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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of July 28, 1998, 18,241,000 shares of M.D.C. Holdings, Inc.
common stock were outstanding.
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<PAGE>
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997.......................... 1
Statements of Income (Unaudited) for the three
and six months ended June 30, 1998 and 1997.... 3
Statements of Cash Flows (Unaudited) for the six
months ended June 30, 1998 and 1997............ 4
Notes to Financial Statements (Unaudited)........ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 9
Part II. Other Information:
Item 1. Legal Proceedings................................ 19
Item 4. Submission of Matters to a Vote of Shareowners... 19
Item 5. Other Information................................ 19
Item 6. Exhibits and Reports on Form 8-K................. 19
(i)
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents................................................... $ 6,922 $ 7,110
Property and equipment, net................................................. 1,671 9,709
Deferred income taxes....................................................... 16,100 12,276
Deferred debt issue costs, net.............................................. 3,754 6,851
Other assets, net........................................................... 6,394 2,944
---------- -----------
34,841 38,890
Homebuilding
Cash and cash equivalents................................................... 8,031 3,867
Home sales and other accounts receivable.................................... 21,396 7,559
Investments and marketable securities, net.................................. 1,431 1,392
Inventories, net
Housing completed or under construction................................... 322,413 249,928
Land and land under development........................................... 172,900 193,012
Prepaid expenses and other assets, net...................................... 60,631 55,788
---------- -----------
586,802 511,546
Financial Services
Cash and cash equivalents................................................... 432 701
Mortgage loans held in inventory, net....................................... 89,421 65,256
Other assets, net........................................................... 8,004 5,377
---------- -----------
97,857 71,334
Total Assets.......................................................... $ 719,500 $ 621,770
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued expenses....................................... $ 27,275 $ 14,288
Income taxes payable........................................................ 13,343 11,806
Note payable................................................................ - - 3,432
Senior notes, net........................................................... 174,316 150,354
Subordinated notes, net..................................................... 28,000 38,229
----------- -----------
242,934 218,109
Homebuilding
Accounts payable and accrued expenses....................................... 124,382 105,485
Line of credit.............................................................. 65,000 20,766
Notes payable............................................................... 494 9,676
----------- -----------
189,876 135,927
Financial Services
Accounts payable and accrued expenses....................................... 19,075 12,047
Line of credit.............................................................. 29,729 26,094
----------- -----------
48,804 38,141
Total Liabilities..................................................... 481,614 392,177
----------- -----------
COMMITMENTS AND CONTINGENCIES.................................................. - - - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued.. - - - -
Common Stock, $.01 par value; 100,000,000 shares authorized; 23,958,000
and 23,691,000 shares issued, respectively, at June 30, 1998 and
December 31, 1997......................................................... 240 237
Additional paid-in capital.................................................. 144,886 142,429
Retained earnings........................................................... 129,868 125,613
Accumulated comprehensive income............................................ 2,276 881
----------- -----------
277,270 269,160
Less treasury stock, at cost; 5,876,000 and 5,903,000 shares, respectively,
at June 30, 1998 and December 31, 1997.................................... (39,384) (39,567)
----------- -----------
Total Stockholders' Equity............................................ 237,886 229,593
----------- -----------
Total Liabilities and Stockholders' Equity............................ $ 719,500 $ 621,770
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Homebuilding.......................................... $ 293,420 $ 233,542 $ 532,017 $ 422,691
Financial Services.................................... 10,149 3,449 14,820 7,680
Corporate............................................. 310 294 543 733
----------- ----------- ----------- -----------
Total Revenues.................................... 303,879 237,285 547,380 431,104
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding.......................................... 276,513 223,704 500,966 405,398
Financial Services.................................... 2,987 2,045 5,633 4,396
Corporate general and administrative.................. 4,040 3,254 7,552 6,500
Corporate and homebuilding interest................... - - - - - - 761
----------- ----------- ----------- -----------
Total Expenses.................................... 283,540 229,003 514,151 417,055
----------- ----------- ----------- -----------
Income before income taxes and extraordinary
item.................................................. 20,339 8,282 33,229 14,049
Provision for income taxes............................... (7,758) (3,148) (12,720) (5,329)
----------- ----------- ----------- -----------
Income before extraordinary item......................... 12,581 5,134 20,509 8,720
Extraordinary loss from early extinguishments of debt,
net of income tax benefit of $9,587 for 1998 and
$1,336 for 1997....................................... - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
NET INCOME............................................... 12,581 5,134 5,195 6,541
Unrealized holding gains on securities arising during the
period, net........................................... 314 545 1,395 337
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME..................................... $ 12,895 $ 5,679 $ 6,590 $ 6,878
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic
Income before extraordinary item.................. $ .70 $ .29 $ 1.14 $ .49
=========== =========== =========== ===========
Net Income........................................ $ .70 $ .29 $ .29 $ .37
=========== =========== =========== ===========
Diluted
Income before extraordinary item.................. $ .58 $ .26 $ .95 $ .44
=========== =========== =========== ===========
Net Income........................................ $ .58 $ .26 $ .27 $ .34
=========== =========== =========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Basic................................................. 18,042 17,463 17,981 17,671
=========== =========== =========== ===========
Diluted............................................... 22,469 21,583 22,472 21,839
=========== =========== =========== ===========
DIVIDENDS PER SHARE...................................... $ .04 $ .03 $ .07 $ .06
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months
Ended June 30,
--------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income........................................................... $ 5,195 $ 6,541
Adjustments To Reconcile Net Income To Net Cash Used In Operating
Activities:
Loss from the early extinguishments of debt.................... 24,901 3,515
Depreciation and amortization.................................. 9,107 6,536
Homebuilding asset impairment charges.......................... 3,000 2,350
Deferred income taxes.......................................... (3,824) 1,042
Gains on sales of mortgage-related assets...................... (4,509) (55)
Net changes in assets and liabilities:
Home sales and other accounts receivable.................. (13,837) (8,349)
Homebuilding inventories.................................. (56,117) (19,216)
Mortgage loans held in inventory.......................... (24,165) 807
Accounts payable and accrued expenses and income taxes
payable................................................. 36,821 (12,205)
Prepaid expenses and other assets......................... (11,584) (4,033)
Other, net..................................................... (2,885) 788
----------- -----------
Net Cash Used In Operating Activities................................ (37,897) (22,279)
----------- -----------
INVESTING ACTIVITIES
Net Proceeds from Sale of Office Building............................ 13,250 - -
Net Proceeds from Mortgage-Related Assets and Liabilities............ 4,636 1,558
Other, net........................................................... (2,524) (152)
----------- -----------
Net Cash Provided By Investing Activities............................ 15,362 1,406
----------- -----------
FINANCING ACTIVITIES
Lines of Credit
Advances....................................................... 579,235 495,186
Principal payments............................................. (532,254) (427,056)
Notes Payable
Principal payments............................................. (12,614) (66)
Senior Notes
Proceeds from issuance......................................... 171,541 - -
Repurchase and defeasance...................................... (152,000) (38,000)
Premium on repurchase and defeasance........................... (17,592) (1,520)
Retirement of Subordinated Notes..................................... (10,230) - -
Stock Repurchases.................................................... - - (7,349)
Dividend Payments.................................................... (1,258) (1,072)
Other, net........................................................... 1,414 909
----------- -----------
Net Cash Provided By Financing Activities............................ 26,242 21,032
----------- -----------
Net Increase In Cash and Cash Equivalents............................ 3,707 159
Cash and Cash Equivalents
Beginning of Period............................................ 11,678 11,304
----------- -----------
End of Period.................................................. $ 15,385 $ 11,463
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
M.D.C. HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A. Presentation of Financial Statements
The condensed consolidated financial statements of M.D.C. Holdings,
Inc. ("MDC" or the "Company," which, unless otherwise indicated, refers to
M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
These statements reflect all adjustments (including all normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the financial position, results of operations and cash flows of MDC as of June
30, 1998 and for all of the periods presented. These statements are condensed
and do not include all of the information required by generally accepted
accounting principles in a full set of financial statements. These statements
should be read in conjunction with MDC's financial statements and notes thereto
included in MDC's Annual Report on Form 10-K for its fiscal year ended December
31, 1997.
Certain reclassifications have been made in the 1997 financial
statements to conform to the classifications used in the current year.
B. Information on Business Segments
The Company operates in two business segments: homebuilding and
financial services. A summary of the Company's segment information is shown
below (in thousands).
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Homebuilding
Home sales......................... $ 291,752 $ 229,769 $ 524,515 $ 416,954
Land sales......................... 1,276 3,555 6,803 5,245
Other revenues..................... 392 218 699 492
----------- ----------- ----------- -----------
293,420 233,542 532,017 422,691
----------- ----------- ----------- -----------
Home cost of sales................. 243,253 196,224 439,522 355,947
Land cost of sales................. 1,179 3,132 4,285 4,455
Asset impairment charges........... 3,000 1,100 3,000 2,350
Marketing.......................... 18,146 15,585 33,396 28,100
General and administrative......... 10,935 7,663 20,763 14,546
----------- ----------- ----------- -----------
276,513 223,704 500,966 405,398
----------- ----------- ----------- -----------
Homebuilding Operating Profit.. 16,907 9,838 31,051 17,293
----------- ----------- ----------- -----------
-5-
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
Financial Services
Mortgage Lending Revenues
Interest revenues.................. $ 502 $ 279 $ 1,033 $ 946
Origination fees................... 2,275 1,554 4,140 3,016
Gains on sales of mortgage
servicing........................ 692 213 927 551
Gains on sales of mortgage loans,
net.............................. 2,012 1,177 4,016 2,492
Mortgage servicing and other....... 72 151 102 279
Asset Management Revenues............ 4,596 75 4,602 396
----------- ----------- ----------- -----------
10,149 3,449 14,820 7,680
General and Administrative Expenses.. 2,987 2,045 5,633 4,396
----------- ----------- ----------- -----------
Financial Services Operating
Profit....................... 7,162 1,404 9,187 3,284
----------- ----------- ----------- -----------
Total Operating Profit................. 24,069 11,242 40,238 20,577
----------- ----------- ----------- -----------
Corporate
Interest and other revenues........ 310 294 543 733
Interest expense................... - - - - - - (761)
General and administrative......... (4,040) (3,254) (7,552) (6,500)
----------- ----------- ----------- -----------
Net Corporate Expenses......... (3,730) (2,960) (7,009) (6,528)
----------- ----------- ----------- -----------
Income Before Income Taxes and
Extraordinary Item................... $ 20,339 $ 8,282 $ 33,229 $ 14,049
=========== =========== =========== ===========
</TABLE>
C. Corporate and Homebuilding Interest Activity (in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest capitalized in homebuilding
inventory, beginning of period....... $ 35,546 $ 41,162 $ 37,991 $ 40,745
Interest incurred....................... 5,727 6,579 11,499 13,503
Interest expensed....................... - - - - - - (761)
Previously capitalized interest included
in cost of sales..................... (7,957) (7,082) (16,174) (12,828)
----------- ----------- ----------- -----------
Interest capitalized in homebuilding
inventory, end of period............. $ 33,316 $ 40,659 $ 33,316 $ 40,659
=========== =========== =========== ===========
</TABLE>
-6-
<PAGE>
D. Stockholders' Equity
On February 26, 1997, the Company repurchased 838,000 shares of MDC
common stock at $8.77 per share, including commissions, completing a program
authorized by the MDC board of directors in October 1996 to repurchase up to
1,000,000 shares of MDC common stock.
E. Extraordinary Item
On January 28, 1998, the Company sold $175,000,000 principal amount of
8 3/8% Senior Notes due 2008 (the "8 3/8% Senior Notes") at an issue price of
99.598%. The Company used the proceeds of the sale of the 8 3/8% Senior Notes to
repurchase $61,181,000 principal amount of MDC's 11 1/8% Senior Notes due 2003
(the "11 1/8% Senior Notes"), to defease the remaining $90,819,000 principal
amount of 11 1/8% Senior Notes outstanding and for general corporate purposes.
The repurchase and subsequent cancellation and defeasance of the 11 1/8% Senior
Notes resulted in an extraordinary charge to income (including the recognition
of unamortized debt discount and write-off of deferred debt issue costs) of
$15,314,000, net of an income tax benefit of $9,587,000, in the first six months
of 1998.
Net income for the first six months of 1997 included an extraordinary
loss of $2,179,000, net of an income tax benefit of $1,336,000, recognized in
connection with the Company's repurchase of $38,000,000 principal amount of the
11 1/8% Senior Notes. The loss resulted from the repurchase of the 11 1/8%
Senior Notes at a price above their carrying value and the write-off of
unamortized deferred debt issue costs.
-7-
<PAGE>
F. Earnings Per Share
The computation of diluted earnings per share takes into account the
effect of dilutive stock options and assumes the conversion into MDC common
stock of all of the $28,000,000 outstanding principal amount of the 8 3/4%
convertible subordinated notes (the "Convertible Subordinated Notes") at a
conversion price of $7.75 per share of MDC common stock. On July 31, 1998, the
price of MDC's common stock closed at $20.5625 on the New York Stock Exchange.
The Convertible Subordinated Notes may be called for redemption by MDC beginning
on December 15, 1998. The basic and diluted earnings per share calculations are
shown below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Income before extraordinary item................. $ 12,581 $ 5,134 $ 20,509 $ 8,720
Extraordinary loss, net of taxes................. - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
Net Income.................................. $ 12,581 $ 5,134 $ 5,195 $ 6,541
=========== =========== =========== ===========
Weighted-Average Shares Outstanding.............. 18,042 17,463 17,981 17,671
=========== =========== =========== ===========
Per Share Amounts
Income before extraordinary item............ $ .70 $ .29 $ 1.14 $ .49
=========== =========== =========== ===========
Net Income.................................. $ .70 $ .29 $ .29 $ .37
=========== =========== =========== ===========
Diluted Earnings Per Share
Income before extraordinary item................. $ 12,581 $ 5,134 $ 20,509 $ 8,720
Conversion of Convertible Subordinated Notes..... 392 394 783 787
----------- ----------- ----------- -----------
Adjusted income before extraordinary item........ 12,973 5,528 21,292 9,507
Extraordinary loss, net of taxes................. - - - - (15,314) (2,179)
----------- ----------- ----------- -----------
Adjusted Net Income......................... $ 12,973 $ 5,528 $ 5,978 $ 7,328
=========== =========== =========== ===========
Weighted-Average Shares Outstanding.............. 18,042 17,463 17,981 17,671
Stock Options, net............................... 814 507 878 555
Conversion of Convertible Subordinated Notes..... 3,613 3,613 3,613 3,613
----------- ----------- ----------- -----------
Diluted Weighted-Average Shares Outstanding. 22,469 21,583 22,472 21,839
=========== =========== =========== ===========
Per Share Amounts
Income before extraordinary item............ $ .58 $ .26 $ .95 $ .44
=========== =========== =========== ===========
Net Income.................................. $ .58 $ .26 $ .27 $ .34
=========== =========== =========== ===========
</TABLE>
G. Supplemental Disclosure of Cash Flow Information (in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amounts capitalized...................... $ 5,750 $ 3,159
Income taxes.............................................. $ 5,189 $ 4,656
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
------------------------------------
INTRODUCTION
MDC is a major regional homebuilder and one of the largest homebuilders
in the United States. The Company operates in two segments: homebuilding and
financial services. In its homebuilding segment, MDC builds and sells homes
under the name "Richmond American Homes" in (i) metropolitan Denver and Colorado
Springs, Colorado; (ii) Northern Virginia; (iii) suburban Maryland; (iv)
Northern and Southern California; (v) Phoenix and Tucson, Arizona; and (vi) Las
Vegas, Nevada. The Company's financial services segment consists principally of
HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C. Holdings,
Inc., "HomeAmerican"), which provides mortgage loans primarily to the Company's
home buyers.
RESULTS OF OPERATIONS
---------------------
The table below summarizes MDC's results of operations (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................... $ 303,879 $ 237,285 $ 547,380 $ 431,104
Income before income taxes and extraordinary
item...................................... $ 20,339 $ 8,282 $ 33,229 $ 14,049
Income before extraordinary item............. $ 12,581 $ 5,134 $ 20,509 $ 8,720
Net Income.................................. $ 12,581 $ 5,134 $ 5,195 $ 6,541
Earnings Per Share:
Basic
Income before extraordinary item....... $ .70 $ .29 $ 1.14 $ .49
Net Income............................. $ .70 $ .29 $ .29 $ .37
Diluted
Income before extraordinary item....... $ .58 $ .26 $ .95 $ .44
Net Income............................. $ .58 $ .26 $ .27 $ .34
</TABLE>
Revenues for the second quarter and first half of 1998 increased 28%
and 27%, respectively, compared with the same periods in 1997, primarily due to
(i) higher home sales revenues resulting from increases in home closings and
average selling prices per home closed; and (ii) increased revenues from the
Company's financial services segment, as discussed below.
Income before income taxes and extraordinary item increased in the
second quarter and first half of 1998, compared with the same periods in 1997.
These increases primarily were a result of (i) higher operating profits from the
Company's homebuilding segment, due to increased home closings, average selling
prices per home closed and Home Gross Margins (as hereinafter defined); and (ii)
higher
-9-
<PAGE>
operating profits from the Company's financial services segment, primarily due
to increased mortgage lending profits and a $4,450,000 gain resulting from
receipt of the final payments related to the September 1996 sale of the
Company's asset management business.
Net income for the first six months of 1998 included an extraordinary
after-tax loss of $15,314,000, or $.68 per share, recognized in connection with
the January 1998 refinancing of MDC's senior debt. The 1997 first half net
income included an extraordinary after-tax loss of $2,179,000, or $.10 per
share, from the repurchase of $38 million of the then outstanding 11 1/8% Senior
Notes.
Homebuilding Segment
- --------------------
The tables below set forth information relating to the Company's
homebuilding segment (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Home Sales Revenues......................... $ 291,752 $ 229,769 $ 524,515 $ 416,954
Operating Profits........................... $ 16,907 $ 9,838 $ 31,051 $ 17,293
Average Selling Price Per Home Closed..... $ 186.8 $ 178.9 $ 185.2 $ 177.0
Home Gross Margins.......................... 16.6% 14.6% 16.2% 14.6%
Orders For Homes, net (units)
Colorado............................. 687 502 1,597 1,075
California........................... 310 259 620 493
Arizona.............................. 430 300 951 615
Nevada............................... 163 151 305 230
Virginia............................. 163 176 427 368
Maryland............................. 96 113 225 248
----------- ----------- ----------- -----------
Total........................... 1,849 1,501 4,125 3,029
=========== =========== =========== ===========
Homes Closed (units)
Colorado............................. 631 399 1,111 790
California........................... 194 198 375 373
Arizona.............................. 365 283 691 510
Nevada............................... 106 97 196 179
Virginia............................. 163 184 285 302
Maryland............................. 103 123 174 202
----------- ----------- ----------- -----------
Total........................... 1,562 1,284 2,832 2,356
=========== =========== =========== ===========
-10-
<PAGE>
June 30, December 31, June 30,
1998 1997 1997
----------- ------------ -----------
Backlog (units)
Colorado............................. 1,366 880 861
California........................... 515 270 280
Arizona.............................. 653 393 336
Nevada............................... 204 95 149
Virginia............................. 353 211 269
Maryland............................. 234 183 264
----------- ----------- -----------
Total........................... 3,325 2,032 2,159
=========== =========== ===========
Backlog Estimated Sales Value............... $ 640,000 $ 380,000 $ 392,000
=========== =========== ===========
Active Subdivisions
Colorado............................. 46 48 53
California........................... 16 12 14
Arizona.............................. 27 29 23
Nevada............................... 9 6 9
Virginia............................. 20 23 27
Maryland............................. 14 19 24
----------- ----------- -----------
Total........................... 132 137 150
=========== =========== ===========
</TABLE>
Home Sales Revenues and Homes Closed - Home sales revenues in the
second quarter and first half of 1998 represented the highest levels for
comparable periods in the Company's history and were 27% and 26% higher,
respectively, than home sales revenues for the same periods in 1997. The
improved revenues were a result of increased home closings and higher average
selling prices per home closed, as further discussed below.
Home closings increased 22% and 20%, respectively, in the second
quarter and first half of 1998, compared with the same periods in 1997. These
increases primarily were due to higher home closings in Colorado (increases of
58% and 41%, respectively) and Arizona (increases of 29% and 35%, respectively),
as a result of the strong demand for homes in these markets and Backlog (as
hereinafter defined) levels throughout the first six months of 1998 which were
substantially higher than during the first half of 1997. Home closings decreased
in the second quarter and first half of 1998, compared with the same periods in
1997, in (i) Virginia and Maryland, primarily due to decreases in the number of
active subdivisions in these markets in connection with the Company's strategy
over the past eighteen months to eliminate lower-margin subdivisions and
redeploy capital to more profitable projects within and outside these markets;
and (ii) Northern California, because the Company has exited the Sacramento
market and its new subdivisions in the San Francisco Bay area are not yet
active.
While the Company anticipates that it will deliver a higher number of
home closings in the third quarter of 1998 than in the third quarter of 1997,
the 1998 third quarter home closings should represent a lower percentage of June
30 Backlog than in 1997, due to a number of factors. These factors include (i) a
34% reduction in the number of unsold homes under construction at June 30, 1998,
compared with June 30, 1997; (ii) a 78% increase in the number of homes in
Backlog which have not been started as of June 30, 1998, compared with June 30,
1997; and (iii) shortages of subcontractor labor in California, Arizona, Nevada
and Virginia, which have delayed the development of lots and extended the
-11-
<PAGE>
construction period for a number of homes in these markets. See "Forward-Looking
Statements" below.
Average Selling Price Per Home Closed - The increases in the average
selling prices per home closed of $7,900 and $8,200, respectively, in the second
quarter and first half of 1998, compared with the same periods in 1997, reflect
the impact of (i) a greater number of homes closed in higher-priced subdivisions
in Southern California and Phoenix; (ii) a higher proportion of detached homes
closed in Virginia and Maryland, which generally have higher selling prices than
townhomes; and (iii) selling price increases in most of the Company's markets,
particularly in Southern California and Colorado.
Home Gross Margins - Gross margins (home sales revenues less cost of
goods sold, which primarily includes land and construction costs, capitalized
interest, a reserve for warranty expense and financing costs) as a percent of
home sales revenues ("Home Gross Margins") increased by 200 and 160 basis
points, respectively, during the second quarter and first half of 1998, compared
with the same periods in 1997. Home Gross Margins increased significantly in the
second quarter and first half of 1998 in Colorado, Southern California and
Arizona, largely as a result of (i) in Southern California and Colorado, selling
price increases and reduced incentives offered to home buyers due to the
increased demand for new homes in these markets; (ii) the favorable impact of a
number of home closings in certain highly profitable subdivisions; (iii) an
increased level of volume discounts received from suppliers and manufacturers in
connection with certain national purchasing contracts; and (iv) initiatives
implemented in each of the Company's markets designed to improve operating
efficiency, control costs and increase rates of return.
Looking forward, the Company believes that Home Gross Margins for the
third and fourth quarters in 1998 will exceed margins for comparable quarters in
1997 by more than 100 basis points, as experienced by the Company in the first
two quarters of 1998. Future growth in Home Gross Margins may be impacted
adversely by (i) increased competition in most of the Company's markets; (ii)
increases in, among other things, the costs of subcontracted labor, finished
lots and building materials to the extent that market conditions prevent the
recovery of increased costs through higher selling prices; and (iii) increases
in carrying costs due to lengthened construction periods resulting from
shortages of subcontractor labor, as discussed above. See "Forward Looking
Statements" below.
Orders for Homes and Backlog - Orders for homes in the second quarter
and first half of 1998 increased 23% and 36%, respectively, compared with the
same periods in 1997, despite a decrease in the number of active subdivisions to
132 at June 30, 1998, compared with 150 at June 30, 1997. These home order
increases resulted from comparatively strong home orders in all of the Company's
markets except Northern California, Virginia and Maryland in response to a
robust national economy marked by low unemployment, low mortgage rates, high
consumer confidence and home affordability and low inventories of new homes.
Second quarter 1998 home orders, compared with the same period in 1997,
particularly were strong in Arizona, Colorado and Southern California, which
increased 43%, 37% and 27%, respectively, due to (i) significant increases in
the number of monthly home orders per active subdivision as a result of the
strength of the demand for new homes in these markets; and (ii) in Arizona and
Southern California, an increase in the number of active subdivisions as a
result of the Company's continuing expansion in these markets.
The increased orders for homes in the second quarter and first half of
1998 contributed to a 54% increase in the Company's homes under contract but not
yet delivered ("Backlog") at June 30, 1998 to 3,325 units, compared with a
Backlog of 2,159 units at June 30, 1997. Assuming no significant change in
market conditions or mortgage interest rates, the Company expects approximately
70% of its
-12-
<PAGE>
June 30, 1998 Backlog to close under existing sales contracts during the second
half of 1998 and first quarter of 1999. The remaining 30% of the homes in
Backlog are not expected to close due to cancellations. See "Forward-Looking
Statements" below.
The Company received approximately 525 orders for homes in July 1998,
compared with 447 orders for July 1997. The July 1998 year-over-year increase is
attributable to improved home orders in most of the Company's markets, with
particular strength in Arizona and Nevada (both up over 45%), as well as
Colorado (up 15%). The Company is unable to predict if higher year-over-year
home orders in 1998, compared with 1997, will continue in the future. See
"Forward-Looking Statements" below.
Marketing - Marketing expenses (which include, among other things,
amortization of deferred marketing, model home expenses and sales commissions)
totalled $18,146,000 and $33,396,000, respectively, for the second quarter and
first half of 1998, compared with $15,585,000 and $28,100,000, respectively, for
the same periods in 1997. The increases in 1998 resulted from higher (i)
marketing-related salaries, benefits and sales commissions incurred and deferred
marketing costs amortized in connection with the increased number of home
closings; and (ii) product advertising and other costs incurred in connection
with the Company's expanded operations, particularly in Colorado and Southern
California.
General and Administrative - General and administrative expenses
increased to $10,935,000 and $20,763,000, respectively, during the second
quarter and first half of 1998, compared with $7,663,000 and $14,546,000,
respectively, for the same periods in 1997, primarily due to (i) increased
compensation costs resulting from expanded operations in each of the Company's
markets except Northern California and Maryland; (ii) the write-off of due
diligence costs and deposits with respect to certain proposed homebuilding
projects which were not acquired; and (iii) additional costs associated with new
branch offices in Southern California and design centers in Southern California
and Phoenix.
Asset Impairment Charges
Operating results during the second quarter and first half of 1998 were
reduced by asset impairment charges of $3,000,000, compared with impairment
charges of $1,100,000 and $2,350,000, respectively, for the same periods in
1997, related to certain of the Company's homebuilding assets primarily in
suburban Maryland. The asset impairment charges resulted from (i) the
recognition of losses anticipated from the closing of certain homes in Backlog
and from the reduction of selling prices and the offering of increased
incentives to stimulate sales of certain completed unsold homes in inventory;
(ii) in 1998, the write-down to fair value of certain subdivisions which have
experienced slow sales and negative Home Gross Margins; and (iii) in 1997, the
write-off of capitalized costs, primarily deferred marketing and option
deposits, related to several low-margin projects.
-13-
<PAGE>
Land Inventory
The table below shows the carrying value of land and land under
development, by market, the total number of lots owned and lots controlled under
option agreements, and total option deposits (dollars in thousands).
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Colorado................................ $ 47,986 $ 62,093 $ 61,683
California.............................. 53,304 44,423 22,255
Arizona................................. 27,068 32,067 36,323
Nevada.................................. 19,722 17,342 14,937
Virginia................................ 14,032 21,081 23,407
Maryland................................ 10,788 16,006 22,398
----------- ----------- -----------
Total.............................. $ 172,900 $ 193,012 $ 181,003
=========== =========== ===========
Total Lots Owned........................ 8,358 9,466 10,043
Total Lots Controlled Under Option...... 6,198 5,730 5,642
----------- ----------- -----------
Total Lots Owned and Controlled... 14,556 15,196 15,685
=========== =========== ===========
Total Option Deposits................... $ 8,770 $ 7,545 $ 5,538
=========== =========== ===========
</TABLE>
Financial Services Segment
- --------------------------
Operating profit from the financial services segment was $7,162,000 and
$9,187,000, respectively, for the second quarter and first half of 1998,
compared with $1,404,000 and $3,284,000, respectively, for the same periods in
1997. The operating profit increases in both the second quarter and the first
half of 1998 primarily were due to (i) the recognition of a $4,450,000
previously deferred gain resulting from receipt of the final payments related to
the September 1996 sale of the Company's asset management business; and (ii)
increases of 92% and 58%, respectively, in profits from HomeAmerican's mortgage
lending operations, primarily resulting from significantly higher mortgage
origination volume.
The table below summarizes the results of HomeAmerican's operations (in
thousands).
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gains on Sales of Mortgage Loans, net....... $ 2,012 $ 1,177 $ 4,016 $ 2,492
Operating Profits........................... $ 2,572 $ 1,341 $ 4,596 $ 2,915
Principal Amount of Originations and
Purchases
MDC home buyers.......................... $ 173,205 $ 124,916 $ 314,329 $ 232,250
Spot..................................... 16,563 7,643 28,553 14,563
Correspondent............................ 35,997 15,164 76,674 30,607
----------- ----------- ----------- -----------
Total.............................. $ 225,765 $ 147,723 $ 419,556 $ 277,420
=========== =========== =========== ===========
Capture Rate................................ 71% 66% 72% 67%
=========== =========== =========== ===========
</TABLE>
-14-
<PAGE>
HomeAmerican's operating profits for the second quarter and first half
of 1998 increased, compared with the same periods in 1997, primarily due to (i)
$721,000 and $1,124,000 increases, respectively, in origination fees; and (ii)
$835,000 and $1,524,000 increases, respectively, in gains from sales of mortgage
loans. These increases partially were offset by higher general and
administrative expenses resulting from the increased mortgage lending activity.
HomeAmerican's loan originations and purchases increased 53% and 51%,
respectively, in the second quarter and first half of 1998, compared with the
same periods in 1997. These increases primarily were due to a higher number of
(i) Company home closings; (ii) mortgage loans originated by HomeAmerican for
MDC home buyers as a percentage of total MDC home closings ("Capture Rate"); and
(iii) loans purchased from correspondents. HomeAmerican continues to benefit
from the Company's homebuilding growth, as MDC home buyers were the source of
approximately 75% of the principal amount of mortgage loans originated and
purchased by HomeAmerican in the second quarter and first half of 1998.
Forward Sales Commitments - HomeAmerican's operations are affected by,
among other things, changes in mortgage interest rates. HomeAmerican utilizes
forward mortgage securities contracts to manage the interest rate risk on its
fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline.
Such contracts are the only significant financial derivative instrument utilized
by MDC.
Other Operating Results
- -----------------------
Interest Expense - The Company capitalizes interest on its homebuilding
inventories during the period of active development and through the completion
of construction. Corporate and homebuilding interest incurred but not
capitalized is reflected as interest expense. No interest expense was recorded
in the first half of 1998, compared with $761,000 for the same period in 1997.
Corporate and homebuilding interest incurred decreased to $5,727,000
and $11,499,000, respectively, for the second quarter and first half of 1998,
compared with $6,579,000 and $13,503,000, respectively, for the same periods in
1997, primarily due to lower effective interest rates on the Company's
outstanding debt.
For a reconciliation of interest incurred, capitalized and expensed,
see Note C to the Company's Condensed Consolidated Financial Statements.
Corporate General and Administrative Expenses - Corporate general and
administrative expenses totalled $4,040,000 and $7,552,000, respectively, during
the second quarter and first half of 1998, compared with $3,254,000 and
$6,500,000, respectively, for the same periods in 1997. These increases
primarily resulted from higher compensation expenses related to the Company's
expanding operations.
The Company has substantially completed the modification and testing of
its computer systems to accurately process information which includes the Year
2000 date and beyond ("Year 2000 Compliant"). Pursuant to current accounting
rules, the cost of such modification and testing has been expensed as incurred.
The Company is in the process of surveying certain of its significant vendors
and suppliers to determine whether they are Year 2000 Compliant. The Company has
little or no control over whether its vendors and suppliers will be Year 2000
Compliant on a timely basis. The Company does not believe that the failure of
its significant vendors and suppliers to be Year 2000 Compliant would
-15-
<PAGE>
have a material adverse effect upon the financial condition, results of
operations or cash flows of the Company. See "Forward-Looking Statements" below.
Income Taxes - M.D.C. Holdings, Inc. and its wholly owned subsidiaries
file a consolidated federal income tax return (an "MDC Consolidated Return").
Richmond American Homes of Colorado, Inc. and its wholly owned subsidiaries
filed a separate consolidated federal income tax return (each a "Richmond Homes
Consolidated Return") from its inception (December 28, 1989) through February 2,
1994, the date Richmond American Homes of Colorado, Inc. became a wholly owned
subsidiary of MDC.
MDC's overall effective income tax rates of 38.1% and 38.3%,
respectively, for the second quarter and first half of 1998, differed from the
federal statutory rate of 35% primarily due to the impact of state income taxes.
The Internal Revenue Service (the "IRS") currently is examining the MDC
Consolidated Returns for the years 1991 through 1995 and the Richmond Homes
Consolidated Return for the period ended February 2, 1994. No audit reports have
been issued by the IRS in connection with these examinations. In the opinion of
management, adequate provision has been made for additional income taxes and
interest, if any, which may result from these examinations; however, it is
reasonably possible that the ultimate resolution could result in amounts which
differ materially in the near term from amounts provided.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
MDC uses its liquidity and capital resources to, among other things,
(i) support its operations, including its inventories of homes, home sites and
land; (ii) provide working capital; and (iii) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.
Capital Resources
The Company's capital structure is a combination of (i) permanent
financing, represented by stockholders' equity; (ii) long-term financing,
represented by publicly traded 8 3/8% Senior Notes and Convertible Subordinated
Notes due in 2008 and 2005, respectively; and (iii) current financing, primarily
lines of credit, as discussed below. The Company believes that its current
financial condition is both balanced to fit its current operating structure and
adequate to satisfy its current and near-term capital requirements. See
"Forward-Looking Statements" below.
MDC anticipates acquiring finished lots and partially developed land
for use in its future homebuilding operations during the remainder of 1998. The
Company currently intends to acquire a portion of the land inventories required
in future periods through takedowns of lots subject to option contracts entered
into in prior periods and to the extent market conditions permit under new
option contracts. The use of option contracts lessens the Company's land-related
risk and improves liquidity. Because of increased demand for partially developed
and finished lots in certain of the markets where the Company builds homes, the
Company's ability to acquire lots using option contracts has been reduced or has
become more expensive. See "Forward-Looking Statements" below.
-16-
<PAGE>
The Company anticipates that it has adequate financial resources to
satisfy its current and near-term capital requirements based on its current
capital resources and additional liquidity available under existing credit
agreements. The Company believes that it can meet its long-term capital needs
(including, among other things, meeting future debt payments and refinancing or
paying off other long-term debt as it becomes due) from operations and external
financing sources, assuming that no significant adverse changes in the Company's
business occur as a result of the various risk factors described elsewhere
herein, in particular, increases in interest rates. See "Forward-Looking
Statements" below.
Lines of Credit and Other
Homebuilding - In June 1998, the Company modified its agreement with a
group of banks for its unsecured revolving line of credit (the "Homebuilding
Line"). Under the modified terms, the available borrowings have been increased
to $300,000,000 from $175,000,000, and the maturity date of the agreement has
been extended for two years to June 30, 2003, although, pursuant to the terms of
the related credit agreement, a term-out of this credit may commence earlier
under certain circumstances. At June 30, 1998, $65,000,000 was borrowed and
$4,849,000 in letters of credit were outstanding under the Homebuilding Line.
Mortgage Lending - To provide funds to originate and purchase mortgage
loans and to finance these mortgage loans on a short-term basis, HomeAmerican
utilizes its mortgage lending bank line of credit (the "Mortgage Line"). These
mortgage loans normally are sold within 35 days after origination or purchase.
During the first half of 1998 and 1997, HomeAmerican sold $395,152,000 and
$279,000,000, respectively, principal amount of mortgage loans and mortgage
certificates to unaffiliated purchasers.
Available borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
eligible collateral, as defined. The aggregate amount available under the
Mortgage Line is $51,000,000. At June 30, 1998, $29,729,000 was borrowed and an
additional $21,271,000 was collateralized and available to be borrowed. The
Mortgage Line is cancelable upon 90 days' notice.
Convertible Subordinated Notes - The $28,000,000 principal amount of
Convertible Subordinated Notes are convertible at the option of the holders
thereof into shares of MDC common stock at a conversion price of $7.75 per
share. On July 31, 1998, the price of MDC's common stock closed at $20.5625 on
the New York Stock Exchange. The Convertible Subordinated Notes may be called
for redemption by MDC beginning on December 15, 1998.
General - The agreements for the Company's 8 3/8% Senior Notes,
Convertible Subordinated Notes and bank lines of credit include representations,
warranties and covenants. The Company believes that it is in compliance with
these representations, warranties and covenants.
Consolidated Cash Flow
During the first six months of 1998, the Company used $37,897,000 of
cash in its operating activities, primarily due to increases in homebuilding and
mortgage loan inventories in conjunction with its expanded homebuilding
operations. The Company financed these operating cash requirements primarily
through borrowings on its lines of credit, as well as the $13,250,000 proceeds
from the sale of
-17-
<PAGE>
the Company's headquarters office building and the collection of $4,450,000 in
notes receivable with respect to the September 1996 sale of the Company's asset
management business.
During the first six months of 1997, the Company used $46,869,000 of
cash to repurchase 838,000 shares of MDC Common Stock and $38,000,000 of 11 1/8%
Senior Notes. The Company also used $22,279,000 of cash in its operating
activities. The Company financed these activities primarily with internally
generated funds and line of credit borrowings.
OTHER
-----
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, as well as
statements made by the Company in periodic press releases, oral statements made
by the Company's officials to analysts and shareowners in the course of
presentations about the Company and conference calls following quarterly
earnings releases, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Such factors include,
among other things, (i) general economic and business conditions; (ii) interest
rate changes; (iii) the relative stability of debt and equity markets; (iv)
competition; (v) the availability and cost of land and other raw materials used
by the Company in its homebuilding operations; (vi) demographic changes; (vii)
shortages and the cost of labor; (viii) weather related slowdowns; (ix) slow
growth initiatives; (x) building moratoria; (xi) governmental regulation,
including the interpretation of tax, labor and environmental laws; (xii) changes
in consumer confidence; (xiii) required accounting changes; and (xiv) other
factors over which the Company has little or no control.
-18-
<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. LEGAL PROCEEDINGS.
- ------ -----------------
The Company and certain of its subsidiaries and affiliates have been
named as defendants in various claims, complaints and other legal actions
arising in the normal course of business. In the opinion of management, the
outcome of these matters will not have a material adverse effect upon the
financial condition, results of operations or cash flows of the Company.
Because of the nature of the homebuilding business, and in the ordinary
course of its operations, the Company from time to time may be subject to
product liability claims.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS.
- ------ ----------------------------------------------
MDC held its Annual Meeting of Shareowners (the "Meeting") on May 18,
1998. At the Meeting, (i) Larry A. Mizel and Herbert T. Buchwald were elected as
Class I Directors for three-year terms, expiring in 2001; and (ii) a proposal
submitted by a shareowner to provide for cumulative voting in the election of
directors was not approved.
ITEM 5. OTHER INFORMATION.
- ------ -----------------
On July 24, 1998, the Company's board of directors declared a dividend
of four cents per share for the quarter ended June 30, 1998, payable August 14,
1998, to shareowners of record on July 31, 1998. Future dividend payments are
subject to the discretion of the Company's board of directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(a) Exhibit:
4.1 Third Modification Agreement as of
June 2, 1998 among Richmond American
Homes of California, Inc., Richmond
American Homes of Maryland, Inc.,
Richmond American Homes of Nevada,
Inc., Richmond American Homes of
Virginia, Inc., Richmond American
Homes of Arizona, Inc., Richmond
-19-
<PAGE>
American Homes of Colorado, Inc., and
Richmond Homes, Inc. II and Bank One,
Arizona, NA, as Agent.
4.2 Form of Promissory Note of Richmond
American Homes of California, Inc.,
Richmond American Homes of Maryland,
Inc., Richmond American Homes of
Nevada, Inc., Richmond American Homes
of Virginia, Inc., Richmond American
Homes of Arizona, Inc., and Richmond
American Homes of Colorado, Inc. as
Makers dated June 2, 1998.
4.3 Second Amendment to M.D.C. Holdings,
Inc. Director Equity Incentive Plan.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the
Registrant during the period covered by this
Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 4, 1998 M.D.C. HOLDINGS, INC.
-------------- (Registrant)
By: /s/ Paris G. Reece III
------------------------
Paris G. Reece III,
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
-20-
EXHIBIT 4.1
THIRD MODIFICATION AGREEMENT
THIS THIRD MODIFICATION AGREEMENT ("Agreement") is entered into as of
June 2, 1998, among the Borrowers named herein, the Banks listed on the
signature pages of this Agreement, and BANK ONE, ARIZONA, NA, a national banking
association, as Agent. The parties hereto agree as follows:
RECITALS:
A. Agent, the banks named therein ("Existing Banks") and RICHMOND
AMERICAN HOMES OF CALIFORNIA, INC., a Colorado corporation, RICHMOND AMERICAN
HOMES OF MARYLAND, INC., a Maryland corporation, RICHMOND AMERICAN HOMES OF
NEVADA, INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC.,
a Virginia corporation, RICHMOND AMERICAN HOMES OF ARIZONA, INC., a Delaware
corporation (formerly known as Richmond American Homes, Inc.), RICHMOND AMERICAN
HOMES OF COLORADO, INC., a Delaware corporation (formerly known as Richmond
Homes, Inc. I) and RICHMOND HOMES, INC. II, a Delaware corporation (subsequently
merged into Richmond Homes, Inc. I), as Borrowers (collectively, the
"Borrowers") entered into a Credit Agreement dated as of April 10, 1996, an
Agreement dated March 3, 1997, a First Modification Agreement dated as of March
28, 1997, and a Second Modification Agreement dated as of October 29, 1997
(collectively, the "Credit Agreement"). Pursuant to the Credit Agreement,
Existing Banks, among other things, established a credit facility ("Credit
Facility") for Borrowers, which is evidenced by the Notes. Capitalized terms not
otherwise defined herein shall have the same meanings ascribed to such terms in
the Credit Agreement.
B. Borrowers have requested, among other things, that Existing Banks
increase the amount of the Credit Facility, add parties as Banks under the
Credit Agreement, extend the maturity date of the Credit Facility, and modify
certain covenants in the Credit Agreement. Existing Banks have agreed to so
modify the Credit Facility and to amend the Credit Agreement and other Loan
Documents on the terms and subject to the conditions set forth in this
Agreement.
AGREEMENTS:
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrowers, Banks (as hereafter defined) and Agent
agree as follows:
SECTION 1. ACCURACY OF RECITALS.
The parties acknowledge the accuracy of the Recitals.
1
<PAGE>
SECTION 2. MODIFICATION OF CREDIT AGREEMENT.
Effective as of the Effective Date (as hereafter defined), the Credit
Agreement shall be modified as follows:
2.1 The following definitions are hereby added to Article I of the
Credit Agreement, or modified in their entirety if currently set forth in
Article I:
"Aggregate Commitment" means the aggregate of the Commitments
of all Banks, as reduced from time to time pursuant to the terms
hereof. As of June 2, 1998, the Aggregate Commitment is
$300,000,000.00.
"Co-Agent" means each Bank, other than Agent and Documentation
Agent, whose Commitment is at least $45,000,000.00.
"Documentation Agent" means NationsBank, N.A., in its capacity
as documentation agent for Banks and not in its individual capacity as
a Bank, and any successor Documentation Agent appointed by Banks.
"Facility Maturity Date" means June 30, 2003, as the same may
be extended as provided in Section 2.21.
"Indenture" means that certain Senior Notes Indenture, dated
as of January 28, 1998, between Guarantor and U.S. Bank National
Association pursuant to which the Senior Notes were issued.
"Senior Notes" means the 8-3/8% Senior Notes due 2008 of
Guarantor issued in the original principal amount of $175,000,000.00
pursuant to the Indenture.
"Subordinated Indebtedness" means any Indebtedness of
Borrowers the payment of which is subordinated to payment of the
Obligations to the reasonable satisfaction of Agent. Subordinated
Indebtedness shall specifically not include Indebtedness of any
Borrower to Guarantor.
Additionally, clause (ii)(B) in the definition of "Permitted Liens" is hereby
amended in its entirety to read as follows: "(B) are delinquent but are being
contested in a timely manner in good faith by appropriate proceedings and for
which adequate reserves shall have been established on such Borrower's or
Guarantor's books in accordance with Agreement Accounting Principles."
2
<PAGE>
2.2 The table set forth in Section 2.5(c) of the Credit Agreement
is hereby amended to read as follows:
Extension Fee (as a percentage
Bank's Initial Commitment of Bank's Commitment)
------------------------- ------------------------------
$25,000,000 or more .075% per annum
Less than $25,000,000 .050% per annum
2.3 Section 2.21 of the Credit Agreement is hereby modified as
follows:
(i) The first sentence is hereby amended in its entirety
to read as follows: "Borrowers may request a one-year
extension of the Facility Maturity Date by submitting
a request for an extension to Agent (an "Extension
Request") no more than 48 months nor less than 46
months prior to the then scheduled Facility Maturity
Date."
(ii) Each reference to two (2) years is hereby amended to
be one (1) year in each place that it appears in
Section 2.21.
2.4 The amount of $20,000,000.00, as it appears in Section 4.2(ii)
of the Credit Agreement, is hereby amended to be $25,000,000.00.
2.5 The second sentence of Section 6.19 of the Credit Agreement is
hereby deleted.
2.6 Section 6.20 of the Credit Agreement is hereby amended in its
entirety to read as follows: "Each Borrower is a Restricted Subsidiary, as that
term is defined in the Indenture. Each Borrower is a Wholly-Owned Subsidiary of
Guarantor."
2.7 The following Section 6.21 is hereby added to the Credit
Agreement:
6.21 Year 2000 Compliance. Each Borrower and Guarantor has (i)
initiated a review and assessment of all areas within its and each of
its Subsidiaries' business and operations that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by any Borrower or Guarantor or any of their
Subsidiaries) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to, and any date
after, December 31, 1999), (ii) developed a plan and time line for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Borrowers
reasonably believe that all computer applications of Guarantor and any
Borrower that are material to the business operations of each Borrower,
Guarantor and their respective Subsidiaries will on a timely basis be
able to perform properly date-sensitive functions for all dates
3
<PAGE>
before and after December 31, 1999 (that is, be "Year 2000 compliant");
provided, however, that Borrowers shall not be in breach of the
representation and warranty in this sentence unless the failure of any
such computer applications to perform on a timely basis could
reasonably be expected to have a Material Adverse Effect.
2.8 The first sentence of Section 7.2 of the Credit Agreement is
hereby amended in its entirety to read as follows:
Subject to the limitations contained in this Agreement, each
Borrower will use the proceeds of Advances for its own acquisition,
holding and/or development of real property and related appurtenances
and the construction of improvements, including homes, thereon in the
ordinary course of business of such Borrower (including payment of
reimbursement obligations with respect to Facility Letters of Credit),
and any other use permitted within the definition of "Real Property
Indebtedness" under the Indenture, and to repay outstanding Advances.
2.9 The following Section 7.11 is hereby added to the Credit
Agreement:
7.11 Year 2000 Compliance. Each Borrower will, and will cause
Guarantor to, notify promptly Agent in the event that (i) any Borrower
or Guarantor discovers or determines that any computer application that
is material to its or any of its Subsidiaries' business and operations
will not be Year 2000 compliant (as that term is defined in Section
6.21) on a timely basis; and that (ii) such failure to be Year 2000
compliant on a timely basis could reasonably be expected to have a
Material Adverse Effect.
2.10 The last sentence of Section 8.6 of the Credit Agreement is
amended in its entirety to read as follows: "Notwithstanding anything herein to
the contrary, each Borrower will not, and will not permit Guarantor to, create,
incur or suffer to exist any Lien in, of or on the capital stock of any
Borrower."
2.11 The phrase "Guarantor Senior Indebtedness", as it appears in
Section 8.9 of the Credit Agreement, is hereby amended to be "Real Property
Indebtedness."
2.12 Section 8.10 of the Credit Agreement is hereby amended in its
entirety to read as follows:
8.10 Negative Pledge. Borrowers will not, and Guarantor will
not, directly or indirectly enter into any agreement (other than (A)
this Agreement, (B) the Indenture and any indenture or similar
agreement executed in connection with any Refinancing Indebtedness of
the Senior Notes and (C) any indenture or similar agreement executed in
connection with any Public Indebtedness permitted under Section
8.2(xv)) with any Person that prohibits or restricts or limits the
ability of
4
<PAGE>
Borrowers or Guarantor to create, incur, pledge or suffer to exist any
Lien in favor of Banks granted pursuant to the terms of this Agreement
upon any real property assets of Borrowers or any Guarantor; provided,
however, that those agreements creating Liens permitted under Sections
8.6(iii), (iv), (vii), (viii), (xix), and (xx) and, during an Unsecured
Conversion Period only, Section 8.6(v), may prohibit, restrict or limit
other Liens on those assets encumbered by the Liens created by such
agreements.
2.13 The ratio of .75 to 1, as set forth in Sections 9.3(a) and
9.3(b) of the Credit Agreement, is hereby amended to be 1 to 1. Additionally,
the parenthetical "(except pursuant to the Indenture or any Refinancing
Indebtedness thereof)" is hereby deleted from Section 9.3(b) of the Credit
Agreement.
2.14 Section 11.4(i) of the Credit Agreement is hereby amended in
its entirety to read as follows: "such Person is (a) a Wholly-Owned Subsidiary
of Guarantor, and (b) a Restricted Subsidiary, as defined in the Indenture."
2.15 Schedule "2.22" to the Credit Agreement is hereby modified as
follows:
(i) Section A(1) is hereby modified by adding Section
8.10 to the list of Sections referenced therein.
(ii) The introductory clause to Section B is hereby
amended in its entirety to read as follows: "The
following terms will have the following meanings
during a Secured Conversion Period or a Modified
Secured Conversion Period:".
2.16 As of the Effective Date, NationsBank, N.A., a national
banking association, and AmSouth Bank, an Alabama banking corporation ("New
Banks"), shall each be deemed to be a Bank under the Credit Agreement, and the
definition of "Banks" in the Credit Agreement is hereby amended to include New
Banks and their successors and assigns. The Commitment of each Bank, including
each New Bank, shall be the amount set forth opposite its signature on this
Agreement. Each New Bank (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements requested by it and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Agreement, (ii) agrees that
it will, independently and without reliance upon Agent or any Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Documents, (iii) appoints and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Loan Documents as are
delegated to Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Bank, (v) agrees that its payment
instructions and notice instructions are
5
<PAGE>
as set forth on Schedule 1 hereto; and (vi) confirms that none of the funds,
monies, assets or other consideration being used to make the purchase of its
interest in Advances and Facility Letters of Credit are "plan assets" as defined
under ERISA and that its rights, benefits and interests in and under the Loan
documents will not be "plan assets" under ERISA.
SECTION 3. OTHER MODIFICATIONS; RATIFICATION OF LOAN DOCUMENTS.
3.1 As of the Effective Date, each reference in the Loan Documents
to any of the Loan Documents is hereby amended to be a reference to such
document as modified herein.
3.2 The Loan Documents are ratified and affirmed by Borrowers and
shall remain in full force and effect as modified herein.
SECTION 4. BORROWERS REPRESENTATIONS AND WARRANTIES.
Borrowers represent and warrant to Banks and Agent:
4.1 As of May 27, 1998, the outstanding principal balance of the
Notes is $85,558,428.35; interest has been paid through the due date.
4.2 No Event of Default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be an Event of Default under the Loan Documents as
modified herein has occurred and is continuing.
4.3 There has been no material adverse change in the
financial condition of any Borrower or Guarantor or any other person whose
financial statement has been delivered to Agent in connection with the Credit
Facility from the most recent financial statement received by Agent.
4.4 Each and all representations and warranties of Borrowers
in the Loan Documents are accurate on the date hereof, except as may have been
previously disclosed to Banks in writing.
4.5 Borrowers have no claims, counterclaims, defenses, or set-offs
with respect to the Credit Facility or the Loan Documents as modified herein.
4.6 The Loan Documents as modified herein are the legal, valid,
and binding obligation of Borrowers, enforceable against Borrowers in accordance
with their terms, subject to bankruptcy, insolvency or similar laws affecting
the enforcement of creditors' rights generally and general principles of equity.
4.7 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
modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as modified herein have been duly authorized
by all
6
<PAGE>
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.
Borrowers covenant with Agent and Banks as follows:
5.1 Borrowers shall execute, deliver, and provide to Agent
such additional agreements, documents, and instruments as reasonably required by
Agent to effectuate the intent of this Agreement.
5.2 Borrowers fully, finally, and absolutely and forever release
and discharge Agent and Banks 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 Borrowers, whether now known or unknown to
Borrowers, and whether contingent or matured, (i) in respect of the Credit
Facility, the Loan Documents, or the actions or omissions of Agent or Banks in
respect of the Credit Facility or the Loan Documents and (ii) arising from
events occurring prior to the date of this Agreement.
SECTION 6. CONDITIONS PRECEDENT.
The agreements of Banks and Agent and the modifications contained
herein shall not be binding upon Banks and Agent until Borrowers have executed
and delivered this Agreement and Agent has received, at Borrowers' expense, all
of the following on or before June 2, 1998 (the "Effective Date"), and each of
which shall be in form and content satisfactory to Agent and Banks and shall be
subject to approval by Agent and Banks:
6.1 An original of this Agreement fully executed by Borrowers
and Guarantor;
6.2 A Promissory Note payable to the order of NationsBank, N.A.
in the amount of $50,000,000.00, in the form attached hereto as Exhibit A, fully
executed by Borrowers, which shall be deemed to be a Note for all purposes under
the Credit Agreement;
6.3 A Promissory Note payable to the order of AmSouth Bank
in the amount of $25,000,000.00, in the form attached hereto as Exhibit B, fully
executed by Borrowers, which shall be deemed to be a Note for all purposes under
the Credit Agreement;
6.4 A Replacement Promissory Note payable to the order of Bank
United of Texas FSB in the amount of $75,000,000.00, in the form attached hereto
as Exhibit C, fully executed by Borrowers, which shall be deemed to be a Note
for all purposes under the Credit Agreement;
7
<PAGE>
6.5 A Replacement Promissory Note payable to the order of
KeyBank National Association in the amount of $50,000,000.00, in the form
attached hereto as Exhibit D, fully executed by Borrowers, which shall be deemed
to be a Note for all purposes under the Credit Agreement;
6.6 An extension fee in the amount of $262,500.00;
6.7 A commitment fee, for the benefit of Banks, for the increase
in the Aggregate Commitment to $300,000,000.00, in the amount of $468,750.00;
6.8 The fees payable to Agent as set forth in the letter agreement
of even date herewith between Agent and Borrowers;
6.9 Such resolutions or authorizations and such other documents as
Agent may require relating to the existence and good standing of each Borrower
and Guarantor, and the authority of any person executing this Agreement or other
documents on behalf of each Borrower and Guarantor;
6.10 A written opinion of Haligman Lottner Rubin & Fishman, counsel
to Borrowers and Guarantor, addressed to Agent and Banks in substantially the
form of Exhibit E hereto; and
6.11 Payment of all the internal and external costs and expenses
incurred by Banks and Agent in connection with this Agreement (including,
without limitation, inside and outside attorneys and processing costs, expenses,
and fees).
SECTION 7. ADJUSTMENT OF PRO RATA SHARES.
7.1 Pursuant to the provisions of the Credit Agreement, Advances
made by the Banks (excluding Swing Line Advances) consist of Loans made by the
several Banks ratably in proportion to the ratio that their respective
Commitments bear to the Aggregate Commitment. As a result of the increase in the
Aggregate Commitment and the addition of New Banks as Banks, such ratio has been
changed. As of the Effective Date, Bank One, Arizona, NA, a national banking
association, Sanwa Bank California, a California corporation, and KeyBank
National Association, a national banking association ("Assignor Banks") hereby
sell and assign to NationsBank, N.A., a national banking association, AmSouth
Bank, an Alabama banking corporation, and Bank United of Texas FSB, a federal
savings bank ("Assignee Banks"), and Assignee Banks hereby purchase and assume,
without recourse, from Assignor Banks, all of Assignor Banks' rights and
obligations in respect of the portion of all Advances owing to the Assignor
Banks' and all Facility Letters of Credit that are outstanding on the Effective
Date, to the extent required in order to appropriately adjust the proportionate
shares of the Advances and the Facility Letters of Credit. In connection with
the foregoing assignment, on or before 11:00 a.m., Phoenix time, on the
Effective Date, each Assignee Bank shall wire transfer to Agent the
8
<PAGE>
amount necessary to make the foregoing adjustment, and Agent shall wire transfer
the respective portion of such amount to each Assignor Bank on the Effective
Date.
SECTION 8. GENERAL.
8.1 The Loan Documents as modified herein contain the
complete understanding and agreement of Borrowers, Banks and Agent in respect of
the Credit Facility and supersede all prior representations, warranties,
agreements, arrangements, understandings, and negotiations. No provision of the
Loan Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the parties thereto.
8.2 The Loan Documents as modified herein shall be binding upon
and shall inure to the benefit of Borrowers, Banks and Agent and their
successors and assigns; provided, however, Borrowers may not assign any of their
rights or delegate any of their obligations under the Loan Documents and any
purported assignment or delegation shall be void.
8.3 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.
9
<PAGE>
8.4 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.
IN WITNESS WHEREOF, Borrowers, Banks, and Agent have executed this
Agreement as of the date set forth above.
BORROWERS:
ATTEST: RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation
By: /s/ John J. Heaney
- -------------------------- ---------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF
MARYLAND, INC., a Maryland corporation
By: /s/ John J. Heaney
- -------------------------- ---------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF NEVADA,
INC., a Colorado corporation
By: /s/ John J. Heaney
- -------------------------- --------------------------------
Name: John J. Heaney
Title: Vice President
10
<PAGE>
ATTEST: RICHMOND AMERICAN HOMES OF VIRGINIA,
INC., a Virginia corporation
By: /s/ John J. Heaney
- -------------------------- --------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF ARIZONA,
INC., a Delaware corporation, formerly known
as Richmond American Homes, Inc.
By: /s/ John J. Heaney
- --------------------------- --------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF
COLORADO, INC., a Delaware corporation,
formerly known as Richmond Homes, Inc. I,
successor by merger to
Richmond Homes, Inc. II
By: /s/ John J. Heaney
- --------------------------- --------------------------------
Name: John J. Heaney
Title: Vice President
11
<PAGE>
Commitments BANKS AND AGENT:
- -----------
$75,000,000.00 BANK ONE, ARIZONA, NA, a national banking
association, Individually and as Agent
By: /s/ Rhonda R. Williams
---------------------------------
Name: Rhonda R. Williams
Title: Vice President
$75,000,000.00 BANK UNITED OF TEXAS FSB, a federal savings
bank
By: /s/ Thomas S. Griffin
---------------------------------
Name: Thomas S. Griffin
Title: Vice President
$25,000,000.00 SANWA BANK CALIFORNIA, a California
corporation
By: /s/ Russ Wakeham
--------------------------------
Name: Russ Wakeham
Title: Vice President
$50,000,000.00 KEYBANK NATIONAL ASSOCIATION, a national
banking association formerly known as
KEY BANK OF COLORADO, a Colorado state bank
By: /s/ Paul Holden
-------------------------------
Name: Paul Holden
Title: Vice President
12
<PAGE>
$50,000,000.00 NATIONSBANK, N.A., a national banking
association
By: /s/ Stephen G. Earle
-------------------------------
Name: Stephen G. Earle
Title: Senior Vice President
$25,000,000.00 AMSOUTH BANK, an Alabama banking
corporation
By: /s/ Ronny Hudspeth
-------------------------------
Name: Ronny Hudspeth
Title: Vice President
13
EXHIBIT 4.2
PROMISSORY NOTE
$ June 24, 1998
------------------ Phoenix, Arizona
FOR VALUE RECEIVED, RICHMOND AMERICAN HOMES OF CALIFORNIA,
INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a
Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado
corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation,
RICHMOND AMERICAN HOMES OF ARIZONA, INC., a Delaware corporation, formerly known
as Richmond American Homes, Inc., and RICHMOND AMERICAN HOMES OF COLORADO, INC.,
a Delaware corporation, formerly known as Richmond Homes, Inc. I (collectively
"Makers" and severally a "Maker"), hereby promise and agree to pay to the order
of ("Payee"), the principal sum of
--------------------- ----------------------
in lawful money of the United States of America, or, if less than such principal
amount, the aggregate unpaid principal amount of all Advances made to Makers by
the Payee pursuant to the Credit Agreement hereinafter referenced. Such payment
shall be made on the Facility Termination Date, as defined in the Credit
Agreement.
Makers shall pay interest from the date hereof on the unpaid
principal amount of this Note from time to time outstanding during the period
from the date hereof until such principal amount is paid in full at the rates,
determined in the manner, and on the dates or occurrences specified in the
Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the
Credit Agreement dated as of April 10, 1996, among Makers, Bank One, Arizona,
NA, as Agent, and the Banks named therein, as thereafter modified (as the same
may be amended, modified, replaced, or renewed from time to time, the "Credit
Agreement") and is entitled to the benefits of the Credit Agreement and the Loan
Documents. Capitalized terms used in this Note without definition shall have the
same meanings as are ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to the Agent for the
account of Payee pursuant to the terms of the Credit Agreement. All Advances
made by Payee pursuant to the Credit Agreement and all payments of the principal
amount of such Advances, shall be endorsed by the holder of this Note on the
schedule attached hereto. Failure to record such Advances or payment shall not
diminish any rights of Payee or relieve Makers of any liability hereunder or
under the Credit Agreement. This Note is subject to prepayment and its maturity
is subject to acceleration, in each case upon the terms provided in the Credit
Agreement.
This Note may not be modified or discharged orally, by course
of dealing or otherwise, but only by a writing duly executed by the holder
hereof.
<PAGE>
In the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note, Makers agree to pay and shall be liable
for all costs and expenses of collection, including without limitation,
reasonable attorneys' fees and disbursements.
Makers and all sureties, guarantors and/or endorsers hereof
(or of any obligation hereunder) and accommodation parties hereon (all of which,
including Makers, are severally each hereinafter called a "Surety") each: (a)
agree that the liability under this Note of all parties hereto is several except
as set forth in Section 12.7 of the Credit Agreement; (b) severally waive any
homestead or exemption laws and right thereunder affecting the full collection
of this Note; (c) severally waive any and all formalities in connection with
this Note to the maximum extent allowed by law, including (but not limited to)
demand, diligence, presentment for payment, protest and demand, and notice of
extension, dishonor, protest, demand and nonpayment of this Note; and (d)
consent that Holder may extend the time of payment or otherwise modify the terms
of payment of any part or the whole of the debt evidenced by this Note, at the
request of any other person liable hereon, and such consent shall not alter nor
diminish the liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a)
any right to require the holder hereof to proceed against any other Surety, to
proceed against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshaling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of any Maker to the holder hereof;
(e) the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of Sections 12-1641, et seq., of the
Arizona Revised Statutes; (f) any defense arising by reason of any disability or
other defense of any Maker or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of any Maker for
payment of this Note; and (g) the benefits of any statutory provision limiting
the right of the holder hereof to recover a deficiency judgment, or to otherwise
proceed against any person or entity obligated for payment of this Note, after
any foreclosure or trustee's sale of any security for this Note, including
without limitation the benefits, if any, to a Surety of Arizona Revised Statutes
Section 33-814. Until payment in full of this Note and the holder hereof has no
obligation to make any further advances of the proceeds hereof, no Surety shall
have any right of subrogation and each hereby waives any right to enforce any
remedy which the holder hereof now has, or may hereafter have, against Maker or
any other Surety, and waives any benefit of, and any right to participate in,
any security now or hereafter held by the holder hereof.
Each Maker agrees that to the extent any Surety makes any
payment to the holder hereof in connection with the indebtedness evidenced by
this Note, and all or any part of such payment is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid by
Holder or paid over to a trustee, receiver or any other entity, whether under
any bankruptcy act or otherwise (any such payment is hereinafter referred to as
a "Preferential Payment"), then the indebtedness of Makers under this Note shall
continue or shall be reinstated, as the case may be, and, to the extent of such
payment or repayment by the holder hereof, the
-2-
<PAGE>
indebtedness evidenced by this Note or part thereof intended to be satisfied by
such Preferential Payment shall be revived and continued in full force and
effect as if said Preferential Payment had not been made.
This Note has been delivered in the City of Phoenix and State
of Arizona, and shall be enforced under and governed by the laws of the State of
Arizona applicable to contracts made and to be performed entirely within said
state, without references to any choice or conflicts of law principles.
Notwithstanding anything in this Note to the contrary, except
as otherwise indicated in Section 12.7 of the Credit Agreement, the obligations
of Makers under this Note shall not be the joint obligations of Makers, but
shall instead be the several obligations of each Maker. Each Maker shall only be
obligated to pay principal, interest, and other amounts that relate to Advances
made to such Maker, or that relate to Property owned by such Maker, or that
relate to such Maker's obligations under the Credit Agreement, this Note and the
other Loan Documents.
This Note amends and restates and replaces that Promissory
Note (the "Existing Note") dated June 2, 1998 in the principal amount of
$ , executed by Makers and payable to Payee. All indebtedness of
-----------------
Makers under the Existing Note shall automatically and without further action
become indebtedness advanced under this Note.
ATTEST: RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation
By: By:
-------------------------- ---------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF
MARYLAND, INC., a Maryland corporation
By: By:
-------------------------- ---------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF NEVADA,
INC., a Colorado corporation
-3-
<PAGE>
By: By:
-------------------------- ---------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF VIRGINIA,
INC., a Virginia corporation
By: By:
-------------------------- ---------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF ARIZONA, INC.,
a Delaware corporation, formerly known as
Richmond American Homes, Inc.
By: By:
-------------------------- ---------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF COLORADO,
INC., a Delaware corporation, formerly
known as Richmond Homes, Inc. I,
successor by merger to Richmond Homes,
Inc. II
By: By:
-------------------------- ----------------------------
Name: Kenneth J. Ryerson Name: John J. Heaney
Title: Vice President Title: Vice President
-4-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE TO PROMISSORY NOTE
---------------------------
ADVANCES PAYMENTS APPLICATION
-------- -------- -----------
Floating Rate Letter of Credit
LIBOR Advances Advances Advances
DATE PRINCIPAL TYPE (LIBOR, INTEREST PERIOD DATE AMOUNT PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST
AMOUNT Floating Rate, (LIBOR Advances)
Letter of Credit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
- ---- --------- ---------------- ---------------- ---- ------ --------- -------- --------- -------- --------- --------
</TABLE>
EXHIBIT 4.3
SECOND AMENDMENT TO
M.D.C. HOLDINGS, INC.
DIRECTOR EQUITY INCENTIVE PLAN
Second Amendment to the M.D.C. Holdings, Inc. Director Equity Incentive
Plan as approved by the Board of Directors of the Corporation on April 20, 1993
(the "Plan"). Capitalized terms used herein shall have the meanings ascribed in
the Plan unless otherwise defined herein.
The following amendment was adopted by the Board of Directors on
July 24, 1998 and became effective July 24, 1998.
1. Section 7.3 "Amendment, Suspension or Termination of the Plan"
hereby is amended to provide for an extension of the Plan by deleting Section
7.3 in its entirety and substituting the following:
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by
the Board or the Committee; provided, that to the extent required by
Rule 16b-3 or any successor provision, (i) without approval of the
Company's stockholders given within 12 months before or after the
action by the Board or the Committee, no action of the Board or the
Committee may, except as provided in Section 2.3, increase any limit
imposed in Section 2.1 on the maximum number of shares which may be
issued on exercise of Options, modify the eligibility requirements of
Section 3.1, reduce the minimum Option price requirements of Section
4.2 or extend the limit imposed in this Section 7.3 on the period
during which Options may be granted; and (ii) the Plan provisions set
forth in clause (i) may not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement
Income Security Act or the rules thereunder. Neither the amendment,
suspension nor termination of the Plan shall, without the consent of
the holder of the Option, alter or impair any rights or obligations
under any Option theretofore granted. No Option may be granted during
any period of suspension nor after termination of the Plan, and in no
event may any Option be granted under this Plan after December 31,
2003.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MDC
Holdings, Inc. consolidated financial statements included in its Form 10-Q for
the quarter ended June 30, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,385
<SECURITIES> 1,431
<RECEIVABLES> 21,396
<ALLOWANCES> 0
<INVENTORY> 495,313
<CURRENT-ASSETS> 0
<PP&E> 1,671
<DEPRECIATION> 0
<TOTAL-ASSETS> 719,500
<CURRENT-LIABILITIES> 0
<BONDS> 297,539
0
0
<COMMON> 240
<OTHER-SE> 237,646
<TOTAL-LIABILITY-AND-EQUITY> 719,500
<SALES> 532,017
<TOTAL-REVENUES> 547,380
<CGS> (500,966)
<TOTAL-COSTS> (514,151)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,229
<INCOME-TAX> (12,720)
<INCOME-CONTINUING> 20,509
<DISCONTINUED> 0
<EXTRAORDINARY> (15,314)
<CHANGES> 0
<NET-INCOME> 5,195
<EPS-PRIMARY> .29
<EPS-DILUTED> .27
</TABLE>
