Exhibit 10.1.2
SECOND MODIFICATION AND ASSUMPTION AGREEMENT
DATE: June 1, 2001
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PARTIES:
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Existing Borrower: MHC: MONTEREY HOMES CONSTRUCTION, INC., an Arizona
corporation
MHA: MONTEREY HOMES ARIZONA, INC., an Arizona corporation
Paseo Construction MERITAGE PASEO CONSTRUCTION, LLC, an Arizona limited liability company,
formerly known as Chandler 110, LLC
MHNC: MERITAGE HOMES OF NORTHERN CALIFORNIA, INC., a California corporation
Paseo Crossing: MERITAGE PASEO CROSSING, LLC, an Arizona limited liability company
Meritage Construction: MERITAGE HOMES CONSTRUCTION, INC., an Arizona
corporation
Meritage Arizona: MERITAGE HOMES OF ARIZONA, INC., an Arizona corporation
Additional
Borrower: Hancock Communities: HANCOCK-MTH COMMUNITIES, INC., an Arizona corporation
Hancock Builders: HANCOCK-MTH BUILDERS, INC., an Arizona corporation
Lender: WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association, formerly known as Norwest
Bank Arizona, National Association
CALIFORNIA BANK & TRUST, a California banking corporation
Administrative Agent
and Sole Lead
Arranger: WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a
national banking association, formerly known as Norwest Bank Arizona,
National Association
Documentation
and Syndication
Agent: CALIFORNIA BANK & TRUST, a California banking corporation
RECITALS:
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A. Lenders have extended to Existing Borrower credit ("Loan") in the
principal amount of $100,000,000.00 pursuant to the Loan Agreement, dated
December 29, 1999, as modified by that First Modification Agreement (the "First
Modification") dated May 16, 2000 and assumed pursuant to that Assumption
Agreement (the "Assumption Agreement") dated April 6, 2001 (as modified and
assumed, the "Loan Agreement"), and evidenced by two (2) Replacement Promissory
Notes, dated May 16, 2000 (collectively, the "Notes"). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement. The unpaid principal of the Loan as of May 30, 2001 was
$77,564,842.37.
B. The Loan is secured by, among other things, the following (the
"Deeds of Trust"):
(i) An Amended and Restated Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing (Maricopa) dated December
29, 1999, by MHC and MHA, as trustor, for the benefit of Administrative
Agent, as beneficiary, recorded on December 30, 1999, at Recorder's No.
99-1165935, records of Maricopa County, Arizona, as thereafter amended
and/or supplemented from time to time;
(ii) A Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing (Val Vista Meadows Option Property) dated December
29, 1999, by MHC and MHA, as trustor, for the benefit of Administrative
Agent, as beneficiary, recorded on December 30, 1999, at Recorder's No.
99-1165936, records of Maricopa County, Arizona, as thereafter amended
and/or supplemented from time to time;
(iii) A Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing (Paseo Crossing) dated February 8, 2000, by Paseo
Construction, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on February 25, 2000, at Recorder's No.
00-0140216, records of Maricopa County, Arizona, as thereafter amended
and/or supplemented from time to time;
(iv) An Amended and Restated Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing (Pima) dated December 29,
1999, by MHC and MHA, as trustor, for the benefit of Administrative
Agent, as beneficiary, recorded on December 30, 1999, in Docket 11204,
page 6460, records of Pima County, Arizona, as thereafter amended
and/or supplemented from time to time;
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(v) A Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (Black Diamond Knolls) dated September 13,
1999, by MHNC, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on October 5, 1999, as Series No. 99-264104,
records of Contra Costa County, California, as thereafter amended
and/or supplemented from time to time;
(vi) A Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (Black Diamond Knolls Option Property)
dated September 13, 1999, by MHNC, as trustor, for the benefit of
Administrative Agent, as beneficiary, recorded on October 5, 1999, as
Series No. 99-264105, records of Contra Costa County, California, as
thereafter amended and/or supplemented from time to time;
(vii) A Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing (Black Diamond Estates) dated
April 12, 1999, by MHNC, as trustor, for the benefit of Administrative
Agent, as beneficiary, recorded on May 7, 1999, as Series No.
99-123453, records of Contra Costa County, California, as thereafter
amended and/or supplemented from time to time;
(viii) A Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing (Wildhorse No. 1) dated November
18, 1998, by MHNC, as trustor, for the benefit of Administrative Agent,
as beneficiary, recorded on November 24, 1998, as Instrument No.
98-0034610, records of Yolo County, California, as thereafter amended
and/or supplemented from time to time;
(ix) A Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (Whitney Oaks) dated October 2, 1998, by
MHNC, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on November 24, 1998, as Instrument No.
98-0097765, records of Placer County, California, as thereafter amended
and/or supplemented from time to time;
(x) A Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (Empire Ranch) dated November 15, 1999, by
MHNC, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on December 2, 1999, in Book 9912-02, page 0995,
records of Sacramento County, California, as thereafter amended and/or
supplemented from time to time;
(xi) A Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing (Sterling Park - Phase I) dated April 30,
1999, by MHNC, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on May 3, 1999, as Instrument No. 99058301,
records of San Joaquin County, California, as thereafter amended and/or
supplemented from time to time; and
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(xii) A Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing (Villa Francais) dated April 25,
2001, by MHNC, as trustor, for the benefit of Administrative Agent, as
beneficiary, recorded on May 2, 2001, at Recorder's No. 2001-44309,
records of Stanislaus County, California, as thereafter amended and/or
supplemented from time to time
The agreements, documents, and instruments securing the Loan and the Notes are
referred to individually and collectively as the "Security Documents."
C. The Notes, the Loan Agreement, the Security Documents, the side
letter regarding the Agency Fee (the "Agency Fee Letter"), any environmental
indemnity agreement, and all other agreements, documents, and instruments
evidencing, securing, or otherwise relating to the Loan, as modified by the
First Modification and assumed pursuant to the Assumption Agreement, are
sometimes referred to individually and collectively as the "Loan Documents."
D. A Continuing Guarantee dated December 29, 1999 guaranteeing all
indebtedness of Borrower to Lenders, as modified by the Consent and Agreement of
Guarantor(s) attached to the First Modification and the Assumption Agreement (as
modified, the "Guarantee Agreement") was executed and delivered to Lenders by
MERITAGE CORPORATION, a Maryland corporation, MTH - TEXAS GP, INC., an Arizona
corporation, MTH - TEXAS LP, INC., an Arizona corporation, LEGACY/MONTEREY HOMES
L.P., an Arizona limited partnership, and TEXAS HOME MORTGAGE CORPORATION, a
Texas corporation (hereinafter collectively called "Guarantors").
E. Existing Borrower has requested that Lenders, Administrative Agent
and Sole Lead Arranger (hereinafter, "Administrative Agent"), and Documentation
and Syndication Agent permit Additional Borrower to become an additional
borrower under the Loan and assume the obligations of Existing Borrower as an
additional obligor under the Loan. Lenders, Administrative Agent and
Documentation and Syndication Agent are willing to permit Additional Borrower to
become an additional borrower under the Loan and assume the obligations of
Existing Borrower as an additional obligor under the Loan, subject to the terms
and conditions herein. Existing Borrower and Additional Borrower are hereinafter
jointly and severally called "Borrower."
F. In addition, Borrower has requested that Lenders, Administrative
Agent and Documentation and Syndication Agent modify the Loan and the Loan
Documents as provided herein. Lenders, Administrative Agent and Documentation
and Syndication Agent are willing to so modify the Loan and the Loan Documents,
subject to the terms and conditions herein.
AGREEMENT:
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For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower, Lenders, Administrative Agent and
Documentation and Syndication Agent agree as follows:
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SECTION 1. ACCURACY OF RECITALS.
Borrower acknowledges the accuracy of the Recitals.
SECTION 2. ASSUMPTION, MODIFICATION OF LOAN DOCUMENTS AND OTHER AGREEMENTS.
2.1 Additional Borrower hereby joins in the Loan Agreement as a
"Borrower" and assumes, severally and collectively with Existing Borrower, the
obligation for payment of the indebtedness evidenced by the Notes and for the
performance of all covenants, conditions, provisions and agreements under the
Loan Agreement and the other Loan Documents. Such assumption shall in no way
affect the liability or obligations of Existing Borrower under the Notes, the
Loan Agreement and the other Loan Documents, the priority of any of Lender's
liens and security interests securing repayment of the Loan, nor the liability
of any Guarantor.
2.2 Additional Borrower hereby severally and collectively covenants,
promises and agrees (i) to pay the Notes at the times, in the manner and in all
other respects as therein provided or as it may be modified in writing between
the obligor and the holder thereof; (ii) to perform each and all of the
covenants, conditions, provisions and agreements in the Loan Agreement and the
other Loan Documents to be performed by Existing Borrower, at the time, in the
manner and in all other respects as therein provided; and (iii) to be bound by
each and every term, condition, representation, warranty and provision of the
Notes, the Loan Agreement and the other Loan Documents as though such documents
and instruments had originally been made, executed and delivered by Additional
Borrower severally and collectively with Existing Borrower.
2.3 From and after the date hereof, the terms "Borrower" and "Maker" in
the Loan Documents shall mean, severally and collectively, MHC, MHA, Paseo
Construction, MHNC, Paseo Crossing, Meritage Construction, Meritage Arizona,
Hancock Communities and Hancock Builders. Each Borrower shall be jointly and
severally obligated under the Loan, the Loan Agreement, the Notes and the other
Loan Documents.
2.4 The following definitions set forth in Section 2 of the Loan
Agreement are hereby amended in their entirety to read as follows:
"ADJUSTED TANGIBLE NET WORTH" means, as of any date of
determination, the amount of consolidated Owners' Equity of the
Meritage Group as shown on its consolidated balance sheet, minus the
Net Book Value (after deducting reserves applicable thereto) of all
assets classified as intangible assets under GAAP, including, without
limitation, goodwill, trademarks, trade names, service marks,
copyrights, patents, licenses, permits, covenants not to compete, and
rights related thereto.
"FEES" shall mean the Facility Fee, the Agency Fee, the Letter
of Credit Fee, the Fronting Bank Fee, the Extension Fee, the Nonusage
Fee, the Conversion Fee and all other fees and charges, if any (other
than interest), payable hereunder or otherwise payable in connection
with the Loan.
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"LIABILITIES" of a Person means all items included in the
liability section of a balance sheet of that person prepared in
accordance with GAAP applied as of the date of calculation. Without
limiting the generality of the foregoing, the term "Liabilities" shall
include outstanding balances owed by any parent or subsidiary thereof,
including but not limited to the Loan, notes payable to other financial
institutions whether secured or unsecured, private or public bonds,
seller financing, letters of credit outstanding, all guarantees of
third party indebtedness, and accounts payable, subordinated debt,
accrued expenses, and customer deposits.
"LIBOR MARGIN" shall mean the following amounts per annum as
in effect from time to time, based upon the Leverage Ratio as set forth
in the most recent Compliance Certificate received by Administrative
Agent pursuant to Section 18.3(f):
If Leverage Ratio is: The LIBOR Margin is:
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Tier 1. Less than 1.60 to 1 1.75% per annum
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Tier 2. Equal to or greater than 1.60 to 1 2.00% per annum
Each LIBOR Margin shall be in effect from the date the most recent
Compliance Certificate is received by Administrative Agent to but
excluding the date the next Compliance Certificate is received;
provided, however, that if Borrower fails to timely deliver the next
Compliance Certificate, the LIBOR Margin in effect from the date such
Compliance Certificate was due to but excluding the date such
Compliance Certificate is received by Administrative Agent shall be the
LIBOR Margin shown in Tier 2 above, and, thereafter, the pricing level
indicated by such Compliance Certificate when received. Notwithstanding
the foregoing, the LIBOR Margin commencing on June 1, 2001 and
continuing through the date the next Compliance Certificate is received
by Administrative Agent shall be the LIBOR Margin shown in Tier 2
above.
"SIGNIFICANT DEBT AGREEMENT" means all documents, instruments
and agreements executed by any member of the Meritage Group,
evidencing, securing or ensuring any public or private Indebtedness of
any member of the Meritage Group or any guaranty, in each case in
excess of $5,000,000 in outstanding principal (or principal equivalent)
amount, including, without limitation, that $75,000,000 revolving line
of credit from Guaranty Federal FSB to Legacy/Monterey Homes L.P. and
Legacy Operating Company, L.P., the $165,000,000 9-3/4% Senior Notes
due 2011 and any refinancings thereof, but excluding any Indebtedness
that is Non-Recourse Debt.
"VARIABLE RATE" means a fluctuating rate per annum equal to
the higher of (i) the Federal Funds Rate plus one-half of one percent
(.5%) and (ii) the Prime Rate.
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The Variable Rate shall change from time to time on the effective date
of, and in conformity with, changes in the Federal Funds Rate and the
Prime Rate.
2.5 The following new definitions are hereby added to Section 2 of the
Loan Agreement:
"ANNIVERSARY DATE": See Section 3.15 hereof.
"COMPLIANCE CERTIFICATE" means the certificate required to be
delivered to Administrative Agent pursuant to Section 18.3(f).
"CONVERSION DATE" means June 1, 2003; provided, however, that
the Banks may, in the Banks' sole and absolute discretion, extend the
Conversion Date pursuant to Section 3.15.
"CONVERSION FEE": See Section 8.7 hereof.
"EXTENSION FEE": See Section 3.15 hereof.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upwards to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers
on such day, as published by the Federal Reserve Bank of New York on
the Business Day next succeeding such day; provided that (i) if such
day is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if no such rate
is so published on such next succeeding Business Day, the Federal Funds
Rate for such day shall be the average rate charged to Wells Fargo Bank
Arizona, National Association, on such day on such transactions as
determined by Administrative Agent.
"FRONTING BANK FEE": See Section 6.3(b) hereof.
"LEVERAGE RATIO" means, as of any date of determination, the
ratio of (i) the Meritage Group's consolidated Liabilities to (ii)
Adjusted Tangible Net Worth.
"NONUSAGE FEE": See Section 8.6 hereof.
2.6 Section 3.15 of the Loan Agreement is hereby amended in its
entirety to read as follows:
3.15 Conversion Date. On June 1, 2002 and upon each
anniversary of such date thereafter (each such date, including June 1,
2002, is hereinafter called an "Anniversary Date"), the Banks may, at
the request of Borrower, in the Bank's sole and absolute discretion
after conducting an annual meeting of the Banks with the Borrower not
less than sixty (60) days prior to the Anniversary Date, extend the
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Conversion Date for a period of twelve (12) months, with such changes
to this Agreement or the terms and conditions herein as the Banks may
require, in their sole and absolute discretion, and upon such terms and
conditions as the Banks may require, in their sole and absolute
discretion, including, without limitation, the following:
(a) Borrower at least ninety (90) days prior to the
applicable Anniversary Date shall have given Administrative
Agent written notice that Borrower desires such extension.
(b) For each Anniversary Date commencing with the
Anniversary Date on June 1, 2003, Borrower shall have paid to
Administrative Agent in cash or immediately available funds
for distribution to Banks in accordance with their Pro Rata
Shares, a non-refundable extension fee (the "Extension Fee")
at the rate of one-quarter of one percent (.25%) per annum of
the maximum Commitment Amount calculated for the extension
period, which fee shall be payable in advance on or before the
applicable Anniversary Date.
(c) Administrative Agent, in its reasonable
discretion, shall have determined that no Material Adverse
Change has occurred.
(d) No Event of Default or no Unmatured Event of
Default shall have occurred and be continuing on the date of
Borrower's notice of extension to Administrative Agent or on
the applicable Anniversary Date.
If Banks holding aggregate Commitments of less than one hundred percent
(100%) of the Commitment Amount, but at least eighty percent (80%) of
the Commitment Amount, agree to such extension, then (i) the approving
Banks may, but shall have no obligation to, require the dissenting
Banks to transfer and assign to the approving Banks without recourse
(in accordance with and subject to the restrictions contained herein
and in the Co-Lender Agreement) all their interests, rights and
obligations under this Agreement, or (ii) Borrower may (A) terminate
the Commitments of the dissenting Banks or (B) require the dissenting
Banks to transfer and assign without recourse (in accordance with and
subject to the restrictions contained herein and in the Co-Lender
Agreement) all their interests, rights and obligations under this
Agreement to another financial institution reasonably acceptable to
Administrative Agent which shall assume such obligations; provided that
upon the exercise of the rights described in clause (i) or (ii) above
the approving Banks, Borrower or the assignee, as the case may be,
shall pay to the dissenting Banks in immediately available funds on the
date of such termination or assignment the principal of and interest
accrued to the date of payment on the Loans made by them hereunder and
all other amounts accrued for their account or owed to them hereunder.
From and after
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the Conversion Date, the Loan shall cease to be a revolving line of
credit and the Commitment Amount shall be automatically reduced on the
last day of the third Calendar Month in the Conversion Period and on
the last day of each third Calendar Month thereafter, with the amount
of each such reduction to be equal to one-eighth of the Commitment
Amount in effect as of the day prior to commencement of the Conversion
Period.
2.7 Section 3.17 of the Loan Agreement is hereby amended in its
entirety to read as follows:
3.17 Mandatory Prepayments. If for any reason at any time the
Loan Balance exceeds the Available Commitment, Borrower shall within
two (2) Business Days after receipt of notice from Administrative Agent
make a payment to Administrative Agent in an amount equal to the sum of
(i) such excess principal, and (ii) accrued and unpaid interest
thereon. Administrative Agent, in its sole discretion, may suspend the
commitment to make any further Advances until Administrative Agent
shall have received such payment.
2.8 Section 6.3(b) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(b) Borrower further agrees to pay to the Issuing Bank for its
own account (i) a non-refundable fee (the "Fronting Bank Fee") equal to
one-quarter percent (.25%) per annum on the Stated Amount of each
Letter of Credit, computed on a daily basis, during the Outstanding
Period, and (ii) a charge for all reasonable administrative expenses of
the Issuing Bank in connection with the issuance, amendment or
modification (if any) and administration of the Letter of Credit upon
demand from time to time. The Fronting Bank Fee shall be payable in
advance upon the issuance of a Letter of Credit.
2.9 Section 8 of the Loan Agreement is hereby amended in its entirety
to read as follows:
SECTION 8. FEES
As additional consideration for the Commitment, Borrower
agrees to pay to Administrative Agent for distribution to
Administrative Agent and the Banks in accordance with the Co-Lender
Agreement and/or the terms and provisions hereof the following fees,
from Borrower's own funds (unless otherwise indicated), which shall be
earned on the date due under the Loan Documents and shall be
non-refundable to Borrower:
8.1 Facility Fee. A fee for the Commitment (the "Facility
Fee") at the rate of one-quarter of one percent (.25%) per annum of the
maximum Commitment Amount then in effect shall be due and payable
quarterly in advance on each January 1, April 1, July 1 and October 1,
provided that the initial Facility Fee shall
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be payable on the date of this Agreement and shall be prorated for the
period commencing on the date of this Agreement and ending on December
31, 1999 at the per annum rate set forth above.
8.2 Agency Fee. The Agency Fee in accordance with terms and
conditions set forth in a side letter between Borrower and
Administrative Agent.
8.3 Letter of Credit Fee and Fronting Bank Fee. See Section
6.3 hereof.
8.4 Attorneys' Costs, Expenses, and Fees. Attorneys' costs,
expenses, and fees for Administrative Agent's counsel and the Banks'
counsel as provided in the Loan Documents, payable on or before the
date hereof and during the term of the Commitment, from time to time
upon the presentation by Administrative Agent of statements therefor.
8.5 Appraisal Fees, Title Insurance Premium, and Other Costs,
Expenses, and Fees. Appraisal fees, appraisal review fees, title
insurance premiums, and other costs, expenses, and fees that Borrower
is obligated to pay pursuant to the Loan Documents, in the amounts
specified by Administrative Agent, payable on or before the date
hereof, and monthly thereafter during the term of the Commitment.
8.6 Nonusage Fee. For the period commencing on June 1, 2001,
and continuing thereafter, a nonusage fee (the "Nonusage Fee") computed
at the rate per annum of fifteen-hundredths of one percent (.15%) per
annum of the unused Commitment Amount, shall be payable quarterly in
arrears commencing on July 1, 2001, and on each October 1, January 1,
April 1 and July 1 thereafter. For each quarter (or portion thereof)
the Nonusage Fee shall be equal to: (i) the Commitment Amount (as in
effect at the beginning of such quarter) minus (ii) the "average
quarterly outstandings" for the quarter (or portion thereof) with
respect to which the Nonusage Fee is being computed, with the resulting
number multiplied by (iii) one-quarter (1/4th) of the rate per annum of
fifteen-hundredths of one percent (.15%). As used herein, "average
quarterly outstandings" means the sum of the outstanding Loan balance
at the end of each week (on each Friday) during the quarter (or portion
thereof) for which the Nonusage Fee is being computed, divided by the
number of weeks in that quarter (or portion thereof). If the Nonusage
Fee is being computed for less than a full quarter, the percentage used
in clause (iii) above shall be computed on a weekly basis for the
number of weeks for which the fee is being computed. The Nonusage Fee
shall be distributed to the Banks in accordance with their Pro Rata
Shares.
8.7 Extension Fee. See Section 3.15 hereof.
8.8 Conversion Fee. A conversion fee (the "Conversion Fee") at
the rate of one-half of one percent (.5%) per annum of the Commitment
Amount then in effect, calculated for the entire Conversion Period,
shall be due and payable in full
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in advance on the Conversion Date. The Conversion Fee shall be
distributed to the Banks in accordance with their Pro Rata Shares.
2.9 Section 18.3(b) of the Loan Agreement is hereby amended in its
entirety to read as follows:
(b) Consolidating and Consolidated Annual Statements of the
Meritage Group. As soon as available and in any event within one
hundred twenty (120) days after the close of each fiscal year of the
Meritage Group, audited consolidated financial statements of the
Meritage Group, including its consolidated balance sheet as of the
close of such fiscal year and consolidated statements of income and
cash flows of the Meritage Group for such fiscal year, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an unqualified
opinion thereon of independent public accountants of recognized
national standing selected by the Meritage Group and acceptable to
Administrative Agent, to the effect that such financial statements have
been prepared in accordance with GAAP (except for changes in which such
accountants concur) and that the examination of such accounts in
connection with such financial statements has been made in accordance
with generally accepted auditing standards and, accordingly, includes
such tests of the accounting records and such other auditing procedures
as were considered necessary in the circumstances. As soon as available
and in any event within ninety (90) days after the close of each fiscal
year of the Meritage Group, company prepared consolidating financial
statements of the Meritage Group, including its consolidating balance
sheet as of the close of such fiscal year and consolidating statements
of income and cash flows of the Meritage Group for such fiscal year, in
each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and prepared in
accordance with GAAP. Within sixty (60) days prior to each fiscal year
of the Meritage Group, a projection, in reasonable detail and in form
and substance satisfactory to Administrative Agent, on a quarterly
basis of the cash flow and of the earnings of the Meritage Group for
the next two (2) fiscal years, together with gross and net margin
analysis of each project by quarter. As soon as available and in any
event within one hundred twenty (120) days after the end of the
Meritage Group's fiscal year, a copy of the Meritage Group's annual
report on Form 10-K filed with the SEC. Within fifteen (15) Business
Days after filing, copies of all filings with the SEC by any member of
the Meritage Group.
2.10 Section 19.3 of the Loan Agreement is hereby amended in its
entirety to read as follows:
19.3 Financial Covenants. Borrower shall not permit:
(a) Maximum Leverage Ratio. The Leverage Ratio to be greater
than the following:
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(i) 3.00 to 1.0 for the fiscal quarter ending June
30, 2001.
(ii) 2.75 to 1.0 for the fiscal quarter ending
September 30, 2001.
(iii) 2.50 to 1.0 for the fiscal quarter ending
December 31, 2001 and as of the end of the first three fiscal
quarters of each fiscal year of the Meritage Group thereafter.
(iv) 2.25 to 1.0 for the fiscal quarter ending
December 31, 2002 and as of the end of the fourth fiscal
quarter of each fiscal year of the Meritage Group thereafter.
(b) Minimum Fixed Charge Coverage. The ratio of the Meritage
Group's consolidated EBITDA to total interest incurred plus any
regularly scheduled principal payments (excluding balloon payments
and/or maturing loans) due on public or private debt or debt owed to
any financial institution, to be less than 2.0 to 1.0, determined as of
the end of each fiscal quarter of the Meritage Group's fiscal year for
the immediately preceding four fiscal quarters.
(c) Minimum Adjusted Tangible Net Worth. The consolidated
Adjusted Tangible Net Worth of the Meritage Group determined as of the
end of each quarter of the Meritage Group's fiscal year to be less than
the following:
(i) $85,000,000 as of June 30, 2001.
(ii) $100,000,000 as of September 30, 2001.
(iii) $120,000,000 as of December 31, 2001.
(iv) For each fiscal quarter commencing with the
quarter ending March 31, 2002 and continuing thereafter, the
sum of (A) $120,000,000, (b) fifty percent (50%) of
Consolidated Net Income for each fiscal quarter of the
Meritage Group in which Consolidated Net Income is positive
(without offset for any fiscal quarter in which the Meritage
Group's Consolidated Net Income is negative), and (C)
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seventy-five percent (75%) of any new stated capital or paid
in capital acquired by the Meritage Group.
(d) Guaranties. The Meritage Group to make or suffer
to exist any Contingent Obligation (including, without
limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary or joint venture that is not a
Loan Party) or otherwise assume, guarantee or in any way
become contingently liable or responsible for obligations of
any other Person, whether by agreement to purchase those
obligations of any other Person, or by agreement for the
furnishing of funds through the purchase of goods, supplies or
services (whether by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging the obligations of any other Person that, in the
aggregate, exceeds twenty percent (20%) of the consolidated
Adjustable Tangible Net Worth of the Meritage Group.
Any failure to comply with the foregoing financial covenants shall
constitute an Event of Default.
2.11 Section 24.12 of the Loan Agreement is hereby amended in its
entirety to read as follows:
24.12 Participations and Assignments. Each Bank, at any time,
shall have the right (subject to the terms of the Co-Lender Agreement)
to sell, assign, transfer, negotiate or grant participation interests
in the Loan and in any documents and instruments executed in connection
herewith. In connection with any assignment by a Bank of all or a
portion of its interest in the Loan (i) except in the case of an
assignment to a Bank or an affiliate of any Bank, or if an Unmatured
Event of Default or an Event of Default shall be continuing, Borrower
must give its prior written consent to such assignment (which consent
shall not be unreasonably withheld or delayed), (ii) Administrative
Agent must give its prior written consent to such assignment (which
consent shall not be unreasonably withheld or delayed), (iii) the
amount of the Commitment of the assigning Bank subject to each such
assignment shall not be less than $10,000,000.00 or such lesser amount
if such amount is the entire Commitment of the assigning Bank, and (iv)
any assignee shall have a net worth of at least $350,000,000 and total
assets of a least $2.5 billion. Within five Business Days after receipt
of notice of any assignment of a Bank's interest the Loan, the Borrower
shall execute and deliver to Administrative Agent, in exchange for the
surrendered Note or Notes (A) a new Note or Notes to the order of such
assigning Bank in a principal amount equal to the applicable Commitment
retained by it, if any, and (B) a new Note or Notes, to the order of
the assignee Bank in a principal amount equal to the applicable
Commitment assigned to it. Such new Note
- 13 -
or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes; such new
Notes shall be dated the date of the surrendered Notes which they
replace and shall otherwise be in substantially the form of EXHIBIT
"A". Canceled Notes shall be returned to the Borrower. Each Bank is
authorized to furnish to any participant or prospective participant any
information or document that such Bank may have or obtain regarding the
Loan, Borrower or any guarantor of the Loan.
2.12 Borrower hereby acknowledges and agrees that by executing the
attached Consent and Agreement of Guarantor(s), Legacy Operating Company, L.P.,
a Texas limited partnership, assumes on a joint and several basis the
obligations and liabilities of Guarantors under the Guarantee Agreement and the
other applicable Loan Documents.
2.13 Each reference in the Loan Documents to any of the Loan Documents
is hereby amended to be a reference to such document as assumed and modified
herein.
SECTION 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents and each and every term, condition, representation,
warranty and provision thereof are ratified and affirmed by Borrower and shall
remain in full force and effect as assumed and modified herein. Any property or
rights to or interests in property granted as security in the Loan Documents
shall remain as security for the Loan and the obligations of Borrower in the
Loan Documents.
SECTION 4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Lenders, Administrative Agent, and
Documentation and Syndication Agent:
4.1 No default or event of default under any of the Loan Documents as
assumed and modified herein, nor any event, that, with the giving of notice or
the passage of time or both, would be a default or an event of default under the
Loan Documents as assumed and modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial
condition of Borrower, any Guarantor or any other person whose financial
statement has been delivered to Administrative Agent in connection with the Loan
from the most recent financial statement received by Administrative Agent.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as assumed and modified herein.
- 14 -
4.5 The Loan Documents as assumed and modified herein are the legal,
valid, and binding obligation of Borrower, enforceable against Borrower in
accordance with their terms.
4.6 Each Borrower is validly existing under the laws of the State of
its formation or organization and has the requisite power and authority to
execute and deliver this Agreement and to perform the Loan Documents as assumed
and modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as assumed and modified herein have been duly
authorized by all requisite action by or on behalf of each Borrower. This
Agreement has been duly executed and delivered on behalf of each Borrower.
SECTION 5. BORROWER COVENANTS.
Borrower covenants with Lenders, Administrative Agent, and
Documentation and Syndication Agent:
5.1 Borrower shall execute, deliver, and provide to Lenders,
Administrative Agent, and Documentation and Syndication Agent such additional
agreements, documents, and instruments as reasonably required by Administrative
Agent to effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and absolutely and forever releases and
discharges Lenders, Administrative Agent, and Documentation and Syndication
Agent and their present and former directors, shareholders, officers, employees,
agents, representatives, successors and assigns, and their separate and
respective heirs, personal representatives, successors and assigns, from any and
all actions, causes of action, claims, debts, damages, demands, liabilities,
obligations, and suits, of whatever kind or nature, in law or equity of
Borrower, whether now known or unknown to Borrower, and whether contingent or
matured, in respect of the Loan, the Loan Documents, or the actions or omissions
of Lenders, Administrative Agent, and/or Documentation and Syndication Agent in
respect of the Loan or the Loan Documents and which arise from events occurring
prior to the date of this Agreement.
SECTION 6. CONDITIONS PRECEDENT.
The agreements of Lenders, Administrative Agent, and Documentation and
Syndication Agent and the assumptions and modifications contained herein shall
not be binding upon Lenders, Administrative Agent, and Documentation and
Syndication Agent until Lenders, Administrative Agent, and Documentation and
Syndication Agent have executed and delivered this Agreement and Administrative
Agent has received, at Borrower's expense, all of the following, all of which
shall be in form and content satisfactory to Administrative Agent and shall be
subject to approval by Administrative Agent:
6.1 An original of this Agreement fully executed by the Borrower and
all Guarantors;
- 15 -
6.2 An original modification of the side letter executed by Borrower in
connection with the Agency Fee, fully executed by Borrower and the payment of
all fees as required therein for the effectiveness of this Agreement;
6.3 A legal opinion of Borrower's counsel covering such issues as shall
be required by Administrative Agent;
6.4 Copies of the documentation executed or to be executed or issued in
connection with the $165,000,000 public debt issue of Meritage;
6.5 If any Borrower or any Guarantor is a corporation, limited
liability company, partnership or trust, such resolutions or authorizations and
such other documents as Administrative Agent may require relating to the
existence and good standing of that corporation, partnership or trust, and the
authority of any person executing this Agreement or other documents on behalf of
that corporation, limited liability company, partnership or trust;
6.6 A commitment from the title insurance companies that issued the
lender's ALTA extended coverage title insurance policies in connection with the
Loan (the "Title Policies") to issue endorsements, in form satisfactory to
Administrative Agent, to the Title Policies, insuring that the modifications
contained herein do not affect the lien priority of the Deeds of Trust; and
6.7 Payment of all the internal and external costs and expenses
incurred by Lenders, Administrative Agent, and Documentation and Syndication
Agent in connection with this Agreement (including, without limitation, inside
and outside attorneys, processing and title costs, expenses, and fees).
SECTION 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR
WAIVER.
The Loan Documents as assumed and modified herein contain the complete
understanding and agreement of Borrower, Lenders, Administrative Agent, and
Documentation and Syndication Agent in respect of the Loan and supersede all
prior representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents as assumed and modified herein
may be changed, discharged, supplemented, terminated, or waived except in a
writing signed by the parties thereto.
SECTION 8. BINDING EFFECT.
The Loan Documents as assumed and modified herein shall be binding upon
and shall inure to the benefit of Borrower, Lenders, Administrative Agent, and
Documentation and Syndication Agent and their successors and assigns and the
executors, legal administrators, personal representatives, heirs, devisees, and
beneficiaries of Borrower, provided, however, Borrower may not assign any of its
right or delegate any of its obligation under the Loan Documents and any
purported assignment or delegation shall be void.
- 16 -
SECTION 9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Arizona, without giving effect to conflicts of law
principles.
SECTION 10. COUNTERPART EXECUTION.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
MONTEREY HOMES CONSTRUCTION, INC., an Arizona Corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
MONTEREY HOMES ARIZONA, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
- 17 -
MERITAGE PASEO CONSTRUCTION, LLC, an Arizona limited
liability company, formerly known as Chandler 110, LLC
BY: MERITAGE HOMES CONSTRUCTION,
INC., an Arizona corporation, Member
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
MERITAGE HOMES OF NORTHERN CALIFORNIA, INC., a California
corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
MERITAGE PASEO CROSSING, LLC, an Arizona limited liability
company
BY: MERITAGE HOMES OF ARIZONA, INC., an
Arizona corporation, Member
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
MERITAGE HOMES CONSTRUCTION, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
- 18 -
MERITAGE HOMES OF ARIZONA, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
HANCOCK-MTH COMMUNITIES, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
HANCOCK-MTH BUILDERS, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
BORROWER
WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national
banking association, formerly known as Norwest Bank
Arizona, National Association
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
ADMINISTRATIVE AGENT,
SOLE LEAD ARRANGER AND LENDER
- 19 -
CALIFORNIA BANK & TRUST, a California banking corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
DOCUMENTATION AND
SYNDICATION AGENT AND LENDER
- 20 -
CONSENT AND AGREEMENT OF GUARANTOR(S)
With respect to the Second Modification and Assumption Agreement, dated
May 31, 2001 ("Agreement"), between MONTEREY HOMES CONSTRUCTION, INC., an
Arizona corporation, MONTEREY HOMES ARIZONA, INC., an Arizona corporation,
MERITAGE PASEO CONSTRUCTION, LLC, an Arizona limited liability company, formerly
known as Chandler 110, LLC, MERITAGE HOMES OF NORTHERN CALIFORNIA, INC., a
California corporation, MERITAGE PASEO CROSSING, LLC, an Arizona limited
liability company, MERITAGE HOMES CONSTRUCTION, INC., an Arizona corporation,
MERITAGE HOMES OF ARIZONA, INC., an Arizona corporation, HANCOCK-MTH
COMMUNITIES, INC., an Arizona corporation, and HANCOCK-MTH BUILDERS, INC., an
Arizona corporation (severally and collectively, "Borrower"), WELLS FARGO BANK
ARIZONA, NATIONAL ASSOCIATION, a national banking association, formerly known as
Norwest Bank Arizona, National Association and CALIFORNIA BANK & TRUST, a
California banking corporation (severally and collectively, "Lenders"), WELLS
FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national banking association,
formerly known as Norwest Bank Arizona, National Association, in its capacity as
Administrative Agent and Sole Lead Arranger ("Administrative Agent"), and
CALIFORNIA BANK & TRUST, a California banking corporation ("Documentation and
Syndication Agent") the undersigned (individually and, if more than one,
collectively "Guarantor") agrees for the benefit of Lenders, Administrative
Agent, and Documentation and Syndication Agent as follows:
1. Guarantor acknowledges (i) receiving a copy of and reading the
Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the
effectiveness of (A) the Guarantee Agreement as modified herein, and (B) any
other agreements, documents, or instruments securing or otherwise relating to
the Guarantee Agreement (including, without limitation, any environmental
indemnity agreement previously executed and delivered by the undersigned), as
modified herein. The Guarantee Agreement and such other agreements, documents,
and instruments, as modified herein, are referred to individually and
collectively as the "Guarantor Documents." Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the
Agreement.
2. Legacy Operating Company, L.P., a Texas limited partnership ("Legacy
OC"), hereby joins in the Guarantee Agreement and all other Guarantor Documents
as a "Guarantor" and assumes, severally and collectively with all other
Guarantors, the obligations and liabilities under the Guarantee Agreement and
the other Guarantor Documents. Such assumption shall in no way affect the
liability or obligations of any other Guarantor under the Guarantee Agreement
and the other Guarantor Documents, nor the liability of any Borrower under the
Loan Documents.
3. Legacy OC hereby covenants, promises and agrees to be bound by each
and every term, condition, representation, warranty and provision of the
Guarantee Agreement and the other Guarantor Documents as though such documents
and instruments had originally been made, executed and delivered by Legacy OC
severally and collectively with the other Guarantors.
4. From and after the date hereof, the term "Guarantor" in the
Guarantee Agreement and the other Guarantor Documents shall mean, severally and
collectively, MERITAGE CORPORATION, a Maryland corporation, MTH - TEXAS GP,
INC., an Arizona corporation,
- 21 -
MTH - TEXAS LP, INC., an Arizona corporation, LEGACY/MONTEREY HOMES L.P., an
Arizona limited partnership, TEXAS HOME MORTGAGE CORPORATION, a Texas
corporation, and Legacy OC. Each Guarantor shall be jointly and severally
obligated under the Guarantee Agreement and the other Guarantor Documents.
5. Each Guarantor hereby consents and agrees to the foregoing
transaction and the addition of Hancock Communities and Hancock Builders as
additional Borrowers under the Loan, and agrees that nothing contained in the
Agreement shall in any manner affect or impair any of the obligations or
liabilities of the undersigned Guarantors to Lender. Each reference in the
Guarantee Agreement to the term "Borrower" shall mean, severally and
collectively, MHC, MHA, Paseo Construction, MHNC, Paseo Crossing, Meritage
Construction, Meritage Arizona, Hancock Communities and Hancock Builders.
6. Guarantor consents to the modification of the Loan Documents and all
other matters in the Agreement.
7. Guarantor fully, finally, and forever releases and discharges
Lenders, Administrative Agent, and Documentation and Syndication Agent and their
successors, assigns, directors, officers, employees, agents, and representatives
from any and all actions, causes of action, claims, debts, demands, liabilities,
obligations, and suits of whatever kind or nature, in law or equity, that
Guarantor has or in the future may have, whether known or unknown, in respect of
the Loan, the Loan Documents, the Guarantor Documents, or the actions or
omissions of Lenders, Administrative Agent, and/or Documentation and Syndication
Agent in respect of the Loan, the Loan Documents, or the Guarantor Documents and
which arise from events occurring prior to the date hereof.
8. Guarantor agrees that all references, if any, to the Notes, the Loan
Agreement, the Deeds of Trust, the Security Documents, and the Loan Documents in
the Guarantor Documents shall be deemed to refer to such agreements, documents,
and instruments as modified by the Agreement.
9. Guarantor reaffirms the Guarantor Documents and agrees that the
Guarantor Documents continue in full force and effect and remain unchanged,
except as specifically modified by this Consent and Agreement of Guarantor(s).
10. Guarantor agrees that the Loan Documents, as modified by the
Agreement, and the Guarantor Documents, as modified by this Consent and
Agreement of Guarantor(s), are the legal, valid, and binding obligations of
Borrower and the undersigned, respectively, enforceable in accordance with their
terms against Borrower and the undersigned, respectively.
11. Guarantor agrees that Guarantor has no claims, counterclaims,
defenses, or offsets with respect to the enforcement against Guarantor of the
Guarantor Documents.
12. Guarantor represents and warrants that there has been no material
adverse change in the financial condition of any Guarantor from the most recent
financial statement received by Administrative Agent.
- 22 -
13. Guarantor agrees that this Consent and Agreement of Guarantor(s)
may be executed in one or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same document.
Signature and acknowledgment pages may be detached from the counterparts and
attached to a single copy of this Consent and Agreement of Guarantor(s) to
physically form one document.
DATED as of the date of the Agreement.
MERITAGE CORPORATION, a Maryland corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
MTH - TEXAS GP, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
MTH - TEXAS LP, INC., an Arizona corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
- 23 -
LEGACY/MONTEREY HOMES L.P., an Arizona limited partnership
BY: MTH - TEXAS GP, INC., an Arizona corporation,
General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TEXAS HOME MORTGAGE CORPORATION, a Texas corporation
By:
-------------------------------------------------------
Name:
-----------------------------------------------------
Title:
----------------------------------------------------
LEGACY OPERATING COMPANY, L.P., a Texas limited
partnership
By: MTH - TEXAS GP, INC., an Arizona
corporation, General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
GUARANTOR
- 24 -