Exhibit 10.1
FOURTH MODIFICATION AGREEMENT
     THIS FOURTH MODIFICATION AGREEMENT (this “Modification”), dated as of the
20th of November, 2006, by and among NEIGHBORHOODS CAPITAL, LLC, a Virginia
limited liability company (“Capital”), the limited liability companies
identified above their executions hereof as Borrowers or Guarantors (Capital and
each of the Borrowers and Guarantors, individually, an “Obligor”, and
collectively, the “Obligors”); the parties identified above their executions
hereof as Lenders and other Lenders who may become a party to the Agreement (as
hereinafter defined) (each, a “Lender” and, collectively, the “Lenders”) and
WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as a
Lender, as Agent for the Lenders and as Issuing Lender.
RECITALS:
     WHEREAS, pursuant to a First Modified and Restated Loan Agreement dated
November 15, 2004, as modified in a First Modification Agreement dated July 11,
2005, a Second Modification Agreement dated December 28, 2005, and a Third
Modification Agreement dated October 5, 2006, by and among the Obligors, the
Lenders and the Agent (the “Agreement”), the Lenders have made a Credit Facility
in the principal amount not to exceed at any time outstanding $150,000,000
available to the Obligors;
     WHEREAS, the Obligors, the Lenders and the Agent desire to modify, amend
and confirm the Agreement and the other Loan Documents (as hereinafter defined)
as set forth in this Modification; and
     WHEREAS, capitalized terms used but not defined in this Modification shall
have the meanings ascribed to them in the Agreement; the Obligors’ respective
indebtedness, duties and obligations under the Agreement and the other Loan
Documents are hereinafter collectively called the “Obligations”; and all liens,
security interests, assignments, superior titles, rights, remedies, powers,
equities and priorities securing the Agreement and/or the other Loan Documents
or providing to Lenders recourse with respect thereto, are hereinafter
collectively called the “Liens.”
     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Obligors, the Lenders and the
Agent agree to modify the Agreement as more specifically set forth below.
1. Incorporation of Recitals; Defined Terms.
     The Recitals to this Modification are hereby incorporated into this
Modification and made a part hereof.

 

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2. Modification to Certain Provisions of Agreement.
     (a) The definition of “Adjusted EBITDA” set forth in Section 1.1 of the
Agreement is hereby modified and restated as follows:
     “Adjusted EBITDA” means, as of the last day of any Fiscal Quarter, the sum
of (i) net income plus (ii) state and federal income taxes plus (iii)
amortization and depreciation expense plus (iv) interest expense in cost of
goods sold plus (v) interest expense from operations plus (vi) write-off of
impairment charges and other non-cash charges and expenses, determined in each
case for Capital and its Subsidiaries on a consolidated basis for the four
(4) Fiscal Quarters then ended.
     (b) The definition of “Tangible Net Worth” set forth in Section 1.1 of the
Agreement is hereby modified and restated as follows:
     “Tangible Net Worth” means the amount by which (a) the Total Tangible
Assets exceed (b) total consolidated liabilities, determined in each case for
Capital and its Subsidiaries on a consolidated basis.
     (c) The definition of “Total Liabilities” set forth in Section 1.1 of the
Agreement is hereby modified and restated as follows:
     “Total Liabilities” means (a) all liabilities as shown on the consolidated
balance sheet of Capital and its Subsidiaries in accordance with GAAP and Fin
46, (b) all outstanding loan balances associated with recourse obligations of
Capital and its Subsidiaries not shown on the consolidated balance sheet of
Capital and its Subsidiaries, (c) the principal amount of all surety bonds,
letters of credit and/or tri-party agreements whether presented for payment or
not but excluding municipal performance bonds, letters of credit and other
performance related liabilities for which payment has not been demanded by the
beneficiary and for which reimbursement by Capital or the applicable Subsidiary
has not been made, (d) net liabilities of Capital and its Subsidiaries under
Hedge Agreements, (e) any liabilities of partnerships or joint ventures that
should be included in the consolidated financial statements of Capital and its
Subsidiaries in accordance with Fin 46, and (f) any non-option related purchase
agreements for which Capital or any of its Subsidiaries is obligated to pay at a
future date.
     (d) The definition of “Total Tangible Assets” set forth in Section 1.1 of
the Agreement is hereby modified and restated as follows:
     “Total Tangible Assets” means the amount by which total consolidated assets
of Capital and its Subsidiaries exceed the value of any non-compete agreement,
software rights, acquired customer relationships, order backlog, goodwill, the
amount by which the cost of any acquisition exceeds the book value thereof and
other items customarily treated as intangibles under GAAP.

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     (e) Section 8.1 of the Agreement is hereby modified and restated as
follows:
     Section 8.1 Liquidity.
     Capital shall maintain on a consolidated basis as of the end of each Fiscal
Quarter Unencumbered and Unrestricted Liquid Assets in an amount not less than
$5,000,000.
     (f) Section 8.2 of the Agreement is hereby modified and restated as
follows:
     Section 8.2 Adjusted EBITDA to Debt Service.
     Capital shall maintain on a consolidated basis a ratio of Adjusted EBITDA
to Debt Service of not less than 2.50 to 1.00 calculated quarterly on a rolling
four (4) quarter basis.
     (g) Section 8.3 of the Agreement is hereby modified and restated as
follows:
     Section 8.3 Tangible Net Worth.
     Capital shall maintain on a consolidated basis a minimum Tangible Net Worth
equal to $32,000,000 from the date of Closing through and including December 31,
2003. Each December 31st thereafter, the minimum Tangible Net Worth (for such
date and the following Fiscal Year through and including December 31st) will
increase by twenty-five percent (25%) of Capital’s net income for the most
recently ended Fiscal Year. Notwithstanding the above, quarterly testing of
minimum Tangible Net Worth on March 31st, June 30th and September 30th of each
Fiscal Year shall allow for a ten percent (10%) reduction of Tangible Net Worth
as it may apply solely to the payment of federal and state income taxes.
3. Representations and Warranties.
     The Obligors, respectively, hereby reaffirm all of representations and
warranties set forth in the Agreement and the other Loan Documents, and further
represent and warrant that (a) the execution and delivery of this Modification
do not contravene, result in a breach of, or constitute a default under, any
deed of trust, loan agreement, indenture or other contract or agreement to which
any Obligor is a party or by which any Obligor or any of its properties may be
bound (nor would such execution and delivery constitute such a default with the
passage of time or the giving of notice or both), and do not violate or
contravene any law, order, decree, rule, regulation or restriction to which any
Obligor or any of its properties is subject; (c) this Modification constitutes
the legal, valid and binding obligation of each Obligor, enforceable in
accordance with its terms; (d) the execution and delivery of, and performance
under, this Modification are within each Obligor’s power and authority without
the joinder or consent of any other party and are not in contravention of any
law and have been duly authorized by all requisite action, and, are not in
contravention of such Obligor’s certificate of organization, operating agreement
or other limited liability company organizational documents if the Obligor is a
limited liability

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company or such Obligor’s certificate of incorporation, by-laws or other
corporate organizational documents if the Obligor is a corporation; (e) there
exists no default under the Agreement or any other Loan Document; (f) there are
no offsets, claims or defenses with respect to the Obligations or the Agreement
or any other Loan Document; and (g) each Obligor other than S-M Financing is a
duly organized and legally existing limited liability company in good standing
under the laws of the Commonwealth of Virginia or, in the case of S-M
Communities, Delaware, each Guarantor other than S-M Financing and S-M
Communities is qualified to do business in the State of Maryland and S-M
Financing is a duly organized and legally existing corporation in good standing
under the laws of Delaware. Each Obligor further represents and warrants that,
except as disclosed in writing to the Agent, there is no suit, judicial or
administrative action, claim, investigation, inquiry, proceeding or demand
pending (or, to such Obligor’s knowledge, threatened) against (i) any Obligor,
or (ii) which affects the Collateral or any Obligor’s title to the Collateral
purported to be owned by such Obligor, or (iii) which affects the validity,
enforceability or priority of the Agreement or any other Loan Document or any
Lien. Each Obligor, jointly and severally, agrees to indemnify and hold the
Lenders harmless against any loss, claim, damage, liability or expense
(including, without limitation, reasonable attorneys’ fees) incurred as a result
of any representation or warranty made by any Obligor herein which proves to be
untrue or inaccurate in any material respect, and that, at Agent’s option, any
such occurrence shall constitute an Event of Default.
4. Renewal; Lien Continuation; No Novation.
     The Obligors, respectively, hereby renew the Obligations for which they are
responsible under the Agreement, as modified by this Modification, and under the
other Loan Documents and promise to pay and perform all Obligations for which
they are responsible under the Agreement, as modified by this Modification, and
the other Loan Documents. The Obligors, respectively, ratify and confirm the
Liens as valid, subsisting and continuing to secure the Obligations, as modified
by this Modification. This Modification shall not in any manner diminish,
impair, release, waive or extinguish the Obligations or the Liens. The execution
and delivery of this Modification shall not constitute a novation of the debt
evidenced and secured by the Agreement and the other Loan Documents.
5. Miscellaneous.
     Unless specifically modified in this Modification, all terms of the
Agreement and the other Loan Documents shall remain in full force and effect. To
the extent of any direct conflict between the Agreement and the other Loan
Documents and this Modification, this Modification shall control. This
Modification (a) shall bind and benefit the parties hereto and their respective
successors and assigns; (b) shall be governed by the laws of the Commonwealth of
Virginia and United States federal law; and (c) may be executed in several
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when executed and delivered, shall constitute an original agreement
enforceable against all who signed it without production of or accounting for
any other counterpart, and all separate counterparts shall constitute the same
agreement.

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6. Reaffirmation of Guaranty.
     Without limiting the other provisions of this Modification, each Guarantor
hereby consents to and joins in this Modification and hereby declares to and
agrees with the Lenders that the Guaranty is and shall continue in full force
and effect for the benefit of Lenders with respect to the Obligations, as
modified by this Modification, that there are no offsets, claims or defenses of
Guarantor with respect to the Guaranty or the Obligations, that the Guaranty is
not diminished or impaired, released, waived or extinguished in any way by this
Modification or the transactions contemplated hereby, and that the Guaranty is
hereby ratified and confirmed in all respects. Each Guarantor further hereby
reaffirms all of the representations and warranties set forth in the Guaranty.
Each Guarantor acknowledges that the Lenders would not execute this Modification
or otherwise consent to its terms without the foregoing agreements.
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     WITNESS THE FOLLOWING EXECUTIONS AND SEALS.

          OBLIGORS:    
 
        BORROWERS:    
 
        NEIGHBORHOODS CAPITAL, LLC
 
       
By:
  /s/ Martin K. Alloy   (SEAL)
 
       
 
  Name: Martin K. Alloy    
 
  Title: Chairman    

BRAM NEIGHBORHOODS, LLC,
GLENKIRK NEIGHBORHOODS, LLC,
GLYNN TARRA ESTATES, LLC,
NEIGHBORHOODS I, L.L.C.,
NEIGHBORHOODS II, LLC,
NEIGHBORHOODS III, LLC,
NEIGHBORHOODS IV, LLC,
COLES RUN NEIGHBORHOODS, LLC,
ZION NEIGHBORHOODS, LLC,
WALL NEIGHBORHOODS, LLC,
MARUMSCO NEIGHBORHOODS, LLC,
NEIGHBORHOODS VI, LLC,
BEECH GROVE NEIGHBORHOODS, LLC,
NEIGHBORHOODS V, LLC,
LANDMARK NEIGHBORHOODS, LLC,
BRAM III NEIGHBORHOODS, LLC,
OLD DOMINION NEIGHBORHOODS, LLC,
SPRING PARK NEIGHBORHOODS, LLC,
FAIR OAKS NEIGHBORHOODS, LLC and
SHIRLINGTON NEIGHBORHOODS, LLC

              By:   NEIGHBORHOODS CAPITAL, LLC,              its Sole Member    
 
           
 
  By:   /s/ Martin K. Alloy   (SEAL)
 
           
 
      Name: Martin K. Alloy    
 
      Title: Chairman    

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          GUARANTORS:    
 
        STANLEY-MARTIN COMMUNITIES, LLC
    a Delaware limited liability company    
 
       
By:
  /s/ Martin K. Alloy   (SEAL)
 
       
 
  Name: Martin K. Alloy    
 
  Title: Chairman    
 
        STANLEY-MARTIN FINANCING CORP.,
   a Delaware corporation    
 
       
By:
  /s/ Martin K. Alloy   (SEAL)
 
       
 
  Name: Martin K. Alloy    
 
  Title: Chairman    

KF NEIGHBORHOODS, L.L.C.,
KF II NEIGHBORHOODS, LLC and
WILDEWOOD NEIGHBORHOODS, LLC

              By:   NEIGHBORHOODS CAPITAL, LLC,              its Sole Mamber    
 
           
 
  By:   /s/ Martin K. Alloy   (SEAL)
 
           
 
      Name: Martin K. Alloy    
 
      Title: Chairman    

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          AGENT AND LENDER:    
 
        WACHOVIA BANK, NATIONAL ASSOCIATION,
    as Agent and Lender, including
    as successor in merger to SouthTrust Bank    
 
       
By:
  /s/ Michael R. Jordan   (SEAL)
 
       
 
  Name: Michael R. Jordan    
 
  Title: SVP    

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          OTHER LENDERS:    
 
        BRANCH BANKING AND TRUST COMPANY
 
       
By:
  /s/ Greg E. Dougherty   (SEAL)
 
       
 
  Name: Greg E. Dougherty    
 
  Title SVP    
 
        KEYBANK NATIONAL ASSOCIATION
 
       
By:
  /s/ Linda Long   (SEAL)
 
       
 
  Name: Linda Long    
 
  Title Senior Vice President    
 
        FIRST HORIZON HOME LOAN CORPORATION
 
       
By:
  /s/ Alan Drewer   (SEAL)
 
       
 
  Name: Alan Drewer    
 
  Title SVP    

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