and Issuance Fees.....................35 2.9.7 Conditions Precedent to Issuance of Letters of Credit.................................................36 2.10 Increase of Commitments.......................................36 2.11 Voluntary Termination or Reduction of Commitments.............37 ARTICLE 3: PAYMENTS AND FEES.............................................37 3.1 Principal and Interest........................................37 3.2 Nonuse Fee....................................................40 3.3 Facility Fee..................................................40 3.4 Upfront Fee...................................................40 3.5 Late Payments.................................................40 3.6 Taxes.........................................................40 3.7 Illegality....................................................41 3.8 Increased Costs and Reduction of Return.......................41 -i- 3.9 Funding Indemnification.......................................42 3.10 Inability to Determine Rates..................................42 3.11 Certificate of Banks..........................................43 3.12 Substitution of Banks.........................................43 3.13 Survival......................................................43 3.14 Manner and Treatment of Payments..............................43 3.15 Mandatory Prepayment..........................................44 3.16 Agency and Other Fees Payable to the Administrative Agent and Banc of America Securities................................44 3.17 Maturity Date Extension Option................................45 3.18 Limitation on Additional Amounts, etc.........................46 ARTICLE 4: CONDITIONS....................................................46 4.1 Conditions to First Extension of Credit.......................46 4.2 Conditions for Subsequent Extensions of Credit................47 ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................48 5.1 Incorporation, Qualification, Powers and Capital Stock........48 5.2 Execution, Delivery and Performance of Loan Documents.........48 5.3 Compliance with Laws and Other Requirements...................50 5.4 Subsidiaries..................................................50 5.5 Financial Statements of the Company and its Consolidated Subsidiaries..................................................51 5.6 No Material Adverse Change....................................51 5.7 Tax Liability.................................................51 5.8 Litigation....................................................52 5.9 ERISA.........................................................52 5.10 Regulations U and X; Investment Company Act...................52 5.11 No Default or Event of Default................................53 5.12 Year 2000 Compliance..........................................53 5.13 Ownership of Property; Liens..................................53 5.14 Environmental Matters.........................................53 5.16 Borrowing Base Components.....................................54 ARTICLE 6: AFFIRMATIVE COVENANTS OF THE COMPANY..........................54 6.1 Financial Statements..........................................54 6.2 Certificates; Other Information...............................55 6.3 Payment of Obligations........................................56 6.4 Conduct of Business and Maintenance of Existence..............57 -ii- 6.5 Maintenance of Property; Insurance............................57 6.6 Inspection of Property; Books and Records; Discussions........57 6.7 Notices.......................................................58 6.8 Environmental Laws............................................58 6.9 Guarantees from Future Subsidiaries...........................59 ARTICLE 7: NEGATIVE COVENANTS OF THE COMPANY.............................60 7.1 Consolidated Tangible Net Worth...............................60 7.2 Combined Debt of the Homebuilding Segment to Adjusted Consolidated Tangible Net Worth Ratio.........................60 7.3 Minimum Fixed Charge Coverage.................................60 7.4 Senior Permitted Debt Plus Third Party L/C Obligations Not to Exceed Borrowing Base..................................60 7.5 Limitation on Land Inventory..................................60 7.6 Limitation on Housing Inventory...............................61 7.7 Limitation on Indebtedness....................................61 7.8 Limitation on Liens...........................................62 7.9 Limitation on Guarantee Obligations...........................64 7.10 Limitations of Fundamental Changes............................64 7.11 Limitation on Sales of Assets.................................65 7.12 Limitation on Dividends.......................................66 7.13 Limitation on Investments.....................................66 7.14 Limitation on Optional Payments and Modification of Debt Instruments...................................................67 7.15 Transactions with Affiliates..................................68 7.16 Fiscal Year...................................................68 7.17 Compliance with ERISA.........................................68 7.18 Preferred Stock...............................................69 ARTICLE 8: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT...................69 8.1 Events of Default.............................................69 8.2 Remedies......................................................71 8.3 Rights Not Exclusive..........................................72 ARTICLE 9: The Administrative Agent......................................72 9.1 Appointment and Authorization.................................72 9.2 Delegation of Duties..........................................72 9.3 Liability of Agent............................................73 9.4 Reliance by Agent.............................................73 -iii- 9.5 Notice of Default.............................................74 9.6 Credit Decision...............................................74 9.7 Indemnification...............................................75 9.8 Agent in Individual Capacity..................................75 9.9 Successor Agent...............................................75 9.10 Withholding Tax...............................................76 9.11 Performance by the Administrative Agent.......................77 9.12 Actions.......................................................77 9.13 Syndication Agent and CoAgents................................78 ARTICLE 10: MISCELLANEOUS.................................................78 10.1 Amendments and Waivers........................................78 10.2 Costs, Expenses and Taxes.....................................79 10.3 No Waiver; Cumulative Remedies................................79 10.4 Payments Set Aside............................................79 10.5 Successors and Assigns........................................80 10.6 Assignments, Participations, etc..............................80 10.7 Setoff........................................................83 10.8 Notification of Addresses, Lending Offices, Etc...............83 10.9 Survival of Representations and Warranties....................83 10.10 Notices.......................................................83 10.11 Indemnity by the Company......................................84 10.12 Integration and Severability..................................84 10.13 Counterparts..................................................84 10.14 No Third Parties Benefited....................................84 10.15 Section Headings..............................................84 10.16 Further Acts by the Company...................................84 10.17 Time of the Essence...........................................84 10.18 GOVERNING LAW.................................................84 10.19 Submission to Jurisdiction....................................85 10.20 WAIVER OF JURY TRIAL..........................................85 -iv- LIST OF ANNEXES Annex I Commitment of the Banks Annex II Guarantors Annex III Non-Use Fee Calculation LIST OF EXHIBITS Exhibit "A" - Note Exhibit "B" - Borrowing Base Certificate Exhibit "C" - Request for Borrowing/Continuation/Redesignation/Letter of Credit Exhibit "D" - Continuing Guaranty Exhibit "E-1" - Form of Legal Opinion of Timothy J. Geckle for the Company Exhibit "E-2" - Form of Legal Opinion of Timothy J. Geckle for the Guarantors Exhibit "E-3" - Form of Legal Opinion of Piper and Marbury LLP for the Company and the Guarantors Exhibit "F" - Form of Assignment and Acceptance Agreement Exhibit "G" - Compliance Certificate LIST OF SCHEDULES Schedule 1.1 - Existing Investments Schedule 2.9.1 - Existing Letters of Credit Schedule 5.4 - Subsidiaries and Homebuilding Joint Ventures Schedule 5.8 - Litigation Schedule 6.2(g) - Financial Information -v- REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT ("AGREEMENT") is dated as of October 19, 1999, by and among THE RYLAND GROUP, INC., a Maryland corporation (THE "COMPANY"), the several financial institutions from time to time party TO THIS AGREEMENT (COLLECTIVELY, THE "BANKS" AND INDIVIDUALLY, A "BANK"), BANK OF AMERICA, N.A., A NATIONAL BANKING ASSOCIATION ("BOFA"), as ADMINISTRATIVE AGENT FOR THE BANKS (IN SUCH CAPACITY, THE "ADMINISTRATIVE AGENT"), BANK ONE, NA, a national banking association, as syndication agent (IN SUCH CAPACITY, THE "SYNDICATION AGENT"), GUARANTY FEDERAL BANK, F.S.B. a FEDERAL SAVINGS BANK, AS CO-AGENT (IN SUCH CAPACITY, AS "CO-AGENT") and BANK UNITED, A FEDERAL SAVINGS BANK, AS CO-AGENT, (IN SUCH CAPACITY, A "CO-AGENT") and is made with reference to the facts set forth below. I. RECITALS 1. The Company is primarily engaged in the homebuilding business for developing residential single-family housing projects. 2. The Company has requested the Banks to make certain extensions of credit to it (a) to finance or refinance the acquisition of land and the development and construction of various single-family housing projects, and (b) for general corporate purposes (including the refinancing of all obligations under the Existing Credit Agreement). 3. The Banks are willing to make such extensions of credit to the Company on the terms and conditions set forth in this Agreement and in the other Loan Documents. II. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Banks and the Administrative Agent hereby agree as follows: ARTICLE 1: DEFINITIONS AND ACCOUNTING TERMS. 1.1 DEFINED TERMS. As used in this Agreement the following terms shall have the meaning set forth respectively after each: "ABR" means, for any day, a rate per annum (rounded upwards, if necessary to the next 1/100 of 1%) equal to the higher of: (a) the Reference Rate in effect on such day; and (b) 0.50% per annum above the Federal Funds Effective Rate in effect on such day. "ABR BORROWING" means any Loan or portion thereof which is not designated or redesignated by the Company as a LIBOR Borrowing pursuant TO SECTION 2.3 OR 2.4 and which is not a Swing Line Advance. "ADJUSTED CONSOLIDATED TANGIBLE NET WORTH" means, with respect to the Company at any date, the Company's Consolidated Tangible Net Worth AT SUCH DATE LESS the Company's Investments in the Financial Services Segment, determined in accordance with GAAP. "ADMINISTRATIVE AGENT" means BofA when acting in its capacity as the Administrative Agent under any of the Loan Documents, and any successor administrative agent. "AFFECTED BANK" HAS THE MEANING SET FORTH IN SECTION 3.13. "AFFILIATE" means any Person (a) which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or any Subsidiary, as the context may require, or (b) which owns beneficially or of record 25% or more of the Voting Stock of the Company. The term "control" means the possession, directly or indirectly, of the power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities or partnership interests, by contract, family relationship or otherwise. "AGENT-RELATED PERSONS" means the Administrative Agent and any SUCCESSOR ADMINISTRATIVE AGENT (PURSUANT TO THE TERMS OF SECTION 9.9), together with their respective Affiliates and the directors, officers, agents, employees and attorneys-in-fact of such Persons and Affiliates. "AGGREGATE COMMITMENT" means the aggregate combined Commitments of the Banks. As of the date of this Agreement, the Aggregate Commitment currently equals $375,000,000, and may decrease as provided IN SECTION 2.11 or increase as provided in Section 2.10. "AGREEMENT" means this Revolving Credit Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. -2- "ASSIGNEE" SHALL HAVE THE MEANING SET FORTH IN SECTION 10.6. "ASSIGNMENT AND ACCEPTANCE" shall have the meaning set forth in SECTION 10.6. "ATTORNEY COSTS" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the nonduplicative allocated cost of internal legal services and all disbursements of internal legal counsel. "AUTHORIZED OFFICIAL" means Responsible Official or other person designated in writing by a Responsible Official. "BANKING DAY" means any Monday, Tuesday, Wednesday, Thursday or Friday on which banks (including the Banks) are open for business in Illinois. "BANKS" means the financial institutions listed on the signature pages hereof and the additional financial institutions (if any) from time to time party to this Agreement, any of their successors and assigns (including any Assignee), or any one or more of them. "BORROWING" means each of the Loans to be made by the Banks to THE COMPANY AS PROVIDED IN ARTICLE 2. "BORROWING BASE" HAS THE MEANING SET FORTH IN SECTION 2.5(B). "BORROWING BASE CERTIFICATE" means a written calculation of the BORROWING BASE, SUBSTANTIALLY IN THE FORM OF EXHIBIT "B" attached hereto and made a part hereof, signed by a Responsible Official of the Company and properly completed to provide all information required to be included thereon. "BUSINESS" HAS THE MEANING SET FORTH IN SECTION 5.14(B). "CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "CASH EQUIVALENTS" means (a) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than 90 days from the date of acquisition, (b) time deposits and certificates of deposit of any of the Banks, or of any domestic or foreign commercial bank which has capital and surplus in excess of $500,000,000 or which has a commercial paper rating meeting the requirements specified in clause (d) below, having maturities of not more than 90 days from the date of acquisition, (c) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (a) and (b) above entered into with any bank meeting the qualifications specified in clause (b) above, and (d) commercial paper of any Person rated at least A-2 or the equivalent thereof by S and P or P-2 or the equivalent thereof b Moody's and in either case maturing within 90 days after the date of acquisition. "CLOSING DATE" means the date on which the conditions precedent IN ARTICLE 4 are satisfied in full. -3- "CODE" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "COMBINED DEBT" means, with respect to a Person or segment at a PARTICULAR DATE, WITHOUT DUPLICATION, ALL FUNDED DEBT PLUS all obligations, contingent or otherwise, in respect of letters of credit (OTHER THAN PERFORMANCE L/CS) PLUS all Guarantee Obligations guaranteeing or in effect guaranteeing Funded Debt of another party plus all Guarantee Obligations guaranteeing or in effect guaranteeing obligations, contingent or otherwise, in respect of letters of credit (other than Performance L/Cs), in each case of such Person and its Subsidiaries or such segment as at such date, determined on a combined basis in accordance with GAAP. "COMBINED NET INCOME" means, with respect to a Person or segment for any period, the combined net income (or loss) of such Person and its Subsidiaries or such segment and Consolidated Joint Ventures for such period (taken as a cumulative whole), determined on a combined basis in accordance with GAAP. "COMMITMENT" means, with respect to the Loans, as to each Bank, the percentage obligation and aggregate Dollar amount set forth OPPOSITE THE NAME OF SUCH BANK ON ANNEX I hereto. As Banks are added to this Agreement, or withdraw from this Agreement, and assignments are MADE BY THE BANKS IN ACCORDANCE WITH SECTION 10.6, the amount of each Bank's Commitment may change in accordance with that Bank's Pro Rata Share of the Aggregate Commitment. The Assignment and Acceptances executed by the added Banks and the records maintained by the Administrative Agent shall be presumptive evidence of each such Bank's Commitment, as each such Bank's Commitment may change from time to time in accordance with the terms of this Agreement. "COMMONLY CONTROLLED ENTITY" means an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. -4- "COMMON STOCK" means the Company's common stock, par value $1.00 per share, as the same exists on the date hereof or any other class of stock of the Company the right of which to share in distributions of earnings or assets of the Company is without limit as to amount or percentage. "COMPANY" means The Ryland Group, Inc., a Maryland corporation, and its successors and assigns. "COMPLETED UNIT" means a Unit as to which either (or both) of the following has occurred: (a) a notice of completion has been filed or recorded in the appropriate real estate records, or (b) all necessary construction has been completed in order to obtain a certificate of occupancy (whether or not such certificate of occupancy has actually been obtained). "CONSOLIDATED INTANGIBLES" means, with respect to any Person at any date, all amounts, determined in accordance with GAAP, included in the Consolidated Net Worth of such Person and attributable to intangibles including without limitation (a) goodwill, including any amounts (however designated on the balance sheet) representing the cost of acquisitions of Subsidiaries in excess of underlying tangible assets or (b) patents, trademarks and copyrights. "CONSOLIDATED JOINT VENTURES" means, at any time, real estate joint ventures in which the Company or any of its Subsidiaries has an investment at such time and which are being consolidated in the Company's consolidated financial statements. "CONSOLIDATED NET INCOME" means, with respect to a Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries and Consolidated Joint Ventures for such period (taken as a cumulative whole), determined in accordance with GAAP. "CONSOLIDATED NET WORTH" means, with respect to any Person at any date, all amounts which would, in accordance with GAAP, be included under shareholders' equity on a consolidated balance sheet of such Person and its consolidated Subsidiaries and Consolidated Joint Ventures at such date. "CONSOLIDATED TANGIBLE NET WORTH" means, with respect to any Person at any date, such Person's Consolidated Net Worth at such date LESS such Person's Consolidated Intangibles at such date. "CONSTRUCTION IN PROGRESS" means Finished Lots (a) for which a final subdivision map has been recorded and (b) upon which construction has commenced, as evidenced by the commencement of excavation for foundations, but has not been completed. -5- "CONTRACTUAL OBLIGATION" means, with respect to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CREDIT ADVANCE" means any advance, loan or extension of credit to any Person or the purchase of any bonds, notes, debentures or other debt securities of any Person. "DEFAULT" MEANS ANY OF THE EVENTS SPECIFIED IN SECTION 8.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DESIGNATED EVENT" means the occurrence of any of the following events: (a) there shall be consummated any consolidation, share exchange or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's Voting Stock would be converted into cash, securities or other property, other than, in any case, a merger of the Company in which the holders of Voting Stock immediately prior to the merger have 70% or more of the ownership, directly or indirectly, of the Voting Stock of the surviving corporation immediately after the merger; (b) there is a report filed by any Person, including Affiliates of the Company (other than the Company, its Subsidiaries, employee stock ownership plans or employee benefit plans of the Company or its Subsidiaries) on Schedule 13D or 14D-1 (or any successor schedule, form or report under the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that such Person (for the purpose of this definition of "Designated Event" only, the term "Person" shall include a "person" within the meaning of Section 13(d)(3) and 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, Rule 13d-5 or any successor rule or regulation promulgated under the Exchange Act) of 30% or more of the Company's Voting Stock; PROVIDED, HOWEVER, that a Person shall not be deemed the beneficial owner of, or to own beneficially (i) any securities tendered pursuant to a tender or exchange offer made on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange thereunder or (ii) 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, form or report) under the Exchange Act; or (c) during any period of two consecutive calendar years, individuals who, at the beginning of such period constituted the board of directors of the Company cease for any reason to constitute a majority of the directors of the Company then in office unless such new directors were elected by the directors of the Company who constituted the board of directors of the Company at the beginning of such period. "DOLLARS" OR "$" means United States dollars. -6- "EBITDA" means, for any period, without duplication, the sum of the following amounts attributable to such period: (a) the Combined Net Income of the Homebuilding Segment, (b) cash distributions received by the Company from the Financial Services Segment, determined in accordance with GAAP, (c) federal, state and local income and franchise taxes deducted from combined revenues in determining such Combined Net Income, (d) depreciation and amortization deducted from combined revenues in determining such Combined Net Income, (e) interest expense deducted from combined revenues in determining such Combined Net Income (including, without duplication, previously capitalized interest expense which would be included in "Cost of Goods Sold" and deducted from combined revenues in determining such Combined Net Income on a combined balance sheet of the Homebuilding Segment in accordance with GAAP), and (f) other non-recurring non-cash charges and expenses (including, without limitation, net realizable value write-down charges) deducted from combined revenues in determining such Combined NET INCOME, LESS (i) any non-recurring non-cash credits included in combined revenues in determining such Combined Net Income and (ii) any non-cash equity interest in earnings received by the Company from the Financial Services Segment which was included in combined revenues in determining such Combined Net Income. "ELIGIBLE ASSIGNEE" means (a) a commercial bank or savings bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having A COMBINED CAPITAL AND SURPLUS OF AT LEAST $100,000,000, PROVIDED that such bank is acting through a branch or agency located in the United States, and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. "ENTITLED LAND" means (a) land where all requisite zoning requirements and land use requirements have been satisfied, and all requisite approvals have been obtained (on a final and unconditional basis) from all applicable Governmental Authorities (other than approvals which are simply ministerial and non-discretionary in nature), in order to develop the land as a residential housing project and construct Units thereon, and (b) as to land located in California, land which satisfies the requirements of clause (a) immediately above, and which is subject to a currently effective vesting, tentative map (unless a county or city where the land is located does not grant vesting tentative maps) which has received all necessary approvals (on a final and unconditional basis) by all applicable Governmental Authorities. "ENVIRONMENTAL LAWS" means any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning pollution or protection of the environment, as now or may at any time hereafter be in effect. -7- "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as now or from time to time hereafter in effect. "EVENT OF DEFAULT" means any of the events specified in SECTION 8.1, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXISTING CREDIT AGREEMENT" has the meaning specified in Section 4.1(C). "EXTENSION DATE" has the meaning as set forth for that term in Section 3.19. "EXTENSION REQUEST" means a written request from the Company to extend the maturity date pursuant to Section 3.19. "FACILITY FEE" has the meaning set forth in Section 3.3. "FACILITY FEE RATE" means the rate, expressed as a percentage per annum, to be applied to the amount of the Commitment of each Bank in determining the Facility Fee payable to such Bank. The Facility Fee Rate shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: ------------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE FACILITY FEE RATE ------------------------------------------------------------------- ------------------------------------------------------------------- Greater than or equal to BBB/Baa2 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BBB-/Baa3 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB+/Ba1 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB/Ba2 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB-/Ba3 .125% ------------------------------------------------------------------- ------------------------------------------------------------------- Less than or equal to B+/B1 (or unrated) .15% ------------------------------------------------------------------- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable Facility Fee Rate except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable Facility Fee Rate as of the date of this Agreement is therefore .10%. -8- "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Banking Day, for the immediately preceding Banking Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Banking Day, the average of the quotations at approximately 10:00 a.m., Chicago time, on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "FEE LETTER AGREEMENT" has the meaning set forth in Section 3.16. "FINANCIAL SERVICES SEGMENT" means the business segment of the Company and its Subsidiaries engaged in mortgage banking (including the title and escrow businesses), mortgage servicing, securities issuance, bond administration and management services and related activities, which segment on the date of this Agreement consists principally of the activities of Ryland Mortgage Company and its Subsidiaries but excludes the Limited-Purpose Subsidiaries. "FINANCING LEASE" means any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "FINISHED LOTS" means lots of Entitled Land as to which (a) a final subdivision map has been recorded, (b) all major offsite construction and infrastructure has been completed to local government requirements, (c) utilities have been installed to local government requirements, and (d) building permits may be pulled and construction commenced without the satisfaction of any further material conditions. "FIXED CHARGE COVERAGE RATIO" has the meaning set forth in SECTION 7.3 "FIXED CHARGES" means, for any period, without duplication, the sum of the following amounts: (a) interest expense of the Homebuilding Segment for such period (including such interest expense constituting capitalized interest for such period), determined in accordance with GAAP, (b) principal payments (excluding balloon payments) on long-term Indebtedness scheduled to be made by the Homebuilding Segment during such period, (c) the principal portion of payments in respect of Financing Leases scheduled to be made by the Homebuilding Segment during such period, and (d) dividends on any of the Company's preferred stock paid or payable during such period. -9- "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "FUNDED DEBT" of any Person means, at any date, all Indebtedness of such Person of the nature referred to in clauses (a), (b), (c), (d) AND (F) of the definition of "indebtedness" at such date. "GAAP" means generally accepted accounting principles in the United States of America in effect from time to time. "GAAP VALUE" means, with respect each property constituting part of the Real Estate Inventory, the book value for such property or asset determined in accordance with GAAP. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "GUARANTEE OBLIGATION" MEANS, AS TO ANY PERSON (THE "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, LEASES, DIVIDENDS OR OTHER OBLIGATIONS (THE "PRIMARY OBLIGATIONS") of ANY THIRD PERSON (THE "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary OBLIGATION AGAINST LOSS IN RESPECT THEREOF; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the maximum stated amount of the primary obligation relating to such Guarantee Obligation (or, if less, the maximum stated liability set forth in the instrument embodying such Guarantee OBLIGATION), PROVIDED, HOWEVER, that in the absence of any such stated amount or stated liability, the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as reasonably determined by the Company in good faith. -10- "GUARANTORS" means, collectively, the Subsidiaries listed on ANNEX II hereto, and each other Person that from time to time executes a Guaranty in favor of the Banks with respect to the Loans and the other Obligations, and their successors and assigns. "GUARANTY" means a continuing guaranty, substantially in the form OF EXHIBIT "D" attached hereto, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended, to be executed and delivered by the Guarantors to the Administrative Agent for the benefit of the Banks. "HOME PROCEEDS RECEIVABLE" means, with respect to the Company or a wholly-owned Subsidiary in the Homebuilding Segment, funds due to the Company or such wholly-owned Subsidiary held at an escrow or title company following the sale and conveyance of title of a Unit to a buyer (including an escrow or title company which is a Subsidiary of the Company). "HOMEBUILDING SEGMENT" means the business segment of the Company and its Subsidiaries and their respective Consolidated Joint Ventures engaged in the construction and sale of single family attached and unattached dwellings and related activities. "IMPROVEMENTS" means on and off-site development work, including but not limited to filling to grade, main water distribution and sewer collection systems and drainage system installation, paving, and other improvements necessary for the use of residential dwelling units and as required pursuant to development agreements which may have been entered into with Governmental Authorities. "INDEBTEDNESS" of any Person means, at any date, without duplication (a) all indebtedness of such Person for borrowed money, (b) all indebtedness of such Person for the deferred purchase price of property or services (other than trade liabilities less than 90 days from invoice and accrued expenses incurred in the ordinary course of business and payable in accordance with customary practices), (c) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (d) all obligations of such Person under Financing Leases, (e) all obligations, contingent or otherwise, of such Person in respect of letters of credit, whether or not drawn, and acceptances issued or created for the account of such Person, and (f) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "INSOLVENCY" OR "INSOLVENT" means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. -11- "INTEREST PAYMENT DATE" means: (a) as to any ABR Borrowing or Swing Line Advance, the first day of each January, April, July and October to occur while such Loan is outstanding, (b) as to any LIBOR Loan having a LIBOR Period of three months or less, the last day of such LIBOR Period, (c) as to any LIBOR Borrowing having an LIBOR Period longer than three months, the day which is three months after the first day of such LIBOR Period and the last day of such LIBOR Period. "INVESTMENT" means any Credit Advance to, or any contribution to or purchase of stock or other equity securities of, or any purchase of assets constituting a business unit of, any Person, excluding investments in stock or other equity securities existing on the date of this Agreement and listed on the attached Schedule 1.1, and any investment representing any interest of the Company or any Subsidiary in the retained or undistributed earnings of any Person. "ISSUANCE FEE" has the meaning set forth in Section 2.9.4(B). "ISSUING BANK" means BofA in its individual capacity as a bank issuing Letters of Credit under this Agreement. "LAND UNDER DEVELOPMENT" means Entitled Land upon which a final subdivision map has been recorded and upon which construction of Improvements has commenced and is being diligently pursued but has not been completed. "LAWS" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. "L/C" means a letter of credit issued for the account of the Company or a Subsidiary to a party, as beneficiary, to which the Company, or such Subsidiary owes certain obligations in connection with its ordinary course of business real estate development and homebuilding activity (for example, to a municipality, as beneficiary, to support the Company's or a Subsidiary's obligation to widen public streets in connection with a residential development project). "L/C APPLICATION" has the meaning set forth in Section 2.9.3. "L/C COMMITMENT" has the meaning set forth in Section 2.9.1. "L/C FEE RATE" means, with respect to any Letter of Credit, the rate, expressed as a percentage per annum, to be applied to the then available dollar amount of such Letter of Credit in determining the Letter of Credit Fee for such Letter of Credit. The L/C Fee Rate shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: -12- ------------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE L/C FEE RATE ------------------------------------------------------------------- ------------------------------------------------------------------- >BBB/Baa2 .775% - ------------------------------------------------------------------- ------------------------------------------------------------------- =BBB-/Baa3 .875% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB+/Ba1 1.035% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB/Ba2 1.125% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB-/Ba3 1.425% ------------------------------------------------------------------- ------------------------------------------------------------------- Less than or equal to B+/B1 (or unrated) 1.775% ------------------------------------------------------------------- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable L/C Fee Rate except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable L/C Fee Rate as of the date of this Agreement is therefore 1.125%. "L/C OBLIGATIONS" has the meaning set forth in Section 2.9.1. "LENDING OFFICE" means, as to each Bank, the office located at the address for notices specified for such Bank on the signature pages hereof. "LETTER OF CREDIT" OR "LETTERS OF CREDIT" has the meaning set FORTH IN SECTION 2.9.1. "LETTER OF CREDIT FEE" has the meaning set forth in SECTION 2.9.4(A). "LIBOR BANKING DAY" means any Banking Day on which banks are open for business in London, England and New York, New York and BofA is open for business in Chicago, Illinois. "LIBOR BASE RATE" means, with respect to a LIBOR Borrowing for the relevant LIBOR Period, the per annum rate of interest, rounded upward, if necessary, to the nearest 1/16th of one percent (0.0625%), determined by the Administrative Agent to be the rate at which deposits in immediately available funds in Dollars would be offered by BofA's London branch (or at a time when BofA is no longer the Administrative Agent or a Bank, by the London branch of any Bank selected by the Majority Banks) to banks in the London inter-bank eurodollar market at approximately 11:00 a.m., London time, two LIBOR Banking Days prior to the first day of such LIBOR Period, in the approximate amount of the relevant LIBOR Borrowing and having a maturity approximately equal to such LIBOR Period. -13- "LIBOR BORROWING" means any Loan or portion thereof designated, redesignated or continued by the Company as a LIBOR Borrowing pursuant TO SECTION 2.3 OR 2.4. "LIBOR LENDING OFFICE" means the office or branch of each Bank so designated on the signature pages of this Agreement, or such other office or branch of each Bank as it may hereafter designate, by written notice to the Company and the Administrative Agent, as its LIBOR Lending Office. "LIBOR PERIOD" means, as to each LIBOR Borrowing, the period commencing on the date specified in the applicable Request for Borrowing, Request for Redesignation or Request for Continuation by the COMPANY PURSUANT TO SECTION 2.3 OR 2.4 and ending one month, two months, three months or six months thereafter, as designated by the Company in the applicable Request for Borrowing, Request for REDESIGNATION OR REQUEST FOR CONTINUATION, PROVIDED, in each case, that: (a) the first day in any LIBOR Period shall be a LIBOR Banking Day; (b) any LIBOR Period that would otherwise end on a day that is not a LIBOR Banking Day shall be extended to the next SUCCEEDING LIBOR BANKING DAY UNLESS such LIBOR Banking Day falls in another calendar month, in which case such LIBOR Period shall end on the next preceding LIBOR Banking Day; and (c) No LIBOR Period shall extend beyond the Maturity Date. "LIBOR RATE" means, for any LIBOR Period for any LIBOR Borrowing, the rate (rounded upward, if necessary, to the next 1/100 of 1%) obtained by dividing (a) the LIBOR Base Rate for such LIBOR Period, by (b) a percentage equal to 100% minus the Reserve Requirement for such LIBOR Period. "LIBOR RATE SPREAD" means the additional component of interest, expressed as a percentage per annum, to be added to the LIBOR Rate in determining the applicable rate of interest for LIBOR Borrowings. The applicable LIBOR Rate Spread shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: ------------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE LIBOR RATE SPREAD ------------------------------------------------------------------- ------------------------------------------------------------------- >BBB/Baa2 .900% - ------------------------------------------------------------------- ------------------------------------------------------------------- =BBB-/Baa3 1.000% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB+/Ba1 1.150% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB/Ba2 1.250% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB-/Ba3 1.550% ------------------------------------------------------------------- ------------------------------------------------------------------- less than or equal to B+-/B1 (or unrated) 1.900% ------------------------------------------------------------------- -14- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable LIBOR Rate Spread except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable LIBOR Rate Spread for the Loans as of the date of this Agreement is therefore 1.250%. "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code (other than precautionary notification of operating leases) or comparable law of any jurisdiction in respect of any of the foregoing. "LIMITED-PURPOSE SUBSIDIARIES" means Subsidiaries included within the Limited-Purpose Subsidiaries Segment. "LIMITED-PURPOSE SUBSIDIARIES SEGMENT" means the business segment of the Company and its Subsidiaries which facilitates, through special-purpose entities created or existing solely for such purpose, the financing of mortgage loans and mortgage backed securities and the securitization of mortgage loans and other related activities. "LOAN" OR "LOANS" means each of the loans under this Agreement, including, without limitation, the Swing Line Advances. "LOAN DOCUMENTS" means, collectively, this Agreement, each Note, each L/C Application, the Fee Letter Agreement and the Guaranty. "MAJORITY BANKS" means, at any time, Banks then having in excess of 66-2/3% of the Aggregate Commitment or, if the Commitments have been terminated, Banks then holding in excess of 66% of the then aggregate unpaid principal amount of the Loans (or participation interests in the Swing Advances) and interests (or participation interests) in the reimbursement obligations of the Company with respect to Letters of Credit. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business or financial condition of the Company and its Restricted Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under this Agreement and the other Loan Documents to which the Company is a party, or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Banks hereunder or thereunder. -15- "MATERIALS OF ENVIRONMENTAL CONCERN" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "MATURITY DATE" means October 20, 2003, subject to possible EXTENSION PURSUANT TO THE TERMS OF SECTION 3.17 (other than with respect to a Note held by a Bank which does not extend the maturity DATE OF SUCH NOTE PURSUANT TO SECTION 3.17, in which case the applicable Maturity Date for such Note held by such non-renewing Bank shall be the Non-Renewing Bank Loan Maturity Date). "MEASUREMENT PERIOD" has the meaning set forth in Section 7.3. "MODEL UNIT" means a Completed Unit to be used as a model home in connection with the sale of Units in a residential housing project. "MOODY'S" means Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "1992 SUBORDINATED DEBT INDENTURE" means the Indenture, dated as of July 15, 1992, between the Company and First Union National Bank, successor to Security Trust Company, N.A., as Trustee, pursuant to which the Company's 8-1/4% Senior Subordinated Notes due April, 2008, and the Company's 9-5/8% Senior Subordinated Notes due June, 2004 were issued. "NON-RENEWING BANK LOAN MATURITY DATE" means the maturity date of the Note held by a Bank which does not extend such maturity date in response to a request for such extension by the Company pursuant to SECTION 3.19. "NON-USE FEE" has the meaning set forth in Section 3.2. "NON-USE FEE RATE `A'" means the rate, expressed as a percentage per annum, to be applied to the average daily difference, if positive, between (a) 50% of the Aggregate Commitment and (b) the total principal balance outstanding under the Notes plus the L/C Obligations. The Non-use Fee Rate "A" shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: -16- ----------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE NON-USE FEE RATE"A" ----------------------------------------------------------------- ----------------------------------------------------------------- >BBB/Baa2 .10% - ----------------------------------------------------------------- ----------------------------------------------------------------- =BBB-/Baa3 .10% ----------------------------------------------------------------- ----------------------------------------------------------------- =BB+/Ba1 .125% ----------------------------------------------------------------- ----------------------------------------------------------------- =BB/Ba2 .15% ----------------------------------------------------------------- ----------------------------------------------------------------- =BB-/Ba3 .20% ----------------------------------------------------------------- ----------------------------------------------------------------- Less than or equal to B+/B1 (or unrated) .25% ----------------------------------------------------------------- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable Non-use Fee Rate "A" except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable Non-use Fee Rate "A" as of the date of this Agreement is therefore .15%. "NON-USE FEE RATE `B'" means the rate, expressed as a percentage per annum, to be applied to the average daily difference between (a) the Aggregate Commitment and (b) the greater of (i) the total principal balance outstanding under the Notes plus the L/C Obligations or (ii) 50% of the Aggregate Commitment. The Non-use Fee Rate "B" shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: ------------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE NON-USE FEE RATE "B" ------------------------------------------------------------------- ------------------------------------------------------------------- >BBB/Baa2 .10% - ------------------------------------------------------------------- ------------------------------------------------------------------- =BBB-/Baa3 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB+/Ba1 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB/Ba2 .10% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB-/Ba3 .15% ------------------------------------------------------------------- ------------------------------------------------------------------- less than or equal to B+/B1 (or unrated) .175% ------------------------------------------------------------------- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable Non-use Fee Rate "B" except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable Non-use Fee Rate "B" as of the date of this Agreement is therefore .10%. -17- "NOTE" means each of the promissory notes, substantially in the FORM OF EXHIBIT "A" attached hereto and made a part hereof, executed by the Company in favor of the Banks, each to the order of the applicable Bank as payee to evidence such Bank's share of the Loans, and each in the original principal amount of the applicable Bank's Commitment such that the aggregate original principal amount of all Notes is initially $375,000,000 which may be increased to up to $400,000,000 pursuant to Section 2.10; as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced (and any promissory note that may be issued in substitution or exchange therefor). "OBLIGATIONS" means all obligations of every nature of the Company from time to time owed to the Administrative Agent and the Banks under the Loan Documents. "OPINION OF COUNSEL" means the favorable written legal opinions of Timothy J. Geckle, Esq., general counsel to the Company and Piper and Marbury LLP, as counsel to the Company and the Subsidiaries, with respect to this agreement, substantially in the form of EXHIBITS "E-1" AND "E-2" attached hereto, together with copies of all factual certificates upon which such counsel has relied. "OTHER TAXES" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "PARTICIPANT" shall have the meaning set forth in Section 10.6. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PERFORMANCE L/C" means a letter of credit issued for the account of the Company or a Subsidiary to a party, as beneficiary, to which the Company, or such Subsidiary owes certain performance obligations in connection with its ordinary course of business real estate development and homebuilding activity (for example, to a municipality, as beneficiary, to support the Company's or a Subsidiary's obligation to widen public streets in connection with a residential development project). "PERMITTED DEBT" means, with respect to a Person or segment at a particular date, all Combined Debt of such Person and its Subsidiaries or such segment as at such date, determined on a combined basis in ACCORDANCE WITH GAAP, LESS (a) any portion of such Combined Debt that is secured by any asset that would have been included in the Borrowing Base as at such date if such asset were not subject to or encumbered by a Lien and (b) any portion of such Combined Debt consisting of Guarantee Obligations guaranteeing or in effect guaranteeing Funded Debt of unconsolidated Affiliates of the Company. -18- "PERSON" means any entity, whether an individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, trust, unincorporated organization, bank, business association, firm, joint venture, Governmental Authority or otherwise. "PLAN" means, at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PROPERTIES" shall have the meaning set forth in Section 5.14(A). "PRO RATA SHARE" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place as determined by the Administrative Agent) at such time of such Bank's Commitment divided by the Aggregate Commitment. "RAW LAND" means Raw Land - Entitled and Raw Land - Unentitled. "RAW LAND - ENTITLED" means land not under development which is Entitled Land. "RAW LAND - UNENTITLED" means land not under development which is not Entitled Land but which the Company in its reasonable commercial judgment believes it will be able to develop as residential property for its own use and not to be held speculatively. "REAL ESTATE INVENTORY" means Construction in Progress, Completed Units (including Model Units), Finished Lots, Land Under Development, Raw Land - Entitled, and Raw Land - Unentitled. "REFERENCE RATE" means the rate of interest publicly announced from time to time by BofA in Charlotte, North Carolina as its reference rate. It is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the Reference Rate shall take effect on the day specified in the public announcement of such change. "REGULATION D" means Regulation D of the FRB as now or from time to time hereafter in effect and any other regulation issued in substitution therefor. -19- "REORGANIZATION" means, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of Section 4241 of ERISA. "REPLACEMENT BANK" HAS THE MEANING SET FORTH IN SECTION 3.12. "REPORTABLE EVENT" means any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss.2615. "REQUEST FOR BORROWING" means a written request for a Borrowing SUBSTANTIALLY IN THE FORM OF EXHIBIT "C" attached hereto, signed by a Authorized Official of the Company and properly completed to provide all information required to be included thereon. "REQUEST FOR CONTINUATION" means a written request for continuation of a LIBOR Borrowing from the current LIBOR Period for such LIBOR Borrowing into a subsequent LIBOR Period substantially in THE FORM OF EXHIBIT "C" attached hereto, signed by a Authorized Official of the Company and properly completed to provide all information required to be included thereon. "REQUEST FOR LETTER OF CREDIT" means a written request for a letter of credit substantially in the form of EXHIBIT "C" attached hereto, signed by an Authorized Official of the Company and properly completed to provide all information required to be included thereon. "REQUEST FOR REDESIGNATION" means a written request for redesignation of borrowing substantially in the form of Exhibit "C" attached hereto, signed by an Authorized Official of the Company and properly completed to provide all information required to be included thereon. "REQUIREMENT OF LAW" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESERVE REQUIREMENT" means, with respect to a LIBOR Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "RESPONSIBLE OFFICIAL" means any of the chief executive officer and the president of the Company or, with respect to financial matters, the chief financial officer, the chief accounting officer or the treasurer of the Company. "RESTRICTED PAYMENTS" has the meaning set forth in Section 7.12. -20- "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than (a) the Limited-Purpose Subsidiaries and (b) any Subsidiary that the Majority Banks agree in writing is not to be deemed a Restricted Subsidiary. "RYLAND FINANCIAL DIVISION" means all subsidiaries and operations of the Company and its Subsidiaries other than the Homebuilding Segment. "RYLAND MORTGAGE COMPANY" means Ryland Mortgage Company, an Ohio corporation. "S and P" means Standard and Poor's Ratings Group. "SENIOR PERMITTED DEBT" means, at any time of determination thereof, the Loans, the L/C Obligations and all Permitted Debt senior to or ranking in equal priority to the Obligations other than Indebtedness which is non-recourse to the Company and its Subsidiaries and, with respect to purchase money Indebtedness, such Indebtedness for which recourse is limited solely to the assets financed with the proceeds of such Indebtedness. "SINGLE EMPLOYER PLAN" means any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SOLD" means, with respect to any item of Real Estate Inventory, that (a) a third party purchase contract has been executed for such item of Real Estate Inventory, (b) the third party purchaser of such item of Real Estate Inventory has made a cash deposit for such item (except that up to 1% of Real Estate Inventory at any time may be deemed "Sold" even if such deposit has not been made), and (c) such third party purchaser's obligation to purchase such item of Real Estate Inventory pursuant to such third party purchase contract is not subject to any contingencies other than the contingency that it shall have obtained mortgage financing or that it shall have sold other identified property. "SPECIAL CIRCUMSTANCE" means the adoption of any Law or interpretation, or any change therein or thereof, or any change in the interpretation, administration or application thereof by any Governmental Authority, central bank or comparable authority, or compliance by the Banks or their LIBOR Lending Offices with any request or directive (whether or not having the force of Law) of any Governmental Authority, central bank or comparable authority, or the occurrence of circumstances affecting the London interbank eurodollar market generally which are beyond the reasonable control of the Banks, in each case which has occurred after the date of this Agreement. -21- "SPECIFIED DEBT" means the Company's Senior Debt Securities issued pursuant to the Company's Registration Statements on Form S-3 (Registration Nos. 33-50933 and 333-03791) or any successor registration statement and outstanding on the date of this Agreement. "SUBORDINATED DEBT" means (a) Indebtedness of the Company outstanding on the date hereof issued pursuant to the 1992 Subordinated Debt Indenture and (b) any other unsecured Indebtedness of the Company that is contractually subordinated in right of payment and otherwise to the Indebtedness hereunder upon terms and conditions consistent with those set forth in the 1992 Subordinated Debt Indenture or upon other terms and conditions reasonably satisfactory to the Majority Banks. "SUBSIDIARY" means (a) any corporation of which at least a majority of the outstanding securities of any class or classes (however designated) having ordinary voting power to elect directors of the corporation is owned by the Company and/or by one or more than one other Subsidiary, and (b) any partnership, joint venture or limited liability company in which the Company and/or any Subsidiary owns at least a majority interest. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company and shall exclude any Consolidated Joint Venture. "SWING LINE ADVANCES" means Borrowings initially funded by BofA in the manner provided in Section 2.1(H). "SWING LINE RATE" means, with respect to any Swing Line Advance for any day, a rate per annum (rounded upwards, if necessary to the next 1/100 of 1%) equal to the higher of: (a) the Reference Rate in effect on such day; and (b) the Federal Funds Effective Rate in effect on such DAY PLUS the applicable Swing Line Rate Spread. "SWING LINE RATE SPREAD" means the additional component of interest, expressed as a percentage per annum, to be added to the Federal Funds Effective Rate in determining the applicable rate of interest for Swing Line Advances. The applicable Swing Line Rate Spread shall be based on the Company's current senior long-term unsecured debt ratings as published by S and P and Moody's as determined by the following pricing grid: ------------------------------------------------------------------- S and P/MOODY'S RATING APPLICABLE SWING LINE RATE SPREAD ------------------------------------------------------------------- ------------------------------------------------------------------- >BBB/Baa2 .900% - ------------------------------------------------------------------- ------------------------------------------------------------------- =BBB-/Baa3 1.000% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB+/Ba1 1.150% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB/Ba2 1.250% ------------------------------------------------------------------- ------------------------------------------------------------------- =BB-/Ba3 1.550% ------------------------------------------------------------------- ------------------------------------------------------------------- Less than or equal to B+-/B1 (or unrated) 1.900% ------------------------------------------------------------------- -22- In the event of a difference in rating between S and P and Moody's, the higher rating shall prevail for purposes of determining the applicable Swing Line Rate Spread except that if such ratings differ by more than one level, the rating one level above the lower rating shall prevail for such purpose. As of the date of this Agreement, the Company is currently rated BB/Ba2 by S and P and Moody's, respectively, and the applicable Swing Line Rate Spread for the Swing Line Advances as of the date of this Agreement is therefore 1.250%. "SYNDICATION AGENT" means Bank One, NA in its capacity as the Syndication Agent under this Agreement, and any successor syndication AGENT (SUBJECT TO SECTION 9.13). "TAXES" means any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's net income. "THIRD PARTY L/C OBLIGATIONS" means, at any time, the sum of (a) the maximum aggregate principal amount which at such time remains undrawn under all L/Cs issued outside of this Agreement for the account of the company or any other member of the homebuilding segment plus (b) the aggregate drawn and unreimbursed amount in respect of such L/Cs at such time. "UNENCUMBERED REAL ESTATE INVENTORY" means Real Estate Inventory which is not subject to or encumbered by any deed of trust, mortgage, judgment Lien, attachment Lien or any other Lien (other than Liens which have been bonded around so as to remove such Liens as encumbrances against the Real Estate Inventory or Liens which are PERMITTED UNDER SUBSECTION (A), (B) OR (E) OF SECTION 7.8). "UNIT" means a single family residential housing unit available for sale. "UNSOLD" means, with respect to any item of Real Estate Inventory, that such item of Real Estate Inventory is not Sold. "UNSOLD HOUSING INVENTORY" means, collectively, Unsold Construction in Progress, Unsold Completed Units and Unsold Model Units. "VOTING STOCK" means shares of stock of the Company entitling the holder thereof to vote generally for the election of directors of the Company. -23- 1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any 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, GAAP applied on a consistent basis. 1.4 EXHIBITS. All exhibits to this Agreement, either as now existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. 1.5 CROSS-REFERENCES. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. ARTICLE 2: BORROWING PROCEDURES AND LETTER OF CREDIT SUBLIMIT. 2.1 DISBURSEMENT OF LOAN PROCEEDS. (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through the Banking Day immediately preceding the Maturity Date (or, in THE CASE OF A NON-RENEWING BANK UNDER SECTION 3.19, the Non-Renewing Bank Loan Maturity Date), each Bank shall, according to its Pro Rata Share, make Loans to the Company in such amounts as the Company may request that do not exceed in the aggregate at any one time OUTSTANDING, THE COMMITMENT OF SUCH BANK (LESS the Pro Rata Share of such Bank's L/C Obligations, if any). Subject to the limitations set forth herein, the Company may borrow, repay and reborrow under each Bank's Commitment without premium or penalty. In no event shall the Banks be obligated to make Loans to the Company at any time if, after giving effect to such loans, the provisions of Section 2.6 would be violated. (b) Unless the Administrative Agent otherwise consents, the aggregate amount of each Borrowing (whether a LIBOR Borrowing or an ABR Borrowing or Swing Line Advance) shall be in an integral multiple of $100,000, but not less than $1,000,000. (c) The Loans made by the Banks pursuant to this Agreement shall be evidenced by each Note. -24- (d) A Request for Borrowing shall be irrevocable upon receipt by the Administrative Agent. The Administrative Agent shall not be bound by any preliminary information that it may give the Company concerning a particular LIBOR Rate before it delivers the binding LIBOR rate notice in accordance with Section 2.3(B) below. (e) No more than ten (10) LIBOR Borrowings in the aggregate shall be outstanding at any one time. (f) The Administrative Agent will notify each Bank of its receipt of a Request for Borrowing by the Company and of the amount of such Bank's Pro Rata Share of that Borrowing promptly upon receipt of such Request for Borrowing. (g) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Administrative Agent for the account of the Company at such location as is specified by the Administrative Agent by 11:00 a.m., Chicago time, on the date of such Borrowing requested by the Company in funds immediately available to the ADMINISTRATIVE AGENT. SUBJECT TO THE PROVISIONS OF SECTION 2.7, the proceeds of all such Loans will then be made available to the Company by the Administrative Agent by wire transfer in accordance with written instructions provided to the Administrative Agent by the Company of like funds as received by the Administrative Agent. (h) The following procedures shall apply to Swing Line Advances: (i) Not later than 1:00 p.m., Chicago time, on the Banking Day on which a proposed Swing Line Advance is to be made, BofA must have received a Request for Borrowing requesting that a Swing Line Advance be made on that Banking Day, stating that such Borrowing shall be a Swing Line Advance, and specifying the amount of the requested Swing Line Advance. Each Swing Line Advance shall mature on the date which is five (5) Banking Days after the date such Swing Line Advance is made, and in any event on the Maturity Date. (ii) Upon fulfillment of each of the applicable conditions IN ARTICLE 4 and the condition that the aggregate amount of outstanding Swing Line Advances at no time exceeds the amounts SPECIFIED IN SECTION 2.1(H)(IV), BofA shall then make available to the Company by wire transfer in accordance with written instructions provided to BofA by the Company, from BofA's funds, the amount of the requested Swing Line Advance. -25- (iii) Upon the occurrence of any Event of Default, BofA shall have the option, which shall be exercisable by BofA in its sole discretion, to sell and transfer to each Bank, pursuant to the terms and conditions set forth herein, an undivided interest and participation, to the extent of such Bank's Pro Rata Share, in all outstanding Swing Line Advances. Forthwith upon notice from BofA to the Banks that BofA has elected to exercise the option set forth in the immediately preceding sentence, BofA shall be deemed irrevocably and unconditionally to have sold and transferred to each Bank without recourse and, each Bank shall have deemed to have irrevocably and unconditionally purchased and received, an undivided interest and participation, to the extent of such Bank's Pro Rata Share, in all outstanding Swing Line Advances. Each Bank shall promptly (and in any event within two Banking Days) pay to the Administrative Agent (for the benefit of BofA) in immediately available funds an amount equal to such Bank's Pro Rata Share of the outstanding principal amount of such Swing Line Advances. The Administrative Agent shall pay all amounts received to BofA, which shall apply such amounts to the purchase price of such participations in such Swing Line Advances. Any amount payable to the Administrative Agent (for THE BENEFIT OF BOFA) PURSUANT TO THIS SECTION 2.1(H)(III) and not paid within two Banking Days of the day on which notice of such payment received from the Administrative Agent shall bear interest, payable by such defaulting Bank, until paid at the Reference Rate. If the Banks make any payment in respect of SWING LINE ADVANCES AS CONTEMPLATED BY THIS SECTION 2.1(H)(III) and thereafter the Administrative Agent or BofA receives a payment on account of any such Advance, the Administrative Agent or BofA, as appropriate, shall promptly pay to each Bank which funded its participation therein an amount equal to such Bank's Pro Rata Share thereof. The obligation of each Bank to make PAYMENTS UNDER THIS SECTION 2.1(H)(III) shall be unconditional and irrevocable and shall be made under all circumstances. If any payment received on account of any Swing Line Advance and distributed to a Bank as a participant under this SECTION 2.1(H)(III) is thereafter recovered from the Administrative Agent or BofA in connection with any bankruptcy or insolvency proceeding relating to the Company or otherwise, each Bank which received such distribution shall, upon demand by the Administrative Agent, repay to the Administrative Agent or BofA, as applicable, such Bank's Pro Rata Share of the amount so recovered together with an amount equal to such Bank's Pro Rata Share (according to the proportion of (A) the total of such Bank's required repayment to (B) the total amount so recovered) of any interest or other amount paid or payable by the Administrative Agent or BofA in respect of the total amount so recovered. (iv) BofA shall not be obligated to make any Swing Line ADVANCE PURSUANT TO THIS SECTION 2.1(H) if (A) the making of such Swing Line Advance would result in an aggregate amount of Swing Line Advances which are outstanding in excess of $30,000,000, or (B) the result of funding such Swing Line Advance would be that the total amount of Borrowings (including Swing Line Advances) FUNDED BY BOFA PLUS BofA's Pro Rata Share of the L/C Obligations would be in excess of BofA's Commitment. Swing Line Advances shall be considered Borrowings for all purposes hereunder (including conditions to disbursement but excluding the notice REQUIREMENT OF SECTION 2.2) subject only to the special REIMBURSEMENT OBLIGATIONS OF THE BANKS PURSUANT TO THIS SECTION 2.1(H). If BofA is excused from its obligation to make a REQUESTED SWING LINE ADVANCE BY THIS SECTION 2.1(H)(IV), the Company shall still be entitled to obtain the requested Borrowing PURSUANT TO THE OTHER PROVISIONS OF ARTICLE 2, subject to the conditions applicable to such Borrowings. -26- 2.2 ABR BORROWINGS. All Loans shall at all times constitute ABR Borrowings unless properly designated or redesignated as LIBOR Borrowings PURSUANT TO SECTION 2.3 OR 2.4 OR AS A SWING LINE ADVANCE PURSUANT TO SECTION 2.1(H). Each request by the Company for a new ABR Borrowing (except for Swing Line Advances) shall be made pursuant to a Request for Borrowing received by the Administrative Agent, at the Administrative Agent's office, not later than 9:30 a.m., Chicago time, on the date the proposed ABR Borrowing is to be funded to the Company. The Administrative Agent will promptly notify each Bank of its receipt of a Request for Borrowing in accordance with SECTION 2.1(F). 2.3 LIBOR BORROWING. (a) Each request by the Company for a LIBOR Borrowing shall be made pursuant to a Request for Borrowing received by the Administrative Agent, at the Administrative Agent's office, not later than 11:00 a.m., Chicago time, at least three (3) LIBOR Banking Days before the first day of the applicable LIBOR Period. The Administrative Agent will promptly notify each Bank of its receipt of a Request for Borrowing in accordance with Section 2.1(F). (b) At or about 11:00 a.m., Chicago time, one (1) LIBOR Banking Day after the LIBOR Banking Day on which Agent receives the Company's Request for Borrowing, the Administrative Agent shall determine the applicable LIBOR Rate (which determination shall be conclusive in the absence of manifest error) and shall promptly give notice of the same to the Company and the Banks by telephone or telecopier. (c) Upon fulfillment of the applicable conditions set forth in ARTICLE 4, a LIBOR Borrowing shall become effective on the first day of the applicable LIBOR Period. 2.4 REDESIGNATION OF BORROWINGS AND CONTINUATION OF LIBOR BORROWINGS. (a) If any LIBOR Borrowing is not repaid on the last day of the applicable LIBOR Period or continued on such date into a subsequent LIBOR Period, such Borrowing automatically shall be redesignated as an ABR Borrowing on such date. -27- (b) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date until one month preceding the Maturity Date, the Company may request that all or a portion of outstanding ABR Borrowings be redesignated as a LIBOR Borrowing or that any outstanding LIBOR Borrowing be continued from the current LIBOR Period for such LIBOR Borrowing into a subsequent LIBOR Period to begin on the last day of such current LIBOR PERIOD, PROVIDED that, in the case of either a redesignation of ABR Borrowings as a LIBOR Borrowing or a continuation of a LIBOR Borrowing, the LIBOR Period for such LIBOR Borrowing shall end on or before the Maturity Date. (c) Each redesignation of all or a portion of outstanding ABR Borrowings as a LIBOR Borrowing shall be made pursuant to a written Request for Redesignation. Not later than 11:00 a.m., Chicago time, at least three (3) LIBOR Banking Days prior to the first day of the applicable LIBOR Period, the Administrative Agent shall have received, at the Administrative Agent's office, a properly completed Request for Redesignation specifying (i) the requested date of redesignation, (ii) the requested amount of ABR Borrowings to be redesignated as a LIBOR Borrowing, and (iii) the requested LIBOR Period. The Administrative Agent may, in its sole and absolute discretion, permit a Request for Redesignation to be made by telephone (with confirmation sent promptly by telecopier) by the Company. (d) Each continuation of an outstanding LIBOR Borrowing from the current LIBOR Period for such LIBOR Borrowing into a subsequent LIBOR Period to begin on the last day of such current LIBOR Period shall be made pursuant to a written Request for Continuation. Not later than 11:00 a.m., Chicago time, at least three (3) LIBOR Banking Days prior to the last day of the current LIBOR Period, the Administrative Agent shall have received, at the Administrative Agent's office, a properly completed Request for Continuation specifying (i) the LIBOR Borrowing to be continued and (ii) the subsequent LIBOR Period requested. The Administrative Agent may, in its sole and absolute discretion, permit a Request for Continuation to be made by telephone (with confirmation sent promptly by telecopier) by the Company. (e) The Administrative Agent will promptly notify each Bank of its receipt of a Request for Redesignation or a Request for Continuation on the date of timely receipt of a Request for Redesignation or Request for Continuation from the Company. All redesignations shall be made ratably according to the respective outstanding principal amount of the Loans with respect to which the Request for Redesignation was given then held by each Bank. (f) Unless all of the Banks otherwise agree, during the existence of an Event of Default, the Company may not elect to have a Loan continued as or converted into a LIBOR Borrowing. -28- (g) The amount of ABR Borrowings to be redesignated as a LIBOR Borrowing, and the amount of any outstanding LIBOR Borrowing to be continued into a subsequent LIBOR Period, shall be an integral multiple of $100,000, but not less than $1,000,000. (h) With respect to any redesignation of an ABR Borrowing as a LIBOR Borrowing or any continuation of an outstanding LIBOR Borrowing into a subsequent LIBOR Period, no later than 11:00 a.m., Chicago time, one (1) LIBOR Banking Day after the LIBOR Banking Day on which the Administrative Agent receives the Company's Request for Redesignation or Request for Continuation, as the case may be, the Administrative Agent shall determine the applicable LIBOR Rate (which determination shall be conclusive in the absence of manifest error) and shall promptly give notice of the same to the Company and the Banks by telephone or telecopier. (i) Upon fulfillment of the applicable conditions set forth in this Agreement, the redesignation of all or a portion of outstanding ABR Borrowings as a LIBOR Borrowing shall become effective on the first day of the applicable LIBOR Period and the continuation of an outstanding LIBOR Borrowing into a subsequent LIBOR Period shall become effective on the last day of the current LIBOR Period for such LIBOR Borrowing. (j) A Request for Redesignation or a Request for Continuation shall be irrevocable upon receipt by the Administrative Agent. 2.5 CALCULATION OF BORROWING BASE. (a) Within fifty-five (55) days after the end of each calendar quarter, and at such other times as the Majority Banks may reasonably require or as the Company may determine (but in each case no more often than monthly), the Company shall provide the Administrative Agent with a Borrowing Base Certificate in a form satisfactory to the Administrative Agent showing the Company's calculations of the components of the Borrowing Base and such data supporting such calculations per Exhibit B or in another form as the Majority Banks may reasonably require. Any change in the Borrowing Base shall be effective upon receipt of a Borrowing Base Certificate. The Majority Banks shall then have a period of thirty (30) days following receipt of a Borrowing Base Certificate to notify the Company of the determination that the Borrowing Base Certificate, as calculated in accordance with the provisions hereof, is incorrect in the Majority Banks' reasonable judgment. If the Majority Banks fail to so notify the Company within such thirty (30) day period, the Borrowing Base Certificate shall be deemed to be correct. If the Majority Banks so determine, the Borrowing Base shall be recalculated as determined by the Majority Banks as of the date of such determination based upon the reasonable judgment of the Majority Banks. -29- (B) AMOUNT OF BORROWING BASE. As used in this Agreement, the TERM "BORROWING BASE" shall have the meaning set forth in this SECTION 2.5(B): (i) EXCEPT AS SET FORTH IN SECTIONS 2.5(B)(II) AND (III) below, the Borrowing Base shall consist of the Dollar amount equal to the sum of the following Unencumbered Real Estate Inventory owned by the Company or any wholly-owned Subsidiary in the Homebuilding Segment and Home Proceeds Receivable owned by the Company or any wholly-owned Subsidiary in the Homebuilding Segment: (A) HOME PROCEEDS RECEIVABLE. 90% of the amount of home proceeds receivable; plus (B) SOLD CONSTRUCTION IN PROGRESS AND SOLD COMPLETED UNITS. 90% of the aggregate GAAP Value of Sold construction in progress and sold completed units; plus (C) UNSOLD CONSTRUCTION IN PROGRESS AND COMPLETED UNITS. (1) 75% of the aggregate GAAP Value of Unsold Construction in Progress and Unsold Completed Units which have been in an Unsold status for less than 180 days; plus (2) 50% of the aggregate GAAP Value of Unsold Construction in Progress and Unsold Completed Units which have been in an Unsold status for 180 days or more but not more than 270 days (for purposes of the Borrowing Base, no value (i.e., a 0% advance rate) shall be attributed to Unsold Construction in Progress and Unsold Completed Units which have been in an unsold status for more than 270 days); plus (D) FINISHED LOTS. 70% of the GAAP Value of finished lots; plus (E) LAND UNDER DEVELOPMENT. 50% of the GAAP Value of the land under development; plus (F) RAW LAND - ENTITLED. 25% of the GAAP Value of Raw Land - Entitled; -30- provided, however, that the amount set forth in clause (F) shall not exceed 10% of the Aggregate Commitment; and provided further that the sum of 70% of Finished Lots, 50% of Land Under Development and 25% of Raw Land Entitled shall not exceed 40% of the Borrowing Base. (ii) In calculating the GAAP Value of the classes of unencumbered real estate inventory listed in Section 2.5(B)(I) above, all of the Unencumbered Real Estate Inventory of the Company or any wholly-owned Subsidiary in the Homebuilding Segment qualifies for inclusion in the Borrowing Base but shall specifically exclude the cost of or investment in any land upon which the Company or such wholly-owned Subsidiary holds a purchase option until such time as the Company or such wholly-owned Subsidiary exercises the option and takes title to such land. (iii) Only Real Estate Inventory which is Unencumbered Real Estate Inventory may be added to the Borrowing Base. Any Real Estate Inventory that is not Unencumbered Real Estate Inventory shall have no value for purposes of the Borrowing Base (i.e., a 0% advance rate). Furthermore, land in the Real Estate Inventory which is not Entitled Land shall have no value for purposes of the Borrowing Base (i.e., a 0% advance rate). Once Units or any other Real Estate Inventory are sold and conveyed to a buyer, or otherwise cease to be owned by the Company or any wholly-owned Subsidiary that is in the Homebuilding Segment, the applicable advance rate for such asset shall decrease to 0%, and the Company shall not be entitled to have any value for such assets attributed to the Borrowing Base. 2.6 BORROWING BASE. The sum of the aggregate principal amount at any time outstanding under the loans plus the L/C Obligations shall not at any time exceed the lesser of (a) the Aggregate Commitment or (b) the Borrowing BASE LESS the sum of (i) the aggregate principal amount of outstanding Senior Permitted Debt of the Homebuilding Segment at such time (exclusive of the OUTSTANDING AMOUNT OF THE LOANS AND L/C OBLIGATIONS) PLUS without duplication (ii) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment at such time. 2.7 PAYMENTS BY THE BANKS TO THE ADMINISTRATIVE AGENT. (a) Unless the Administrative Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Banking Day prior to the date of such Borrowing or in the case of an ABR Borrowing upon notice to such Bank of such ABR Borrowing, that such Bank will not make available as and when required hereunder to the Administrative Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Administrative Agent may assume that each Bank has made such amount available to the Administrative Agent in immediately available funds on the date of Borrowing and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Company such amount, that Bank shall on the Banking Day following such date of Borrowing make such amount available to the Administrative Agent, together with interest at the Reference Rate for each day during such period. A notice of the Administrative Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the Banking Day following the date of Borrowing, the Administrative Agent will notify the Company of such failure to fund and, upon demand by the Administrative Agent, the Company shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with accrued interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. Nothing herein shall prejudice the rights of the Company against such non-funding Bank. -31- (b) The failure of any Bank to make any Loan on any date of Borrowing shall not relieve any other Bank of any obligation hereunder to make a Loan on such date of Borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any date of Borrowing. 2.8 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to section 10.7) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. -32- 2.9 LETTER OF CREDIT SUBLIMIT. 2.9.1 AMOUNT AND TERMS OF THE CREDIT. Subject to the terms and upon the conditions of this Agreement, the Issuing Bank shall issue STANDBY OR COMMERCIAL LETTERS OF CREDIT (EACH, A "LETTER OF CREDIT," AND COLLECTIVELY, THE "LETTERS OF CREDIT") for the account of the Company from time to time up to but not including the Maturity Date. The maximum aggregate principal amount which remains undrawn under all outstanding Letters of Credit issued pursuant to this Agreement, when combined with the maximum aggregate principal amount which remains undrawn under the existing letters of credit issued by BofA for the ACCOUNT OF THE COMPANY LISTED ON SCHEDULE 2.9.1 hereto (which existing letters of credit shall be Letters of Credit for purposes of this Agreement and the other Loan Documents, shall be deemed to be outstanding hereunder and shall be subject to the terms and conditions hereof), shall not exceed at any one time outstanding the aggregate PRINCIPAL SUM OF $75,000,000 (THE "L/C COMMITMENT"). The maximum aggregate principal amount which remains undrawn under all outstanding Letters of Credit under this Agreement (including, without limitation, THE LETTERS OF CREDIT LISTED ON SCHEDULE 2.9.1 hereto) is referred to HEREIN AS THE "L/C OBLIGATIONS." 2.9.2 LETTERS OF CREDIT. (A) AMOUNTS AND TERMS OF LETTERS OF CREDIT. During the period from the date of this Agreement to but excluding the Maturity Date, and subject to the terms and conditions of this AGREEMENT, UPON COMPANY'S REQUEST PURSUANT TO SECTION 2.9.3, the Issuing Bank shall issue one or more Letters of Credit for the ACCOUNT OF COMPANY, PROVIDED that the Issuing Bank shall not be obligated to issue any Letter of Credit if, after giving effect thereto, (i) the L/C Obligations would exceed the L/C Commitment, OR (II) THE TOTAL AGGREGATE OUTSTANDING LOANS PLUS the L/C Obligations would exceed the Aggregate Commitment (such Aggregate Commitment calculated taking into account any reduction in the Aggregate Commitment prior to the expiration date of the proposed LETTER OF CREDIT PURSUANT TO SECTION 3.17 hereof), or (iii) the sum of (A) the aggregate principal amount of outstanding Senior Permitted Debt of the Homebuilding Segment (including Loans and THE L/C OBLIGATIONS) PLUS (B) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment would exceed the Borrowing Base. All Letters of Credit shall be on Issuing Bank's standard forms of letters of credit at the time of issuance. No Letter of Credit shall have an expiration date (unless the Banks otherwise consent in writing) later than the Maturity Date. The Issuing Bank shall not be required to issue any Letter of Credit hereunder unless such Letter of Credit is for the benefit of a party to which the Company owes certain performance obligations in connection with its ordinary course of business activity (for example, for the benefit of a municipality to support Company's obligation to widen public streets in connection with a residential development project). The Issuing Bank shall not issue any Letter of Credit for the benefit of creditors to which the Company is obligated in respect of obligations for borrowed money. -33- (B) LETTER OF CREDIT DRAWS ARE LOANS UNDER THIS Agreement. The Company and each Bank agree that any draws under any Letters of Credit shall constitute ABR Loans under this Agreement for all purposes except that the minimum amounts and notice provisions and conditions shall not be applicable thereto. To the extent the Company is not permitted to borrow at such time, the Company shall immediately reimburse the Issuing Bank in full the amount of such draw. Without limiting the foregoing, (i) all draws under any Letter of Credit shall bear interest and be repaid as ABR Loans outstanding under this Agreement, and (ii) if, at the time any draw is made under any Letter of Credit, an Event of Default has occurred or the Maturity Date has passed or the Loans have been accelerated or are otherwise due and payable, such draw under such Letter of Credit shall be immediately due and payable in full. Promptly upon being notified by the Administrative Agent (after the Administrative Agent has received notice from the Issuing Bank) that a draw has occurred under any Letter of Credit and not been reimbursed by the Company, each Bank shall reimburse the Administrative Agent, for the benefit of the Issuing Bank, for that Bank's Pro Rata Share of such draw. 2.9.3 REQUEST FOR CREDIT. The Company, on or after the date of this Agreement, shall give the Issuing Bank notice of its request for the issuance of a Letter of Credit by delivering to the Issuing Bank (with a copy to the Administrative Agent) (a) a duly executed and completed application for such Letter of Credit on the Issuing Bank's THEN CURRENT FORM (HEREIN, AN "L/C APPLICATION") specifying, among other things, (i) the beneficiary, (ii) the amount, (iii) the requested date of issuance (which shall be a Banking Day), and (iv) the term of the proposed Letter of Credit; and (b) a duly executed and completed REQUEST FOR LETTER OF CREDIT (IN THE FORM ATTACHED HERETO AS EXHIBIT "C"). Subject to the conditions herein, the Issuing Bank will issue the Letter of Credit, but in no event shall the Issuing Bank be required to issue the Letter of Credit earlier than three (3) Banking days after its receipt of all documents required by this Section 2.9.3 and Section 2.9.7. 2.9.4 OTHER BANKS' PARTICIPATION. Each Letter of Credit issued PURSUANT TO SECTION 2.9 shall, effective upon its issuance and without further action, be issued on behalf of all Banks (including the Issuing BANK THEREOF) PRO RATA according to their respective Pro Rata Shares. Each Bank shall, to the extent of its Pro Rata Share, be deemed irrevocably to have participated in the issuance of such Letter of Credit and shall be responsible to reimburse promptly the Issuing Bank for reimbursement obligations which have not been reimbursed by the Company. In the event that the Company shall fail to reimburse, or if for any reason Loans shall not be made to fund any reimbursement obligation, or in the event the Issuing Bank must for any reason return or disgorge such reimbursement, the Issuing Bank shall promptly notify each Bank of the unreimbursed amount of such drawing and of such Bank's respective participation therein. Each Bank shall make available to such Issuing Bank, whether or not any Default or Event of Default shall have occurred an amount equal to its participation in same day or immediately available funds at the office of the Issuing Bank specified in such notice not later than 11:00 a.m., Chicago time, on the Banking Day after the date notified by the Issuing Bank. In the event that any Bank fails to make available to the Issuing Bank the amount of such Bank's participation in such Letter of Credit as provided herein, the Issuing Bank shall be entitled to recover such amount on demand from such Bank together with interest at the daily average Federal Funds Effective Rate for three Banking Days (together with such other compensatory amounts as may be required to be paid by such Bank to the Administrative Agent pursuant to the Rules for Interbank Compensation of the Council on International Banking or the Clearinghouse Compensation Committee, as the case may be, as in effect from time to time) and thereafter at the ABR. The Issuing Bank shall distribute to each other Bank which has paid all amounts payable by it under this Section with respect to any Letter of Credit issued by the Issuing Bank such other Bank's Pro Rata Share of all payments received by the Issuing Bank from the Company in reimbursement of drawings honored by the Issuing Bank under such Letter of Credit when such payments are received. -34- 2.9.5 NATURE OF REIMBURSEMENT OBLIGATIONS. The Company shall assume all risks of the acts, omissions, or misuse of any Letter of Credit by the beneficiary thereof. Neither the Issuing Bank nor any Bank (except, in each case, to the extent of its own gross negligence or wilful misconduct) shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (b) the form, validity, sufficiency, accuracy, genuineness, or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omission, interruptions, or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a disbursement under a Letter of Credit or of the proceeds thereof. -35- None of the foregoing shall affect, impair, or prevent the vesting of any of the rights or powers granted the Issuing Bank or any Bank hereunder. In furtherance and extension, and not in limitation or derogation, of any of the foregoing, any action taken or omitted to be taken by the Issuing Bank in good faith shall be binding upon the Company and shall not put such Issuing Bank under any resulting liability to the Company, except for gross negligence or wilful misconduct of the Issuing Bank. 2.9.6 LETTER OF CREDIT AND ISSUANCE FEES. (a) LETTER OF CREDIT FEE. The Company agrees to pay to the Administrative Agent, for the account of each Bank in ACCORDANCE WITH ITS PRO RATA SHARE, A FEE (THE "LETTER OF CREDIT FEE") computed at the applicable L/C Fee Rate on the average daily face amount of all Letters of Credit outstanding hereunder from time to time. The Letter of Credit Fee shall commence to accrue on the date of this Agreement and shall be payable in arrears on the first day of January, April, July and October of each year, beginning with the first of such dates to occur after the date of this Agreement, on the Maturity Date and upon payment in full of the Obligations. (b) ISSUANCE FEE. The Company agrees to pay to the Administrative Agent, for the account of the Issuing Bank, a fee (THE "ISSUANCE FEE"), for the issuance or renewal of each Letter of Credit, at the rate of .125% per annum on the average daily amount of all Letters of Credit outstanding hereunder from time to time. The Issuance Fee shall commence to accrue on the date of this Agreement and shall be payable in arrears on the first day of January, April, July and October of each year, beginning with the first of such dates to occur after the date of this Agreement, on the Maturity Date and upon payment in full of the Obligations. 2.9.7 CONDITIONS PRECEDENT TO ISSUANCE OF LETTERS OF CREDIT. The obligation of the Issuing Bank to issue any Letter of Credit requested by the Company is subject to satisfaction of the following conditions precedent: (a) ARTICLE 4 CONDITIONS SHALL BE SATISFIED. Each of the CONDITIONS SPECIFIED IN SECTIONS 4.1 AND 4.2(A) to the issuance of any Letter of Credit shall have been satisfied. (b) L/C APPLICATION, ETC. The Issuing Bank shall have received from the Company, in form and substance satisfactory to the Issuing Bank, the duly executed and completed L/C Application AND REQUEST FOR LETTER OF CREDIT REFERRED TO IN SECTION 2.9.3 and such other certificates, documents and other papers and information as the Issuing Bank may reasonably request. -36- (c) ISSUING BANK APPROVAL. The Issuing Bank shall have determined that the amount of any requested Letter of Credit, the beneficiary thereof and the other terms contained in the documents pertaining to such Letter of Credit are satisfactory to the Issuing Bank in the exercise of its reasonable discretion. (d) PAYMENT OF FEES. The Company shall have paid, to the extent then due and payable, any fees and costs (other than the Issuance Fee) described in the documents pertaining to such Letter of Credit. 2.10 INCREASE OF COMMITMENTS. The Company may from time to time, by notice to the Administrative Agent request that the Aggregate Commitment be increased by an amount that will not result in the Aggregate Commitment under this Agreement exceeding $400,000,000. Each such notice shall set forth the requested amount of the increase in the Aggregate Commitment and the date on which such increase is to become effective. The increase in the Aggregate Commitment may be assumed by any Bank or any other financial institution agreed to by the Company and the Administrative Agent (consent to which shall not be unreasonably withheld) (any such Bank or other financial institution being called an "Augmenting Bank") and shall be effective upon the consent of the Company and the Augmenting Bank (consent to which shall not be unreasonably withheld). Upon the effectiveness of any increase pursuant to this Section 2.10 of the Aggregate Commitment and any resulting adjustment in a Pro Rata Share, the Banks and the Augmenting Banks will purchase from each other and sell to each other outstanding Loans sufficient to cause the outstanding Loans (other than Swing Line Advances) of each Bank and Augmenting Bank to equal its Pro Rata Share (as so adjusted) of the aggregate outstanding Loans. Such PURCHASE AND SALE SHALL BE MADE PURSUANT TO SECTION 10.6 except that no minimum amount shall be required, no processing fee shall be charged and, if any Bank shall suffer a loss or incur an expense as a result of the effectiveness of such purchase or sale being during a LIBOR Period, the Company shall reimburse such Bank the amount of such loss or expense. Each such Bank shall furnish the Company with a certificate setting forth the basis for determining the amount to be paid to it hereunder. 2.11 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may, upon not less than five Banking Days' prior notice to the Administrative Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $10,000,000 or any multiple of $1,000,000 in EXCESS THEREOF; UNLESS, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the then-outstanding amount of the Loans plus the L/C Obligations would exceed the amount of the combined Commitments then in effect. Once reduced in accordance with this Section 2.11, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. All accrued commitment fees to, but not including the effective date of any reduction or termination of Commitments, shall be paid on the effective date of such reduction or termination. -37- ARTICLE 3: PAYMENTS AND FEES. 3.1 PRINCIPAL AND INTEREST. (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Borrowing from the date thereof until payment in full is made and shall accrue and be payable at the rates set forth herein both before and after default and before and after maturity and judgment. Upon any partial prepayment or redesignation of outstanding ABR Borrowings, interest accrued through the date of such prepayment or redesignation shall be payable on the next following Interest Payment Date. Upon any partial prepayment or payment in full or redesignation or conversion of any LIBOR Borrowing, or upon any payment or redesignation in full of all outstanding ABR Borrowings, interest accrued through the date of such prepayment, payment, redesignation or conversion shall be payable on the next following Interest Payment Date. (b) Interest on each ABR Borrowing shall be computed on the basis of a year of 365 or 366 days and the actual number of days ELAPSED, AT THE ABR TIMES the total principal balance outstanding under each Note. Interest accrued on each ABR Borrowing shall be payable on each Interest Payment Date, commencing with the first such date to occur after the Closing Date. The Administrative Agent shall use its best efforts to notify the Company of the amount of interest due on each Interest Payment Date, but failure of the Administrative Agent to DO SO SHALL NOT EXCUSE PAYMENT OF SUCH INTEREST WHEN PAYABLE. EXCEPT AS OTHERWISE PROVIDED IN SECTION 3.4, the unpaid principal amount of any ABR Borrowing shall bear interest at a fluctuating rate per annum equal to the ABR. Each change in the interest rate shall take effect simultaneously with the corresponding change in the ABR. (c) Interest on each LIBOR Borrowing shall be computed on the basis of a year of 360 days and the actual number of days elapsed. Interest accrued on each LIBOR Borrowing shall be payable on each Interest Payment Date. The Administrative Agent shall use its best efforts to notify the Company of the amount of interest so payable prior to each such date, but failure of the Administrative Agent to do so shall not excuse payment of such interest when payable. The unpaid principal amount of any LIBOR Borrowing shall bear interest at a rate PER ANNUM EQUAL TO THE LIBOR RATE FOR THAT LIBOR BORROWING PLUS the applicable LIBOR Rate Spread. (d) Interest on each Swing Line Advance shall be computed on the basis of a year of 365 or 366 days and the actual number of days elapsed. Interest accrued on each Swing Line Advance shall be payable on each Interest Payment Date. The Administrative Agent shall use its best efforts to notify the Company of the amount of interest so payable prior to each such date, but failure of the Administrative Agent to do so shall not excuse payment of such interest when payable. The unpaid principal amount of any Swing Line Advance shall bear interest at a rate per annum equal to the Swing Line Rate for that Swing Line Advance. -38- (e) If not sooner paid, the principal indebtedness evidenced by each Note shall be payable as follows: (i) subject to the applicable provisions of Section 2.4 of this Agreement providing for automatic redesignation of Borrowings and the continuation of LIBOR Borrowings into a subsequent LIBOR period upon compliance with Section 2.4, the principal amount of each LIBOR Borrowing shall be payable on the last day of the LIBOR Period for such LIBOR Borrowing if such LIBOR Borrowing is not redesignated or continued pursuant to SECTION 2.4; (ii) the amount, if any, by which the principal indebtedness evidenced by each Note at any time exceeds the applicable Bank's Commitment shall be payable immediately; (iii) the amount of each payment required pursuant to SECTION 3.15 shall be payable immediately, except that if no Default or Event of Default has occurred and is continuing, such payment may be held as cash collateral, at the request of the Company, and applied to the Loans at the end of any LIBOR Period with respect thereto; (iv) all outstanding Loans (other than as specified in subparagraph (v) below) shall be payable on the Maturity Date; (v) the principal of any Note held by a Bank which refuses to extend the maturity date pursuant to Section 3.17, if not sooner paid, shall be payable on such Bank's Non-Renewing Bank Loan Maturity Date; and (vi) the principal amount of each Swing Line Advance shall be payable on the fifth Banking Day after the date such Swing Line Advance was made, and in any event on the Maturity Date. In the event that any Swing Line Advance is not repaid by the Company (including a repayment made with the proceeds of an ABR Borrowing or a LIBOR Borrowing obtained by the Company under the terms of this Agreement) in immediately available funds prior to 9:30 a.m., Chicago time, on such fifth Banking Day, the Administrative Agent shall, on behalf of the Company (which hereby irrevocably directs the Administrative Agent to act on its behalf), promptly request the Banks to make an ABR Borrowing on the such Banking Day in an amount equal to the unpaid principal amount of such Swing Line Advance. Unless any Event of Default shall have occurred (in which case the provisions of Section 2.1(H)(III) shall apply), each Bank shall make the amount of its Pro Rata Share of such ABR Borrowing available to the Administrative Agent for the account of BofA at the office of the Administrative Agent set forth below its signature hereto by 2:00 p.m., Chicago time, on such Banking Day in funds immediately available to the Administrative Agent. The proceeds of such ABR Borrowing shall be immediately applied to the payment of such Swing Line Advance. -39- (f) Each Note may, at any time and from time to time, be paid OR PREPAID IN WHOLE OR IN PART, PROVIDED that (i) any partial prepayment shall be an integral multiple of $100,000, (ii) any partial prepayment shall be in an amount not less than $1,000,000, and (iii) any payment or prepayment of all or any part of any LIBOR Borrowing on a day other than the last day of the applicable LIBOR Period shall be made on a LIBOR Banking Day, shall be preceded by at least five (5) LIBOR Banking Days written notice to the Administrative Agent of the date and amount of such payment or payments, and shall be SUBJECT TO THE INDEMNIFICATION REQUIREMENTS OF SECTION 3.9. In addition, if at any time the amount of any LIBOR Borrowing is reduced (by payment, prepayment or conversion of a part thereof) to an amount less than $1,000,000, such LIBOR Borrowing shall automatically convert into an ABR Borrowing, and on and after such date the right of the Company to continue such Borrowing as a LIBOR Borrowing shall terminate. 3.2 NON-USE FEE. For the period commencing on the date of this Agreement and ending on the Maturity Date, the Company shall pay to the Administrative Agent for the account of each Bank in accordance with its Pro RATA SHARE A NON-USE FEE (THE "NON-USE FEE"), computed on the basis of a year of 365 or 366 days and the actual number of days elapsed, at the rate of (a) THE APPLICABLE NON-USE FEE RATE "A" TIMES the average daily difference, if positive, between (i) 50% of the Aggregate Commitment, and (ii) the total PRINCIPAL BALANCE OUTSTANDING UNDER THE NOTES PLUS THE L/C OBLIGATIONS, PLUS (B) THE APPLICABLE NON-USE FEE RATE "B" TIMES the average daily difference between (i) the Aggregate Commitment, and (ii) the greater of (A) the total principal balance outstanding under the Notes plus the L/C Obligations, or (B) 50% of the Aggregate Commitment. The Non-use Fee shall be payable in arrears on the first day of each April, July, October and January, RESPECTIVELY, EXCEPT that upon payment of each Note in full, the Non-use Fee accrued to the date of payment shall be payable on the date of payment. EXAMPLES OF THE CALCULATION OF THE NON-USE FEE ARE SET FORTH ON ANNEX III hereto. 3.3 FACILITY FEE. For the period commencing on the date of this Agreement and ending on the Maturity Date, the Company shall pay to the Administrative Agent for the account of each Bank a facility fee (the "FACILITY FEE"), computed on the basis of a year of 360 days and the actual NUMBER OF DAYS, PAYABLE AT THE FACILITY FEE RATE TIMES the amount of the Commitment (whether used or unused) of such Bank. The Facility Fee owing to EACH BANK UNDER THIS SECTION 3.3 shall be payable quarterly in arrears on the first day of each January, April, July and October of each year. -40- 3.4 UP-FRONT FEE. The Company shall pay to each Bank an up-front fee in the amount agreed upon by the Company, the Administrative Agent and such Bank. Such up-front fee shall be payable in full on the Closing Date. 3.5 LATE PAYMENTS. Should any amount of principal or other amount payable under any Loan Document to the Banks not be paid when due, it shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Reference Rate plus 3.00% per annum, to the fullest extent permitted by applicable Law. 3.6 TAXES. All payments payable to the Banks hereunder or with respect to the Loan Documents shall be made to the Banks without deductions for any Taxes or Other Taxes except to the extent the Company is required by any Law or Governmental Authority to withhold and except in accordance with SECTION 9.10 to the extent, if any, that such amounts are required to be withheld by the Administrative Agent under the laws of the United States of America or any other applicable taxing authority. In the event of any such withholding then the Company will pay such amount as shall cause the Banks to receive an amount which it would have received except for such withholding (and an amount equal to any tax due on such additional amount). 3.7 ILLEGALITY. (a) If any Bank determines that the introduction after the date hereof of any Requirement of Law, or any change after the date hereof in any Requirement of Law or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make LIBOR Borrowings, then, on notice thereof by the Bank to the Company through the Administrative Agent, any obligation of that Bank to make LIBOR Borrowings shall be suspended until the Bank notifies the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any LIBOR Borrowing, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Administrative Agent), prepay in full such LIBOR Borrowings of that Bank then outstanding, together with interest accrued thereon and amounts REQUIRED UNDER SECTION 3.9, either on the last day of the LIBOR Period thereof, if the Bank may lawfully continue to maintain such LIBOR Borrowings to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBOR Borrowing. If the Company is required to so prepay any LIBOR Borrowing, then concurrently with such prepayment, the Company may, at its option, borrow from the affected Bank, in the amount of such repayment, a ABR Borrowing. (c) If the obligation of any Bank to make or maintain LIBOR Borrowings has been so terminated or suspended, the Company may elect, by giving notice to the Bank through the Administrative Agent, that all Loans which would otherwise be made by the Bank as LIBOR Borrowings shall be instead ABR Borrowings. -41- (d) Before giving any notice to the Administrative Agent under this Section, the affected Bank shall designate a different Lending Office with respect to its LIBOR Borrowings if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 3.8 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Bank determines that, due to either (i) the introduction after the date hereof of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR Rate or in respect of the assessment rate payable by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation after the date hereof of any law or regulation or (ii) the compliance by that Bank with any guideline imposed or request made by any central bank or other Governmental Authority after the date hereof (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any LIBOR Borrowings, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Administrative Agent), pay to the Administrative Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction after the date hereof of any Capital Adequacy Regulation, (ii) any change after the date hereof in any Capital Adequacy Regulation, (iii) any change after the date hereof in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation described in clauses (i) through (iii) above, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, Loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Administrative Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. -42- 3.9 FUNDING INDEMNIFICATION. If any payment of a LIBOR Borrowing occurs on a date which is not the last day of the LIBOR Period, whether because of acceleration, prepayment or otherwise, or if, for any reason other than default by one or more of the Banks, a LIBOR Borrowing is requested and subsequently cancelled or is otherwise not made or continued as a LIBOR Borrowing, or an ABR Borrowing is not redesignated as a LIBOR Borrowing on the date specified by the Company, the Company will indemnify and hold harmless each Bank from and against any loss, damage, expense or cost incurred by such Bank resulting therefrom, including, without limitation, any loss, damage, expense or cost in liquidating or employing deposits acquired to fund or maintain the LIBOR Borrowing. The Company shall pay to the Administrative Agent for the account of each Bank the amount required to indemnify such Bank within 15 days after written certification by such Bank of such loss, damage, expense or cost (which certification shall be delivered by such Bank to the Administrative Agent for delivery to the Company). Determination of amounts payable under this Section in connection with a LIBOR Borrowing shall be calculated as though each Bank funded its LIBOR Borrowing through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the LIBOR Rate applicable to such LIBOR Borrowing, whether in fact that is the case or not. 3.10 INABILITY TO DETERMINE RATES. If the Administrative Agent determines that for any reason adequate and reasonable means do not exist for determining the LIBOR Rate for any requested LIBOR Period with respect to a proposed LIBOR Borrowing, or that the LIBOR Rate applicable pursuant to SECTION 3.1(C) for any requested LIBOR Period with respect to a proposed LIBOR Borrowing does not adequately and fairly reflect the cost to the Banks of funding such Borrowing, the Administrative Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain LIBOR Borrowings, as the case may be, hereunder shall be suspended until the Administrative Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Request for Borrowing or Request for Redesignation of Borrowing then submitted by it. If the Company does not revoke such Request, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as ABR Borrowings instead of LIBOR Borrowings. As of the date of this Agreement, no Bank has made the determination or is aware of the conditions referenced in the first sentence of this Section 3.10. 3.11 CERTIFICATE OF BANKS. Any Bank claiming reimbursement or COMPENSATION UNDER THIS ARTICLE 3 shall deliver to the Company (with a copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and the basis for such calculation and claim, and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 3.12 SUBSTITUTION OF BANKS. Upon the receipt by the Company from any BANK (AN "AFFECTED BANK") OF A CLAIM FOR COMPENSATION UNDER SECTION 3.8 or, to the extent such problem affects less than the Majority Banks, notice of a bank's inability to fund LIBOR borrowings under section 3.7 or determine LIBOR rates under Section 3.10, the Company may: (a) request the Administrative Agent to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Company to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment (a "REPLACEMENT BANK"); or (b) request one or more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment; or (c) designate a Replacement Bank. Any such designation of a Replacement Bank under clause (a) or (c) shall be subject to the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld or delayed). -43- 3.13 SURVIVAL. The agreements and obligations of the Company in this ARTICLE 3 shall survive the payment in full of all Obligations and the termination of this Agreement. 3.14 MANNER AND TREATMENT OF PAYMENTS. The amount of each payment hereunder or on each Note shall be made to the Administrative Agent for the account of each applicable Bank in immediately available funds on the day of payment (which must be a Banking Day). Any payment received after 2:00 p.m., Chicago time, on any Banking Day, shall be deemed received on the next succeeding Banking Day. The amount of all payments received by the Administrative Agent for the account of each Bank shall be promptly paid by the Administrative Agent to the applicable Bank(s) in immediately available funds (and any such payment not remitted on the same Banking Day that it is deemed received by the Administrative Agent shall thereafter be payable by the Administrative Agent to the applicable Bank(s) together with interest at the overnight Federal Funds Effective Rate, as such rate is reasonably determined by the Administrative Agent). Whenever any payment to be made hereunder or on each Note is due on a day that is not a Banking Day, payment SHALL BE MADE ON THE NEXT SUCCEEDING BANKING DAY, PROVIDED that the extension shall be included in the computation of interest owing on the next following Interest Payment Date. Any payment of the principal of any LIBOR Borrowing shall be made on a LIBOR Banking Day, as applicable. 3.15 MANDATORY PREPAYMENT. In the event that the aggregate principal amount of the outstanding loans plus the L/C Obligations at any time exceeds the limitations specified in Section 2.6 (whether because of the outstanding principal amount of the Loans or L/C Obligations, or because of the other outstanding Senior Permitted Debt or Third Party L/C Obligations), the Company shall immediately make a prepayment of the Loans in such amount as is necessary to cause the amount of outstanding loans plus l/c obligations to comply with the limitations of Section 2.6. in the event that the l/c obligations at any time exceed the borrowing base less the sum of (a) the aggregate principal amount of outstanding Senior Permitted Debt of the Homebuilding Segment (including the aggregate principal amount of outstanding loans, but exclusive of the l/c obligations) PLUS (b) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment, the Company shall immediately upon demand by the Administrative Agent deposit with the Administrative Agent, for the benefit of the Banks, an amount in cash equal to such excess. Such cash shall be deposited in an interest bearing account with the Administrative Agent as to which the Company shall have no right of withdrawal except as provided below. At such time as the borrowing base less the sum of (a) the aggregate principal amount of outstanding Senior Permitted Debt of the Homebuilding Segment (including the aggregate principal amount of outstanding loans, but exclusive of the l/c obligations) plus (b) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment once again equals or exceeds the outstanding L/C Obligations, and provided no other Event of Default has occurred and is continuing and the Company is otherwise in compliance with this Agreement, the amount so deposited by the Company in such restricted account with the Administrative Agent, together with any interest accrued thereon, shall be immediately remitted to the Company. -44- 3.16 AGENCY AND OTHER FEES PAYABLE TO THE ADMINISTRATIVE AGENT AND BANC OF AMERICA SECURITIES. The Banks acknowledge that pursuant to a fee letter agreement of even date herewith between the Administrative Agent, BOFA, BANC OF AMERICA SECURITIES AND THE COMPANY (THE "FEE LETTER Agreement"), the Company has agreed to pay BofA and Banc of America Securities certain agency and other fees, as more fully set forth in the Fee Letter Agreement. The Company covenants and agrees to pay such agency and other fees at the times and in the manner set forth in the Fee Letter Agreement. The respective agency and other fees payable to BofA and Banc of America Securities under the Fee Letter Agreement shall belong solely to BofA and Banc of America Securities in accordance with their respective interests in such fees, and neither BofA nor Banc of America Securities shall be required to share any such fee specified in the Fee Letter Agreement with any of the other Banks or other parties to this Agreement. 3.17 MATURITY DATE EXTENSION OPTION. (a) The Maturity Date may be extended, at the sole discretion of each of the Banks, on each successive anniversary of the date of THIS AGREEMENT (EACH SUCH DATE, AN "EXTENSION DATE"), in each case to the date one year from the Maturity Date in effect at such time. If the Company wishes to request an extension of the Maturity Date on any Extension Date, it shall deliver an Extension Request to the Administrative Agent not earlier than ninety (90) days and not later than sixty (60) days prior to such Extension Date. No such extension shall be effective as to a particular Bank without the approval of such extension by such Bank. Approval or disapproval of each such extension shall be in the sole and absolute discretion of each Bank. Each Bank shall notify the Administrative Agent and the Company, in writing and within 30 days of receipt of an Extension Request, whether it will extend the Maturity Date. If at least 90% of the Banks (based on their Pro Rata Shares) approve such extension, the Maturity Date shall be extended to the date one year from the then effective Maturity Date. If such extension is not approved by at least such 90% of the Banks, the Maturity Date then in effect will be retained, unless such non-consenting Banks are repaid or replaced as set forth below. (b) If any Bank elects not to extend the Maturity Date, or does not give notice of its election to extend the Maturity Date on or before the date which is thirty (30) days before the applicable Extension Date, the Company may, at its option to be exercised its sole discretion, by delivery of written notice to all of the Banks at any time prior to the previously applicable Maturity Date, either: -45- (i) Repay all Loans from the non-renewing Bank(s), reduce the Aggregate Commitment by an amount equal to the Pro Rata Share of the Commitment of the non-renewing Bank(s) effective on the date of repayment of the non-renewing Bank(s) (which date must be on or before the Non-Renewing Bank Loan Maturity Date), amend the Commitments of the renewing Banks to reflect a ratable allocation of the Aggregate Commitment as thus reduced, effective as of the date of repayment of the non-renewing Bank(s), and extend the Maturity Date by one year as to the renewing Banks; or (ii) Reduce the Aggregate Commitment by an amount equal to the Pro Rata Share of the Loans of the non-renewing Bank(s) effective on a date specified by the Company (which date must be on or before the Non-Renewing Bank Loan Maturity Date), amend the Pro Rata Shares of the renewing Banks to reflect a ratable allocation of the Aggregate Commitment as thus reduced, effective as of the date specified by the Company as provided above, extend the Maturity Date by one year as to the renewing Banks and retain the Non-Renewing Bank Loan Maturity Date as the date of maturity of principal of the Pro Rata Share of Loan proceeds disbursed by the non-renewing Bank(s); or (iii) Identify an Eligible Assignee to purchase, without recourse, at par, all or the remaining portion of the non-renewing Bank's Commitment on or before the Non-Renewing Bank Loan Maturity Date for such Bank. Such Eligible Assignee must agree to a Maturity Date which is coterminous with the extended Maturity Date for all of the renewing Banks and must be approved by the Administrative Agent, which approval shall not be unreasonably withheld or delayed. (c) In connection with each extension of the Maturity Date, the Company shall pay to the Administrative Agent for the account of each renewing Bank an extension fee in an amount to be negotiated by the Administrative Agent and the Company at the time the Company delivers the applicable Extension Request to the Administrative Agent, which extension fee shall be payable in full on the applicable Extension Date. 3.18 LIMITATION ON ADDITIONAL AMOUNTS, ETC. Notwithstanding anything to the contrary contained in Section 3.6 OR 3.8, unless a Bank gives notice to the Company that the Company is obligated to pay an amount under any such Section within 180 days after the later of (x) the date such Bank incurs the respective increased costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Bank has actual knowledge of its incurrence of the respective increased costs, Taxes, loss, expense, or liability, reductions in amounts received or receivable or reduction in return on capital, then such Bank shall only be entitled to be compensated for such amount by the Company PURSUANT TO SAID SECTION 3.6 OR 3.8, as the case may be, to the extent the costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs 180 days prior to such Bank giving notice to the Company that the Company is obligated to pay the respective amounts pursuant TO SECTION 3.6 OR 3.8, as the case may be. -46- ARTICLE 4: CONDITIONS. 4.1 CONDITIONS TO FIRST EXTENSION OF CREDIT. The obligation of the Banks to make the first extension of credit hereunder, whether in the form of a Borrowing or the issuance of a Letter of Credit by the Issuing Bank, is subject to the following conditions precedent (any one or more of which the Banks may waive in their sole discretion): (a) The Administrative Agent shall have received the following original executed documents (in form and substance satisfactory to the Administrative Agent and legal counsel for the Administrative Agent in sufficient number for the Administrative Agent and each Bank): (i) this Agreement; (ii) each Note; (iii) the Guaranty; (iv) the Opinion of Counsel; (v) a certified copy of resolutions of the board of directors of the Company authorizing the execution of the Loan Documents, together with an incumbency certificate executed by the corporate secretary of the Company; (vi) a certified copy of resolutions of the board of directors of each Guarantor authorizing the execution of the Guaranty, together with an incumbency certificate executed by the corporate secretary of each Guarantor; (vii) a Borrowing Base Certificate calculated as of September 30, 1999, showing the Company to be in compliance with SECTIONS 2.6 AND 7.4; and (viii) such other agreements, instruments and documents as any Bank shall reasonably request. (b) The Administrative Agent shall have received evidence satisfactory to the Administrative Agent and legal counsel to the Administrative Agent that the Company has been duly incorporated, validly exists and is in good standing under the laws of the State of Maryland, is duly qualified to do business as, and is in good standing as, a foreign corporation in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, and has all requisite power and authority to conduct its business and to own and lease its properties. -47- (c) The Administrative Agent shall have received evidence satisfactory to the Administrative Agent that all Indebtedness under the Second Amended and Restated Credit Agreement among the Company, certain lenders, certain co-agents, certain documentation and syndication agents and NationsBank, N.A., as administrative agent, dated as of June 24, 1997 (the "Existing Credit Agreement") shall have been simultaneously paid in full and such agreement shall have been terminated. (d) The Company shall have paid all fees due hereunder which have been invoiced. 4.2 CONDITIONS FOR SUBSEQUENT EXTENSIONS OF CREDIT. The obligation of the Banks to make any extension of credit hereunder (including the first and any subsequent extension of credit), whether in the form of a Borrowing or the issuance of a Letter of Credit by the Issuing Bank, or is subject to the following conditions precedent: (a) the representations and warranties contained in Sections 5.1 through 5.14, inclusive, and Sections 5.15 AND 5.16, inclusive, as of the latest reporting required under this Agreement, shall be correct in all material respects on and as of the date of the Borrowing, or the issuance of the Letter of Credit, as the case may be, as though made on and as of that date (except with respect to representations and warranties which expressly relate to an earlier date), and no Default or Event of Default shall have occurred and be continuing; and (b) in the case of a Borrowing, or redesignation or continuation thereof, the Company shall, at its sole expense, deliver or cause to be delivered to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, a Request for Borrowing, a Request for Redesignation or a Request for Continuation, as applicable. ARTICLE 5: REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Bank that: 5.1 INCORPORATION, QUALIFICATION, POWERS AND CAPITAL STOCK. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland, is duly qualified to do business as, and is in good standing as, a foreign corporation in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, and has all requisite power and authority to conduct its business and to own and lease its properties except where the failure to do so would not reasonably be expected to have a Material Adverse Effect. All outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid, nonassessable, and issued in compliance with all applicable state and federal securities and other Laws. -48- 5.2 EXECUTION, DELIVERY AND PERFORMANCE OF LOAN DOCUMENTS. (a) The Company has all requisite power and authority to execute and deliver, and to perform all of its obligations under, the Loan Documents. (b) Each Guarantor has all requisite power and authority to execute and deliver, and to perform all of its obligations under, the Guaranty. (c) The execution and delivery by the Company of, and the performance by the Company of each of its obligations under, each Loan Document to which it is a party, and the execution and delivery by each Guarantor of, and the performance by each Guarantor of each of its obligations under, the Guaranty, have been duly authorized by all necessary action and do not and will not: (i) require any consent or approval not heretofore obtained of any stockholder, security holder or creditor of the Company, any Subsidiary or any Guarantor; (ii) violate any provision of the certificate of incorporation or bylaws of the Company or any Guarantor or any provision of the articles or certificate of incorporation, bylaws or partnership agreement of any Subsidiary; (iii) result in or require the creation or imposition of any Lien, claim or encumbrance (except to the extent that any Lien is created under this Agreement) upon or with respect to any property now owned or leased or hereafter acquired by the Company, any Subsidiary or any Guarantor; (iv) violate any provision of any Law, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Company, any Subsidiary or any Guarantor; or (v) 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 material Contractual Obligation of the Company, any Subsidiary or any Guarantor. -49- (d) The Company, each Subsidiary and each Guarantor is not in default under any Law, order, writ, judgment, injunction, decree, determination, award, indenture, agreement, lease or instrument described in Section 5.2(C)(IV) OR 5.2(C)(V) above, in any respect that is materially adverse to the interests of any Bank, or that could materially impair the ability of the Company, its Subsidiaries and each Guarantor taken as a whole to perform its obligation under the Loan Documents, as applicable, or that has a Material Adverse Effect. (e) No authorization, consent, approval, order, license, permit or exemption from, or filing, registration or qualification with, any Governmental Authority not heretofore obtained is or will be required under applicable Law to authorize or permit the execution and delivery by the Company or any Guarantor of, and the performance by the Company or any Guarantor of all of its obligations under, the Loan Documents. (f) Each of the Loan Documents to which the Company is a party, when executed and delivered, will constitute the legal, valid and binding obligations of the Company, and the Guaranty, when executed and delivered, will constitute the legal, valid and binding obligations of each Guarantor, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting creditors' rights generally or equitable principles relating to the granting of specific performance or other equitable remedies as a matter of judicial discretion. 5.3 COMPLIANCE WITH LAWS AND OTHER REQUIREMENTS. The Company is in compliance in all material respects with all Laws and other requirements applicable to its business and has obtained all material authorizations, consents, approvals, orders, licenses, permits and exemptions from, and has accomplished all material filings, registrations or qualifications with, any Governmental Authority that is necessary for the transaction of its business except where such noncompliance would not reasonably be expected to have a Material Adverse Effect. 5.4 SUBSIDIARIES. (a) SCHEDULE 5.4 hereto correctly sets forth the names and jurisdictions of incorporation or formation of all present Subsidiaries, and the Subsidiaries that, as of the date of this Agreement, are Significant Subsidiaries are designated as such on Schedule 5.4. except as described in Schedule 5.4, the Company does not own any capital stock or ownership interest in any Person other than the Subsidiaries and real estate joint ventures (including limited liability companies and partnerships) in which the Company or any Subsidiary within the Homebuilding Segment participates. All outstanding shares of capital stock or ownership interests, as the case may be, of each Subsidiary and each such real estate joint venture that are owned by the Company or any Subsidiary are (i) owned of record and beneficially by the Company and/or by one or more Subsidiaries, free and clear of all Liens, claims, encumbrances and rights of others, and are (ii) duly authorized, validly issued, fully paid, nonassessable (except for capital calls or contribution requirements in connection with ownership interests in such real estate joint ventures), and issued in compliance with all applicable state and federal securities and other laws. the company may update Schedule 5.4 from time to time by sending written notice to the Administrative Agent. -50- (b) Each Restricted Subsidiary is a corporation, partnership or limited liability company duly incorporated or formed, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or formation, is duly qualified to do business as, and is in good standing as, a foreign corporation, partnership or limited liability company in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary, and has all requisite power and authority to conduct its business and to own and lease its properties, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. (c) Each Restricted Subsidiary is in compliance in all material respects with all Laws and other requirements applicable to its business and has obtained all material authorizations, consents, approvals, orders, licenses, permits and exemptions from, and has accomplished all material filings, registrations or qualifications with, any Governmental Authority that are necessary for the transaction of its business, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. 5.5 FINANCIAL STATEMENTS OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES. The consolidated balance sheets of the Company and its consolidated Subsidiaries as at December 31, 1998 and the related consolidated statements of income and cash flows for the fiscal year ended on such date, reported on by Ernst and Young, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and changes in cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at June 30, 1999 and the related unaudited consolidated statements of income and of cash flows for the six-month period ended on such date, certified by a Responsible Official, copies of which have heretofore been furnished to each Bank, present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and changes in cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Official, as the case may be, and as disclosed therein and except the quarterly statements are unaudited and do not include footnotes as would be required for audited financial statements). 5.6 NO MATERIAL ADVERSE CHANGE. There has been no material adverse change in the condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole, from the financial condition of the Company and the Subsidiaries, taken as a whole, since December 31, 1998 which would reasonably be expected to have a Material Adverse Effect, and the Company and the Subsidiaries, taken as a whole, do not have any material liability incurred outside of the ordinary course of business or, to the best knowledge of the Company, material contingent liability not reflected or disclosed in the financial statements or notes thereto described in Section 5.5 (or, to the extent that financial statements have been delivered pursuant to Section 6.1, in the most recently delivered financial statements), or otherwise disclosed to the Administrative Agent in writing. -51- 5.7 TAX LIABILITY. The Company and each Subsidiary have filed all tax returns (federal, state and local) required to be filed by them and have paid all material taxes shown thereon to be due and all property taxes due, including interest and penalties, if any. To the best knowledge of the Company, there does not exist any substantial likelihood that any Governmental Authority will successfully assert a tax deficiency against the Company or any Subsidiary that is material to the Company and the Subsidiaries, taken as a whole, that has not been adequately reserved against in the financial statements described in Section 5.5 (or, to the extent that financial statements have been delivered pursuant to Section 6.1, in the most recently delivered financial statements). The Company and each Subsidiary have established and is maintaining adequate reserves for tax liabilities, if any, sufficient to comply with GAAP. 5.8 LITIGATION. SCHEDULE 5.8 sets forth information with respect to certain litigation, investigations or proceedings pending against the Company and its Subsidiaries. Subject to the matters set forth on such Schedule, there are no actions, suits or proceedings pending or, to the best knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary, or any property of the Company or any Restricted Subsidiary, before any Governmental Authority which, if determined adversely to the Company or the Restricted Subsidiary, could reasonably be expected to have a Material Adverse Effect. 5.9 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits to an extent which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA in an amount which could reasonably be expected to have a Material Adverse Effect if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. To the knowledge of the Company or any Commonly Controlled Entity, no such Multiemployer Plan for which the Company or any Subsidiary could reasonably be expected to have a material liability is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Company and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of $5,000,000. -52- 5.10 REGULATIONS U AND X; INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary 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 FRB. No part of the Loans or the Letters of Credit will be used to purchase or carry any margin stock, or to extend credit to others for that purpose, or for any purpose that violates the provisions of Regulations U or X of the FRB. Neither the Company nor any Subsidiary is or is required to be registered under the Investment Company Act of 1940. 5.11 NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing. 5.12 YEAR 2000 COMPLIANCE. The Company has conducted, and is presently conducting, a review and assessment of the Company's computer applications with respect to the "year 2000 problem" (that is, the risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and, based on the review to date, the Company does not believe the year 2000 problem will result in a Material Adverse Effect. 5.13 OWNERSHIP OF PROPERTY; LIENS. Each of the Company and its Restricted Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to all its other property, except for defects in title that do not interfere in any material respect with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, and none of such property is subject to any lien except as permitted by Section 7.8. Each of the Company and its Restricted Subsidiaries has good record and marketable title in fee simple to all Real Estate Inventory included in the Borrowing Base, except for defects in title that do not interfere in any material respect with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. 5.14 ENVIRONMENTAL MATTERS. Except to the extent that all of the following, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: -53- (a) To the knowledge of the Company, the facilities and properties owned, leased or operated by the Company or any of its subsidiaries (THE "PROPERTIES") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could reasonably be expected to give rise to liability under, any Environmental Law. (b) To the knowledge of the Company, the Properties and all operations at the Properties are in compliance, and, to the extent of the Company's and its Subsidiaries' involvement with the Properties, have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the company or any of its subsidiaries (THE "BUSINESS"). (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Company have knowledge or reason to believe that any such notice will be received or is being threatened. (d) To the knowledge of the Company, Materials of Environmental Concern have not been transported or disposed of from the Properties while owned or operated by the Company or any of its Subsidiaries in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business. (f) To the knowledge of the Company, there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of, or in amounts or in a manner that could reasonably give rise to liability under, Environmental Laws. -54- 5.15 BORROWING BASE. The sum of (a) the aggregate principal amount of outstanding senior permitted debt of the homebuilding segment plus without duplication (b) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment does not exceed the Borrowing Base. 5.16 BORROWING BASE COMPONENTS. At any time of determination thereof, the value of any component of Real Estate Inventory used to calculate the Borrowing Base does not exceed the GAAP Value of such component of Real Estate Inventory. 5.17 PURPOSE OF LOANS. The proceeds of the Loans shall be used by the Company for working capital purposes, to make purchases and investments permitted hereunder and to repay indebtedness under the Second Amended and Restated Credit Agreement dated as of June 24, 1997 among the Company, certain banks, certain co-agents, The Chase Manhattan Bank, as syndication and documentation agent and NationsBank, N.A., as administrative agent. ARTICLE 6: AFFIRMATIVE COVENANTS OF THE COMPANY. As long as any Note remains unpaid or any other Obligation remains outstanding or any Commitment or any Letter of Credit remains in effect, unless the Majority Banks otherwise consent in writing: 6.1 FINANCIAL STATEMENTS. The Company shall cause to be delivered to the Administrative Agent, in form and detail satisfactory to the Administrative Agent (for prompt distribution by the Administrative Agent to the Banks): (a) as soon as available, but in any event within 100 days after the end of each fiscal year of the Company, copies of the consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of income and retained earnings and changes in cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit (other than qualifications related to the incorporation of reports by other independent certified public accountants), by Ernst and Young or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Majority Banks; and (b) as soon as available, but in any event not later than 55 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and retained earnings and changes in cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Official as being fairly stated in all material respects when considered in relation to the consolidated financial position of the Company and its consolidated Subsidiaries (subject to normal year-end audit adjustments); -55- all such financial statements to be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 CERTIFICATES; OTHER INFORMATION. The Company shall cause to be delivered to the Administrative Agent, in form and detail satisfactory to the Administrative Agent (for prompt distribution by the Administrative Agent to the Banks): (a) concurrently with the delivery of the financial statements REFERRED TO IN SECTION 6.1(A), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements REFERRED TO IN SECTIONS 6.1(A) AND 6.1(B), a compliance certificate of A RESPONSIBLE OFFICIAL, SUBSTANTIALLY IN THE FORM OF EXHIBIT "G", stating that, to the best of such officer's knowledge, the Company during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and in the Notes to be observed, performed or satisfied by it (AND CONTAINING CALCULATIONS DEMONSTRATING COMPLIANCE WITH SECTIONS 7.1 THROUGH 7.6 and such other financial information as requested by the Administrative Agent), and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; (c) not later than 100 days after the end of each fiscal year of the Company, a copy of the projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for the succeeding two fiscal years and the projected consolidated balance sheet of the Company and its Subsidiaries as at the end of such succeeding fiscal years, such projections to be accompanied by a certificate of a Responsible Official to the effect that while such officer has no reason to believe such projections are incorrect or misleading in any material respect, such projections are based upon assumptions that may not materialize or may change adversely due to factors related to the Company's business or industry, and unanticipated events and circumstances may occur subsequent to the date of such projections, such that the actual results achieved may vary from such projections, and such variations may be material, and that the Company is under no obligation to update such projections; -56- (d) promptly upon their becoming available, but in any event no later than ten days after the same are sent, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, or by any Restricted Subsidiary of the Company to its stockholders (other than the Company or any Subsidiary of the Company), of all regular and periodic reports and all registration statements (excluding exhibits thereto and Registration Statements on Form S-8) and prospectuses, if any, filed by the Company or any of its Restricted Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any successor or analogous Governmental Authority; and all press releases and other statements made available generally by the Company or any of its Restricted Subsidiaries to the public concerning material developments in the business of the Company and any of its Restricted Subsidiaries; (e) promptly, such additional financial and other information as any Bank may from time to time reasonably request; (f) as soon as practicable, but in no event later than 55 days after the end of each fiscal quarter, a Borrowing Base Certificate certifying in reasonable detail the Borrowing Base as of the last day of such fiscal quarter, which certificate shall be complete and correct as of the date thereof; and (g) concurrently with the delivery of the financial statements REFERRED TO IN SECTIONS 6.1(A) AND 6.1(B), the financial information SET FORTH ON SCHEDULE 6.2(G) hereto. 6.3 PAYMENT OF OBLIGATIONS. The Company and each Restricted Subsidiary will pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all obligations of whatever nature which if not so paid could reasonably be expected to have a Material Adverse Effect, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company and the Restricted Subsidiaries, taken as a whole, will at all times remain principally engaged in the business currently being conducted by the Company and the Restricted Subsidiaries, and in all respects material to the business of the Company and the Restricted Subsidiaries taken as a whole, the Company shall, and will cause each of the Restricted Subsidiaries to, preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises required for the normal conduct of such business, except (i) as otherwise permitted pursuant to Section 7.10 and (ii) the Company shall not be required to preserve any such right, privilege or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or any Subsidiary and that the loss thereof could not reasonably be expected to have a Material Adverse Effect. The Company shall, and will cause each Restricted Subsidiary to, comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. -57- 6.5 MAINTENANCE OF PROPERTY; INSURANCE. The Company and each Restricted Subsidiary will keep in all material respects all property useful AND NECESSARY IN ITS BUSINESS IN GOOD WORKING ORDER AND CONDITION (PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION 6.5 shall prevent the Company from discontinuing the operation or maintenance, or both the operation and maintenance, of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and could not reasonably be expected to have a Material Adverse Effect); maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Bank, upon written request, reasonable information as to the insurance carried. 6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The Company and each Restricted Subsidiary will in all material respects keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Bank, at such Bank's expense, to visit and inspect as reasonably requested any of its properties and the properties of the real estate joint ventures in which the Company or any Subsidiary within the Homebuilding Segment participates or manages and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries and such real estate joint ventures in which the Company or any Subsidiary within the Homebuilding Segment participates or manages, as reasonably requested with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. 6.7 NOTICES. The Company will promptly give notice to the Administrative Agent and each Bank of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Restricted Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Restricted Subsidiaries and any Governmental Authority, which, in either case, reasonably could be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or any of its Restricted Subsidiaries (i) in which the amount involved and not covered by insurance is $10,000,000 or more or (ii) in which injunctive or similar relief is sought which reasonably could be expected to have a Material Adverse Effect; -58- (d) the following events, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan which must be reported to the applicable governmental authorities, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any change in the rating of the Company's senior long term unsecured debt ratings by either S and P or Moody's; and (f) any event or occurrence which has a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Official setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 6.8 ENVIRONMENTAL LAWS. (a) The Company, each Restricted Subsidiary and each joint venture in which the Company or any Restricted Subsidiary participates or manages will comply and insure compliance by all tenants and subtenants, if any, with all Environmental Laws and obtain and comply in all material respects with and maintain, and insure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except in each case to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. (b) The Company, each Restricted Subsidiary and each such joint venture will conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect. (c) The Company will defend, indemnify and hold harmless the Administrative Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with, any Environmental Laws, or any orders, requirements or demand of Governmental Authorities related thereto, including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements contained in this subsection (c) shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder or under any other Loan Document. -59- 6.9 GUARANTEES FROM FUTURE SUBSIDIARIES. The Company will promptly secure the execution and delivery of the Guaranty to the Administrative Agent on behalf of the Banks from each Subsidiary, whether now existing or formed and organized after the date hereof, if such Subsidiary (a) is included in the Homebuilding Segment and (b) either (i) has assets with an aggregate book value equal to or greater than $10,000,000, or (ii) has assets with an aggregate book value of less than $10,000,000 and the aggregate book value of the assets of all Subsidiaries of the Company in the Homebuilding Segment which individually have assets with an aggregate book value of less than $10,000,000 each and which has not provided a Guaranty then exceeds $15,000,000. Each such Subsidiary which hereafter meets the criteria set forth in the preceding sentence shall execute and deliver a counterpart of the Guaranty within 30 days after it meets such criteria. Concurrently with the execution and delivery by such a Subsidiary of a counterpart of the Guaranty, the Company will deliver to the Administrative Agent such legal opinions and evidence of corporate action and authority in respect thereof as shall be reasonably requested by the Administrative Agent. ARTICLE 7: NEGATIVE COVENANTS OF THE COMPANY As long as any Note remains unpaid or any other Obligation remains outstanding or any Commitment or any Letter of Credit remains in effect, unless the Majority Banks otherwise consent in writing: 7.1 CONSOLIDATED TANGIBLE NET WORTH. The Company shall not permit its Consolidated Tangible Net Worth at any time to be less than the sum of (A) $265,000,000 PLUS (b) 50% of the Consolidated Net Income (without deduction for losses sustained during any fiscal quarter) of the Company for each fiscal quarter subsequent to the fiscal quarter ended March 31, 1999, PLUS (c) 90% of the net proceeds from any equity offerings of the Company from and after March 31, 1999. 7.2 COMBINED DEBT OF THE HOMEBUILDING SEGMENT TO ADJUSTED CONSOLIDATED TANGIBLE NET WORTH RATIO. The Company shall not permit the ratio of (a) Combined Debt of the Homebuilding Segment to (b) Adjusted Consolidated Tangible Net Worth at any time to exceed 2.50 to 1.0. -60- 7.3 MINIMUM FIXED CHARGE COVERAGE. The Company shall not permit the ratio (the "fixed charge coverage ratio") of (a) EBITDA to (b) Fixed Charges, for any period consisting of the preceding four (4) fiscal quarters (each, a "measurement period"), to be less than 1.25 to 1.0 at any time, and shall not permit the Fixed Charge Coverage Ratio to be less than 1.75 to 1.0 as at the end of two consecutive fiscal quarter ends measured for the applicable Measurement Periods. 7.4 SENIOR PERMITTED DEBT PLUS THIRD PARTY L/C OBLIGATIONS NOT TO EXCEED BORROWING BASE. The Company shall not permit the sum of (a) Senior PERMITTED DEBT OF THE HOMEBUILDING SEGMENT PLUS without duplication (b) the aggregate amount of Third Party L/C Obligations of the Homebuilding Segment to at any time exceed the Borrowing Base. 7.5 LIMITATION ON LAND INVENTORY. The Company shall not permit: (a) the ratio of (i) the sum of the GAAP Value of (A) Unsold Finished Lots, (B) Unsold Land Under Development, and (C) Unsold Raw Land of the Homebuilding Segment on a combined basis to (ii) Adjusted Consolidated Tangible Net Worth at any time to exceed 1.50 to 1.0; or (b) the ratio of (i) the sum of the book value of (A) Unsold Raw Land - Entitled and (B) Unsold Raw Land - Unentitled of the Homebuilding Segment on a combined basis to (ii) Adjusted Consolidated Tangible Net Worth at any time to exceed 0.20 to 1.0. 7.6 LIMITATION ON HOUSING INVENTORY. The Company shall not permit the aggregate unit number of Unsold Housing Inventory of the Homebuilding Segment on a combined basis at any time to exceed the greater of (a) 50% of homes delivered by the Homebuilding Segment during the immediately preceding 12 months or (b) 70% of the homes delivered by the Homebuilding Segment during the immediately preceding six months. 7.7 LIMITATION ON INDEBTEDNESS. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness in respect of the Loans, the Notes, and the other Obligations; (b) Indebtedness of the Company to any Subsidiary and of any subsidiary to the company or any other subsidiary, provided, in each case, that such Indebtedness be permitted as an Investment pursuant to SECTION 7.13; (c) Indebtedness of the Company or any of its Subsidiaries in respect of purchase money mortgage financing for Real Estate Inventory, PROVIDED that the holder of such Indebtedness shall have no recourse against the Company or any Subsidiary in respect of such Indebtedness, such recourse being limited solely to the assets financed with the proceeds of such Indebtedness; -61- (d) Subordinated Debt; (e) Indebtedness constituting, or constituting the primary obligations guaranteed by, the Guarantee Obligations permitted pursuant TO SUBSECTIONS (A), (B) OR (C) OF SECTION 7.9; (f) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of letters of credit issued for the account of the Company or such other entity other than Letters of Credit issued hereunder, PROVIDED that such Indebtedness shall not include any letters of credit supporting obligations under any Indebtedness having a final maturity of more than one year from the date of incurrence of such Indebtedness; (g) Indebtedness of a corporation which becomes a Subsidiary or which is merged into the Company or any Subsidiary after the date HEREOF, PROVIDED that (i) such Indebtedness existed at the time such corporation became a Subsidiary or was so merged and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Company no Default or Event of Default shall have occurred and be continuing; (h) refinancing of existing Indebtedness of the Company or any Restricted Subsidiary or other Indebtedness permitted under this SECTION 7.7 on terms and conditions (other than the rate) no less favorable to the Company and not resulting in an Event of Default or DEFAULT HEREUNDER, PROVIDED that the provisions of the applicable CLAUSE (OTHER THAN THIS CLAUSE (H)) OF THIS SECTION 7.7 under which such Indebtedness is permitted are satisfied after giving effect thereto; (i) additional Indebtedness of the Company or any of its Subsidiaries in the Homebuilding Segment (other than the Indebtedness DESCRIBED IN THE SUBSECTIONS OF THIS SECTION 7.7 other than this subsection) (i) having restrictive covenants no more restrictive or less favorable to the Company than the terms and provisions hereof, or, if such restrictive covenants are more restrictive or less favorable to the Company (such covenants, the "More Restrictive Covenants") than the terms and provisions hereof, then the Banks shall be entitled to the benefit of the More Restrictive Covenants pursuant to an amendment to this Agreement, (ii) having a final maturity of greater than one year from the date of incurrence of such Indebtedness, and (iii) having no revolving credit or other provisions for short-term repayment and REBORROWING, PROVIDED that no more than an aggregate of $20,000,000 in principal of such Indebtedness matures prior to the Maturity Date; -62- (j) Indebtedness of any entity within the Ryland Financial Division so long as there is no recourse in respect thereof to the Company or any entity in the Homebuilding Segment or so long as any such recourse to the Company or any entity within the Homebuilding segment is permitted pursuant to Section 7.9; (k) Indebtedness of the Company and any of its Subsidiaries incurred to finance the acquisition of fixed or capital assets (whether pursuant to a loan, a financing lease or otherwise), provided that such Indebtedness shall be secured solely by the assets financed with the proceeds of such Indebtedness; (l) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of completion bonds issued for the account of the Company or such other entity in the ordinary course of business of the Homebuilding Segment in respect of construction projects undertaken by it; and (m) Indebtedness of the Company or any other entity in the Homebuilding Segment in the form of reimbursement obligations in respect of letters of credit issued for the account of the Company or such other entity for the benefit of employee benefit or employee insurance programs of the Company or any of its Subsidiaries. (n) Specified Debt. 7.8 LIMITATION ON LIENS. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Lien of any nature upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; -63- (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; (f) Liens securing Indebtedness of the Company and its subsidiaries permitted by Section 7.7(C) OR 7.7(K) incurred to finance the acquisition of Real Estate Inventory or fixed or capital assets or a refinancing thereof pursuant to Section 7.7(G), provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such Real Estate Inventory or fixed or capital assets (OR, in the case of a refinancing pursuant to Section 7.7(H), such Liens shall be renewals or replacements of Liens created substantially simultaneously with the acquisition of such Real Estate Inventory or fixed or capital assets) and (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness; (g) Liens on the property or assets of a corporation which becomes a Subsidiary or which is merged into the Company or a Subsidiary after the date hereof securing Indebtedness permitted by Section 7.7(g) (or Section 7.7(h) in respect of such indebtedness), provided that (i) such Liens existed at the time such corporation became a Subsidiary or was so merged and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any additional property or assets of such corporation after the time such corporation becomes a Subsidiary or is so merged, and (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens on assets of the Financial Services Segment securing indebtedness of the financial services segment permitted by Section 7.7(E) OR 7.7(J); and (i) judgment and other similar Liens arising in connection with court proceedings, provided that (i) the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being actively contested in good faith by appropriate proceedings and (ii) no Default or Event of Default shall have occurred and be continuing. 7.9 LIMITATION ON GUARANTEE OBLIGATIONS. Neither the Company nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Guarantee Obligation except: -64- (a) the Company and other entities within the Homebuilding Segment may incur Guarantee Obligations for the benefit of the Ryland Financial Division; (b) the entities within the Financial Services Segment may incur other Guarantee Obligations; (c) the Company and other entities within the Homebuilding Segment may incur Guarantee Obligations in respect of letters of credit and completion bonds permitted pursuant to subsection (l) or (m) of SECTION 7.7; (d) Subsidiaries of the Company may incur Guarantee Obligations IN RESPECT OF THE SPECIFIED DEBT, PROVIDED that simultaneously with the execution and delivery of any guaranty in respect thereof by any Subsidiary, such Subsidiary shall execute and deliver a substantially identical guaranty in respect of all obligations of the Company under this Agreement and the other Loan Documents; and (e) the Company may incur Guarantee Obligations for the benefit of Subsidiaries, Consolidated Joint Ventures and other joint ventures in each case in the Homebuilding Segment. 7.10 LIMITATIONS OF FUNDAMENTAL CHANGES. Neither the Company nor any Restricted Subsidiary will enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, except: (a) any Restricted Subsidiary of the Company may be merged or consolidated with or into the company, provided that the company shall be the continuing or surviving corporation, or with or into any one or more wholly-owned restricted subsidiaries of the company, provided that the wholly owned Restricted Subsidiary or Subsidiaries shall be the continuing or surviving corporation; (b) any wholly-owned Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly-owned Restricted Subsidiary of the Company; (c) the Company or any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets to the Company or any Restricted Subsidiary of the Company, whether existing on or created after the date of this agreement, provided that if the transferor is the Company or a Guarantor, the transferee shall be the Company or a Guarantor; and (d) sales, conveyances, leases, assignments, transfers or other dispositions of property, business or assets permitted under Section 7.11. -65- 7.11 LIMITATION ON SALES OF ASSETS. Neither the Company nor any Restricted Subsidiary will convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, stock of Subsidiaries, receivables and leasehold interests and, with respect to the Financial Services Segment, its loan servicing portfolios), whether now owned or hereafter acquired, except: (a) obsolete or worn out property disposed of in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) the sale or discount of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) the sale or discount without recourse of mortgage loan receivables; (e) the sale by the Financial Services Segment of its rights under loan servicing portfolios; (f) as permitted by Section 7.10 (other than pursuant to subsection (d) thereof); (g) the sale of mortgages and mortgage-backed or other securities by the Financial Services Segment; (h) the sale, transfer or other disposition of any stock, property or assets of the Limited-Purpose Subsidiaries; (i) the sale, transfer or other disposition of Cash Equivalents; and (j) any other sale or disposition of property or assets (INCLUDING STOCK OR ASSETS OF SUBSIDIARIES), PROVIDED that the aggregate book value of all assets so sold or disposed of in any period of twelve consecutive months shall not exceed 10% of the book value of the consolidated total assets of the Company (excluding the assets of the Limited Purpose Subsidiaries) as at the beginning of such twelve-month period. 7.12 LIMITATION ON DIVIDENDS. The Company will not declare or pay any dividend (other than dividends payable solely in common stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of stock of the Company or any warrants or options to purchase any such stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "restricted payments"), except that (a) the Company may make any Restricted Payment so long as, after giving effect thereto, no Default or Event of Default will be in existence and (b) the Company may in any event pay dividends in respect of the Company's Series A ESOP Convertible Preferred Stock for any period in any amount not exceeding the amount of principal and interest payable to the Company for such period by the recipient of such dividends. 7.13 LIMITATION ON INVESTMENTS. Neither the Company nor any Restricted Subsidiary will make any Investments, except: -66- (a) extensions of trade credit and other payables in the ordinary course of business and extensions of non-material advances for Improvements to property not then owned by the Company in the ordinary course of business provided that the Company shall give notice to the Banks of any such non-material advances aggregating in excess of $10,000,000 in any fiscal quarter; (b) Investments in Cash Equivalents; (c) acquisitions by the Company or any of its Restricted Subsidiaries within the Homebuilding Segment of assets constituting a BUSINESS UNIT OR THE CAPITAL STOCK OF ANY PERSON, PROVIDED that such business unit or Person is engaged in the same general type of business as conducted by the Company or one of its Restricted Subsidiaries and PROVIDED, FURTHER, that before any such acquisition and after giving effect thereto, no Default or Event of Default shall be in existence and the Company shall, at its sole expense, have delivered to the Administrative Agent not less than 10 days prior to the date of such acquisition a certificate to such effect, in form and substance satisfactory to the Administrative Agent, signed by a Responsible Official; (d) acquisitions by the Company or any of its Restricted Subsidiaries other than acquisitions permitted under subsection (c) or (H) OF THIS SECTION 7.13 of, or investments in, assets constituting a BUSINESS UNIT OR THE CAPITAL STOCK OF ANY PERSON; PROVIDED, that the aggregate amount of consideration paid by the Company and its Restricted Subsidiaries for all such acquisitions of assets or capital stock (including as a part of such consideration any Indebtedness assumed as a part thereof) does not exceed an aggregate amount equal to $25,000,000; AND PROVIDED, FURTHER, that after giving effect thereto, no Default or Event of Default shall be in existence; (e) (i) Investments by the Company or any of its Subsidiaries within the Homebuilding Segment in joint ventures in an aggregate amount for all such Investments not exceeding at any date an amount equal to the greater of (A) 15% of the Company's Consolidated Tangible NET WORTH LESS the aggregate amount of Investments (if any) by the Company or any of its Subsidiaries within the Homebuilding Segment in joint ventures which are in default in the payment of principal of or interest on non-recourse Indebtedness or in the observance or performance of any other agreement or condition relating to such non-recourse Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, the effect of which default in observance or performance is to cause, or permit the holder or holders of such non-recourse Indebtedness to cause, with the giving of notice if required, such non-recourse Indebtedness to become due prior to its stated maturity, or (B) $45,000,000; -67- (f) Investments by the Company in any Subsidiary within the Homebuilding Segment or by any Subsidiary within the Homebuilding Segment in the Company or in any other Subsidiary within the Homebuilding Segment; (g) Investments by the Company or any other entity within the Homebuilding Segment in the Financial Services Segment; (h) Investments by entities within the Financial Services Segment in any Person and acquisitions of assets constituting a business unit or the capital stock of any Person by entities within the Financial Services Segment; (i) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; and (j) other loans and advances to employees of the Company in connection with incentive or stock purchase plans or arrangements in an aggregate amount not to exceed $3,000,000 at any time outstanding. 7.14 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATION OF DEBT INSTRUMENTS. (a) Neither the Company nor any Restricted Subsidiary will (i) make any optional payment or prepayment on or redemption of any Subordinated Debt or (ii) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms (including, without limitation, the subordination terms) of any Subordinated Debt (other than any such amendment, modification or change in form reasonably satisfactory to the majority banks), provided that so long as no Default is in existence or would result therefrom, the Company may prepay Subordinated Debt to the extent that the aggregate face amount of the Subordinated Debt so prepaid after the date of this Agreement does not exceed $25,000,000. (b) No Restricted Subsidiary within the Financial Services Segment will amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms of any debt instrument to which it is a party the effect of which would be to (i) impose restrictions on the payment of dividends, directly or indirectly, to or for the benefit of the Company which would limit such dividends to an aggregate amount for all Restricted Subsidiaries in the Financial Services Segment in any fiscal year which is less than the Combined Net Income of the Financial Services Segment for the current fiscal year or (ii) impose restrictions on the making by such Restricted Subsidiaries of Credit Advances, directly or indirectly, to or for the benefit of the Company which would limit such Credit Advances to an aggregate amount for all Restricted Subsidiaries in the Financial Services Segment which is less than $25,000,000 at any time OUTSTANDING, PROVIDED that provisions which by their terms would impose such restrictions only in the event of a default under such debt instrument and solely as a result of such default shall not be deemed to be included in the restrictions described in the foregoing clauses (i) or (ii). -68- 7.15 TRANSACTIONS WITH AFFILIATES. Neither the Company nor any Restricted Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is otherwise permitted under this Agreement, or is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. 7.16 FISCAL YEAR. The Company will not permit the fiscal year of the Company to end on a day other than December 31. 7.17 COMPLIANCE WITH ERISA. Neither the Company nor any Restricted Subsidiary will (a) terminate any Plan so as to result in any material liability to the PBGC, (b) engage in any "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) involving any Plan which would result in a material liability for an excise tax or civil penalty in connection therewith, (c) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (d) allow or suffer to exist any event or condition which presents a material risk of incurring a material liability to the PBGC by reason of termination of any such Plan. 7.18 PREFERRED STOCK. The Company will not permit any Restricted Subsidiary within the Homebuilding Segment to issue preferred stock to any Person other than the Company. ARTICLE 8: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT. 8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: (a) The Company shall fail to pay any principal of any Note when due in accordance with the terms thereof or hereof; or the Company shall fail to pay any interest on any Note, or any other amount payable hereunder, within two days (or 15 days in the case of the Letter of Credit Fee or the Issuance Fee or 5 days in the case of any other fee) after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or -69- (b) Any representation or warranty made or deemed made by the Company or any Guarantor herein or in any other Loan Document or which is contained in any certificate or document furnished at any time under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement contained in article 7 (other than the Sections 7.5 and 7.6); or (d) The Company shall default in the observance or performance of any other agreement contained in this Agreement (other than as PROVIDED IN PARAGRAPHS (A) THROUGH (C) OF THIS SECTION 8), and such default shall continue unremedied (i) for a period of 90 days in the CASE OF SECTION 7.5 OR 7.6, or (ii) for a period of 30 days in the case of any other provision; or (e) The Company or any of its Restricted Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness having an aggregate principal balance of $10,000,000 or more (other than the Notes) or in the payment of any Guarantee Obligation of $10,000,000 or more in the aggregate, beyond the period of grace (not to exceed 15 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable, provided that the failure by Ryland Mortgage Company or any of its Subsidiaries to pay any such Indebtedness or Guarantee Obligation in the form of reimbursement obligations in respect of letters of credit issued for the account of Ryland Mortgage Company or any of its Subsidiaries backing obligations under master servicing agreements shall not constitute an Event of Default under this subsection (e) until the date which is 90 days after the date on which such reimbursement obligations become due and payable; or -70- (f) (i) The Company or any of its Restricted Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Restricted Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Restricted Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Restricted Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Restricted Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Restricted Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Banks, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Banks is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan, or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Company or any of its Restricted Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $10,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) A Designated Event shall occur; -71- (j) The Company shall cease to own, directly or indirectly and free and clear of any Lien, 100% of the issued and outstanding capital stock of Ryland Homes of California, Inc. and Ryland Mortgage Company; or (k) The Guaranty shall cease, for any reason, to be in full force and effect, or the Company or any Guarantor shall so assert in writing. 8.2 REMEDIES. If any Event of Default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the obligation of each Bank to make Loans and the obligation of the Issuing Bank to issue Letters of Credit to be terminated, whereupon such obligations shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be due and payable forthwith, whereupon the same shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; PROVIDED, HOWEVER, that upon the occurrence of any event specified in clause (I) OR (II) OF SUBSECTION (F) OF SECTION 8.1, the obligation of each Bank to make Loans and the obligation of the Issuing Bank to issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Bank. Upon the occurrence of any Event of Default, the Company shall immediately pay to the Administrative Agent, for the benefit of the banks, an amount (the "l/c obligations amount") equal to the aggregate outstanding L/C Obligations; and upon receipt of the payment of the L/C Obligations Amount, the Administrative Agent shall deposit such funds in an interest-bearing cash account (the "cash account") in the name of the Company maintained with the Administrative Agent as to which the Company shall have no right of withdrawal except as provided below. The Company hereby irrevocably authorizes and directs the Administrative Agent to apply amounts on deposit in the Cash Account against draws on the outstanding Letters of Credit as such draws are made. Upon expiration of all Letters of Credit and payment in full of all draws thereunder and all outstanding Loans and other Obligations, the amounts then on deposit in the Cash Account and any interest accrued thereon shall then be returned to the Company (to the extent any funds remain in the Cash Account after application of such funds as provided above.) -72- 8.3 RIGHTS NOT EXCLUSIVE. The rights and remedies of the Administrative Agent and Banks provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE 9: THE ADMINISTRATIVE AGENT. 9.1 APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action in its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 LIABILITY OF AGENT. None of the Administrative Agent-Related Persons shall: (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Banks for any recital, statement representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or for the value of or title to any collateral, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. -73- No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.4 RELIANCE BY AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of each Bank as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of each Bank and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Article 4, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 9.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Banks, unless the Administrative Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Administrative Agent will notify the Banks of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the majority banks in accordance with article 8; provided, however, that unless and until the Administrative Agent has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. -74- 9.6 CREDIT DECISION. Each Bank acknowledges that none of the Administrative Agent-Related Persons has made any representation or warranty to it, and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, the value of and title to any collateral, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Administrative Agent-Related Persons. 9.7 INDEMNIFICATION. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligations of the Company to do so), pro rata, from and against any and all liabilities covered by any indemnification hereunder; provided, however, that no Bank shall be liable for the payment to the Administrative Agent-Related Persons of any portion of such liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Administrative Agent. 9.8 AGENT IN INDIVIDUAL CAPACITY. BofA and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Administrative Agent hereunder and without notice to or consent of the Banks. Each Bank acknowledges that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledges that the Administrative Agent shall be under no obligation to provide such information to it. With respect to its Loans, BofA shall have the same rights and powers under this Agreement as any other bank and may exercise the same as though it were not the Administrative Agent, and the terms "Bank" and "Banks" include BofA in its individual capacity. -75- 9.9 SUCCESSOR AGENT. The Administrative Agent may resign as Agent upon 30 days' notice to the Banks. If the Administrative Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks upon the written consent of the Company and the Banks (which consents shall not be unreasonably withheld or delayed). If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint a successor agent from among the Banks upon the written consent of the Company and the Majority Banks (which consents shall not be unreasonably withheld or delayed). Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. 9.10 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Administrative Agent, to deliver to the Administrative Agent and the Company: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement, and IRS Form W-9; and -76- (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such bank in accordance with Section 10.6, such Bank agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Administrative Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank in accordance with Section 10.6, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Administrative Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to the Administrative Agent, then the Administrative Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or because such Bank failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. -77- 9.11 PERFORMANCE BY THE ADMINISTRATIVE AGENT. In the event that the Company shall default in or fail to perform any of its obligations under the Loan Documents, which default is not cured within any applicable cure period, the Administrative Agent shall have the right, but not the duty, without limitation upon any of the Administrative Agent's or the Banks rights pursuant thereto, to perform the same, and the Company agrees to pay to the Administrative Agent within five (5) Banking Days after demand, all reasonable costs and expenses incurred by the Administrative Agent in connection therewith, including without limitation reasonable Attorney Costs, together with interest thereon from the date which is five (5) Banking Days after demand until paid at a rate per annum equal to the reference rate plus 2%. 9.12 ACTIONS. The Administrative Agent shall have the right to commence, appear in, and defend any action or proceeding purporting to affect the rights or duties of the Banks hereunder or the payment of any funds, and in connection therewith the Administrative Agent may pay necessary expenses, employ counsel, and pay Attorney Costs. The Company agrees to pay to the Administrative Agent, within five (5) Banking Days after demand, all reasonable costs and expenses incurred by the Administrative Agent in connection therewith, including without limitation reasonable Attorney Costs, together with interest thereon from the date which is 5 Banking Days after demand until paid at a rate per annum equal to the reference rate plus 2%. 9.13 SYNDICATION AGENT AND CO-AGENTS. Notwithstanding anything contained herein which may be construed to the contrary, none of the Syndication Agent, the Co-Agents, the Arranger, the Co-Lead Arranger, the Book Manager and the Co-Book Manager shall exercise any of the rights or have any of the responsibilities of the Administrative Agent hereunder, or any other rights or responsibilities other than their respective rights and responsibilities as Banks hereunder. ARTICLE 10: MISCELLANEOUS. 10.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Administrative Agent at the written request of the Majority Banks) and the Company and acknowledged by the Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Administrative Agent, do any of the following: -78- (a) increase or extend the Commitment of any Bank, unless such Bank has consented thereto in writing; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on, any Loan, the amount of the L/C Obligations, or any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; (e) amend the percentages set forth in Section 2.5(b) used in the calculation of the Borrowing Base; (f) amend the definition of Majority Banks; (g) amend this Section or any provision herein providing for consent or other action by all Banks; (h) discharge any Guarantor; or (i) amend, or perform any act pursuant to, any provision herein expressly requiring the consent of each Bank; AND, PROVIDED FURTHER, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document. Each Bank shall bear its Pro Rata Share of all costs and expenses incurred in any amendment, waiver or consent pursuant to this Agreement not reimbursed by the Company. -79- 10.2 COSTS, EXPENSES AND TAXES. Subject to the proviso, the Company shall pay on demand the reasonable costs and expenses of the Administrative Agent and the Banks in connection with the negotiation, preparation, execution, delivery, administration, amendment, waiver and enforcement of the Loan Documents and any matter related thereto and any litigation or dispute with respect thereto (including any bankruptcy or similar proceedings), including without limitation attorney's fees and disbursements; provided, however, that the Company shall not be liable for any expenses of any Bank other than BofA (for itself and as Agent) in connection with the negotiation, preparation, execution, delivery and administration of the Loan Documents (provided further, that the immediately preceding proviso shall not be deemed to limit the right of each Bank to payment from the Company of all reasonable costs and expenses incurred by each Bank as aforesaid in connection with any and all future amendments, waivers, enforcement actions, litigation, negotiations and other actions or matters other than assignments or participations with respect to which the only amounts payable shall be the processing fee owing pursuant to Section 10.6(A) relating to the Loans and Loan Documents). Any amount payable to the Administrative Agent and the banks under this Section 10.2 shall, from the date of demand for payment, and any other amount payable to the Administrative Agent under the Loan Documents which is not paid when due or within any applicable grace period shall, thereafter, bear interest at the rate in effect under each Note with respect to ABR Borrowings. 10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.4 PAYMENTS SET ASIDE. To the extent that the Company makes a payment to the Administrative Agent or the Banks, or the Administrative Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar proceeding relating to or affecting creditors' rights generally or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Administrative Agent upon demand its Pro Rata Share of any amount so recovered from or repaid by the Administrative Agent. 10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Bank, and no Bank may assign or transfer any of its rights or obligations under this Agreement except in accordance with Section 10.6. -80- 10.6 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank may, with the written consent of (i) the Company at all times other than during the existence of an Event of Default (which consent shall not be unreasonably withheld or delayed) and (ii) the Administrative Agent (which consent shall not be unreasonably withheld or delayed), at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company or the Administrative Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an affiliate of such Bank) which have not been a party to any material litigation with the Administrative Agent or the Company (each an "assignee") all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Bank hereunder, in an initial minimum amount of $10,000,000 in the case of a partial assignment and in increments of $5,000,000 in excess thereof in the case of a partial assignment; provided, however, that (A) each Bank (including each Eligible Assignee) must retain a Commitment of not less than $15,000,000 after giving effect to such assignment unless its Commitment has been reduced to zero by such assignment (except for the Banks which act as the Administrative Agent and Syndication Agent, respectively, which each must retain a Commitment of not less than $50,000,000, except if such Banks resign as Administrative Agent or Syndication Agent, as applicable), and (B) the Company and the Administrative Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (1) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Administrative Agent by such Bank and the Assignee; (2) such Bank and its Assignee shall have delivered to the Company and the Administrative Agent an assignment and acceptance in the form of exhibit "f" ("assignment and acceptance") together with any Note or Notes subject to such assignment and (3) the assignor Bank or Assignee has paid to the Administrative Agent a processing fee in the amount of $3,500. All costs and expenses incurred by an assigning Bank in such assignment shall be borne by such Bank. (b) From and after the date that the Administrative Agent notifies the assignor Bank that it has received (and provided its consent with respect to and received the consent of the Company to the extent required with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. -81- (c) Within five Banking Days after its receipt of notice by the Administrative Agent that it has received an executed Assignment and acceptance and all necessary tax forms under Section 9.10 and payment of the processing fee (and provided that it consents to such assignment in accordance with Section 10.6(A)), the Company shall execute and deliver to the Administrative Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitment, replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitment of THE assigning bank pro tanto. (d) Any Bank may, with the written consent of (i) the Company at all times other than during the existence of an Event of Default (which consent shall be at the Company's sole and absolute discretion) and (ii) the Administrative Agent (which consent shall not be unreasonably withheld or delayed), at any time sell to one or more commercial banks or financial institutions (a "participant") participating interests in any Loans, the Commitment of that Bank and the other interests of that bank (the "originating bank") hereunder and under the other loan documents; provided, however, that (A) the originating Bank's obligations under this Agreement shall remain unchanged, (B) the originating Bank shall remain solely responsible for the performance of such obligations, (C) the Company and the Administrative Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (D) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in clause (b), (c) OR (G) of the first proviso to section 10.1. in the case of any such participation, the participant shall be entitled to the benefit of Sections 3.5, 3.7 and 10.12 as though it were also a Bank hereunder, and, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Administrative Agent on such Company's or Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Administrative Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder, and (H) as to any Bank, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company is party or is deemed party with such Bank. -82- (f) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable Law. 10.7 SET-OFF. In addition to any rights and remedies of the Banks provided by Law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final excluding the Company's customer trust accounts) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to the Banks, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such bank; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. -83- 10.8 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank shall notify the Administrative Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 10.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of the Company contained herein or in any certificate or other writing delivered by or on behalf of the Company pursuant to any Loan Document will survive the making and repayment of the Loans and the execution and delivery of each Note, and have been or will be relied upon by each Bank, notwithstanding any investigation made by such Bank or on its behalf. 10.10 NOTICES. Except as otherwise provided herein or in each Note: (a) all notices, requests, demands, directions and other communications provided for hereunder and under each Note must be in writing and must be mailed, telecopied, delivered or sent by telex 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 a written notice sent to the other party in accordance with this Section 10.10, and (b) if any notice, request, demand, direction or other communication is given by mail it will be effective on the earlier of receipt or the third calendar day after deposit in the United States mails with first class or airmail postage prepaid; if given by telecopier, when received by the recipient; if given by cable, when delivered to the telegraph company with charges prepaid; if given by telex, when sent; or if given by personal delivery, when delivered. 10.11 INDEMNITY BY THE COMPANY. The Company agrees to indemnify, save and hold harmless each Bank, the Administrative Agent and their directors, officers, agents, attorneys and employees (collectively the "INDEMNITEES") from and against (a) any and all claims, demands, actions or causes of action that are asserted against any indemnitee by any Person if the claim, demand, action or cause of action directly or indirectly relates to a claim, demand, action or cause of action that the Person has or asserts against the Company or any officer, director or shareholder of the Company, and (b) any and all liabilities, losses, costs or expenses (including Attorney Costs) that any indemnitee suffers or incurs as a result of the assertion of any such claim, demand, action or cause of action, other than any such liabilities, losses, costs and expenses arising from the gross negligence or willful misconduct of the indemnitee. 10.12 INTEGRATION AND SEVERABILITY. This Agreement and the other Loan Documents comprise the complete and integrated agreement of the parties on the subject matter hereof and supersede all prior agreements, written or oral, on the subject matter hereof. 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 or the operation, enforceability or validity of that provision in any other jurisdiction, and to this end the provisions of the Loan Documents are declared to be severable. -84- 10.13 COUNTERPARTS. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 10.14 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Administrative Agent and the Administrative Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 10.15 SECTION HEADINGS. Section headings in this Agreement are included for convenience of reference only and are not part of this Agreement for any other purpose. 10.16 FURTHER ACTS BY THE COMPANY. The Company agrees, at its own expense, to do such acts and execute and deliver such documents as any Bank, acting through the Administrative Agent, from time to time reasonably requires for the purpose of carrying out the intention or facilitating the performance of the terms hereof. 10.17 TIME OF THE ESSENCE. Time is of the essence of the Loan Documents. 10.18 GOVERNING LAW. The loan documents shall be governed by, and construed and enforced in accordance with, the internal laws of the state of illinois without regard to the conflict of law provisions thereof. 10.19 SUBMISSION TO JURISDICTION. The Company hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for the recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of Illinois, the courts of the United States of America for the Northern District of Illinois, and appellate courts therefrom; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; -85- (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth on the signature page of this Agreement or at such other address as may be designated by it in a written notice to the Administrative Agent in accordance with Section 10.11; and (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. 10.20 WAIVER OF JURY TRIAL. THE COMPANY, THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN DOCUMENT AND FOR COUNTERCLAIMS THEREIN. [SIGNATURE PAGES FOLLOW] -86- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. THE COMPANY: THE RYLAND GROUP, INC., a Maryland corporation By: ________________________ [Printed Name and Title] By: ________________________ [Printed Name and Title] Address for Notices: The Ryland Group, Inc. 11000 Broken Land Parkway Columbia, Maryland 21044-3562 Attn: Treasurer Telephone: (410) 715-7022 Telecopier:(410) 715-7909 -87- THE BANKS: BANK OF AMERICA, N.A., a national banking association, as Administrative Agent and a Bank By: [Printed Name and Title] Address for Notices: Bank of America, N.A. 231 South LaSalle Street Chicago, Illinois 60697 Attn: Ms. Kelley P. Prentiss Telephone: (312) 828-7363 Telecopier:(312) 974-4970 LIBOR Lending Office: Bank of America, N.A. 231 South LaSalle Street Chicago, Illinois 60697 Attn: Linda Patarini Telephone: (312) 828-5144 Telecopier:(312) 828-3950 -88- GUARANTY FEDERAL BANK, F.S.B., as Co-Agent and a Bank By: _______________________________ Name: ______________________________ Title:_______________________________ BANK ONE, NA, as Syndication Agent and a Bank (Main Office Chicago) By: _____________________________ Name: ____________________________ Title: ____________________________ FIFTH THIRD BANK, as a Bank By: ______________________________ Name: ____________________________ Title: ____________________________ BANK UNITED, as Co-Agent and a Bank By: _____________________________ Name: ___________________________ Title: ___________________________ PNC BANK, NATIONAL ASSOCIATION, as a Bank By: ______________________________ Name: ____________________________ Title: ____________________________ ALLFIRST BANK, as a Bank By: _______________________________ Name: ____________________________ Title: ____________________________ COMERICA BANK, as a Bank By: ______________________________ Name: _____________________________ Title: _____________________________ SUNTRUST BANK, ATLANTA, as a Bank By: ________________________________ Name: ______________________________ Title: ______________________________ WACHOVIA BANK, N.A., as a Bank By: ______________________________ Name: ___________________________ Title: ___________________________ ANNEX I COMMITMENTS OF THE BANKS BANK GROUP MEMBERS ------------------------------------------------------------------------------- BANK AMOUNT % SHARE ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Bank of America, N.A. $ 75,000,000.00 20.000000001 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Bank One, NA $ 75,000,000.00 20.000000000 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Guaranty Federal Bank, $ 50,000,000.00 13.333333333 % F.S.B. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Bank United $ 50,000,000.00 13.393333333 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- PNC Bank, National $ 30,000,000.00 8.000000000 % Association ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Wachovia Bank $ 25,000,000.00 6.666666667 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Fifth Third Bank $ 20,000,000.00 5.333333333 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- SunTrust Bank, Atlanta $ 20,000,000.00 5.333333333 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Allfirst Bank $ 15,000,000.00 4.000000000 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Comerica Bank $ 15,000,000.00 4.000000000 % ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ANNEX II GUARANTORS Ryland Homes of California, Inc. Ryland Communities, Inc. Ryland Homes Investment - Texas, Inc. RH Investment of Indiana, Inc. ANNEX III ILLUSTRATION OF UNUSED FEES NON-USE FEE "A" ------------------------------------------------------------------------------- Example 1 $200,000,000 outstanding $175,000,000 available ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Non-use Fee "A" =($187,500,000-$200,000,000)*15bps =-($12,500,000) *15pbs =$0 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Example 2 $100,000,000 outstanding $275,000,000 available ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Non-use Fee "A" =($187,500,000-$100,000,000)*15pbs = ($ 87,500,000)*15bps = $131,250 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- NON-USE FEE "B" ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Example 1 $200,000,000 outstanding $175,000,000 available ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Non-use Fee "B" =($375,000,000-$200,000,000)*10pb =($175,000,000)*10bps = $175,000 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Example 2 $100,000,000 outstanding $275,000,000 available ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Non-use Fee "B" =($375,000,000-$187,500,000)*10bps =($187,500,000)*10bps = $187,500 ------------------------------------------------------------------------------ SCHEDULE 2.9.1 EXISTING LETTERS OF CREDIT -------------------------------------------------------------------------------- THE RYLAND GROUP INC. OUTSTANDING LETTERS OF CREDIT -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L/C NO. BENEFICIARY NAME AMOUNT EFF. DATE EXP. DATE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L000870 Loudoun Co Board $26,000.00 5/3/95 04/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L000936 City of Crystal Lake $24,005.60 8/23/93 08/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L000938 City of Crystal Lake $12,964.75 8/23/93 08/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L000945 Bd of County Supervisor $5,000.00 6/12/95 02/09/01 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L001141 Loudoun Co Board $25,000.00 5/9/94 05/03/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L001181 Lake in the hills $23,300.00 6/20/94 06/15/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L041941 Village of Grayslake $937,364.00 9/15/95 09/14/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L041942 Village of Grayslake $725,175.00 9/15/95 09/14/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L041943 Village of Grayslake $486,156.00 9/15/95 09/14/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L042050 Village of West Dundee $269,073.75 10/20/95 10/19/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L906750 Baltimore County, MA $20,000.00 4/4/96 04/03/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L917770 New Wildwood Park $42,300.00 10/24/96 12/31/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L919278 Crosland/Blakeney $40,000.00 11/25/96 11/21/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L919279 Crosland/Blakeney $30,000.00 11/25/96 11/21/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L919310 Village of Lake in the $28,350.00 12/11/96 12/11/99 hills -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920569 Stewart Title Company $148,500.00 5/9/97 05/09/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920738 City of Maple Grove $10,000.00 7/24/97 07/23/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920768 Ashburn Village Develop $100,000.00 9/8/97 08/24/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920771 Farmington Village $45,000.00 8/28/97 08/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920843 Gray,Harris and Robin $245,000.00 10/16/97 10/16/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920844 First American Title $64,055.00 10/17/97 03/31/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920851 Village of Arlington $180,530.00 10/23/97 10/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920852 Village of Arlington $275,500.00 10/23/97 10/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920857 Quail Run South $61,600.00 10/28/97 10/28/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920863 Commissioner of Ins $100,000.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920864 Commissioner of Ins $565,250.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920865 Commissioner of Ins $150,000.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920866 Commissioner of Ins $50,000.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920867 Commissioner of Ins $100,000.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920868 Commissioner of Ins $5,000.00 10/30/97 10/29/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920911 Barkley Woods Inc $49,500.00 12/8/97 12/08/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920912 Barkley Woods Inc $83,500.00 12/8/97 12/08/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920928 Village of Lake in the $55,000.00 12/12/97 12/12/99 Hills -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920937 Westbrook Highland $44,000.00 12/16/97 12/13/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L920945 Chastain Glen, Inc $250,000.00 12/18/97 12/18/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970587 Yost Development Corp $50,000.00 1/23/98 01/23/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970618 Village of Arlington $66,664.43 2/11/98 08/10/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970626 Priske-Jones Venture $100,000.00 2/13/98 02/13/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970665 Gray,Harris and Robin $100,000.00 3/4/98 03/04/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970676 Village of Schaumburg $2,000.00 3/9/98 03/09/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970697 Commissioner of Ins $300,000.00 3/27/98 03/31/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970745 Canyon Valley, Ltd $50,000.00 4/22/98 07/15/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970777 Cornerstone Title Co $300,000.00 5/5/98 05/04/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970783 Westbrook Highland $26,000.00 5/6/98 05/06/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970785 Village of Lindenhurst $424,255.00 5/7/98 05/07/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970805 Escrow Agt:Smith Ronick $100,000.00 5/21/98 05/21/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970808 Smith,Ronick,Corbin $50,000.00 5/22/98 05/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970809 Smith,Ronick,Corbin $50,000.00 5/22/98 05/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970810 Westbrook Westchase $61,500.00 5/22/98 05/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970852 City of Maple Grove $53,500.00 6/16/98 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970853 City of Maple Grove $516,700.00 6/16/98 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970867 Fairways of Blackhawk $150,000.00 6/23/98 06/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L970875 Cornerstone Title Co $100,000.00 6/25/98 06/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000229 Cornerstone Title Co $21,000.00 8/17/98 08/17/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000180 Commonwealth Land Title $300,000.00 7/31/98 03/31/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000108 Multiple Insurance $211,788.00 7/13/98 07/12/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000144 Crosland/Blakeney $100,000.00 7/23/98 07/23/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000135 Republic Bank $199,900.00 7/20/98 07/20/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000225 Village of Antioch 2,490,040.88 8/14/98 08/13/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000308 City of Maple Grove $478,400.00 9/14/98 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000318 Vallecitos Water Dist $100,000.00 9/16/98 09/15/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000327 City of Euless $50,000.00 9/18/98 09/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000230 Hausman-Bandera Part $150,000.00 8/17/98 12/31/01 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000342 Perfection Partners $202,000.00 9/28/98 09/28/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000356 City of Maple Grove $97,000.00 10/5/98 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000377 Spenceola Belleview $70,000.00 10/14/98 10/15/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000460 Cornerstone Title Co $10,000.00 11/13/98 11/12/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000525 Cornerstone Title Co $79,000.00 12/3/98 12/03/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000546 Cornerstone Title Co $137,500.00 12/9/98 12/09/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000582 Village of Lindenhurst $1,000,723.00 12/22/98 12/22/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000583 Cornerstone Title Co $10,000.00 12/22/98 12/22/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000584 Crosland/Blakeney $188,000.00 12/22/98 12/22/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L523603 Pasco County Board $408,141.44 11/30/98 12/02/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L523605 Pasco County Board $292,185.00 11/30/98 12/02/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L940847 Pasco County (Iso FA) $6,323.25 11/30/98 01/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L940848 Pasco County (Iso FA) $23,827.13 11/30/98 01/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L940849 Pasco County (Iso FA) $24,562.50 11/30/98 01/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L940850 Pasco County (Iso FA) $11,065.20 11/30/98 01/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- L940851 Regency Communities $29,914.82 11/30/98 01/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000650 Imperial Partners $199,900.00 1/21/99 01/21/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000651 Lumberman's Investment $138,240.00 1/21/99 01/21/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000685 Robert C. Rhein Int $800,000.00 2/1/99 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000697 Berry Creek Section $348,000.00 2/4/99 12/31/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000663 Gray,Harris and Robin $390,000.00 1/27/99 01/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000664 Gray,Harris and Robin $874,500.00 1/27/99 01/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000671 Cornerstone Title Co $250,000.00 1/27/99 01/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000672 Smith,Ronick,Corbin $200,000.00 1/27/99 01/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000715 First American Title $467,000.00 2/9/99 02/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000717 City of Apopka $4,500.00 2/10/99 02/12/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000763 Mew Haven, Inc $62,000.00 3/2/99 03/05/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000797 Spenceola Belleview $10,000.00 3/15/99 03/15/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000826 SSS Holdings, LLP $100,000.00 3/26/99 12/31/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000864 Cornerstone Title Co $132,000.00 4/14/99 04/14/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000867 Thornwood Associates $100,000.00 4/15/99 07/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000869 Thornwood Associates $100,000.00 4/15/99 12/31/99 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000878 Pecan 840, LTD. $150,000.00 4/19/99 07/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000883 Kenneth Newby $40,000.00 4/22/99 04/10/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000887 Encino 219, LTD $20,000.00 4/23/99 04/23/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000888 Norman Reitmeyer $25,000.00 4/23/99 04/23/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000902 Smith,Ronick,Corb $50,000.00 4/27/99 04/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000940 Westbrook Westchase $144,000.00 5/7/99 05/07/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000976 Smith,Ronick,Corb $50,000.00 5/19/99 05/19/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C000999 Prince George's Center $200,000.00 6/1/99 06/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001000 Cornerstone Title Co $10,000.00 6/1/99 06/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001001 Harris Trust and Savings $4,830,000.00 6/2/99 06/04/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001009 First American Title $700,000.00 6/3/99 06/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001016 Heritage Renaisance $150,000.00 6/3/99 06/03/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001017 Aurora National Bank $100,000.00 6/3/99 06/03/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001023 Fidelity National Title $10,000.00 6/7/99 06/07/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001062 Horizon Investment $1,200,000.00 6/16/99 06/16/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001076 Village of Streamwood $3,557,156.00 6/22/99 06/22/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001116 Spenceola Belleview $50,000.00 7/6/99 07/06/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001118 Commissioner of Ins $29,750.00 7/7/99 07/07/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001170 City of Mesa $166,031.00 7/20/99 07/20/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001171 Westbrook Greatwood $296,000.00 7/20/99 07/20/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001172 Prince George's Center $150,000.00 7/20/99 07/20/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001181 Elkton-Wolf Limited $475,000.00 7/21/99 07/21/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001182 Mayfield W, LLC $240,000.00 7/21/99 07/21/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001193 Ashburn Village Develop $180,000.00 7/27/99 07/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001203 Linowes and Blocher $150,000.00 7/28/99 07/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001224 Corporation of the P $200,000.00 8/3/99 08/03/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001250 Village of South Elgin $700,000.00 8/10/99 08/10/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001260 Pace/Dowd Properties $50,000.00 8/18/99 08/18/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001263 Cibolo Deer Creek Pr $24,500.00 8/18/99 05/31/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001284 Village Manager $60,000.00 8/25/99 08/25/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001289 Terra Maria, LLC $23,500.00 8/27/99 09/02/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001291 The Estate of Helen $45,150.00 8/27/99 11/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001295 Adam's Porter and Radi $275,000.00 8/27/99 08/27/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001298 First National Bank $100,000.00 8/30/99 08/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001299 David Wiesbrook and $50,000.00 8/30/99 08/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001300 Douglas F. Eshelman $10,000.00 8/30/99 08/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001301 Cornerstone Title Co $240,000.00 8/30/99 09/30/01 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001216 Village of South Elgin $972,960.00 7/30/99 07/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001355 Concord Hills Limited $25,000.00 9/28/99 9/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001356 Concord Hills Limited $25,000.00 9/28/99 9/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001357 Meadowbrook Limited $25,000.00 9/28/99 9/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001358 Meadowbrook Limited $25,000.00 9/28/99 9/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001359 Cymill Partners, Limited $100,000.00 9/28/99 9/28/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001290 Samuel A. and Carrie $4,850.00 8/27/99 11/30/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001305 Cornerstone Title Co. $41,000.00 9/2/99 9/30/01 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001306 Baltimore County, MA $286,388.00 9/2/99 9/2/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001314 Cornerstone Title Co. $150,000.00 9/9/99 9/9/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001320 The Arundel Corporation $10,000.00 9/13/99 9/13/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001388 L-V L.L.P. $25,000.00 10/4/99 10/4/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001389 Meadowbrook Limited $100,000.00 10/4/99 10/4/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- C001390 Baltimore County, MA $181,500.00 10/4/99 10/5/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7308335 Village of Lisle $488,904.74 9/9/96 07/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7301872 Cigna Insurance Co $2,353,935.00 5/31/96 04/01/00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7401068 Treasurer, County of Lake $204,700.00 1/15/99 04/01/01 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TOTAL OUTSTANDING $38,434,579.49 -------------------------------------------------------------------------------- SCHEDULE 5.4 SUBSIDIARIES Associates Mortgage Funding Corp. Associates, Funding, Inc. Brock Acceptance Corporation Brock Glenfed Associates Brock Glenfed Chapman Brock Glenfed San Rafael Brock Griffin Enterprises Brock Home Cap Archibald Ranch Brock Home Cap Palmdale Brock HomeFed Communities La Quinta Brock MBK Northern Hills Brock Sand Dollar Placentia Brock Ventures, Inc. CB Partners CC Holding Company Columbia National Risk Retention Group, Inc. Convest Management Corporation Cornerstone Residential Title Agency, Ltd. Cornerstone Title Agency, Inc. Cornerstone Title Company Cornerstone Title Insurance Company Cornerstone Title, L.C. Dubravy Joint Stock Company Hammond Mortgage Securities Corp. Heritage Mortgage Company LPS Holdings Corporation Maryland Housing Equity Fund Maryland Housing Equity Fund II Premier Escrow Company Princeton Towns General Partnership RGHI Land, Ltd. RH Builders of Indiana, Inc. RH Investment of Indiana, Inc. RH Mortgage Corp. RH of Indiana, L.P. RH of Maryland, LLC RH of Texas, L.P. RVH Cascades RyCom Joint Venture Ryland Acceptance Corporation Five Ryland Acceptance Corporation Four Ryland Communities, Inc. Ryland Homes at Hollifield Station Ryland Homes Investment Texas, Inc. Ryland Homes Marketing of Georgia, Inc. Ryland Homes Midwest Realty, Inc. Ryland Homes of Arizona, Inc. Ryland Homes of California, Inc. Ryland Homes of Florida Realty Corp. Ryland Homes of Texas, Inc. Ryland Insurance Services Ryland Management Corp. Two Ryland Mortgage Company Ryland Mortgage Securities Corp. Four Ryland Real Estate Brokerage of New Jersey, Inc. Ryland Resource Realty, Inc. Ryland Trading (Russia), Ltd. Ryland Trading, Ltd. Ryland Ventures, Inc. Ryland/St. Petersburg Joint Stock Company The Regency Organization, Inc. Willbrooke Partners, LLC SCHEDULE 5.8 LITIGATION AZIZ, HERRERA, et al. v. AHMANSON and M.J. BROCK and SONS, INC. (Lawsuit involving 41 homes in Yorba Linda, California) BATOOSINGH, LAURA, et al. v. M.J. BROCK and SONS, INC. (Lawsuit involving 61 homes in Riverside, California) ALDER, HOWARD, et al. v. M.J. BROCK and SONS, INC. (Lawsuit involving 22 homes in Simi Valley, California) CAMPOS, CARLOS, et al. v. M.J. BROCK and SONS, INC. (Lawsuit involving 156 homes in Palmdale, California) SCHEDULE 6.2(G) Ryland Quarterly Bank Package Information to be delivered on a quarterly basis: 1. Quarterly Financial Report 2. Covenant Compliance Certificate 3. Consolidated Balance Sheet and Income Statement 4. a) Unconsolidated Equity Method Ryland Group, Inc. Balance Sheet b) Unconsolidated Equity Method Ryland Group, Inc. Statement of Income c) Consolidated Balance Sheet and Income Statements of the Ryland Financial Services Segment (i.e. Ryland Mortgage Company and Limited Purpose Subsidiary) 5. Consolidated Statement of Cash Flows 6. Quarterly Regional Statements of Income 7. Provide annually: a) 2 Year Projected Balance Sheet and Income Statement b) 1 Year Budget, on a Quarterly Basis, for Balance Sheet and Income Statement With Underlying Assumptions 8. Quarterly Inventory Summary by Division EXHIBIT "A" NOTE $__________________________ _________________________ FOR VALUE RECEIVED, The Ryland Group, Inc., a Maryland corporation (the "Company"), promises to pay to the order of__________________________ ("Bank") the principal amount of and no/100 dollars ($) or such lesser aggregate amount of Loans as may be made pursuant to Bank's Commitment under the Revolving Credit Agreement hereinafter described, payable as hereinafter set forth. Company promises to pay interest on the principal amount hereof remaining unpaid from time to time from the date hereof until the date of payment in full, payable as hereinafter set forth. Reference is made to the Revolving Credit Agreement of even date herewith among Company and the Banks (the "Agreement"). Terms defined in the Agreement and not otherwise defined herein are used herein with the meanings defined for those terms in the Agreement. This is one of the Notes referred to in the Agreement, and any holder hereof is entitled to all of the rights, remedies, benefits and privileges provided for in the Agreement as originally executed or as it may from time to time be supplemented, modified or amended. The 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 Agreement and in any event on the Maturity Date. Interest shall be payable on the outstanding daily unpaid principal amount of each Loan 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 Agreement both before and after default and before and after maturity and judgment. Company hereby promises to pay all 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 Attorney Costs, whether or not an action is filed in connection therewith. Company 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 Bank in the State of Illinois, and shall be governed by, and construed and enforced in accordance with, the internal Laws thereof without regard to the choice of law provisions thereof. THE RYLAND GROUP, INC. By:______________________________ [Printed Name and Title] EXHIBIT "B" BORROWING BASE CERTIFICATE The undersigned, being the duly elected ______________________ of The Ryland Group, Inc. hereby certifies that the following is a true and correct CALCULATION OF THE BORROWING BASE AS OF __________________,_____. Home Proceeds Receivable $ Sold Construction in Progress Sold Completed Units Real Estate Inventory (less than 180 days) Real Estate Inventory (180 to 270 days) Finished Lots Land Under Development Raw Land - Entitled Borrowing Base Calculation: 90% of Home Proceeds Receivable 90% of Sold Construction in Progress 90% of Sold Completed Units 75% of Real Estate Inventory (less than 180 days) 50% of Real Estate Inventory (180 to 270 days) 70% Of Finished Lots* 50% of Land Under Development* 25% of Raw Land - Entitled** Total Borrowing Base _______________________ -------------------------------------- */ The sum of 70% of Finished Lots, 50% of Land Under Development and 25% of Raw Land Entitled shall not exceed 40% of the Borrowing Base. **/ 25% of Raw Land-Entitled shall not exceed 10% of the Aggregate Commitment. Outstanding Loans _______________________ Other Senior Permitted Debt _______________________ Third Party Performance L/C Obligations _______________________ Total Senior Permitted Debt _______________________ Borrowing Base Surplus/(Deficit): _______________________ THE RYLAND GROUP, INC. By: _____________________________ [Printed Name and Title] EXHIBIT "C" REQUEST FOR BORROWING/CONTINUATION/ REDESIGNATION/LETTER OF CREDIT 1. This Request is executed and delivered by The Ryland Group, Inc. ("the Company") to the Administrative Agent for the Banks pursuant to the Revolving Credit Agreement (the "Agreement") dated as of ____________, 1999, entered into by the Company, the Banks, Bank One, NA, as Syndication Agent, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United, as Co-Agent and Bank of America, N.A. as Administrative Agent. Any terms used herein and not defined herein shall have the meanings defined in the Agreement. 2. * The Company hereby requests that the Banks make Loans for the account of the Company pursuant to the Agreement, as follows: (a) Amount of Loan: $______________. (b) Date of Loan: _____________, ____. (c) Type of Loan (check one box only): * ABR Borrowing. * LIBOR Borrowing with a ______ [-month] LIBOR Period ending _____________, ______. 3. * The Company hereby requests that BofA make a Swing Line Advance for the account of the Company, pursuant to the Agreement, as follows: (a) Amount of Loan: $__________________. (b) Date of Loan: ________________, ____. 4. * The Company hereby requests that the Banks redesignate outstanding ABR Borrowings heretofore made or redesignated for the account of the Company pursuant to the Agreement, as follows: (a) Total Amount of Loans to be Redesignated: $________________ (b) Date of Redesignation: ________________, ____. (c) Type of Loan as so Redesignated: LIBOR Borrowing with a ____ -month LIBOR Period ending ________________, ______. 5. * The Company hereby requests that the Banks continue outstanding LIBOR Borrowings heretofore made or redesignated for the account of the Company pursuant to the Agreement, as follows: (a) Total Amount of Loans to be Continued: $______________. (b) Date of Continuation: ________________________. (c) Type of Loan as so Continued: LIBOR. Borrowing with a _____-month LIBOR Period ending _____________, ____. 6. The Company hereby requests that the Issuing Bank issue a Letter of Credit in accordance with the L/C Application accompanying this request. 7. [In connection with the Loan or Letter of Credit requested herein, the Company hereby represents, warrants and certifies to the Banks that, as of the date of the Loan or Letter of Credit requested herein: Each representation and warranty made by the Company in Article 5 of the Agreement will be true and correct, both immediately before and after such Loan is made or Letter of Credit is issued, as though such representation and warranty was made on and as of the date of such Loan or issuance (except to the extent such representation and warranty relates to an earlier date); and no Default or Event of Default will have occurred and be continuing. (If any of the foregoing statements is not true and correct, attach a statement specifying in detail the circumstances thereof and the actions the Company is taking or proposes to take with respect thereto.)] 7. This Request is executed on _____________,___, by an Authorized Official of the Company on behalf of the Company. The undersigned, in such capacity, hereby certifies each and every matter contained herein to be true and correct. Dated: _________________ THE RYLAND GROUP, INC. By: ________________________________ [Printed Name and Title] EXHIBIT "D" CONTINUING GUARANTY TO: BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT, AND TO THE BANKS THAT ARE, OR MAY BECOME, PARTIES TO THE AGREEMENT The Ryland Group, Inc., a Maryland corporation (herein the "Company"), has entered into a Revolving Credit Agreement dated as of even date herewith (the "Agreement") with Bank of America, N.A., as Administrative Agent (the "Administrative Agent"), Bank One, NA, as Syndication Agent, Bank United, as Co-Agent, Guaranty Federal Bank F.S.B., as Co-Agent and certain financial institutions (together with any other financial institution from time to time a party to the Agreement, the "Banks"). Capitalized terms used herein and not otherwise defined shall have the same meanings as the terms used and defined in the Agreement. Subject to the terms and provisions set forth in the Agreement, the Banks have agreed to make Loans to the Company. As a condition to the obligation of the Banks to make such Loans, _________________________ (collectively, "Guarantor") are required to execute and deliver to the Administrative Agent this Guaranty. To induce the Banks to make the Loans to the Company as provided in the Agreement, Guarantor hereby agrees as follows: 1. GUARANTY OF OBLIGATIONS. For valuable consideration, Guarantor unconditionally guarantees and promises to pay to the Administrative Agent, for the benefit of the Banks, or order, on demand, when due and payable in lawful money of the United States of America: (a) all Obligations of the Company evidenced by each Note; and (b) all other Obligations of the Company, including without limitation all amendments, modifications, supplements, renewals, or extensions of the foregoing, whether such amendments, modifications, supplements, renewals, or extensions are evidenced by new or additional instruments, documents, or agreements or change the rate of interest on any indebtedness or the maturity thereof, or otherwise. All indebtedness and obligations covered by this Guaranty are hereinafter collectively referred to as the "indebtedness." The term "indebtedness" shall also include, without limitation on the foregoing, all interest that accrues on all or any part of the indebtedness after the filing of any petition or pleading against the Company or any other Person for a proceeding under any chapter or provision of any present or future federal bankruptcy legislation or amendments thereto. 2. NATURE OF GUARANTY. This Guaranty is continuing in nature and relates to any indebtedness, including indebtedness arising after the date hereof and any renewals or extensions of any indebtedness. The guaranty contained herein is a guaranty of payment and not of collection. 3. RIGHTS INDEPENDENT. The obligations of Guarantor hereunder are independent of the Obligations of the Company or any other Person or any other guarantor or any security for the indebtedness or Obligations, and the Administrative Agent may, when the Obligations are due and payable, proceed in the enforcement hereof independently of any other right or remedy that the Administrative Agent may at any time hold with respect to the Obligations, the indebtedness or any security or other guaranty therefor. The Administrative Agent may file a separate action or actions against Guarantor hereunder, whether action is brought and prosecuted with respect to any security or against the Company or any other Guarantor or any other Person, or whether the Company or any other Guarantor or any other Person is joined in any such action or actions. Guarantor waives the benefit of any statute of limitations affecting its liability hereunder or the enforcement of the Obligations. The liability of Guarantor hereunder shall be reinstated and revived, and the rights of the Administrative Agent and each Bank shall continue, with respect to any amount at any time paid on account of the Obligations which shall thereafter be required to be restored or returned by the Administrative Agent or any Bank upon the bankruptcy, insolvency, or reorganization of the Company or any other Person, or otherwise, all as though such amount had not been paid. Guarantor further agrees that to the extent the Company or Guarantor makes any payment to the Administrative Agent or any Bank in connection with the Obligations or the indebtedness and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by the trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a "Preferential Payment"), then this Guaranty shall continue to be effective or shall be reinstated, as the case may be, and, to the extent of such payment or repayment by Administrative Agent or such Bank, the obligations or the indebtedness or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made. 4. AUTHORITY TO MODIFY THE OBLIGATIONS. Guarantor authorizes the Administrative Agent and each Bank, without notice to or demand on Guarantor and without affecting its liability hereunder or the enforceability hereof, from time to time to: (a) supplement, modify, amend, extend, renew, accelerate, or otherwise change the time for payment or the terms of the Obligations or any part thereof, including increase or decrease the rates of interest thereon; (b) supplement, modify, amend, or waive, or enter into or give any agreement, approval, or consent with respect to, the indebtedness or any part thereof or any of the Loan Documents or any security or additional guaranties, or any condition, covenant, default, remedy, right, representation, or term thereof or thereunder; (c) accept new or additional instruments, documents, or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof; (d) accept partial payments on the Obligations; (e) receive and hold additional security or guaranties for the Obligations or any part thereof or this Guaranty; (f) release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer, and enforce the Obligations or any security or any other guaranties, and apply any security and direct the order or manner of sale thereof as the Administrative Agent or such Bank in its discretion may determine; (g) release the Company or any other Person or any other guarantor from any personal liability with respect to the Obligations or any part thereof; (h) settle, release on terms satisfactory to the Administrative Agent or such Bank or by operation of law or otherwise, compound, compromise, collect, or otherwise liquidate or enforce any of the Obligations and any security or other guaranty in any manner, consent to the transfer of any security, and bid and purchase at any sale; and (i) consent to the merger or any other change, restructure, or termination of the corporate existence of the Company or any other Person and correspondingly restructure the Obligations, and any such merger, change, restructure, or termination shall not affect the liability of Guarantor hereunder or the enforceability hereof with respect to all indebtedness. Exibit D-2 5. WAIVER OF DEFENSES. Guarantor waives any right to require the Administrative Agent or any Bank, prior to or as a condition to the enforcement of this Guaranty, to: (a) proceed against the Company or any other Person or any other guarantor; (b) proceed against or exhaust any security for the Obligations or to marshall assets in connection with foreclosing collateral security; (c) give notice of the terms, time, and place of any public or private sale of any security for the Obligations; or (d) pursue any other remedy in the Administrative Agent's or such Bank's power whatsoever. Guarantor waives any defense arising by reason of (i) any disability or other defense of the Company or any other Person with respect to the Obligations, (ii) the unenforceability or invalidity of the Obligations or any security or any other guaranty for the Obligations or the lack of perfection or failure of priority of any security for the Obligations, (iii) the cessation from any cause whatsoever of the liability of the Company or any other Person or any other guarantor (other than by reason of the full payment and discharge of all indebtedness), or (iv) any act or omission of the Administrative Agent or any Bank or any other Person which directly or indirectly results in or aids the discharge or release of the Company or any other Person or the Obligations or any security or other guaranty therefor by operation of law or otherwise. Guarantor waives all setoffs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and all other notices of any kind or nature whatsoever with respect to the Obligations, and notices of acceptance of this Guaranty and of the existence, creation, or incurring, of new or additional Obligations. 6. WAIVER OF SUBROGATION. Until all Obligations have been paid and performed in full, Guarantor shall not exercise any rights of subrogation, contribution or reimbursement against the Company or any other guarantor of the Obligations (individually an "other Loan Party"), and waives any right to enforce any right, power or remedy which the Administrative Agent or each Bank now has or may in the future have against any other Loan Party and any benefit of, and any right to participate in, any security for this Guaranty or for the obligations of any other Loan Party now or in the future held by the Administrative Agent or each Bank. If Guarantor nevertheless receives payment of any amount on account of any such subrogation, contribution or reimbursement rights or otherwise in respect of any payment by Guarantor of the Obligations prior to payment and performance in full of all Obligations, such amount shall be held in trust for the benefit of the Administrative Agent and immediately paid to the Administrative Agent for application to the Obligations in such order and manner as the Administrative Agent may determine. Exhibit D-3 7. REPRESENTATIONS, WARRANTIES, ETC. Guarantor represents and warrants to the Administrative Agent, for the benefit of the Banks that: (a) this Guaranty is executed at the request of the Company; (b) that Guarantor has established adequate means of obtaining from the Company on a continuing basis financial and other information pertaining to the business of the Company; and (c) that Guarantor is now and will be completely familiar with the business, operation, condition, and assets of the Company. Guarantor hereby waives and relinquishes any duty on the part of the Administrative Agent or any Bank to disclose to Guarantor any matter, fact, or thing relating to the business, operation, condition, or assets of the Company now known or hereafter known by the Administrative Agent or any Bank during the life of this Guaranty. With respect to any Obligations, neither the Administrative Agent nor any Bank need inquire into the powers of the Company or the officers or employees acting or purporting to act on its behalf, and all Obligations made or created in good faith reliance upon the professed exercise of such powers shall be guaranteed hereby. 8. AMENDMENTS; WAIVERS. Neither this Guaranty nor any provision hereof may be amended, modified, waived, discharged, or terminated except by an instrument in writing duly signed by the Administrative Agent on behalf of the Banks. 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 thereof or the exercise of any other right, power, or remedy hereunder or under the other Loan Documents. Guarantor warrants and agrees that each of the waivers set forth in this Guaranty are made with Guarantor's full knowledge of their significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers are determined to be contrary to any applicable law or public policy, such waivers shall be effective only to the maximum extent permitted by law. 9. COSTS AND EXPENSES IN ENFORCEMENT. Guarantor agrees to pay to the Administrative Agent all reasonable advances, charges, costs, and expenses, including reasonable Attorney Costs, incurred or paid by the Administrative Agent in exercising any right, power, or remedy conferred by this Guaranty, or in the enforcement of this Guaranty, whether or not an action is filed in connection therewith. 10. NOTICES. All notices, requests, demands, directions, and other communications provided for hereunder must be in writing and must be personally delivered, telecopied or mailed to Guarantor at the address set forth on the signature page of this Guaranty or at any other address as may be designated by Guarantor in a written notice sent to the Administrative Agent in accordance with the Agreement. Any notice, request, demand, direction, or other communication given by mail will be deemed effective on the third calendar day after deposited in the United States mails with first class postage prepaid; or if given by personal delivery or telecopy, when delivered. Exhibit D-4 11. BINDING AGREEMENT. This Guaranty and the terms, covenants, and conditions hereof shall be binding upon and inure to the benefit of Guarantor, the Administrative Agent, each Bank, and their respective successors and assigns, except that Guarantor shall not be permitted to transfer, convey, or assign this Guaranty or any interest herein without the prior written consent of each Bank. Each Bank may assign its interest hereunder in whole or in part in connection with an assignment of its Loans, Commitments and other rights and obligations under the Agreement pursuant to SECTION 10.6(A) thereof. 12. SEVERABILITY. In case any right or remedy of the Administrative Agent shall be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect any other right or remedy granted hereby. 13. MISCELLANEOUS. All words used herein in the plural shall be deemed to have been used in the singular, and all words used herein in the singular shall be deemed to have been used in the plural, where the context and construction so require. Section headings in this Guaranty are included for convenience of reference only and are not a part of this Guaranty for any other purpose. This Guaranty is executed in connection with, and is subject to, the terms and provisions of the Agreement. 14. GOVERNING LAW. This Guaranty shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Illinois without regard to the conflict of law provisions thereof. 15. JOINT AND SEVERAL LIABILITY. The liability and obligations of each corporation, limited liability company, partnership, or other entity (each, an "Individual Guarantor") executing this Guaranty as a "Guarantor" hereunder shall be joint and several; and, without limiting the foregoing, each such Individual Guarantor executing this Guaranty shall individually be liable and responsible for repayment of the full amount of all Obligations and indebtedness owing to each and all of the Banks, provided, however, that each Individual Guarantor shall be liable under this Guaranty for the maximum amount of the liability that can be hereby incurred without rendering this Guaranty, as it relates to such Individual Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. Exhibit D-5 IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed as of _______________, 1999. "GUARANTOR": [Add Names of Guarantors] Exhibit D-6 EXHIBIT "E" FORM OF LEGAL OPINION _______________, 1999 Bank of America, N.A., as Administrative Agent and to the Banks that are, or may become, parties to the Agreement 231 S. LaSalle St. Chicago, Illinois 60697 RE: THE RYLAND GROUP, INC. Ladies and Gentlemen: We have acted as special counsel to The Ryland Group, Inc., a Maryland corporation (the "Company"), in connection with the execution and delivery of a Revolving Credit Agreement, dated as of even date herewith (the "Agreement") by and among the Company, Bank One, NA, as Syndication Agent, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United, as Co-Agent, Bank of America, N.A., as Administrative Agent, and other Banks that are, or may become, parties to the agreement and _____________ (the "Guarantors") in connection with the execution and delivery of the Guaranty (the "Guaranty") as of even date herewith. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Agreement. In our capacity as counsel for the Company, we have made such legal and factual inquiries and examinations as we deemed advisable for purposes of rendering this opinion, and, in the course thereof, we have examined originals, or copies of originals certified to our satisfaction, of such agreements, documents, certificates and other statements of government officials, officers of the Company and others as we deemed relevant and necessary as a basis for this opinion. We have relied upon such certificates and documents with respect to the accuracy of factual matters contained therein, which factual matters were not independently established or verified by us. In all such examinations, we have assumed the genuineness of all signatures by each party and the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as conformed or photostatic copies. For the purpose of the opinions hereinafter expressed, we have assumed the due execution and delivery, pursuant to due authorization, of each document referred to herein by each party thereto other than the Company and the Guarantors and that each document constitutes the valid and binding obligation of each party thereto other than the Company and the Guarantors, enforceable against such party in accordance with its terms. On the basis of our inquiries and examinations, and subject to the qualifications, exceptions, assumptions and limitations contained herein, we are of the opinion that: 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland and is qualified to do business in the jurisdictions in which the nature of the property owned or leased by the Company or the nature of the business transacted by the Company makes such qualification necessary, except where the failure to be so qualified would not have a Material adverse effect on the business or financial condition of the Company and the Subsidiaries taken as a whole. 2. The execution, delivery and performance by the Company of the Agreement and the Note pursuant thereto are within the Company's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (a) the Company's certificate of incorporation or bylaws, (b) any law or (c) any agreement or instrument identified to us by the Company as being Material to the business or financial condition of the Company and the Subsidiaries taken as a whole. 3. The Agreement is, and the Notes when delivered thereunder will be, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. 4. No action of, or filing with, or approval or other action by, any governmental or public body or authority which has not been taken, made or obtained is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of the Agreement and the Notes. 5. Each of the Guarantors is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of the Guarantors is duly qualified to do business in the jurisdictions in which the nature of the property owned or leased or the nature of the business transacted by such Guarantor makes such qualification necessary, except where the failure to be so qualified would not have a Material adverse effect on the business or financial condition of the Company and the Subsidiaries taken as a whole. 6. The Guarantors have the requisite corporate power and authority to execute, deliver and perform their obligations under the terms of the Guaranty, and the Guaranty constitutes the valid and binding obligation of each of the Guarantors entities enforceable against it in accordance with its terms. 7. The execution, delivery and performance by each Guarantor of the Guaranty are within such Guarantor's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (a) such Guarantor's certificate of incorporation or bylaws, (b) any law or (c) any agreement or instrument identified to us by such Guarantor as being Material to the business or financial condition of such Guarantor. Exhibit E-2 8. No action of, or filing with, or approval or other action by, any governmental or public body or authority which has not been taken, made or obtained is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of the Guaranty. 9. The Company is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 10. The Company is not a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. [11. All principal and unpaid interest of the Company under the Credit Agreement and the Notes (including interest accruing after the occurrence of any event described in Section 8(f) of the Credit Agreement, whether or not such interest constitutes an allowed claim in any proceeding referred to in Section 8.1(f) of the Credit Agreement) constitutes "Senior Debt" as such term is used in the 1992 Subordinated Debt Indenture.] 12. To our knowledge, there is no litigation, investigation or proceeding of or before any court or public authority that is pending or threatened by or against the Company or any of its Subsidiaries or against any of their properties or revenues (a) with respect to the Credit Agreement, the Notes, the Guaranty or any of the transactions contemplated thereby, or (b) which, if adversely determined, would have a Material adverse effect. [13. To the best of our knowledge, the Company owns all of the issued and outstanding capital stock of each of the Guarantors]. [Qualifications] Exhibit E-3 Exhibit E-1 October _____, 1999 Bank of America, N.A., as Administrative Agent And to the Banks that are, Or may become, parties to the Agreement 231 S. LaSalle Street Chicago, Illinois 60697 Dear Sirs: I am General Counsel for The Ryland Group, Inc., a Maryland corporation (the "Company"), and have acted in such capacity in connection with the execution and delivery of a Revolving Agreement, dated as of even date herewith (the "Agreement"), by and among the Company, Bank One, N.A., as Syndication Agent, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United, as Co-Agent, Bank of America, N.A., as Administrative Agent, and other Banks that are, or may become, parties to the Agreement. This opinion is delivered to you pursuant to subsection 4.1(a) of the Agreement. Terms used herein which are defined in the Agreement shall have the respective meanings set forth in the Agreement, unless otherwise defined herein. For purposes of this opinion, I have examined the following documents: (i) the Agreement and Notes; (ii) the Charter and Bylaws of the Company; (iii) the records of the corporate proceedings of the Company; and (iv) such other documents and matters as I have deemed necessary and appropriate to render the opinions set forth in this letter, subject to the limitations, assumptions, and qualifications noted below. In reaching the opinions set forth below, I have assumed, and to my knowledge there are no facts inconsistent with, the following: (a) each of the parties thereto (other than the Company) has duly and validly executed and delivered each instrument, document, and agreement executed in connection with the Agreement to which such other party is a signatory and that such party's obligations set forth therein are its legal, valid, and binding obligations, enforceable in accordance with their respective terms; (b) each person executing any such instrument, document or agreement on behalf of any such party (other than the Company) is duly authorized to do so; (c) each natural person executing any such instrument, document or agreement is legally competent to do so; (d) there are no modifications or waivers of or amendments to the Agreement; and (e) all documents submitted to me as originals are authentic; all documents submitted to me as certified or photostatic copies conform to the original documents; all signatures on all documents submitted to me for examination are genuine; and all public records reviewed are accurate and complete. Based on my review of the foregoing and subject to the assumptions and qualifications set forth herein, it is my opinion that, as of the date of this letter: 1. The Company (a) is duly organized, validly existing and in good standing under the laws of State of Maryland, (b) has the corporate power to own and operate its property, to lease the property it operates and to conduct the business in which it is currently engaged, and (c) is qualified as a foreign corporation and in good standing under the laws of each jurisdiction where it ownership, lease or operation of property of the conduct of its business requires such qualification and where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect. 2. The Company has the corporate power to make, deliver and perform the Agreement and the Notes and to borrow thereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of the Agreement and the Notes and to authorize the execution, delivery and performance of the Agreement and the Notes. No consent or authorization of, filing with, or other act by or in respect of any public authority, is required of the Company in connection with the borrowings thereunder or with the execution or delivery of the Agreement or the Notes. 3. The Agreement and each of the Notes have been duly executed and delivered on behalf of the Company. 4. The execution and delivery of the Agreement and the Notes will not violate any Requirement of Law or, to my knowledge, any material Contractual Obligation of the Company, and, to my knowledge will not result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any Requirement of Law or any material Contractual Obligation. Exhibit E-1 -2 5. To my knowledge, there is no litigation, investigation or proceeding of or before any court or public authority that is pending or threatened by or against the Company or against any of its properties or revenues (a) with respect to the Agreement or the Notes or any of the transactions contemplated thereby, or (b) which, if adversely determined, would have a Material Adverse Effect, except as described in the financial statements or in the notes thereto referred to in subsection 5.5 of the Agreement, or the Schedule of Litigation attached to the Agreement. I am a member of the bar of the State of Maryland and the opinions set forth herein are limited solely to Federal law and the laws of the State of Maryland. The opinions expressed in this letter are solely for the use of the Administrative Agent and the Banks, and these opinions may not be relied on by any other persons without my express prior written approval. The opinions expressed in this letter are limited to the matters set forth in this letter, and no other opinions should be inferred beyond the matters expressly stated. Very truly yours, Timothy J. Geckle General Counsel Exhibit E-1 -3 Exhibit E-2 October _____, 1999 Bank of America, N.A., as Administrative Agent And to the Banks that are, Or may become, parties to the Agreement 231 S. LaSalle Street Chicago, Illinois 60697 Dear Sirs: I am General Counsel to [INSERT NAMES OF GUARANTORS] (the "Guarantors"), and have acted in such capacity in connection with the execution and delivery of the Guaranty as of even date herewith. This opinion is delivered to you pursuant to subsection 4.1(a) of the Agreement. Terms used herein which are defined in the Agreement and the Guaranty shall have the respective meanings set forth in the Agreement and the Guaranty, unless otherwise defined herein. For purposes of this opinion, I have examined the following documents: (i) the Agreement; (ii) the Guaranty; (iii) the Charter and Bylaws of the Guarantors; (iv) the records of the corporate proceedings of the Guarantors; and (v) such other documents and matters as I have deemed necessary and appropriate to render the opinions set forth in this letter, subject to the limitations, assumptions, and qualifications noted below. In reaching the opinions set forth in paragraph 3, I have assumed that at each time a Guarantor incurs an obligation under the Guaranty, such Guarantor, after giving effect to such obligation, had the ability to pay its debts as such debts mature and that such Guarantor was solvent. Based on and subject to the foregoing, it is my opinion, as of the date of this letter: Exhibit E-2 -1 1. The Guarantors (a) are duly organized, validly existing and in good standing under the laws of the state of their incorporation, and (b) have the corporate power to own and operate their properties, to lease the properties they operate, and to conduct the business in which they are currently engaged. 2. The Guarantors have the corporate power to make, deliver and perform the Guaranty and have taken all necessary corporate action to authorize the execution, delivery and performance of the Guaranty. No consent or authorization of, filing with, or other act by or in respect of any public authority, is required of the Guarantors in connection with the execution or delivery of the Guaranty. 3. The Guaranty has been duly executed and delivered on behalf of the Guarantors. 4. The execution and delivery of the Guaranty will not violate any Requirement of Law or, to my knowledge any material Contractual Obligation of the Guarantors, and, to my knowledge will not result in, or require, the creation or imposition of any Lien on any of the Guarantors' properties or revenues pursuant to any Requirement of Law or any material Contractual Obligation. 5. To my knowledge, there is no litigation, investigation or proceeding of or before any arbitrator or public authority that is pending or threatened by or against the Guarantors or against any of their properties or revenues (a) with respect to the Guaranty or any of the transactions contemplated thereby, or (b) which, it adversely determined, would have a Material Adverse Effect on the financial condition of the Guarantors, the ability of the Guarantors to perform their obligations under the Guaranty, or the validity or enforceability of the Guaranty or the rights or remedies of the Administrative Agent or the Banks thereunder, except as described in the financial statements or in the notes thereto referred to in subsection 5.5 of the Agreement, or the Schedule of Litigation attached to the Agreement. I am a member of the bar of the State of Maryland and the opinions set forth herein are limited solely to Federal law and the laws of the State of Maryland except that I have examined the corporate laws of the States of [INSERT STATES OF INCORPORATION OF GUARANTORS] solely for the purpose of rendering the opinions concerning the organization of the Guarantors, and the due authorization of the execution and delivery of the Guaranty by the Guarantors. Exhibit E-2 -2 The opinions expressed in this letter are solely for the use of the Administrative Agent and the Banks, and these opinions may not be relied on by any other persons without my express prior written approval. The opinions expressed in this letter are limited to the matters set forth in this letter, and no other opinions should be inferred beyond the matters expressly stated. Very truly yours, Timothy J. Geckle General Counsel Exhibit E-2 -3 EXHIBIT "F" FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT THIS ASSIGNMENT AND ACCEPTANCE AGREEMENT (THIS "ASSIGNMENT AND ACCEPTANCE") dated as of _____________, ______ is made between ________ (the "ASSIGNOR") and ________________________ (the "Assignee"). RECITALS WHEREAS, the Assignor is party to that certain Revolving Credit Agreement dated as of _________________, 1999 (as amended, amended and RESTATED, MODIFIED, SUPPLEMENTED OR RENEWED, THE "CREDIT AGREEMENT") among THE RYLAND GROUP, INC., A MARYLAND CORPORATION (THE "COMPANY"), the several financial institutions from time to time party thereto (including the ASSIGNOR, THE "BANKS"), Bank One, NA, as Syndication Agent, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United, as Co-Agent and Bank of America, N.A., AS ADMINISTRATIVE AGENT FOR THE BANKS (THE "ADMINISTRATIVE AGENT"). Any terms defined in the Credit Agreement and not defined in this Assignment and Acceptance are used herein as defined in the Credit Agreement; WHEREAS, as provided under the Credit Agreement the Assignor has COMMITTED TO MAKING LOANS (THE "LOANS") to the Company in an aggregate amount NOT TO EXCEED $___________________ (THE "COMMITMENT"); WHEREAS, [the Assignor has made Loans in the aggregate principal amount of $_______ to the Company] [no Loans are outstanding under the Credit Agreement]; and WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and obligations of the Assignor under the Credit Agreement in respect of its Commitment, [together with a corresponding portion of each of ITS OUTSTANDING LOANS, IN AN AMOUNT EQUAL TO $ (THE "ASSIGNED AMOUNT") on the terms and subject to the conditions set forth herein and the Assignee wishes to accept assignment of such rights and to assume such obligations from the Assignor on such terms and subject to such conditions; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: 1. ASSIGNMENT AND ACCEPTANCE. (a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from the Assignor, without recourse and without representation or warranty (except AS PROVIDED IN THIS ASSIGNMENT AND ACCEPTANCE) __% (THE "ASSIGNEE'S PERCENTAGE SHARE") of (A) the Commitment [and the Loans and L/C Obligations] of the Assignor and (B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under and in connection with the Credit Agreement and the Loan Documents. [if appropriate, add paragraph specifying payment to assignor by assignee of outstanding principal of, accrued interest on, and fees with respect to, loans and l/c obligations assigned.] (b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement, including the requirements concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee; provided, however, the Assignor shall not relinquish its rights under Sections 10.2 and 10.11 of the Credit Agreement to the extent such rights relate to the time prior to the Effective Date. (c) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignee's Commitment will be $________________. (d) After giving effect to the assignment and assumption set forth herein, on the Effective Date the Assignor's Commitment will be $________________. 2. PAYMENTS. (a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an amount equal to $____________, representing the Assignee's Pro Rata Share of the principal amount of all Loans. (b) The [Assignor] [Assignee] further agrees to pay to the Administrative Agent a processing fee in the amount specified in Section 10.6 of the Credit Agreement. 3. REALLOCATION OF PAYMENTS. Exhibit F-2 Any interest, fees and other payments accrued to the Effective Date with respect to the Commitment [and the Loans and the L/C Obligations ] shall be for the account of the Assignor. Any interest, fees and other payments accrued on and after the Effective Date with respect to the Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee agrees that it will hold in trust for the other party any interest, fees and other amounts which it may receive to which the other party is entitled pursuant to the preceding sentence and pay to the other party any such amounts which it may receive promptly upon receipt. 4. INDEPENDENT CREDIT DECISION. The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements referred to in Section 6.1 of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement. 5. EFFECTIVE DATE; NOTICES. (a) As between the Assignor and the Assignee, the effective date for THIS ASSIGNMENT AND ACCEPTANCE SHALL BE , (THE "EFFECTIVE DATE"); PROVIDED that the following conditions precedent have been satisfied on or before the Effective Date: (i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the Assignee; (ii) the consent of the Company and the Administrative Agent required for an effective assignment of the Assigned Amount by the Assignor to the Assignee under Section 10.6 of the Credit Agreement shall have been duly obtained and shall be in full force and effect as of the Effective Date; (iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this Assignment and Acceptance; [(iv) the Assignee shall have complied with Section 10.6 of the Credit Agreement (if applicable); (v) the processing fee referred to in Section 2(b) hereof and in Section 10.6 of the Credit Agreement shall have been paid to the Administrative Agent; and Exhibit F-3 (vi) the Assignor shall have assigned and the Assignee shall have assumed a percentage equal to the Assignee's Percentage Share of the rights and obligations of the Assignor under the Credit Agreement. (b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall deliver to the Company, the Issuing Bank and the Administrative Agent for acknowledgment by the Administrative Agent, a Notice of Assignment substantially in the form attached hereto as Schedule 1. [6. ADMINISTRATIVE AGENT. [INCLUDE ONLY IF ASSIGNOR IS ADMINISTRATIVE AGENT] (a) The Assignee hereby appoints and authorizes the Assignor to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the Banks pursuant to the terms of the Credit Agreement. (b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as Administrative Agent under the Credit Agreement.] 7. WITHHOLDING TAX. The Assignee (a) represents and warrants to the Bank, the Administrative Agent and the Company that under applicable law and treaties no tax will be required to be withheld by the Bank with respect to any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under the laws of any jurisdiction other than the United States or any State thereof) to the Administrative Agent and the Company prior to the time that the Administrative Agent or Company is required to make any payment of principal, interest or fees hereunder, duplicate executed originals of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee claims entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S. federal income withholding tax on all payments hereunder) and agrees to provide new Forms 4224 or 1001 upon the expiration of any previously delivered form or comparable statements in accordance with applicable U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 8. REPRESENTATIONS AND WARRANTIES. (a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien or other adverse claim; (ii) it is duly organized and existing and it has the full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles. Exhibit F-4 (b) The Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto. The Assignor makes no representation or warranty in connection with, and assumes no responsibility with respect to, the solvency, financial condition or statements of the Company, or the performance or observance by the Company, of any of its respective obligations under the Credit Agreement or any other instrument or document furnished in connection therewith. (c) The Assignee represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance and any other documents required or permitted to be executed or delivered by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder; (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution, delivery and performance of this Assignment and Acceptance; and apart from any agreements or undertakings or filings required by the Credit Agreement, no further action by, or notice to, or filing with, any Person is required of it for such execution, delivery or performance; (iii) this Assignment and Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of general application relating to or affecting creditors' rights and to general equitable principles; and (iv) it is an Eligible Assignee. 9. FURTHER ASSURANCES. The Assignor and the Assignee each hereby 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 Assignment and Acceptance, including the delivery of any notices or other documents or instruments to the Company or the Administrative Agent, which may be required in connection with the assignment and assumption contemplated hereby. Exhibit F-5 10. Miscellaneous. (a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in writing and signed by the parties hereto. No failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights with respect to any other or further breach thereof. (b) All payments made hereunder shall be made without any set-off or counterclaim. (c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Assignment and Acceptance. (d) This Assignment and Acceptance may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. (e) this assignment and acceptance shall be governed by and construed in accordance with the law of the state of illinois. The Assignor and the Assignee each irrevocably submits to the non-exclusive jurisdiction of any State or Federal court sitting in Illinois over any suit, action or proceeding, arising out of or relating to this Assignment and Acceptance and irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Illinois State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. (f) the assignor and the assignee each hereby knowingly, voluntarily and intentionally waive any rights they may have to a trial by jury in respect of any litigation based hereon, or arising out of, under, or in connection with this assignment and acceptance, the credit agreement, any related documents and agreements or any course of conduct, course of dealing, or statements (whether oral or written). [other provisions to be added as may be negotiated between the assignor and the assignee, provided that such provisions are not inconsistent with the credit agreement.] Exhibit F-6 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: ________________________________ [Printed Name and Title] [ASSIGNEE] By: ________________________________ [Printed Name and Title] Exhibit F-7 SCHEDULE 1 NOTICE OF ASSIGNMENT AND ACCEPTANCE Bank of America, N.A. 231 S. LaSalle St. Chicago, Illinois 60697 Attn: ________________ The Ryland Group, Inc. [Address] Ladies and Gentlemen: We refer to the Revolving Credit Agreement dated as of _______, _____ (as amended, amended and restated, modified, supplemented or renewed from TIME TO TIME THE "CREDIT AGREEMENT") among The Ryland Group, Inc., a Maryland CORPORATION (THE "COMPANY"), the Banks referred to therein , Bank One, NA, as Syndication Agent, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United, as Co-Agent, and Bank of America, N.A., as Administrative Agent for the Banks (THE "ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement are used herein as therein defined. 1. We hereby give you notice of, and request your consent to, the ASSIGNMENT BY _________ (THE "ASSIGNOR") TO _____________ (THE "ASSIGNEE") of % of the right, title and interest of the Assignor in and to the Credit Agreement (including, without limitation, the right, title and interest of the Assignor in and to the Commitments of the Assignor and all outstanding Loans and L/C Obligations made by the Assignor) pursuant to the Assignment AND ACCEPTANCE AGREEMENT ATTACHED HERETO (THE "ASSIGNMENT AND ACCEPTANCE"). Before giving effect to such assignment, the Assignor's Commitment is $________ and the aggregate amount of its outstanding Loans is $______________. After giving effect to such assignment, the Assignor's Commitment shall be $_____________ and the Assignee's Commitment shall be $------------. 2. The Assignee agrees that, upon receiving the consent of the Administrative Agent and, if applicable, the Company to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Credit Agreement. Schedule 1 to Exhibit "F" - Page 1 3. The following administrative details apply to the Assignee: (A) Notice Address:______________________________ Assignee name: ______________________________ Address: ______________________________ ______________________________ Attention: ______________________________ Telephone: (___)__________________________ Telecopier: (___)__________________________ (B) Payment Instructions: Account No.: ______________________________ At: ______________________________ Reference: ______________________________ Attention: ______________________________ 4. You are entitled to rely upon the representations, warranties and covenants of each of the Assignor and Assignee contained in the Assignment and Acceptance. Schedule 1 to Exhibit "F" - Page 2 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By: ________________________ Title: ________________________ [NAME OF ASSIGNEE] By: ________________________ Title: ________________________ Schedule 1 to Exhibit "F" Page 3 ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO: THE RYLAND GROUP, INC. By: ___________________ Title: ___________________ BANK OF AMERICA, N.A., as Administrative Agent By: ___________________ Title: ___________________ Schedule 1 to Exhibit "F" Page 4 EXHIBIT G FORM OF COMPLIANCE CERTIFICATE Figures for reporting period ending: Pursuant to subsection 6.2(b) of the Credit Agreement dated as of _____, 1999 (as amended, supplemented, amended and restated, renewed or otherwise modified from time to time, the "Credit Agreement"), among The Ryland Group, Inc. (the "Company"), the financial institutions party thereto, Guaranty Federal Bank, F.S.B., as Co-Agent, Bank United as Co-Agent, Bank One, NA, as Syndication Agent, and Bank of America, N.A., as Administrative Agent, the undersigned, the duly elected, qualified and acting Responsible Official of the Company, hereby certifies that: (a) To the best of such Authorized Official's knowledge, the Company and each of its Subsidiaries has, during the period or periods referred to above or with respect to each covenant as set forth below, observed and performed all of its covenants and other agreements, and satisfied every condition, contained in the Credit Agreement to be observed, performed or satisfied by such party, and as of the date hereof such Authorized Official has obtained no knowledge of any Default of Event of Default except as follows: (b) The calculations set forth below with respect to the covenants listed below, the supporting information with respect thereto and the information set forth in Appendix A hereto, are based upon the financial statements of the Company and its Subsidiaries for the fiscal quarter of the Company ended. FINANCIAL CONDITION COVENANTS: 7.1 MAINTENANCE OF CONSOLIDATED TANGIBLE NET WORTH OF THE COMPANY Covenant-Requirement that the Company maintain a minimum level of Consolidated Tangible Net Worth. The amount permitted is based upon the following: Consolidated Tangible Net Worth shall not be less than: (i) $265,000,000 on 3/31/99 (ii) or on the last day of any quarter after 3/31/99: $265,000,000 + 50% of positive Consolidated Net Income (without deduction for losses sustained during any fiscal quarter) $ ______________________ + 90% of Equity Proceeds Consolidated net worth at the end of the reporting period _____________________ Intangibles _____________________ Consolidated Tangible Net Worth _____________________ Cushion (Violation) _____________________ 7.2 RATIO OF COMBINED DEBT TO ADJUSTED CONSOLIDATED TANGIBLE NET WORTH Covenant Limitation on Combined Debt based on a formula. The formula limitation is as follows: Combined Debt of Homebuilding Segment ("CDHS") not to exceed 2.5 times Adjusted Consolidated Tangible Net Worth ("ACTNW") as set forth below: ACTNW = _____________________ Permitted CDHS _____________________ Total CDHS _____________________ Cushion (Violation) _____________________ 7.3 FIXED CHARGE COVERAGE MAINTENANCE OF FIXED CHARGE COVERAGE Covenant - Fixed Charge not to be less than 1.75 to 1 for more than two consecutive quarters ends for the Measurement Periods then ending or 1.25 to 1 as at any fiscal quarter end for the Measurement Period then ending. Exhibit G-2 Fixed Charge Coverage = Combined Net Income + FSS Distributions + Taxes + Depr. and Amort. + Interest Expense + Interest Capitalized + Interest Amortized Through Costs of Goods Sold + Non-recurring non-cash charges and expenses - Non-recurring non-cash credits - Non-cash equity interest in earnings from FSS Segment Total EBITDA to Interest Expense Incurred + Principal Payments on long-term Indebtedness + Principal Portion of payments on Financing Leases + Dividends on Preferred Stock Total Fixed Charges Resulting Fixed Charge Coverage ________to 1 7.4 SENIOR PERMITTED DEBT TO BORROWING BASE (SEE BORROWING BASE CERTIFICATE) 7.5 LIMITATION ON LAND INVENTORY UNSOLD RAW LAND ____________ 20% of Adjusted Consolidated Tangible Net Worth Adjusted Consolidated Tangible Net Worth ____________ Ratio ____________ Cushion (Violation) ____________ Exhibit G-3 (b) Unsold Land is not to exceed an amount equal to 150% of Adjusted Consolidated Tangible Net Worth. Unsold Raw Land ________ Unsold Land Under Development ________ Unsold Finished Lots ________ TOTAL ======== Adjusted Consolidated Tangible Net Worth ____________ Ratio ____________ Cushion (Violation) ____________ 7.6 LIMITATION ON HOUSING INVENTORY UNSOLD HOUSING Aggregate Number of Unsold Housing Units ____________ 50% OF HOMES DELIVERED IN LAST 12 MONTH ____________ 70% OF HOMES DELIVERED IN LAST SIX MONTHS ____________ Exhibit G-4 7.7 LIMITATION OF INDEBTEDNESS: (i) LIMITATIONS ON ADDITIONAL INDEBTEDNESS MATURING PRIOR TO MATURITY DATE $20,000,000 Permitted Debt $__________ 7.13 LIMITATION OF INVESTMENTS (d) LIMITATION ON OTHER ACQUISITIONS $25,000,000 Permitted Other Acquisitions (e) COVENANT - INVESTMENTS IN JOINT VENTURES Investments ___________ Limit (greater of (i) $45,000,000 or (ii) 15% of Consolidated Tangible Net Worth less Investments in Default. ___________ 7.14 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATION OF DEBT INSTRUMENTS SUBORDINATED DEBT PREPAID $__________ Permitted $25,000,000 IN WITNESS WHEREOF, I hereto set my name. _________________ Name: Bruce Haase Title: Treasurer Date: Exhibit G-5 [Appendix A to be added] Exhibit G-6