Exhibit 10.1
May 29, 2001
Guaranty Bank
8333 Douglas Avenue
Dallas, Texas 75225
Re: Modification of an existing $65,000,000.00 guidance line from Guaranty
Bank, a federal savings bank (formerly known as "Guaranty Federal
Bank, F.S.B.") ("Lender") to Legacy/Monterey Homes L.P., an Arizona
corporation ("Borrower"); such loan and other indebtedness being
guaranteed by Meritage Corporation, a Maryland corporation, MTH-Texas
GP, Inc., an Arizona corporation and MTH-Texas LP, Inc., an Arizona
corporation (collectively referred to as "Guarantor")
Gentlemen:
Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments thereto, if any) (the "Loan Agreement ") between
Lender and Borrower governing a $65,000,000.00 loan (as decreased) (the "Loan")
for the acquisition and/or refinancing of residential lots located in certain
counties in the State of Texas as described therein, and the construction of
single-family residences thereon. Unless otherwise expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement, the
term "Loan Instruments" shall mean and include (i) the "Loan Instruments" as
defined in the Loan Agreement, (ii) the Seventh Modification Agreement dated as
of even date herewith, executed by and between the parties hereto, and (iii)
this letter agreement and all other documents executed in conjunction herewith
(and all amendments thereto, if any).
Borrower and Lender desire to amend and modify certain terms and provisions
of the Loan and the Loan Instruments as follows:
1. The stated maturity date of the Note is hereby extended to and including
May 31, 2002, when the entire unpaid principal balance of the Note, together
with all accrued and unpaid interest shall be due and payable; provided,
however, such date may be extended as set forth in Paragraph 9 of the Loan
Agreement (as amended hereby).
2. Paragraph 2 (b) of the Loan Agreement is hereby modified by deleting
such paragraph in its entirety and replacing it with the following:
Guaranty Bank
May 29, 2001
Page 2
(b) With respect to any Property located in the State of Texas,
Mortgagee Title Policy Binder on Interim Construction Loan, or with respect
to Property located in any other state, an ALTA Lender's extended policy of
Title Insurance (either form being referred to as the "Policy"), issued by
a company or companies acceptable to Lender, agreeing to insure Lender, in
the aggregate amount of the Loan Allocation (as hereinafter defined) for
each Property covered by such Mortgage (the "Aggregate Loan Allocation"),
that such Mortgage and any other liens securing the payment of the Note and
Loan have the priority required by Lender. If required by Lender, the
Policy shall be extended to cover each and every advance at the time such
advance is made; provided, however, the maximum title insurance for title
insurance underwriters must be acceptable to Lender, and if required by
Lender, from time to time, Borrower shall cause to be issued to Lender an
additional Policy or Policies, in such amounts and from such title
insurance underwriters, as are acceptable to Lender.
3. Paragraph 2(l) of the Loan Agreement is hereby modified by deleting such
paragraph in its entirety and replacing it with the following:
(l) Lender may require as a condition to each advance, a bills-paid
affidavit from each original contractor and subcontractor, to be submitted
with each draw request, together with any other information required or
permitted, as determined by Lender, under applicable law in the state in
which the Property is located (including, without limitation, requests for
information, notices of contract, notices of payments, interim waivers and
release upon payment or lien subordination agreements).
4. Paragraph 6 (a) of the Loan Agreement is hereby modified by deleting
such paragraph in its entirety and replacing it with the following paragraph:
(a) Prior to the recordation of any Mortgage, no work (as that term
may be defined under applicable law for the state in which the particular
Property is located) of any kind (including the destruction or removal of
any existing improvements, site work, clearing, grubbing, draining,
erection of temporary utilities or fencing of the Property) pertaining to
the construction of any of the Residences, has been or will be commenced or
performed upon the Property and no material (as that term may be defined
under applicable law for the state in which the particular Property is
located) or equipment has been or will be delivered to or upon the
Property, and no construction contract for the construction of erection of
any of the Residences has been or will be let (and if required by Lender,
prior to commencement of such work or delivery of such materials, Borrower
shall execute and deliver to Lender any notice of commencement [in form and
content satisfactory to Lender] as may be required or permitted, in the
determination of Lender, under applicable law).
Guaranty Bank
May 29, 2001
Page 3
5. Paragraph 8 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
8. REVOLVING LOAN. All or any portion of the principal of the Loan may
be borrowed, paid, prepaid, repaid and reborrowed from time to time prior
to maturity in accordance with the provisions of the Loan Instruments. The
excess of borrowing (advances and re-advances) over repayments shall
evidence the principal balance of the Loan from time to time and at any
time. The aggregate amount of all advances under the Loan may exceed the
Loan Amount, but neither the outstanding principal balance of the Loan nor
the outstanding aggregate amount of the Loan Allocations shall ever exceed
the Loan Amount. The Loan shall not be governed by or be subject to Chapter
15 of the Texas Credit Code Title 79, Revised Civil Statutes of Texas,
1925, as amended.
The maximum total Loan Allocations and Letters of Credit under the
Loan at any time shall be limited to $125,000,000.00, which sum shall
consist of the following:
(a) the total of all Loan Allocations for Property (Texas and Arizona)
secured by Mortgages, plus;
(b) the amount of any Letters of Credit (when issued, if any);
provided, however, that the $125,000,000.00 Loan Allocation limitation
set forth in this sentence shall be increased by an amount equal to any
cash deposits made by Borrower with Lender as security for the Loan and as
a Borrower's Deposit under Paragraph 5 of the Loan Agreement (with each
such deposit to be advanced by Lender to Borrower prior to the disbursement
of loan proceeds upon the satisfaction of conditions for advances under
this Loan Agreement). Borrower shall execute and deliver to Lender such
documents as may be necessary to establish such account and to grant Lender
a security interest in the same.
Notwithstanding any provision in the Loan Instruments to the contrary,
in no event shall the sum of (i) the aggregate amounts advanced under the
Note, and (ii) the amount of any Letters of Credit (when issued, if any)
exceed a total of $75,000,000.00, notwithstanding that the maximum total
Loan Allocations and Letters of Credit under the Loan may exceed such
$75,000,000.00 total; and consequently, Lender shall have no obligation to
disburse additional funds in the event the sum of (i) the aggregate amounts
advanced or to be advanced (including all Loan Allocations) under the Note,
and (ii) the amount of any Letters of Credit (when issued, if any) exceed a
total of $75,000,000.00.
Guaranty Bank
May 29, 2001
Page 4
Notwithstanding any provisions in the Loan Instruments to the
contrary, if at anytime the aggregate disbursed and unpaid principal
balance of the Loan (together with the aggregate amount of any Letters of
Credit under the Loan) exceed $75,000,000.00, then Borrower shall
immediately (following written demand by Lender) deliver to Lender a cash
amount equal to such excess, which cash amount shall be applied to the
principal balance of the Loan in order that such aggregate amount shall be
reduced to $75,000,000.00.
6. Paragraph 13 of the Loan Agreement is hereby modified by deleting such
paragraph in its entirety and replacing it with the following paragraph:
13. CHOICE OF LAW. THE LOAN INSTRUMENTS ARE EXECUTED AND DELIVERED IN
THE STATE OF TEXAS AND THE LOAN IS PAYABLE THERE. EXCEPT WHERE FEDERAL LAW
IS APPLICABLE (INCLUDING, WITHOUT LIMITATION, ANY FEDERAL USURY CEILING OR
OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS APPLICABLE TO THE
INDEBTEDNESS HEREIN AND WHICH PREEMPTS STATE USURY LAWS), THIS LOAN
AGREEMENT, THE NOTE, THE MORTGAGES AND THE OTHER LOAN INSTRUMENTS SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCEPT TO THE EXTENT THE LAW OF THE STATE IN WHICH THE MORTGAGED PROPERTY
IS LOCATED GOVERNS THE PERFECTION AND DETERMINATION OF LIEN RIGHTS AND
PRIORITY, AND THE ENFORCEMENT OF REMEDIES AND THE DISPOSITION OF THE
PROPERTY.
7. Loan Agreement is hereby modified by deleting Paragraph 20 of the Loan
Agreement in its entirety and replacing it with the following:
20. LETTERS OF CREDIT: At Lender's sole and absolute discretion,
Lender shall issue letters of credit (the "Letters of Credit") for the
benefit of Borrower for the purposes set forth below; provided, that during
the term of the Loan, the aggregate amount of any outstanding Letters of
Credit and the amount of any Letters of Credit funded by Lender shall never
exceed the lesser of (a) a sum derived by subtracting the total aggregate
sum of all Loan Allocations from $75,000,000.00, or (b) $10,000,000.00.
Furthermore, the amount of the Letters of Credit (when issued, if any)
shall reduce the Borrowing Base. In addition to any other requirements of
Lender, and as a condition to the issuance of any Letters of Credit,
Borrower shall execute and deliver to Lender a Letter of Credit
Application, Reimbursement and Loan Agreement, in the same form and
substance of the document attached hereto as Exhibit D. Concurrently with
the issuance of, or renewal of, any Letters of Credit, Borrower shall pay
to Lender a
Guaranty Bank
May 29, 2001
Page 5
fee equal to the greater of (a) $250.00, or (b) one-half of one percent
(1/2%) of the amount of each such Letters of Credit.
8. Exhibit A to the Loan Agreement is hereby modified by deleting such
exhibit in its entirety and replacing it with Exhibit A attached hereto.
9. All Loan Instruments hereby are amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as modified hereby, all the terms, provisions and conditions of the Loan
Instruments shall remain in full force and effect.
10. This letter agreement constitutes the "Letter Agreement" referred to in
the Sixth Modification Agreement of even date herewith executed by and between
the parties hereto.
11. The terms and provisions of this letter agreement may not be modified,
amended, altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.
12. Each Guarantor by its execution hereof agree to the amendments and
modifications to the Loan Instruments set forth herein and in the prior
amendments and modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive, release or in any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.
(The balance of this page is intentionally left blank.)
Guaranty Bank
May 29, 2001
Page 6
If this letter agreement correctly sets forth our understanding of the
subject matter contained herein, please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed copy to
the undersigned.
Very truly yours,
BORROWER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice-President
Guaranty Bank
May 29, 2001
Page 7
GUARANTOR:
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ John R. Landon
------------------------------------
Name: John R. Landon
Title: Co-Chief Executive Officer
MTH-TEXAS GP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
Guaranty Bank
May 29, 2001
Page 8
ACCEPTED AND AGREED TO:
LENDER:
GUARANTY BANK,
a federal savings bank
By: /s/ Sam A. Meade
----------------------------
Name: Sam A. Meade
Title: Senior Vice President
EXHIBIT A
TO LOAN AGREEMENT
1. Introductory Paragraph. RESIDENCE AND INVENTORY LOT LIMITATIONS. At any
given time, Residences and Inventory Lots financed under the Loan shall be
limited to the following numbers, unless modified by Lender in writing:
Total Residences: Nine Hundred Fifty (950).
Specs: One Hundred Sixty (160).
Models: Seventy (70).
Inventory Lots: One Thousand Four Hundred (1,400).
Borrower may increase the number of Specs allowed above by the same number
by which Borrower is short of Models allowed above. Borrower covenants and
agrees not to allow, and is prohibited from allowing, any more than fifteen
(15) Specs, four (4) Models or two hundred (200) Inventory Lots to exist in
any Approved Subdivision (as hereinafter defined).
The outstanding aggregate amount of the Loan Allocations for all Specs and
Models at any time shall never exceed $31,250,000.00.
The outstanding aggregate amount of the Loan Allocations for all Inventory
Lots at any time shall never exceed $22,500,000.00.
The term "Specs" means a Residence which is not a Model and is not Under
Contract.
The term "Model" means a Residence specifically utilized for the purposes
of marketing other residential products.
The term "Under Contract" shall mean Residences under written contract to
sell to bona fide third parties unrelated to Borrower, having no
contingency or any other conditions not reasonably susceptible to being
satisfied, providing for earnest money deposits of at least $2,000.00, and
for which Lender has received preliminary loan approval from a bona fide
residential permanent lender.
The term "Inventory Residence" means any Residence which is not a Model.
2. Introductory Paragraph. APPROVED SUBDIVISIONS. The following subdivisions
and any additional subdivisions approved in writing by Lender (the
"Approved Subdivisions") are approved by Lender for the Residences and
Inventory Lots:
Subdivision County
----------- ------
Auburn Ridge - Pinelakes Harris
EXHIBIT A, - PAGE 1
Bethany Ridge Collin
Candle Meadow Dallas
Canyon Gate at The Brazos Fort Bend
Canyon Gate at Cinco Ranch Fort Bend
Cypress Mills Harris
Cypress Point Denton
Parks at Deer Creek Tarrant
El Dorado Heights Collin
Forest Creek Williamson
Forest Oaks Denton
Hillcrest Estates Collin
Indian Pointe Estates Dallas
Lakeside Village Estates Dallas
Legend Bend Denton
Legend Crest Collin
McCreary Estates Tarrant
Parkwood Hills Tarrant
Pine Lakes Harris
Plum Creek Hays
Ryan Ranch Denton
Springbrook Glen Williamson
Spring Meadow Collin
Stone Gate Tarrant
Stone Meadow Tarrant
Village at Western Oaks Travis
Westchester Square Dallas
Westwood Shores Dallas
Wimbledon Champions Harris
Winding Hollow Dallas
Windy Hills Farm Collin
3. Introductory Paragraph. APPROVED PRICE RANGE. The Residences shall be in
the $70,000.00 to $400,000.00 price range; provided, however, Residences in
any Approved Subdivision in the Austin, Texas metropolitan area may have a
$70,000.00 to $900,000.00 price range.
4. Paragraph 1(c). GUARANTOR. Guarantor of the Loan shall be: Meritage
Corporation, a Maryland corporation; MTH-Texas G.P., Inc., an Arizona
corporation; and MTH-Texas L.P., Inc., an Arizona corporation.
5. Paragraph 2(h). LOAN FINANCE CHARGE. None.
6. Paragraph 2(k) and 6(g). INSPECTION FEE. An inspection fee of $30.00 per
Residence shall be paid to Lender on the day the Mortgage pertaining to
such Residence is recorded in the Real Property Records.
EXHIBIT A, - PAGE 2
7. Paragraph 4(c). LOAN RATIOS. With respect to Residences Under Contract, the
Loan Allocation shall not exceed the lesser of (1) one hundred percent
(100%) of the direct costs of a Property, as determined by Lender or, (2)
eighty percent (80%) of the lowest of the values as provided in Paragraph
4(c) (i), (ii) and (iii) of this Loan Agreement.
With respect to Specs, Models and Inventory Lots, the Loan Allocation shall
not exceed the lesser of (1) one hundred percent (100%) of the direct costs
of a Property, as determined by Lender or, (2) seventy-five percent (75%)
of the lowest of the values as provided in Paragraph 4(c) (i), (ii) and
(iii) of this Loan Agreement.
8. Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
other indebtedness now or hereafter owed by the following entities to
Lender: None.
9. Paragraph 6(s). REQUIRED RELEASES. Borrower shall cause: (a) Inventory
Residences to be released from a Mortgage nine (9) months from the day such
Mortgage is recorded in the Real Property Records, (b) Models to be
released from a Mortgage twenty-four (24) months from the day such Mortgage
is recorded in the Real Property Records, and (c) Inventory Lots to be
released from a Mortgage twelve (12) months from the day such Mortgage is
recorded in the Real Property Records; provided, however, if no default
then exists under any Loan Instruments, Lender may, at its option, extend
the Required Release Date for periods of six (6) months (the "Extended
Release Date"); provided, such Extended Release Date shall in no event go
beyond the Stated Maturity Date (as hereinafter defined) or the Extended
Maturity Date (as hereinafter defined), if applicable.
10. Paragraph 7. REQUIRED PRINCIPAL REDUCTIONS. Prior to the date that Lender
gives Borrower the notice described in Paragraph 4(f) above, the following
shall apply: in the event a Property has been granted an Extended Release
Date (as provided in Paragraph 9 of this Exhibit A) and a Mortgage remains
covering such Property beyond the following periods from the date such
Mortgage is recorded, then Borrower shall make a principal payment of the
Note in an amount equal to ten percent (10%) of the Loan Allocation with
respect to such Property (and the Loan Allocation for such Property shall
be reduced by the same amount), as determined by Lender:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
From and after the date that Lender gives Borrower the notice described in
Paragraph 4(f) of the Loan Agreement, the following shall apply: in the
event a Property has been granted an Extended Release Date, as provided in
Paragraph 9 of this Exhibit A, Borrower shall make a principal payment on
the Note of ten percent (10%) of that portion of the Loan advanced by
Lender for such Property, within the following periods from the date a
Mortgage covering such Property is recorded in the Real Property Records:
EXHIBIT A, - PAGE 3
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
11. Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
the later of the maturity date as provided in the Note (May 31, 2002) (the
"Stated Maturity Date"), or nine (9) months after the recording in the Real
Property Records of the last Mortgage (the "Extended Maturity Date")
approved by Lender and recorded prior to the expiration of the Stated
Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
be recorded.
12. Paragraph 10. ADDITIONAL DEFAULTS. In addition to the events of default
stipulated in the Loan Instruments, it shall be a default under this Loan
Agreement if Borrower fails to comply with any of the following: None.
13. Paragraph 11. ADDITIONAL LOAN COVENANTS. Borrower shall fully perform and
satisfy the following "Additional Loan Covenants":
(a) The aggregate net worth of Borrower (determined in accordance with
generally accepted accounting principles, consistently applied) shall
not fall below $40,000,000.00.
(b) The ratio of total liabilities to equity (as determined by Lender)
shall not exceed 3.0 to 1.0.
(c) John Landon shall at all times retain management control of Borrower.
(d) In no event shall Meritage Corporation, a Maryland corporation, be in
default under any secured indebtedness.
If Borrower or Guarantor (if applicable to Guarantor) breaches any of the
Additional Loan Covenants then, at Lender's election, no additional
Mortgages shall be recorded in the Real Property Records; provided,
however, that a breach of any Additional Loan Covenants shall not be
considered a default under the Loan Instruments.
14. Paragraph 16(d). RELEASE PRICE. The partial release price shall be a cash
amount equal to the Loan Allocation for the Property multiplied by the
Stage (expressed as a percentage) of the Property, all as determined by
Lender; provided, however, if Lender shall have given Borrower the notice
described in Paragraph 4(f) of the Loan Agreement, then the partial release
price shall be an amount in cash equal to one hundred and one hundred
percent (100%) of the outstanding balance of the Loan advanced by Lender
for the Property.
15. Paragraph 16(e). EXTENSION FEE. If Lender extends the Required Release
Date, as provided in Paragraph 9 of this Exhibit A, Borrower shall pay to
Lender an extension fee of one percent (1%) of that portion of the Loan
advanced by Lender for each such
EXHIBIT A, - PAGE 4
Property times a fraction, the numerator of which is the number of days the
Required Release Date is extended and the denominator of which is 365.
EXHIBIT A, - PAGE 5