Exhibit 10.2
Citibank,
N.A.
AGREEMENT FOR LETTER OF
CREDIT
dated as of October 11, 2006
Unless otherwise defined in this
Agreement, capitalized terms used in this Agreement shall have the
meanings set forth in Section 25.
Citibank, N.A. (“
Citibank ”) agrees to issue at the request and for the
account of the undersigned (“ Applicant ”) one
or more irrevocable letters of credit, each in a form satisfactory
to Applicant and Citibank (each a “ Credit ”,
and collectively, the “ Credits ”), up to an
aggregate maximum amount not to exceed the amount of the Security
Letter of Credit, substantially in accordance with the terms and
conditions hereof. In consideration of your issuing, from
time to time, one or more Credits substantially in accordance with
the terms and conditions provided by Applicant, Applicant
unconditionally agrees with Citibank as follows:
1.
Condition to Issuance of any Credit. The obligation
of Citibank to issue a Credit hereunder, on any Business Day, is
subject to (a) the Security Letter of Credit having an available
amount not less than the sum of (i) the aggregate amount of the
Credits outstanding on such date, plus (ii) the aggregate amount of
Drafts, if any, not reimbursed by or on behalf of Applicant on such
date, plus (iii) the amount of the Credit that Applicant has
requested Citibank to issue on such date, (b) any such Credit
having a maturity date that is no later than five Business Days
prior to the expiration date of the Security Letter of Credit and
(c) Citibank having received at least one Business Day’s
prior written notice at its office specified below requesting such
Credit in the form attached as Annex I.
2.
Reimbursement. Applicant will pay Citibank the amount of each
draft or other request for payment (each, a “ Draft
”) drawn under any Credit, whether drawn before, on or, if in
accordance with applicable law, after the expiry date stated in any
such Credit. Each such payment shall be made, following payment by
Citibank, on demand.
3.
Commissions, Fees, Charges and Expenses. Applicant will pay
Citibank within ten Business Days of demand therefor, all expenses,
charges and other amounts which Citibank may actually pay or
actually incur in connection with the Credits, it being agreed that
Applicant is not obligated to pay to Citibank any commitment
commission, facility fee or letter of credit fee in respect of the
Credits.
4.
Payments; Interest on Past Due Amounts; Computations. All
amounts due from Applicant shall be paid to Citibank at 399 Park
Avenue, New York, New York 10043 (or such other address notified to
Applicant in writing), with-out defense, set-off, cross-claim, or
counterclaim of any kind, in U.S. dollars and in same day funds,
provided , however , that if any such amount is
denominated in a currency other than U.S. Dollars, Applicant will
pay the equivalent of such amount in U.S. Dollars computed at
Citibank’s selling rate for cable transfers to the place
where and in the currency in which such amount is payable, or such
other currency, place, form and manner acceptable to Citibank in
its sole discretion. Any amount not paid when due shall bear
interest until paid in full at a daily fluctuating interest rate
per annum equal to two percent per annum above the rate of interest
announced publicly from time to time by Citibank in New York as
Citibank’s Base Rate. Applicant authorizes Citibank to charge
any account of Applicant for any amount when due. Unless
otherwise agreed in writing as to any Credit, all computations of
commissions, fees and interest shall be based on a 360-day year and
actual days elapsed.
5.
Increased Costs or Reduced Return. If any Law,
guideline or interpretation or any change in any Law, guideline or
interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance
with any request or directive (whether or not having the force of
Law) of any central bank or other Official Body: (a) subjects
Citibank to any tax or changes the basis of taxation (including in
both cases withholding taxes) with respect to this Agreement or the
Credits (except for taxes on the overall net income of Citibank,
franchise taxes, any branch profits taxes, and any taxes
attributable to a failure of Citibank to withhold United States
federal income taxes
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under the due diligence requirements
imposed upon a withholding agent under §1.1441 7(b) of the
income tax regulations); (b) imposes, modifies or deems
applicable any reserve, special deposit or similar requirement
against credits or commitments to extend credit extended by, or
assets (funded or contingent) of, deposits with or for the account
of, or other acquisitions of funds by, Citibank; or (c) imposes,
modifies or deems applicable any capital adequacy or similar
requirement (i) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit
extended by, Citibank, or (ii) otherwise applicable to the
obligations of Citibank under this Agreement or the Credits, and
the result of any of the foregoing is to increase the cost to,
reduce the income receivable by, or impose any expense upon
Citibank with respect to this Agreement or the Credits, or the
issuance or maintenance of any Credit (or, in the case of any
capital adequacy or similar requirement, to have the effect of
reducing the rate of return on Citibank’s capital, taking
into consideration Citibank’s customary policies with respect
to capital adequacy) by an amount which Citibank in its sole
discretion deems to be material, Citibank shall from time to time
notify Applicant of the amount determined in good faith (using any
averaging and attribution methods employed in good faith) by
Citibank to be necessary to compensate Citibank for such increase
in cost, reduction of income, additional expense or reduced rate of
return. Such notice shall set forth in reasonable detail the
basis for such determination, provided , however ,
that any such determination shall be conclusive and binding absent
manifest error. Such amount shall be due and payable by
Applicant to Citibank ten Business Days after such notice is
given. If Citibank receives a refund in respect of any
amounts paid by Applicant pursuant to this Section 5, which refund
in good faith judgment of Citibank is allocable to such payment, it
shall notify Applicant of such refund and repay such refund to
Applicant net of all out-of-pocket expenses of Citibank,
provided , however , that Applicant, upon the request
of Citibank, agrees to repay the amount paid over to Applicant to
Citibank in the event Citibank is required to repay such
refund.
6.
Indemnification. (a) Applicant agrees to pay
(i) all reasonable out-of-pocket expenses incurred by the
Citibank and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for Citibank, in connection with the
preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not
the transactions contemplated hereby or thereby shall be
consummated) and (ii) all reasonable out-of-pocket expenses
incurred by Citibank, including the reasonable fees, charges and
disbursements of one firm of counsel for Citibank, in connection
with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in
connection with the Credits, including in connection with any
workout, restructuring or negotiations in respect
thereof.
(b) Applicant agrees to
indemnify Citibank, and each Related Party of any of the foregoing
Persons (each such Person being called an “
Indemnitee ”) against, and hold each Indemnitee
harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with,
or as a result of (i) the execution or delivery of this
Agreement or any agreement or instrument contemplated hereby, the
performance by the parties hereto of their respective obligations
hereunder or the consummation of the transactions contemplated
hereby, (ii) any Credit or the use of the proceeds thereof
(including any refusal by Citibank to honor a demand for payment
under any Credit if the documents presented in connection with such
demand do not strictly comply with the terms of such Credit),
(iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by Applicant or
any of its Subsidiaries, or any Environmental Liability related in
any way to Applicant or any of its Subsidiaries, or (iv) any
actual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any
Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final
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and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of such
Indemnitee or its Affiliates or from a breach of this Agreement by
such Indemnitee.
(c) To the extent permitted by
applicable law, no party hereto shall assert and each party hereto
waives, any claim against any Indemnitee, on any theory of
liability, for special, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, any Credit or the use of the
proceeds thereof.
(d) All amounts due under this
Section shall be payable promptly after written demand therefor
accompanied by the appropriate invoice or other detail supporting
such amount.
7.
Obligations Absolute: Limitations of Liability. (a)
Applicant’s obligation to repay the Drafts and to make the
other payments provided herein (the “
Obligations ”) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with
the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or
enforceability of the Credits or this Agreement, or any term or
provision therein, (ii) the existence of any claim, set-off,
defense or other right that Applicant, or any Affiliate of
Applicant may have at any time against the beneficiary or any
transferee of the Credits (or any Persons or entities for whom such
beneficiary or transferee may be acting), Citibank or any other
Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction; (iii) without
limiting Section 7(b) below, any Draft, demand certificate or any
other document presented under the Credits proving to be forged,
fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iv) payment by Citibank under
the Credits against presentation of a Draft or other document that
does not comply with the terms of the Credits, (v) the surrender or
impairment of any security for the performance or observance of any
of the terms of this Agreement or any Credit; (vi) any
non-application or misapplication by the beneficiary of the Credits
of the proceeds of any drawing under the Credits; (vii) the fact
that a Default shall have occurred and be continuing; or (viii) any
other event or circumstance whatsoever, whether or not similar to
any of the foregoing, that might, but for the provisions of this
Section, constitute a legal or equitable discharge of, or provide a
right of setoff against, Applicant’s obligations
hereunder.
(b) Neither Citibank nor any of its
Related Parties shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of the
Credits or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the
preceding subsection (a)), or any error, omission, interruption,
loss or delay in transmission or delivery of any Draft, notice or
other communication under or relating to the Credits (including any
document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from
causes beyond the control of Citibank; provided that the
foregoing shall not be construed to excuse Citibank from liability
to Applicant to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived
by Applicant to the extent permitted by applicable law) suffered by
Applicant that are caused by Citibank’s failure to exercise
care when determining whether Drafts and other documents presented
under the Credits comply with the terms thereof. The parties
hereto expressly agree that, in the absence of gross negligence or
willful misconduct on the part of Citibank (as finally determined
by a court of competent jurisdiction), Citibank shall be deemed to
have exercised care in each such determination. In
furtherance of the foregoing and without limiting the generality
thereof, the parties agree that, with respect to documents
presented that appear on their face to be in substantial compliance
with the terms of the Credits, Citibank may, in its sole
discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any
notice or information to the contrary (other than a valid
injunction issued by a court of competent jurisdiction), or refuse
to accept and make payment upon such documents if such documents
are not in strict compliance with the terms of the
Credits.
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8.
Independence. Applicant acknowledges that the rights and
obligations of Citibank under the Credits are independent of the
existence, performance or nonperformance of any contract or
arrangement underlying the Credits, including contracts or
arrangements between Citibank and Applicant and between Applicant
and the beneficiary of any Credit. Citibank shall have no duty to
notify Applicant of its receipt of a Draft, certificate or other
document presented under any Credit or of its decision to honor any
such Credit. Citibank may, without incurring any liability to
Applicant or impairing its entitlement to reimbursement under this
Agreement, honor any Credit despite notice from Applicant of, and
without any duty to inquire into, any defense to payment or any
adverse claims or other rights against the beneficiary of any
Credit or any other Person. Citibank shall have no duty to request
or require the presentation of any document, including any default
certificate, not required to be presented under the terms and
conditions of any Credit. Citibank shall have no duty to seek any
waiver of discrepancies from Applicant, nor any duty to grant any
waiver of discrepancies which Applicant approves or requests.
Citibank shall have no duty to extend the expiration date or term
of any Credit or to issue a replacement letter of credit on or
before the expiration date of any Credit or the end of such
term.
9.
Non-Documentary Conditions. Citibank is authorized (but
shall not be required) to disregard any non-documentary conditions
stated in any Credit.
10.
Transfers. If, at Applicant’s request, any Credit is
issued in transferable form, Citibank shall have no duty to
determine the proper identity of anyone appearing in any transfer
request, Draft, or other document as transferee, nor shall Citibank
be responsible for the validity or correctness of any
transfer.
11.
Extensions and Modifications of the Credit. This Agreement
shall be binding upon Applicant with respect to any extension or
modification of any Credit made at Applicant’s request or
with Applicant’s consent. Applicant’s Obligations shall
not be reduced or impaired in any way by any agreement by Citibank
and the beneficiary of any Credit extending Citibank’s time
to honor or to give notice of discrepancies and any such agreement
shall be binding upon Applicant.
12.
Covenants of Applicant. Applicant will, so long as any
Credit or any reimbursement or other payment obligation of
Applicant under this Agreement remains outstanding, comply with the
covenants set forth below:
(a) Applicant will do or cause
to be done all things necessary to preserve and keep in full force
and effect its existence in accordance with its organizational
documents, and the material rights, licenses and franchises of
Applicant; provided that Applicant is not required to
preserve any such right, license or franchise, or the existence of
any Subsidiary, if the maintenance or preservation thereof is no
longer desirable in the conduct of the business of Applicant and
its Subsidiaries taken as a whole; and provided
further that this Section does not prohibit any transaction
otherwise permitted by Section 5.05 of the of the Credit
Agreement.
(b) Applicant will pay or
discharge, and cause each of its Subsidiaries to pay or discharge
before the same become delinquent (i) all material taxes,
assessments and governmental charges levied or imposed upon
Applicant or any of its Subsidiaries or its income or profits or
property, and (ii) all material lawful claims for labor, materials
and supplies that, if unpaid, might by law become a Lien upon the
property of Applicant or any of its Subsidiaries, other than any
such tax, assessment, charge or claim the amount, applicability or
validity of which is being contested in good faith by appropriate
proceedings and for which adequate reserves have been
established.
(c) Applicant will cause all
properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order as
in the judgment of Applicant may be necessary so that the business
of Applicant may be properly and advantageously conducted at all
times; provided that nothing in this Section prevents
Applicant from discontinuing the use, operation or maintenance of
any of such properties or disposing of any of them, if such
discontinuance or disposal is, in the judgment of Applicant,
desirable in the conduct of the business of Applicant.
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(d) Applicant will provide or
cause to be provided, for itself and its Subsidiaries, insurance
(including appropriate self-insurance) against loss or damage of
the kinds customarily insured against by corporations similarly
situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with
reputable insurers, in such amounts, with such deductibles and by
such methods as are customary for corporations similarly situated
in the industry in which Applicant and its Subsidiaries are then
conducting business.
(e) Applicant will not, and will not
cause or permit any of its Subsidiaries to, create, incur, assume
or suffer to exist any Liens, other than Permitted Liens (as
defined in the Credit Agreement) on any of its or their Property,
or on any shares of Capital Stock unless permitted by or secured in
accordance with the terms of the Credit Agreement.
(f) Applicant will not consolidate
or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets (including, without
limitation, by way of liquidation or dissolution), or assign any of
its obligations under this Agreement (as an entirety or
substantially as an entirety in one transaction or in a series of
related transactions), to any Person (in each case other than in a
transaction permitted pursuant to Section 5.05 of the Credit
Agreement.
(g) Applicant shall deliver or cause
to be delivered to Citibank as soon as available and in any event
within 55 calendar days after the end of each of the first three
fiscal quarters in each fiscal year of Hovnanian, financial
statements of Hovnanian, consisting of a consolidated balance sheet
as of the end of such fiscal quarter and related consolidated
statements of income, stockholders’ equity and cash flows for
the fiscal quarter then ended and the fiscal year through that
date, all in reasonable detail and certified (subject to normal
year-end audit adjustments) by the Chief Executive Officer,
President, Treasurer or Chief Financial Officer or principal
accounting officer of Hovnanian as having been prepared in
accordance with GAAP, consistently applied, and setting forth in
comparative form the respective financial statements for the
corresponding date and period in the previous fiscal year.
Applicant will be deemed to have complied with the delivery
requirements of this Section 12(g) if within 55 days after the end
of Hovnanian’s fiscal quarter, Applicant delivers to Citibank
a copy of Hovnanian’s Form 10-Q as filed with the SEC and the
financial statements contained therein meet the requirements
described in this Section 12(g).
(h) Applicant shall deliver or cause
to be delivered to Citibank as soon as available and in any event
within 90 days after the end of each fiscal year of Hovnanian,
financial statements of Hovnanian consisting of a consolidated
balance sheet as of the end of such fiscal year, and related
consolidated statements of income, stockholders’ equity and
cash flows for the fiscal year then ended, all in reasonable detail
and setting forth in comparative form the financial statements as
of the end of and for the preceding fiscal year, and certified by
independent certified public accountants of nationally recognized
standing reasonably satisfactory to Citibank. The certificate or
report of accountants delivered pursuant to this Section 12(h)
shall be free of qualifications (other than any consistency
qualification that may result from a change in the method used to
prepare the financial statements as to which such accountants
concur) and shall not indicate the occurrence or existence of any
event, condition or contingency that would materially impair the
prospect of payment or performance of any covenant, agreement or
duty of Applicant under this Agreement or cause or constitute an
Event of Default. Applicant will be deemed to have complied
with the delivery requirements of this Section 12(h) if within 90
days after the end of Hovnanian’s fiscal year, Applicant
delivers to Citibank a copy of Hovnanian’s Annual Report and
Form 10-K as filed with the SEC and the financial statements and
separately delivers the above-referenced certification of public
accountants.
(i) Promptly after any officer
of Applicant has learned of the occurrence of a Default, a
certificate signed by the Chief Executive Officer, President or
Chief Financial Officer or principal accounting officer of
Applicant setting forth the details of such Default and the action
that Applicant proposes to take with respect thereto.
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(m) Promptly upon their
becoming available to Applicant and not otherwise provided to
Citibank under clause (g), (h) or (i) of this Section 12 (A) any
reports, notices or proxy statements generally distributed by
Hovnanian to its stockholders and (B) regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and
prospectuses, filed by Hovnanian with the SEC.
(n) Such other reports and
information as Citibank may from time to time reasonably
request.
13.
Representations and Warranties of Applicant.
Applicant represents and warrants that:
(a) it is a corporation duly
organized, validly existing and in good standing under the laws of
its jurisdiction of organization; (b) it has the lawful power to
own or lease its properties and to engage in the business it
presently conducts or proposes to conduct; (c) it is duly licensed
or qualified and in good standing in each jurisdiction where the
failure to do so could not, individually or in the aggregate,
reasonably be expected to cause a Material Adverse Change; (d) it
has full power to enter into, execute, deliver and carry out this
Agreement, and to perform its obligations under this Agreement, and
all such actions have been duly authorized by all necessary
proceedings on its part; (e) this Agreement has been duly and
validly executed and delivered by Applicant; (f) this
Agreement constitutes, legal, valid and binding obligation of
Applicant, enforceable against Applicant in accordance with its
terms, except to the extent that enforceability of this Agreement
may be limited by bankruptcy, insolvency, reorganization moratorium
or other similar laws affecting the enforceability of
creditor’s rights generally or limiting the right of specific
performance; (g) neither the execution and delivery of this
Agreement by Applicant nor the consummation of the transactions
herein or compliance with the terms and provisions hereof by
Applica
