SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-14830
CONTINENTAL HOMES HOLDING CORP.
(Exact name of registrant as specified in its charter)
______________________
Delaware
(State or other jurisdiction of 86-0554624
incorporation or organization) (I.R.S. Employer Identification Number)
7001 North Scottsdale Road, Suite 2050
Scottsdale, Arizona 85253
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 483-0006
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of July 29, 1994 was $82,192,570. (This calculation assumes
that all officers and directors of the Company are affiliates.)
The number of shares of Common Stock outstanding as of July 29, 1994
was 6,962,770.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the year
ended May 31, 1994 are incorporated herein by reference into Part II and
portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held August 30, 1994 are incorporated herein by reference
into Part III.
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended
May 31, 1994
TABLE OF CONTENTS
PART I
Page
Item 1. Business
General............................................................1
Land Acquisition and Development...................................1
Product Lines......................................................2
Contract Backlog...................................................4
Marketing..........................................................4
Construction and Customer Service..................................4
Mortgage Banking...................................................6
Competition........................................................6
Regulation.........................................................7
Employees..........................................................7
Item 2. Properties.........................................................8
Item 3. Legal Proceedings..................................................8
Item 4. Submission of Matters to a Vote of
Security Holders...................................................8
Part II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters...................................8
Item 6. Selected Financial Data............................................9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................9
Item 8. Financial Statements and Supplementary Data........................9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................9
PART III
Item 10. Directors and Executive Officers of the Registrant................10
Item 11. Executive Compensation...........................................10
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................................10
Item 13. Certain Relationships and Related Transactions....................10
PART IV
Item 14. Exhibits, Financial Statements Schedules and
Reports on Form 8-K...............................................11
<PAGE>
Part I
Item 1. Business
GENERAL
Continental Homes Holding Corp. (the "Company"), a Delaware corporation, was
formed in June 1986. The Company designs, constructs and sells single-family
homes for the entry-level and move-up buyer in Phoenix, Arizona; Austin and San
Antonio, Texas; Denver, Colorado and Southern California. The Company entered
the Austin, Texas market in July 1993 through the acquisition of Milburn
Investments, Inc., a Texas Corporation, and its related entities (collectively,
"Milburn"). In January 1994, the Company acquired the operations of Aspen Homes
("Aspen"), a single family homebuilder in San Antonio, Texas. The Company also
offers mortgage banking services in Arizona to its homebuyers and in Texas to
its homebuyers and to third parties.
LAND ACQUISITION AND DEVELOPMENT
As of May 31, 1994, the Company operated 14 subdivisions in Phoenix, 13
subdivisions in Austin, four subdivisions in Denver, six subdivisions in San
Antonio and two subdivisions in Southern California. The following table
summarizes the Company's available lot inventory at May 31, 1994 by location:
AVAILABLE LOT INVENTORY
Sites
Available
Homes Under for Future
Total Lots Construction Construction
----------------------- ------------
Available Sold Specs(1) Models Unsold Sold
--------- ---- ------- ------ ------ ----
Phoenix .................. 3,501 559 228 54 2,560 100
Texas..................... 3,593 328 219 26 3,000 20
Denver.................... 1,212 87 21 8 1,083 13
California ............... 234 27 35 6 164 2
----- ----- --- -- ----- ---
Total........... 8,540 1,001 503 94 6,807 135
===== ===== === == ===== ===
(1) Speculative units are unsold homes under construction.
The Company's objective is to maintain a supply of land to meet anticipated
homebuilding requirements for approximately two years. At May 31, 1993 and 1994,
the Company had an aggregate of 2,563 and 6,807 unsold lots, respectively, which
represents an average of approximately a twenty-nine month inventory based on
actual deliveries in fiscal 1994. The Company believes that an adequate supply
of undeveloped land is available in Phoenix, Austin and Denver to maintain
current levels of homebuilding. The Company employs experienced supervisory
personnel who deal directly with independent engineers and contractors in the
development process, including land and site planning and constructing site
facilities (such as roads, sewers, water and other public facilities and
amenities). See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity and Capital Resources."
As of May 31, 1994, the Company also owned 417 acres in Carlsbad, California,
located in San Diego County. The master plan for this project, which will result
in approximately 780 single- family homes, was approved by the Carlsbad City
Council in July 1993. The Company is currently working with various governmental
agencies regarding environmental issues with regard to the property. The Company
is unable to predict the date on which all additional approvals necessary to
commence development will be received, but it is currently actively seeking
these additional approvals and will commence development as soon as permissible.
PRODUCT LINES
As of May 31, 1994 the Company had active sales programs in 14 subdivisions in
Phoenix, in 13 subdivisions in Austin, in four subdivisions in Denver, in six
subdivisions in San Antonio, and in two subdivisions in Southern California. The
product line constructed by the Company in a particular subdivision is dependent
upon many factors, including the housing generally available in the area, the
needs of the particular market and the Company's cost of lots in the
subdivision. The Company typically offers between three and twelve floorplans
within the same product line in each subdivision and often offers the same
models in similar subdivisions. Models are periodically reviewed and updated to
reflect changing homebuyer preferences. Both new models and design modifications
are developed by Company employees.
Homes sold by the Company typically have three to five bedrooms, two or more
bathrooms and at least a two car garage. The Company offers a variety of options
and upgrades, including the placement of certain walls, the style of kitchen and
bathroom cabinetry, a selection of floor coverings and light fixtures, patios,
decks, french doors and fireplaces, which allow homebuyers to customize their
homes. Options and upgrades are generally priced to have a positive effect on
profit margins.
<PAGE>
PRODUCT LINES
Living Area Base Price Range
(Square Feet) at May 31, 1994
------------- ----------------
Phoenix
Move-up
single-family......................... 1,636-3,514 $107,300-$182,700
Entry-level
single-family......................... 1,287-2,472 $ 87,650-$136,400
Texas
Move-up
single-family......................... 1,800-3,428 $119,500-$175,900
Entry-level
single-family......................... 1,190-2,576 $ 65,000-$133,300
Denver
Move-up
single-family......................... 1,820-2,524 $152,500-$181,600
California
Move-up
single-family......................... 2,824-3,713 $335,000-$450,000
Entry-level
single-family......................... 2,029-2,909 $159,900-$208,900
HOMES DELIVERED
Years ended May 31,
--------------------------------
1994 1993 1992
---- ---- ----
Move-up single-family
Revenues (000's)........................ $128,494 $ 56,293 $ 46,833
Units .................................. 811 350 282
Average sales price..................... $158,400 $160,800 $166,100
Entry-level single-family
Revenues (000's)........................ $206,615 $143,719 $117,934
Units .................................. 1,976 1,419 1,187
Average sales price..................... $104,600 $101,300 $ 99,400
Townhomes and duplex homes(1)
Revenues (000's)........................ $ 4,922 $ -- $ 48
Units .................................. 44 $ -- $ 1
Average sales price..................... $111,900 $ -- $ 48,000
Total
Revenues (000's)........................ $340,031 $200,012 $164,815
Units .................................. 2,831 1,769 1,470
Average sale price...................... $120,100 $113,100 $112,100
______________________
(1) The Company currently is not building any townhomes or duplex homes
and has no plans to do so in the future.
Fluctuations in the number of homes delivered by product type are generally
related to product availability or the introduction of a new product.
CONTRACT BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts which
require a $500 to $2,500 deposit upon signing. The contract is generally
cancelable if the customer is unable to obtain a mortgage commitment, usually
within 60 days. A sale becomes part of backlog only upon receipt of a signed
contract and a deposit. See "Business -- Construction and Customer Service."
As of May 31, 1994, the Company's contract backlog had an aggregate sales value
of $147,242,000 and consisted of 1,136 homes. The contract backlog as of May 31,
1993 had an aggregate sales value of $107,499,000 and consisted of 900 homes.
The Company anticipates that substantially all of the homes in backlog at May
31, 1994 will close by the end of calendar 1994.
MARKETING
The Company markets its homes to first-time and move-up buyers. Although the
Company utilizes the services of independent brokers, approximately 41% of its
homes sold in fiscal 1994 were sold by Company commissioned personnel (without
the assistance of independent brokers) from sales offices located in furnished
model homes in the subdivisions. Even when independent brokers are involved,
Company personnel are available to assist prospective buyers by providing them
with floorplans, price information, tours of model homes and selection of
options. Sales personnel are trained by the Company and attend weekly meetings
to be updated on financing availability, construction schedules and marketing
and advertising plans. Company sales personnel and independent brokers are
generally paid a commission at the time of closing equal to 1 1/2% (2% in
Austin) and 3%, respectively, of the sales price of the home. The Company uses
radio, newspaper, magazine, billboard displays, special promotional events and,
occasionally, television in its marketing program.
The Company builds its homes under the guidelines and specifications of the
Federal Housing Administration ("FHA") and the Veterans Administration ("VA"),
thereby providing prospective buyers the added benefits of FHA-insured and
VA-guaranteed mortgages.
CONSTRUCTION AND CUSTOMER SERVICE
The Company designs and supervises the development and building of its projects.
Its homes generally are designed to promote efficient use of space and building
materials and to minimize construction costs and time. The construction period
for the Company's homes during fiscal 1994 ranged from 100 to 180 days in
Phoenix, from 75 to 120 days in Texas, from 120 to 180 days in Denver and from
100 to 150 days in Southern California.
The actual construction is performed for a fixed price by independent
subcontractors, who are generally selected on a competitive basis. All stages of
construction are supervised by the Company's on-site superintendents who
coordinate the activities of subcontractors, subject their work to quality and
cost controls and monitor compliance with zoning and building codes. The
Company's management information systems also assist the Company in controlling
the costs of construction by making information available which allows the
Company to monitor subcontractor performance and expenditures. The Company
believes its relationships with its subcontractors are good. The Company is not,
and does not anticipate, experiencing a significant shortage of either
subcontractors or building materials.
After a home is completed, but prior to closing, a Company employee accompanies
the buyer on a home orientation and inspection tour and if any repairs are
necessary, they are undertaken by the Company or its subcontractors. The Company
provides homebuyers with a one-year warranty on its homes for non-structural
defects and a two-year warranty with respect to structural defects. In addition,
the Company purchases, in certain locations, builder's liability insurance
protection for major structural defects in the third through tenth year.
In Phoenix, Denver and Southern California, the Company constructs homes
principally against orders which are evidenced by written contracts and modest
escrow deposits. In fiscal 1994, approximately 18% of such contracts have been
cancelled, a majority of such cancellations being attributable to the inability
of the prospective purchaser to qualify for financing. The Company attempts to
limit cancellations by training its sales force to determine the qualification
of potential homebuyers at the sales office. The Company classifies a unit as
speculative when construction commences on a unit that does not have a written
contract. The Company may construct speculative units in order to maintain an
inventory for quick delivery or to continue the construction sequence. The
majority of the Company's speculative units are less than 50% complete. In order
to take advantage of an opportunity in the Phoenix market created by a shortage
of homes for quick delivery in that market, the Company has recently increased
the number of speculative units under construction in Phoenix. Historically, the
Texas market constructs a proportionately larger number of speculative units
than the Company's other markets. As a result of such cancellations and
construction procedures, at May 31, 1993 and May 31, 1994, the Company had
respectively, 184 and 503 (including 219 in Texas) speculative units under
construction.
MORTGAGE BANKING
The Company commenced mortgage banking operations in 1986 and all mortgage
operations of the Company are currently conducted by American Western Mortgage
Company ("AWMC") and Miltex Management, Inc. ("MMI"), which are approved by the
FHA and VA as qualified mortgage lenders. For the year ended May 31, 1994, AWMC
and MMI provided mortgage financing for more than 59% and 77% of the Company's
customers in Phoenix and Austin, respectively.
As mortgage bankers, AWMC and MMI complete the processing of loan applications,
perform credit checks, submit applications to mortgage lenders for approval, and
originate and sell mortgage loans. AWMC and MMI have $15,000,000 and $10,000,000
warehouse lines of credit, respectively to fund the mortgage loans on an interim
basis. AWMC and MMI bear the interest expense and receive the interest income
while mortgages are warehoused. Accordingly, depending upon the relative
interest rates of such loans and the related mortgages and the extent to which
mortgages are financed, AWMC and MMI may have net interest income or expense
during the warehouse period.
AWMC and MMI establish their interest rates and terms to facilitate the sale of
the Company's homes through the origination of first mortgage loans utilizing
programs established by the FHA, VA, GNMA and FNMA. Interest rates are generally
established by prevailing market rates, although lower rates may be offered from
time to time to remain competitive in certain markets.
Each mortgage originated by AWMC and MMI contains the provision for a servicing
fee (which is included as a part of the monthly payment made by the mortgagor)
to be paid for the collection of, and accounting for, mortgage payments. This
servicing fee provision is a separate interest in the mortgage that may be sold
independently of, or together with, the mortgage itself. AWMC began retaining a
portion of the servicing portfolio in fiscal 1991 and has continued to do so,
although this is not expected to become a material part of the Company's
business.
COMPETITION
The single-family residential housing industry is highly competitive, and the
Company competes in each of its markets with numerous other national, regional
and local homebuilders, some of which have greater resources than the Company.
The Company's homes compete on the basis of quality, price, design, mortgage
financing terms and location. See "Business -- Operating Strategy." The Company
also competes with developers of rental housing units and, to a lesser extent,
condominiums.
REGULATION
The housing and mortgage banking industries are subject to extensive and complex
regulations. The Company and its subcontractors must comply with various
federal, state and local laws and regulations including zoning and density
requirements, building, environmental, advertising and consumer credit rules and
regulations as well as other rules and regulations in connection with its
homebuilding and sales activities. These include requirements as to building
materials to be used, building designs and minimum elevation of properties. The
Company's homes are inspected by local authorities where required, and homes
eligible for insurance or guarantees provided by the FHA and VA, respectively,
are subject to inspection by the FHA or VA.
The Company is also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of health and the
environment ("environmental laws"), as well as effects of environmental factors.
The particular environmental laws which apply to any given homebuilding site
vary greatly according to the site's location, the site's environmental
conditions and the present and former uses of the site. These environmental laws
may result in delays, may cause the Company to incur substantial compliance and
other costs, and can prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas.
The Company's mortgage banking subsidiaries must also comply with various
federal and state laws and consumer credit rules and regulations as well as
rules and regulations in connection with its mortgage lending activities.
Additionally, mortgage loans originated under the FHA, VA, FNMA and GNMA are
subject to rules and regulations imposed by such agencies.
EMPLOYEES
At May 31, 1994, the Company and its subsidiaries employed approximately 356
persons, including corporate staff, sales personnel, construction personnel and
mortgage and title staff. None of the Company's employees is covered by any
collective bargaining agreement. The Company believes that its relations with
its employees are good.
Item 2. PROPERTIES
The Company's principal offices are located at 7001 North Scottsdale,
Road, Suite 2050, Scottsdale, Arizona 85253. The offices, which include
approximately 22,000 square feet, are leased for a term expiring March
2001.
Item 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which it believes
would have a material effect on the Company's financial position or
operating results.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
Since December 15, 1993 the Company's Common Stock has traded on the New York
Stock Exchange (Symbol: CON). Prior to that date, the Company's Common Stock was
traded on the American Stock Exchange. The following table sets forth for each
period indicated the high and low closing sales prices of the Company's Common
Stock and cash dividends paid:
Dividends
High Low Per Share
---- --- ---------
Year Ended May 31, 1993:
First Quarter.................. $ 13.50 $ 10.00 $ .05
Second Quarter................. 15.00 10.25 .05
Third Quarter.................. 18.00 13.00 .05
Fourth Quarter................. 16.75 12.50 .05
Year Ended May 31, 1994:
First Quarter.................. $ 22.50 $ 13.38 $ .05
Second Quarter................. 23.75 20.63 .05
Third Quarter.................. 23.88 18.50 .05
Fourth Quarter................. 21.38 13.88 .05
DIVIDEND POLICY
Declarations of dividends are within the discretion of the Board of Directors
and are dependent upon various factors, including the earnings, cash flow,
capital requirements and operating and financial condition of the Company. In
addition, the Company's ability to pay dividends in excess of current levels is
restricted by certain of its loan agreements and its 12% Senior Notes. See Note
F of "Notes to Consolidated Financial Statements" of the Company. At August 11,
1994, there were 155 holders of record of the Company's Common Stock.
Item 6. SELECTED FINANCIAL DATA
Information relating to this item appears under the caption "Financial
Highlights" on the inside cover page of the Annual Report, and such
information is incorporated herein by reference in accordance with
General Instruction G(3) of Form 10-K. This information should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Company's Consolidated
Financial Statements and the Notes thereto.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information relating to this item appears under the caption
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 9 through 12 of the Annual Report, and
such information is incorporated herein by reference in accordance with
General Instruction G(3) of Form 10-K.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information relating to this item appears on pages 13 through 23 of the
Annual Report, and such information is incorporated herein by reference
in accordance with General Instruction G(3) of Form 10-K. Other
financial statements and schedules required under Regulation S-X
promulgated under the Securities Act of 1933 are identified in Item 14
hereof and are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item appears in the definitiveProxy
Statement for the Company's Annual Meeting of Stockholders to be held
on August 30, 1994, and such information is incorporated herein by
reference in accordance with General Instruction G(3) of Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Information relating to this item is contained in thedefinitive Proxy
Statement referred to above in "Item 10.Directors and Executive
Officers of the Registrant," and such information is incorporated
herein by reference in accordance with General Instruction G(3) of Form
10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item is contained in thedefinitive Proxy
Statement referred to above in "Item 10. Directors and Executive
Officers of the Registrant," and such information is incorporated
herein by reference in accordance with General Instruction G(3) of Form
10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is contained in the definitive Proxy
Statement referred to above in "Item 10. Directors and Officers of the
Registrant," and such information is incorporated herein by reference
in accordance with General Instruction G(3) of Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statement
The following consolidated financial statements of Continental Homes
Holding Corp. and Subsidiaries, included in the Annual Report to
Shareholders for the year ended May 31, 1994, are incorporated by
reference in Item 8:
Report of Independent Public Accountants.
Consolidated Balance Sheets - May 31, 1994 and 1993.
Consolidated Statements of Income - years ended May 31, 1994, 1993 and
1992.
Consolidated Statements of Stockholders' Equity - years ended May 31,
1994, 1993 and 1992.
Consolidated Statements of Cash Flows - years ended May 31, 1994, 1993
and 1992.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules (filed herewith)
Report of Independent Public Accountants on Schedules S-1
Schedule IX - Short-Term Borrowings S-2
Schedule X - Supplementary Income Statement Information S-3
Schedules not listed above have been omitted because they are either
not applicable, immaterial or the required information has been given
in the financial statements or notes thereto.
<PAGE>
(a) 3. Exhibits
2.1 Stock Purchase Agreement between William O. Milburn and the Company
dated July 28, 1993. Incorporated by reference to the Company's
report on Form 8-K dated July 29, 1993.
3.1 (a) Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1(a) to Registration Statement No. 33-6797,
as filed on June 25, 1986.
3.1 (b) Amendment to Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1(b) to Amendment No. 2 to
Registration Statement No. 33-6797, as filed on January 30, 1987.
3.1 (c) Certificate of Second Amendment of the Certificate of
Incorporation. Incorporated by reference to Exhibit 3 to the
Company's report on Form 10-Q for the quarter ended August 31,
1993.
3.2 By-laws of the Company. Incorporated by reference to Exhibit 3.2
to Registration Statement No. 33-6797, as filed on June 25, 1986.
4.1 Indenture dated as of March 15, 1992 between the Company and
Manufacturers and Traders Trust Company, as Trustee. Incorporated
by reference to Exhibit 4.1 to the Company's report on Form 10-K
for the year ended May 31, 1992.
4.2 Indenture dated as of August 1, 1992 between the Company and
Fidelity Bank, National Association, as Trustee. Incorporated by
reference to Exhibit 4.1 to the Company's report on Form 10-Q for
the quarter ended August 31, 1992.
4.3 First Supplemental Indenture dated as of March 22, 1994 to the
Indenture dated August 1, 1992, between CHHC and First Fidelity
Bank, National Association, (formerly Fidelity Bank, National
Association), as Trustee. Incorporated by reference to Exhibit 4.1
to the Company's report on Form 10-Q for the quarter ended February
28, 1994.
10.1 (a) Lease Agreement dated August 1, 1990, as amended, for the Company's
principal office located at 7001 N. Scottsdale Road, Suite 2050,
Scottsdale, Arizona. Incorporated by reference to Exhibit 10.1 to
the Company's report on Form 10-K for the year ended May 31, 1991.
10.1 (b)* Third Amendment to Lease Agreement dated June 27, 1994 for the
Company's principal office located at 7001 N. Scottsdale Road,
Suite 2050, Scottsdale, Arizona.
10.2 (a) The Company's Restated 1986 Stock Incentive Plan. Incorporated by
reference to Exhibit 10.3 to Amendment No. 2 to Registration
Statement No. 33-6797, as filed on January 30, 1987.
10.2 (b) The Company's 1988 Stock Incentive Plan (As amended and restated
July 23, 1992). Incorporated by reference to Exhibit A to the
Company's Notice of Annual Meeting and Proxy Statement dated
August 3, 1992.
10.3 (a) Amended and Restated Warehousing Credit and Security Agreement
dated as of September 26, 1991 between the Valley National Bank of
Arizona ("VNB") and AWMC. Incorporated by reference to Exhibit
10.9 to Registration Statement No. 33-45281, filed on January 24,
1992.
10.3 (b) Modification Agreement dated as of November 27, 1992 between VNB
and AWMC. Incorporated by reference to Exhibit 4.1 to the Company's
report on Form 10-Q for the quarter ended November 30, 1992.
10.3 (c) Modification and Extension Agreement dated as of November 22, 1993
between Bank One, Arizona NA (formerly VNB) and AWMC. Incorporated
by reference to Exhibit 10 to the Company's report on Form 10-Q for
the quarter ended November 30, 1993.
10.3 (d) Modification and Extension Agreement dated as of January 31, 1994
between Bank One, Arizona, NA (formerly VNB) and AWMC. Incorporated
by reference to Exhibit 10.2 to the Company's report on Form 10-Q
for the quarter ended February 28, 1994.
10.4 Promissory Note dated November 27, 1992 by AWMC in favor of VNB in
the principal amount of up to $15,000,000. Incorporated by
reference to Exhibit 4.2 to the Company's report on Form 10-Q for
the quarter ended November 30, 1992.
10.5 (a) Loan Agreement dated as of February 25, 1993 between VNB and the
Company. Incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended February
10.5 (b) First Modification Agreement dated as of February 25, 1994 between
Bank One, Arizona NA (formerly VNB) and CHHC. Incorporated by
reference to Exhibit 10.1 to the Company's report on Form 10-Q for
the quarter ended February 28, 1994.
10.5 (c)* Second Modification Agreement dated as of March 31, 1994 between
Bank One, Arizona NA (formerly VNB) and CHHC.
10.6 Promissory Note dated February 25, 1993 by the Company in favor of
VNB in the principal amount of $10,000,000. Incorporated by
reference to Exhibit 10.2 to the Company's report on Form 10-Q
for the quarter ended February 28, 1993.
10.7 Loan Agreement dated July 28, 1993 between Bank One, Arizona N.A.
("BOAZ") and Milburn Investments, Inc. Incorporated by reference
to the Company's report on Form 8-K dated July 29, 1993.
10.8 Promissory Note dated July 28, 1993 by Milburn Investments, Inc.
in favor of BOAZ in the principal amount of $25,000,000.
Incorporated by reference to the Company's report on Form 8-K
dated July 29, 1993.
10.9* Mortgage Warehousing Credit and Security Agreement dated May 27,
1994 between Bank One, Arizona NA and Miltex Mortgage of Texas L.P.
10.10* Promissory Note dated May 27, 1994 by Miltex Mortgage of Texas L.P.
in favor of Bank One, Arizona NA in the principal amount of up to
$10,000,000.
11.* Statement Re Computation of Per Share Earnings.
13.* Inside cover page and pages 9 through 23 of the Annual Report to
Stockholders for the year ended May 31, 1994.
21.* Subsidiaries of the Company.
23.* Consent of Arthur Andersen & Co.
_________________________
* Filed herewith.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the last quarter of
the year ended May 31, 1994. The Company filed a report on Form 8-K
dated July 29, 1993.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Continental Homes Holding Corp.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Continental Homes Holding Corp.'s
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated June 17, 1994. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the accompanying index on page 11 of this Form 10-K are the
responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen & Co.
Phoenix, Arizona
June 17, 1994.
</AUDIT-REPORT>
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
SCHEDULE IX - SHORT-TERM BORROWINGS
(dollars in thousands)
During the Period
-------------------------------------
Category of Weighted
Aggregate Balance Weighted Average Maximum Average Average
Short-Term at End Iterest Rate at Amount Amount Interest
Borrowings(1) of Period End of Period Outstanding Outstanding(2) Rate(3)
- - ------------- --------- ------------- ----------- -------------- --------
May 31, 1994
Banks $0 (4) $20,416 $5,464 6.9%
May 31, 1993
Banks $0 (4) $ 2,847 $ 302 6.6%
May 31, 1992
Banks $0 (4) $ 7,662 $3,045 8.0%
(1) Consists of secured and unsecured lines of credit with banks. See Note
F to the financial statements on page 20 of the 1994 Annual Report to
stockholders, included as Exhibit 13.
(2) Average amount outstanding was computed by averaging total monthly
outstanding short-term borrowings.
(3) Monthly weighted average interest rate was computed by averaging the
total weighted average interest rates calculated on a monthly basis.
(4) Amount not calculated due to no amounts outstanding at end of period.
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended May 31,
------------------------------------
1994 1993 1992
---- ---- ----
(in thousands)
Maintenance and repairs (1) (1) (1)
Amortization of intangible assets (1) (1) (1)
Taxes other than income taxes
State sales tax $ 3,951 $ 3,379 $ 2,703
Other taxes 3,107 2,428 2,038
------- ------- -------
$ 7,058 $ 5,807 $ 4,741
Royalties None None None
Advertising (1) (1) (1)
______________________
(1) Amounts are not presented as such amounts are less than 1% of total
sales and revenues.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 22, 1994 CONTINENTAL HOMES HOLDING CORP.
By: /s/ Kathleen R. Wade
--------------------------
Kathleen R. Wade
Co-Chief Executive Officer
By: /s/ Donald R. Loback
--------------------------
Donald R. Loback
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Donald R. Loback August 22, 1994
- - ---------------------------- ----------------
Donald R. Loback Date
Co-Chief Executive
Officer and Director
/s/ Kathleen R. Wade August 22, 1994
- - ---------------------------- ----------------
Kathleen R. Wade Date
Co-Chief Executive
Officer and Director
/s/ Robert J. Wade August 22, 1994
- - ---------------------------- ----------------
Robert J. Wade Date
President and Director
/s/ Kenda B. Gonzales August 22, 1994
- - ---------------------------- ----------------
Kenda B. Gonzales Date
Secretary and Treasurer
Principal Financial
and Accounting Officer
/s/ W. Thomas Hickcox August 22, 1994
- - ---------------------------- ----------------
W. Thomas Hickcox Date
Director
/s/ Bradley S. Anderson August 22, 1994
- - ---------------------------- ----------------
Bradley S. Anderson Date
Director
/s/ Jo Ann Rudd August 22, 1994
- - ---------------------------- ----------------
Jo Ann Rudd Date
Director
/s/ William Steinberg August 22, 1994
- - ---------------------------- ----------------
William Steinberg Date
Director
EXHIBIT 10.1b
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT, dated this 27th day of
June , 1994, is entered into between SCOTTSDALE SEVILLE ASSOCIATES, an Arizona
general partnership, as Landlord, and CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation, as Tenant.
WITNESSETH:
WHEREAS, Landlord and Tenant previously entered into that
certain Lease Agreement dated July 16, 1990, as amended by that certain First
Amendment to Lease Agreement dated August 1, 1990, as amended by that certain
Second Amendment to Lease Agreement dated February 8, 1991, (collectively the
"Lease"); and
WHEREAS, Tenant desires to extend the term of the Lease and
Landlord is willing to extend the term of the Lease; and
WHEREAS, Landlord and Tenant wish to execute this Third
Amendment in order to amend the Lease to extend the lease term and to reflect
certain other occurrences;
NOW THEREFORE, it is hereby agreed as follows:
1. Definitions. All capitalized terms used in this Third
Amendment which are not defined in this Third Amendment shall have the meanings
for such terms which are set forth in the Lease.
2. Term. The Term of the Lease is hereby extended for a period
of five (5) years, commencing on March 18, 1996 and ending on March 17, 2001
(the "First Renewal Term").
3. Rent. During the First Renewal Term, Tenant shall pay to
Landlord rent for the Premises as follows:
Year of First Renewal Term Monthly Rent
-------------------------- ------------
Year 1 through 5 $37,300.00 (based on $20.00 per
rentable square foot per year).
From the date of this Third Amendment to Lease Agreement through March 18, 1996,
rent shall continue to be paid in accordance with the Lease.
All other terms and conditions of Article 3 of the Lease shall remain in full
force and effect.
4. Rental Adjustment. Tenant obligation to pay Direct Expenses
during the First Renewal Term shall be computed using a base year rather than
the Direct Expense Stop referenced in the Lease. Therefore following the
commencement of the First Renewal Term, the ninth paragraph of Article 5 of the
Lease shall be deleted. The base year ("Base Year") for purposes of computing
Tenant's obligation shall be calendar year 1996 or $6.00 per rentable square
foot, whichever is greater. During the First Renewal Term Tenant shall pay its
Proportionate Share of the amount by which the Direct Expenses for each calendar
year exceeds the Direct Expenses for the Base Year.
The 1996 Base Year assumes increases of not greater than four
percent (4%) per year for calendar years 1995 and 1996 over the actual 1994
non-controllable expenses (i.e., utilities, insurance and real estate taxes).
Should non-controllable expenses increase by more than four percent (4%) per
year over 1994 actuals, the Base Year shall be adjusted accordingly.
Notwithstanding anything contained herein to the contrary,
during the First Renewal Term Tenant's Proportionate Share of Controllable
Direct Expenses shall not increase by more than five percent (5%) per year.
5. Tenant's Proportionate Share of Direct Expenses. Effective
upon the commencement of the First Renewal Term, the third paragraph of Article
5 of the Lease shall be amended to read as follows:
"Tenant's Proportionate Share of Direct Expenses: Additional
rent in an amount equal to 25.13% (which percentage has been obtained by
dividing 22,380 rentable square feet, which equals the rentable area in the
Premises, by 89,053 square feet, which equals the rentable area in the Building)
of the Direct Expenses."
6. Tenant Improvements. Landlord shall pay to Tenant a tenant
improvement allowance in the amount of ONE HUNDRED ELEVEN THOUSAND NINE HUNDRED
AND 00/100 DOLLARS ($111,900.00) payable within thirty (30) days following
commencement of the First Renewal Term. Any additional tenant improvements
required by Tenant and approved by Landlord shall be at Tenant's sole cost and
expense.
7. Parking. In addition to the existing parking, if additional
parking becomes available during the First Renewal Term, Tenant shall be
provided up to an additional two (2) reserved parking spaces and eight (8)
non-reserved parking spaces at no charge during the First Renewal Term.
8. Option to Renew. Article 48 of the Lease is hereby deleted
and the following substituted therefor:
"48.
OPTION TO RENEW
It Tenant has fully and faithfully performed all of its
obligations under this Lease and is not then in default and if Tenant is in
possession of the Premises and has not assigned its rights under this Lease,
Tenant shall have the option of extending the Term of this Lease for two (2)
additional periods of five (5) years each, commencing with the Termination Date
of the First Renewal Term, which options may be exercised only by written notice
by Tenant to Landlord at least six (6) months before the Termination Date of the
First Renewal Term (and the termination date of the first option, respectively).
Tenant's tenancy during the option term shall be at the prevailing market rate
then being charged by Landlord to new occupants of space in the Project (with
consideration being given to any adjustments typically made to such market rate
to reflect the amount of space being leased by Tenant and the then financial
credit-worthiness of Tenant), but otherwise the option term shall be subject to
all of the other terms and provisions of this Lease, including the provisions
for rental adjustment."
9. Right of First Refusal. Article 49 of the Lease is hereby
deleted and the following substituted therefor:
"49.
RIGHT OF FIRST REFUSAL
If Tenant has fully and faithfully performed all of its
obligations to be performed prior to the time of any Offer (as defined below)
and is not in default hereunder at the time of any Offer beyond any applicable
grace period, Tenant shall be granted a right of first refusal (the "Right of
First Refusal") to lease all or any portion of that area consisting of
approximately 22,500 contiguous rentable square feet currently leased to CyCare
Systems, should CyCare Systems ever vacate all or any portion of that area (the
"Expansion Space") as shown on
Exhibit "G-1" attached hereto and made a part hereof by this reference, for
occupancy by Tenant on the terms and conditions hereinafter set forth. Landlord
agrees to notify Tenant, in writing, whenever during the term of this Lease
Landlord receives an offer, which it desires to accept, to lease the Expansion
Space or any portion thereof which notice shall include the terms and conditions
of such offer to lease (the "Offer"). The exercise of any options to renew by
CyCare Systems shall not constitute an Offer.
Upon receipt of notification of the Offer, Tenant, at its
option, by written notice to Landlord within five (5) business days thereafter,
may elect to: (a) lease the portion of the Expansion Space described in the
Offer on the same terms and conditions of the Offer, except that Tenant may
require that the lease term for such space be coterminous with the term of this
Lease, in which case the lease of such space is also subject to the conditions
set forth in the second paragraph below; or (b) cancel this Right of First
Refusal to lease the portion of the Expansion Space described in the Offer. If
Tenant does not timely give notice pursuant to the immediately preceding
sentence, Landlord may rent the portion of the Expansion Space to the third
party described in the Offer upon the terms contained in the Offer. If the third
party described in the Offer does not ultimately rent the Expansion Space
included in the Offer, or if said Third Party eventually quits the Premises,
Tenant's Right of First Refusal shall continue.
If the Offer relates to less than all of the Expansion Space,
then, whether or not Tenant elects to lease the portion of the Expansion Space
described in the Offer, the Right of First Refusal shall continue with respect
to the remainder of the Expansion Space which is subject to the Right of First
Refusal at the time Landlord's notification of the Offer is given to Tenant.
If pursuant to the provisions of this Article, Tenant leases
all or any portion of the Expansion Space for a term coterminous with the term
of this Lease and if the term of the lease specified in the Offer is shorter
than the remaining term of this Lease, Tenant shall pay rent for such space at
the rate specified in the Offer only for the length of the term specified in the
Offer. Thereafter, Tenant shall pay the greater of the square foot rental rate
provided under the provisions of this Lease (Article 3) or the rental rate
specified in the Offer.
In the event Tenant exercises its Right of First Refusal,
Landlord and Tenant shall promptly modify the terms of this Lease to reflect the
inclusion of the Expansion Space leased.
10. Right of Second Refusal. A new article, Article 53 is
hereby added to the Lease and shall read as follows:
"53.
Right of Second Refusal
If Tenant has fully and faithfully performed all of its
obligations to be performed prior to the time of any Offer (as defined below)
and is not in default hereunder at the time of any Offer beyond any applicable
grace period, Tenant shall be granted a right of second refusal (the "Right of
Second Refusal") to lease those areas consisting of Suite 1025 (2,826 R.S.F.),
Suite 1027 (1,715 R.S.F.), Suite 1030 (2,261 R.S.F.) and Suite 1034 (3,369
R.S.F.) (the "Second Refusal Space") as shown on Exhibit "H" attached hereto and
made a part hereof by this reference, for occupancy by Tenant on the terms and
conditions hereinafter set forth. Landlord agrees to notify Tenant, in writing,
whenever during the term of this Lease Landlord receives an offer, which it
desires to accept, to lease the Second Refusal Space or any portion thereof
which notice shall include the terms and conditions of such offer to lease (the
"Offer"). This Right of Second Refusal shall not take effect unless and until
any lease with any existing tenant (including any assignees or sublessee) shall
have expired or be terminated and Landlord has fulfilled any requirements of any
first Rights of Refusal with any other tenant(s). The exercise of any option to
renew by any tenant of any portion of the Second Refusal Space shall not
constitute an Offer.
Upon receipt of notification of the Offer, Tenant, at its
option, by written notice to Landlord within two (2) business days thereafter,
may elect to: (a) lease the portion of the Second Refusal Space described in the
Offer on the same terms and conditions of the Offer, or (b) cancel this Right of
Second Refusal to lease the portion of the Second Refusal Space described in the
Offer. If Tenant does not timely give notice pursuant to the immediately
preceding sentence, Landlord may rent the portion of the Second Refusal Space to
the third party described in the Offer upon the terms contained in the Offer. If
the third party described in the Offer does not ultimately rent the Second
Refusal Space included in the Offer, or if said Third Party eventually quits the
Premises, Tenant's Right of Second Refusal shall continue.
If the Offer relates to less than all of the Second Refusal
Space, then, whether or not Tenant elects to lease the portion of the Second
Refusal Space described in the Offer, the Right of Second Refusal shall continue
with respect to the remainder of the Second Refusal Space which is subject to
the Right of Second Refusal at the time Landlord's notification of the Offer is
given to Tenant.
In the event Tenant exercises its Right of Second Refusal,
Landlord and Tenant shall promptly modify the terms of this Lease to reflect the
inclusion of the Second Refusal Space leased."
11. Option to Expand. A new article, Article 54 is hereby
added to the Lease Agreement and shall read as follows:
"54.
Option to Expand
If Tenant has fully and faithfully performed all of its
obligations to be performed and is not in default hereunder beyond any
applicable grace period, Tenant is granted the right to lease an additional
approximately 1,644 rentable square feet located on the second (2nd) floor of
the Building which is crosshatched on Exhibit "I" attached hereto and made a
part hereof by this reference (the "Expansion Space") to commence May 1, 1996
upon the same terms as provided for in this Third Amendment to Lease for a term
coterminous with the remainder of the First Renewal Term, including any renewal
terms. Tenant shall exercise its option to lease the Expansion Space by giving
Landlord written notice no later than October 15, 1995. In the event Tenant
exercises its right to lease the Expansion Space pursuant to this Article,
Landlord and Tenant shall promptly modify the terms of this Lease to reflect the
lease of the Expansion Space."
12. Interpretation. Except as herein specifically modified,
the terms of the Lease Agreement shall remain in full force and effect, so that
the First Renewal Term shall be considered an extension of the Term.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Third Amendment to Lease Agreement the day and year first above written.
LANDLORD:
SCOTTSDALE SEVILLE ASSOCIATES,
an Arizona general partnership
By CORE PROPERTIES INCORPORATED
an Arizona corporation,
its Agent
By /s/ Joseph C. Isbell
------------------------------
Joseph C. Isbell
Vice President
TENANT:
CONTINENTAL HOMES HOLDING CORP.,
a Delaware corporation
By: /s/ Donald R. Loback
------------------------------
Its: Co-Chief Executive Officer
------------------------------
EXHIBIT 10.5c
SECOND MODIFICATION AGREEMENT
DATE: March 31, 1994
PARTIES: Borrower: CONTINENTAL HOMES HOLDING CORP., a Delaware corporation
Bank: Bank One, Arizona, NA, a national banking association.
RECITALS:
A. Bank has extended to Borrower credit ("Loan") in the principal amount of
$10,000,000.00 pursuant to the Loan Agreement, dated February 25, 1993 ("Loan
Agreement"), and evidenced by the Promissory Note, dated February 25, 1993
("Note"). The unpaid principal of the Loan as of the date hereof is
$10,000,000.00.
B. Bank and Borrower have executed and delivered previously the following
agreements ("Modifications") modifying the terms of the Loan, the Note, the Loan
Agreement, and/or the Security Documents: First Modification Agreement, dated
February 25, 1994. (The Note, the Loan Agreement, any arbitration resolution,
any environmental certification and indemnity agreement, and all other
agreements, documents, and instruments evidencing, securing, or otherwise
relating to the Loan, as modified in the Modifications, are sometimes referred
to individually and collectively as the "Loan Documents". Hereinafter, "Note",
"Loan Agreement", and "Loan Documents" shall mean such documents as modified in
the Modifications.)
C. Borrower has requested that Bank modify the Loan and the Loan Documents
as provided herein. Bank is willing to so modify the Loan and the Loan
Documents, subject to the terms and conditions herein.
AGREEMENT:
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
2.1 The Loan Documents are modified as follows:
2.1.1 The second sentence of Section 6.12.3 of the Loan Agreement is
hereby amended in its entirety to provide as follows:
An Adjusted Debt to Equity Ratio of not more than 2.60 to 1.0 as
of March 31, 1994, 2.55 to 1.0 as of May 31, 1994, 2.50 to 1.0 as of August
30, 1994, 2.45 to 1.0 as of November 30, 1994 and 2.40 to 1.0 as of
February 28, 1995.
2.1.2 Borrower and Bank agree that any default under any future senior
note offering would also trigger an Event of Default under the Loan. If
requested by Bank, after Borrower issues such Senior Notes, Borrower will sign a
further amendment confirming such cross default.
2.2 Each of the Loan Documents is modified to provide that it shall be a
default or an event of default thereunder if Borrower shall fail to comply with
any of the covenants of Borrower herein or if any representation or warranty by
Borrower herein or by any guarantor in any related Consent and Agreement of
Guarantor(s) is materially incomplete, incorrect, or misleading as of the date
hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents shall
be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Bank:
4.1 No default or 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 a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition of
Borrower or any other person whose financial statement has been delivered to
Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and binding
obligation of Borrower, enforceable against Borrower in accordance with their
terms.
4.6 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 requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
5. BORROWER COVENANTS.
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity of Borrower, whether now known or unknown to Borrower, (i) in respect
of the Loan, the Loan Documents, or the actions or omissions of Bank in respect
of the Loan or the Loan Documents and (ii) arising from events occurring prior
to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all amounts,
other than interest and principal, due and payable by Borrower under the Loan
Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses incurred by Bank
in connection with this Agreement (including, without limitation, inside and
outside attorneys.
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations of
Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement, (iii) each guarantor(s) of the Loan,
if any, has executed and delivered to Bank a Consent and Agreement of
Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s) have
executed and delivered to Bank an arbitration resolution, an environmental
questionnaire, and an environmental certification and indemnity agreement.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
The Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Bank in respect of the Loan 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. BINDING EFFECT.
The Loan Documents as modified herein shall be binding upon and shall inure to
the benefit of Borrower and Bank and their successors and assigns and the
executors, legal administrators, personal representatives, heirs, devisees, and
beneficiaries of Borrower, provided, however, Borrower may not assign any 2of
its right or delegate any of its obligation under the Loan Documents and any
purported assignment or delegation shall be void.
9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.
10. COUNTERPART EXECUTION.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
CONTINENTAL HOMES HOLDING CORP.,
a Delaware corporation
By: /s/ Kenda B. Gonzales
----------------------------
Name: Kenda B. Gonzales
----------------------------
Title: Secretary and Treasurer
----------------------------
BANK ONE, ARIZONA, NA, a national
banking association
By: /s/ Carol Grumley
-----------------------------
Name: Carol Grumley
-----------------------------
Title: Vice President
-----------------------------
EXHIBIT 10.9
MORTGAGE WAREHOUSING CREDIT
AND SECURITY AGREEMENT
BETWEEN
BANK ONE, ARIZONA, NA,
a national banking association,
as Bank
AND
MILTEX MORTGAGE OF TEXAS LIMITED PARTNERSHIP,
a Texas limited partnership
dba Miltex Mortgage Company
as Borrower
Dated as of May 27, 1994
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS......................................................... 1
1.1. Defined Terms..................................................1
II. THE CREDIT.......................................................... 5
2.1 The Commitment..................................................5
(a) Agreement of Bank....................................... 5
(b) Use of Advances; Request for Advances................... 6
(c) Maximum Amount of Advances.............................. 6
(d) Limitation on Advances.................................. 6
2.2 Conditions Precedent to Advances and Procedure for
Obtaining Advances............................................6
(a) Conditions Precedent.................................... 6
(b) Timing of Advance....................................... 7
(c) Single Indebtedness..................................... 8
(d) ........................................................ 8
2.3. Note.......................................................... 8
2.4 Interest...................................................... 8
(a) Interest Rate........................................... 8
(b) Interest Payments....................................... 8
(c) Late Fee................................................ 8
(d) Default Rate............................................ 8
(e) Fees and Expenses....................................... 8
2.5 Principal Payments............................................ 9
(a) Maturity Date........................................... 9
(b) Prepayment.............................................. 9
(c) Other Mandatory Principal Payments...................... 9
III. COLLATERAL.......................................................... 11
3.1 Grant of Security Interest.................................... 11
(a) Pledged Mortgages....................................... 11
(b) Payments, etc........................................... 11
(c) Other Property.......................................... 11
(d) Files, etc.............................................. 12
(e) Approved Purchase Commitments and Other Agreements...... 12
(f) Other Rights............................................ 12
(g) Proceeds................................................ 12
3.2 Release of Collateral......................................... 12
(a) Releases................................................ 12
(b) Transmittal of Mortgages................................ 12
(c) Proceeds of Sale........................................ 12
3.3 Return of Collateral at End of Commitment..................... 13
3.4 No Duty to Protect Collateral..................................13
IV. CONDITIONS PRECEDENT................................................ 13
4.1 Closing....................................................... 13
(a) Note.................................................... 13
(b) Guaranty................................................ 13
(c) Partnership Documentation............................... 14
(d) Articles, Bylaws and Good Standing...................... 14
(e) Resolutions............................................. 14
(f) Incumbency Certificate.................................. 14
(g) Financial Statement..................................... 14
(h) Licenses and Approvals.................................. 14
(i) Closing Letters......................................... 14
(j) Form Documents.......................................... 14
(k) Opinion of Counsel...................................... 14
4.2 Approved Investors............................................ 14
V. REPRESENTATIONS..................................................... 15
5.1 Organization and Good Standing................................ 15
5.2 Borrower's Ownership.......................................... 15
5.3 Authorization and Enforceability.............................. 15
5.4 Approvals..................................................... 16
5.5 Financial Condition........................................... 16
5.6 Litigation.................................................... 16
5.7 Licenses and Approvals........................................ 16
5.8 Compliance with Laws.......................................... 16
5.9 Regulation U.................................................. 17
5.10 Investment Company Act........................................ 17
5.11 Payment of Taxes.............................................. 17
5.12 Agreements.................................................... 17
5.13 Special Representations Concerning Collateral................. 17
(a) Ownership............................................... 17
(b) Borrower's Authority.................................... 17
(c) Mortgage Loans.......................................... 17
(d) Compliance with FHA Rules, etc.......................... 18
(e) Compliance with VA Rules, etc........................... 18
(f) Compliance with FHLMC, FNMA Rules, etc.................. 18
(g) Insurance Policies...................................... 18
(h) Flood Insurance......................................... 18
VI. AFFIRMATIVE COVENANTS............................................... 19
6.1 Payment of Note............................................... 19
6.2 Financial Statements and Other Reports........................ 19
(a) Annual Statements....................................... 19
(b) Quarterly Statements.................................... 19
(c) Guarantor Statements.................................... 19
(d) Registration Statements, etc............................ 20
(e) Regulatory Notices, etc................................. 20
(f) Production Report....................................... 20
(g) Schedule of Purchase Commitments........................ 20
(h) Pipeline Report......................................... 20
(i) Default Report.......................................... 20
(j) Officer's Certificates.................................. 20
(k) Other Information....................................... 20
6.3 Maintenance of Existence; Conduct of Business................. 21
6.4 Change of Contro.............................................. 21
6.5 Sale of Assets; Merger........................................ 21
6.6 Compliance with Applicable Laws............................... 21
6.7 Inspection of Properties and Books............................ 21
6.8 Financial Covenants........................................... 21
(a) Net Worth Ratio......................................... 21
(b) Minimum Tangible Net Worth.............................. 22
6.9 Notice........................................................ 22
6.10 Payment of Debt, Taxes, etc................................... 22
6.11 Payment of Expenses........................................... 23
6.12 Insured Closings.............................................. 23
6.13 Other Loan Obligations........................................ 23
6.14 Use of Proceeds of Advances................................... 24
6.15 Approved Purchase Commitments................................. 24
6.16 Insurance..................................................... 24
6.17 Special Covenants Concerning Collateral....................... 24
(a) Ownership; Perfection of Liens.......................... 24
(b) Financing Statements; Further Assurances................ 24
(c) No Amendments........................................... 24
(d) No Sale, Assignment or Encumbering...................... 25
6.18 Collection Rights..............................................25
6.19 Appraisals.................................................... 25
VII. DEFAULTS; REMEDIES.................................................. 25
7.1 Events of Defau............................................... 25
(a) Failure to Pay.......................................... 25
(b) Breach of Representations and Warranties................ 25
(c) Other Loans............................................. 25
(d) Other Defaults.......................................... 26
(e) Adverse Change.......................................... 26
(f) Insolvency, etc......................................... 26
(g) Receivership, etc....................................... 26
(h) Judgments............................................... 26
(i) Dissolution............................................. 26
(j) Challenge to Borrower's Obligations..................... 26
(k) Revocation or Suspension of Licenses.................... 27
7.2 Remedies...................................................... 27
(a) Acceleration............................................ 27
(b) Other Remedies.......................................... 27
(c) Waivers................................................. 28
(d) Protection of Lien...................................... 28
(e) No Waivers.............................................. 29
7.3 Binding Arbitration........................................... 29
(a) Arbitration Panel....................................... 29
(b) Provisional Remedies, Self-Help, and Foreclosure........ 29
7.4 Application of Proceeds....................................... 29
7.5 Bank Appointed Attorney-in-Fact............................... 30
7.6 Right of Set-Of............................................... 30
VIII. NOTICES.........
IX. REIMBURSEMENT OF EXPENSES; INDEMNITY................................ 31
X. MISCELLANEOUS....................................................... 32
10.1 Terms Binding Upon Successors; Survival of Representations... 32
10.2 Assignment................................................... 32
10.3 Participation................................................ 32
10.4 Amendments................................................... 33
10.5 Governing Law................................................ 33
10.6 Entire Agreement............................................. 33
10.7 Savings Clause............................................... 33
EXHIBITS
A Collateral Documents
B Form of Note
C Form of Guaranty
D Approved Investors
E Form of Officer's Certificate
<PAGE>
MORTGAGE WAREHOUSING CREDIT
AND SECURITY AGREEMENT
BANK: BANK ONE, ARIZONA, NA, a national banking association
Mailing Address of Bank:
Real Estate Finance Division
Mortgage Finance Division
Post Office Box 29542
Phoenix, Arizona 85038
Attention: Dept. A-581
BORROWER: MILTEX MORTGAGE OF TEXAS LIMITED PARTNERSHIP,
a Texas limited partnership dba Miltex Mortgage
Company
Mailing Address of Borrower:
11911 Burnet Road
Austin, Texas 78758-2999
DATE:
Background
A. Borrower has applied to Bank for a revolving line of credit of
$10,000,000.00 to finance the making of Mortgage Loans (as hereinafter defined)
originated by Borrower. Bank is willing to make Advances as described herein,
upon and subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINITIONS
1.1 Defined Terms. Capitalized terms defined below or
elsewhere in this Agreement (including the Exhibits hereto) shall have the
following meanings (defined terms may be used in the singular or the plural,
as the context requires):
"Advance" means a disbursement by Bank under the Commitment,
including readvances of funds previously advanced to Borrower and
repaid to Bank.
"Advance Request" means a request for Advance in such form as
Bank may require from time to time.
"Agreement" means this Mortgage Warehousing Credit and
Security Agreement, either as originally executed or as it may from
time to time be supplemented, modified or amended.
"Approved Bailee Agreement" means each bailee agreement
approved by Bank pursuant to Section 2.2.
"Approved Investor" means FNMA, FHLMC, GNMA or each other
private investor approved by Bank pursuant to Section 4.2.
"Approved Purchase Commitment" means each purchase commitment
approved by Bank pursuant to Section 2.2.
"Attached Housing" means residential housing units intended
for occupancy by a single family that are joined by common walls but
are separately owned, including without limitation, condominiums,
townhouses and patio homes.
"Attached Housing Mortgages" means all Pledged Mortgages
secured by Attached Housing.
"Bank" means Bank One, Arizona, NA, a national banking
association.
"Borrower" means Miltex Mortgage of Texas Limited Partnership,
a Texas limited partnership dba Miltex Mortgage Company.
"Business Day" means any day excluding Saturday, Sunday and
any day on which national banks are authorized or required to be
closed.
"Collateral" has the meaning set forth in Section 3.1.
"Collateral Documents" means the documents and instruments
required to be delivered by Borrower pursuant to Section 2.2(a)(v).
"Collateral to Come Advances" means those Advances made by
Bank hereunder where Bank has accepted a telecopy of the Advance
Request in lieu of the Collateral Documents, as provided in Section
2.2(a)(v). When Bank receives the Collateral Documents, such Advances
will no longer be Collateral to Come Advances.
"Commitment" has the meaning set forth in Section 2.1(a).
"Conventional Loan" means a Mortgage Loan satisfying the
requirements for sale to an Approved Investor, FNMA or FHLMC and which
otherwise meets the requirements of an Approved Investor, FNMA or FHLMC
standard program as certified in writing by an officer of Borrower
(which certificate shall also include a copy of such program's or
Approved Investor's guidelines if requested by Bank); and with respect
to which amounts in excess of 80% of the appraised value of the real
property collateral for such Mortgage Loan (or such other percentage,
whether higher or lower, as may be required by applicable laws, rules
and regulations or Approved Investors) are insured by private mortgage
insurers acceptable to the Approved Investors.
"Credit Agreement Documents" has the meaning set forth in the
Note.
"Default Rate" has the meaning set forth in Section 2.4.
"Effective Date" means the date upon which (i) this Agreement
has been duly executed and delivered by Borrower and (ii) all
conditions precedent to the effectiveness hereof pursuant to Article IV
have been satisfied.
"Eligible Mortgage Loan" means a permanent Mortgage Loan which
(i) is secured by a Mortgage constituting a first lien on single family
residential property located in Texas, (ii) is a Conventional Mortgage
Loan, Jumbo Loan, FHA Loan or VA Loan, (iii) closed and funded not more
than one hundred twenty (120) days prior to the earlier of (A) the date
on which Bank receives a telecopy of the Advance Request, if
applicable, pursuant to Section 2.2(v), or (B) the date on which the
Collateral Documents for such loan are delivered to Bank pursuant to
Section 2.2 hereof, (iv) provides for a fixed or variable rate of
interest, (v) provides for regular monthly payments (that may change in
the case of variable rate loans) in an amount sufficient to pay all
accrued interest each month and fully amortize the loan in not more
than thirty (30) years with no negative amortization, (vi) is subject
to an Approved Purchase Commitment, and (vii) otherwise complies with
the terms and conditions of this Agreement.
"Event of Default" means any of the conditions or events set
forth in Section 7.1 hereof.
"FHA" means the Federal Housing Administration and any
successor thereto.
"FHA Loan" means a Mortgage Loan for which an FHA Certificate
of Insurance has been issued.
"FHA Certificate of Insurance" means a certificate of
insurance or any similar certificate or instrument issued by FHA
evidencing that FHA has insured the payment of a portion of the
principal and interest on an Eligible Mortgage Loan, or if such
certificate has not been issued, the originally executed form
HUD-92900-A (or successor form) relating to such Mortgage Loan.
"FHLMC" means the Federal Home Loan Mortgage Corporation or
any successor thereto.
"FNMA" means the Federal National Mortgage Association or
any successor thereto.
"Funding Date" means with respect to each Advance against a
specific Eligible Mortgage Loan, the date of the making of such
Advance.
"GAAP" means generally accepted accounting principles
consistently applied.
"GNMA" means the Government National Mortgage Association or
any successor thereto.
"Guarantor" means Milburn Investments, Inc., a Texas
corporation
"Guaranty" has the meaning set forth in Section 4.1(b).
"Indemnified Liabilities" has the meaning set forth in
Article IX.
"Jumbo Loan" means a Mortgage Loan that (i) is in excess of
the ceiling amount for Conventional Mortgage Loans pursuant to
applicable laws, rules and regulations, (ii) is not in excess of the
principal amount of $500,000, and (iii) except with respect to amount,
satisfies all of the other requirements for Conventional Loans.
"Late Fee" has the meaning set forth in Section 2.4(c).
"Lien" means any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Loan" means the loans and Advances from time to time made by
Bank to Borrower pursuant to this Agreement.
"Loan Documents" shall mean this Agreement, the Note, the
Guaranty, and all other documents and instruments executed and
delivered in connection with the Loan.
"Maturity Date" means May 25, 1995.
"Maximum Rate" has the meaning set fort in the Note.
"Mortgage" means a mortgage or deed of trust on improved real
property.
"Mortgage Loan" means any loan evidenced by a Mortgage Note
and secured by a Mortgage.
"Mortgage Note" means a note secured by a Mortgage.
"Note" has the meaning set forth in Section 2.3.
"Notices" has the meaning set forth in Article VIII.
"Obligations" has the meaning set forth in Section 3.1.
"Officer's Certificate" means a certificate executed on behalf
of Borrower by the chief financial officer or such other officer of
Borrower approved by Bank.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether
or not legal entities, and governments and agencies and political
subdivisions thereof.
"Pledged Mortgages" means all promissory notes and mortgages
or deeds of trust or security deeds and other documents and instruments
evidencing or securing the Eligible Mortgage Loans with respect to
which Bank has made an Advance hereunder.
"Prime Rate" means the rate of interest established and
publicly announced from time to time by Bank One, Arizona, NA or its
successors, as its "Prime Rate" or "Reference Rate", whether or not
such rate actually is the lowest rate available to commercial borrowers
or other customers of such bank.
"Unmatured Event of Default" means the occurrence of any event
or existence of any condition which, but for the giving of notice, the
lapse of time, or both, would constitute an Event of Default.
"Unused Commitment Fee" has the meaning set forth in Section
2.4(e)(iii).
"VA" means Veterans Administration or any successor thereto.
"VA Guarantee Certificate" means a guarantee or any similar
instrument issued by VA evidencing that VA has guaranteed the payment
of a portion of principal and interest on an Eligible Mortgage Loan, or
if such guarantee has not been issued, the originally executed Form VA
26-1802a (or successor form) relating to such Mortgage Loan.
"VA Loan" means a mortgage loan for which a VA Guarantee
Certificate has been issued.
II. THE CREDIT
2.1 The Commitment
(a) Agreement of Bank. Subject to the terms and
conditions of this Agreement, Bank agrees, from time to time from and after the
Effective Date, to make Advances to Borrower, so long as the total aggregate
principal amount outstanding at any one time of all Advances shall not exceed
$10,000,000.00 (the "Commitment"). Within the Commitment, Borrower may borrow,
repay and reborrow.
(b) Use of Advances; Request for Advances. Advances
shall be used by Borrower solely for the purpose of reimbursing Borrower for the
origination by Borrower of Eligible Mortgage Loans. Advances shall be made at
the request of Borrower, in the manner hereinafter provided in Section 2.2
hereof, against the pledge of such Eligible Mortgage Loans as Collateral
therefor.
(c) Maximum Amount of Advances. The aggregate amount
of all Advances made against an Eligible Mortgage Loan shall not exceed the
lesser of (i) ninety-eight percent (98%) of the committed purchase price thereof
set forth in the Approved Purchase Commitment for such Eligible Mortgage Loan,
or (ii) the face amount of the Mortgage Loan; or (iii) the funds actually
advanced by Borrower in extending the Mortgage Loan.
(d) Limitation on Advances. Notwithstanding the
foregoing, Bank's obligation to make Advances shall be subject to the following
limitations:
(i) Bank shall not be obligated to make
Advances with respect to any Attached Housing Mortgages if the aggregate number
of all Pledged Mortgages that are Attached Housing Mortgages at any time exceeds
or would exceed ten percent (10%) of the aggregate number of all Pledged
Mortgages.
(ii) Bank shall not be obligated to make
Advances with respect to a Jumbo Loan if the aggregate number of all Pledged
Mortgages constituting Jumbo Loans at any time exceeds or would exceed ten
percent (10%) of the aggregate number of all Pledged Mortgages.
(iii) Bank shall not be obligated to make
Advances that are Collateral to Come Advances (A) during the first five (5)
Business Days of each calendar month or during the last five (5) Business Days
of each calendar month if the aggregate amount of all Advances that are
Collateral to Come Advances during such time exceeds or would exceed thirty
percent (30%) of the Commitment amount; or (B) during all other times if the
aggregate amount of all Advances that are Collateral to Come Advances during
such time exceeds or would exceed twenty percent (20%) of the Commitment amount.
2.2 Conditions Precedent to Advances and Procedure for
Obtaining Advances
(a) Conditions Precedent. The obligation of Bank to
make any Advances is subject to the satisfaction, in the sole discretion of
Bank, on or before each Funding Date, of the following conditions precedent:
(i) Effective Date. All of the conditions
precedent set forth in Section 4.1 shall have been satisfied and the Effective
Date shall have occurred.
(ii) No Defaults. No Default or Event of
Default shall have occurred and be continuing.
(iii) Accuracy of Representations and
Warranties. All representations and warranties made herein or in any other Loan
Document shall be true and correct as of the date of each such Advance as if
made on and as of such date.
(iv) Advance Request. Borrower shall have
executed and delivered to Bank a properly completed and duly executed Advance
Request.
(v) Collateral Documents. Borrower shall
have delivered to Bank the documents required in Exhibit A hereto (the
"Collateral Documents"). Bank shall have the right, on three (3) Business Days
prior notice to Borrower, to include different or additional items than those
which are listed in Exhibit A hereto to conform to current legal requirements or
Bank's practices. Bank shall accept a telecopy of the Advance Request described
in subparagraph 2(iv), in lieu of the Collateral Documents; provided, however,
that Borrower will provide to Bank all Collateral Documents within five (5)
Business Days thereafter.
(vi) Approval of Purchase Commitment and
Bailee Agreement. Borrower shall have delivered to Bank and Bank shall have
approved, in its reasonable discretion (A) Borrower's written confirmation of an
oral commitment and, if requested by Bank in its sole and absolute discretion a
written, master purchase commitment/sales contract from an Approved Investor
setting forth the terms pursuant to which such Approved Investor agrees to
purchase Mortgage Loans from Borrower (an "Approved Purchase Commitment"), and
(B) if requested by Bank within two (2) Business Days after the above-described
written confirmation, a specific commitment issued pursuant to the Approved
Purchase Commitment to purchase the Eligible Mortgage Loan for which the Advance
Request is made, and (C) a bailee agreement pursuant to which such Approved
Investor has agreed to hold Mortgage Loans as Bank's bailee to perfect Bank's
security interest therein (an "Approved Bailee Agreement").
(vii) Continuing Effectiveness of Approved
Purchase Commitment and Bailee Agreement. The applicable Approved Purchase
Commitment and Approved Bailee Agreement shall be in full force and effect and
not subject to any claims or defenses.
(b) Timing of Advance. So long as all conditions
precedent to an Advance have been satisfied prior to (i) 10:00 A.M., Phoenix,
Arizona time, on any Business Day if Bank will be wiring the Advance or (ii)
1:00 P.M., Phoenix, Arizona time, on any Business Day that Advances are made in
any method other than wiring, Bank shall use reasonable efforts to make the
Advance prior to 5:00 P.M., Phoenix, Arizona time, on the same Business Day, and
in any event not later than 5:00 P.M., Phoenix, Arizona time, on the second
Business Day thereafter. If the conditions precedent to an Advance are satisfied
after 10:00 A.M. or 1:00 P.M., as applicable, Phoenix, Arizona, time on any
Business Day, Bank will use reasonable efforts to make the Advance by 5:00 P.M.,
Phoenix, Arizona, time on the next Business Day, and in any event not later than
5:00 P.M., Phoenix, Arizona, time on the second Business Day thereafter.
(c) Single Indebtedness. All Advances under this
Agreement shall constitute a single indebtedness and all of the Collateral shall
be security for the Note and for the performance of all obligations of Borrower
to Bank.
(d) Bank's Option. At Bank's option, Advances may be
made (i) by wire transfer to the applicable title companies or (ii) by payment
directly to Borrower (provided that Bank will not make Advances directly to
Borrower in any case where Bank has permitted Borrower to retain possession of
the Mortgage Note in question). As a further condition to Advances, Borrower
shall present to Bank appropriate wiring instructions, as required by Bank.
2.3 Note. Borrower's obligation to pay the principal of,
and interest on, all Advances made by Bank shall be evidenced by the promissory
note (the "Note") dated as of the date hereof substantially in the form of
Exhibit B attached hereto. The term "Note" shall include all extensions,
renewals and modifications of the Note and all substitutions or replacements
therefor. All terms and provisions of the Note are incorporated herein.
2.4 Interest
(a) Interest Rate. Subject to the provisions in the
Note, the unpaid amount of each Advance shall bear interest from and including
the applicable Funding Date until paid in full, at a floating rate of interest
(computed on the basis of a 360-day year and applied to the actual number of
days elapsed) which is equal to the sum of the Prime Rate plus one half of one
percent (.5%) per annum. The floating rate of interest will be adjusted as of
the effective date of each change in the Prime Rate.
(b) Interest Payments. Interest shall be payable
monthly in arrears, on the first (1st) day of each month, commencing with the
first day of the first month following the date hereof, and on the Maturity
Date.
(c) Late Fee. Subject to the provisions in the Note,
Borrower shall pay to Bank a late fee ("Late Fee") of four percent (4%) of the
amount of any interest payment past due in excess of fifteen (15) days.
(d) Default Rate. Subject to the provisions in the
Note, upon and after an Event of Default hereunder, at the option of Bank, the
outstanding principal amount of all Advances shall bear interest, payable on
demand, at a rate per annum equal to the sum of the floating rate described in
Section 2.4(a) plus four percent (4%) (the "Default Rate"). The application of
the Default Rate shall not be interpreted or deemed to extend any cure period
set forth in this Agreement or otherwise to limit any of Bank's remedies under
this Agreement.
(e) Fees and Expenses. In addition to all interest
and other fees payable pursuant to the Loan Documents and this Agreement,
Borrower agrees to pay:
(i) Commitment Fee. A commitment fee of
$25,000.00, payable upon execution of this Agreement.
(ii) Package Fee. A fee of $15.00 per
Pledged Mortgage to cover the costs of Bank's reviewing the Collateral Package
of such Pledged Mortgage. All such fees accumulated in each month shall be
payable on the first day of the following month and so long as such fees are
paid on such first day, Bank will not charge interest on the accrued fees. No
package fees will be charged for those Pledged Mortgages that are simultaneously
paid in full from funds in Borrower's account maintained at Bank.
(iii) Unused Commitment Fee. An Unused
Commitment Fee computed at the rate of one-fourth of one percent (.25%) per
annum on the unused portion of the Commitment amount of $10,000,000.00,
calculated from the date hereof and payable monthly in arrears. For each month
(or portion thereof), the Unused Commitment Fee shall be equal to (A)
$10,000,000.00 minus (B) the "average monthly outstandings" for the month (or
portion thereof) with respect to which the Unused Commitment Fee is being
computed, with the resulting number multiplied by (C) one-twelfth (1/12th) of
the rate of one-fourth of one percent (.25%) per annum. As used herein, "average
monthly outstandings" means the sum of the outstanding amount of the Advances on
each day during the month (or portion thereof for which the fee is being
computed) with respect to which the Unused Commitment Fee is being computed,
divided by the number of days in that month (or portion thereof). If the Unused
Commitment Fee is being computed for less than a full month, the percentage used
in clause (C) above shall be computed on a daily basis for the number of days
for which the fee is being computed.
(iv) Wire Transfer Fees. Such wire transfer
fees as shall be charged by Bank from time to time to its customers. All such
fees accumulated in each month shall be payable on the first day of the
following month and so long as such fees are paid on such first day, Bank will
not charge interest on the accrued fees.
(v) Other Fees. All fees and expenses
described in Article IX.
2.5 Principal Payments
(a) Maturity Date. The outstanding principal amount
of all Advances and all other amounts outstanding hereunder shall be payable in
full on the Maturity Date or upon the earlier expiration or termination of the
Commitment.
(b) Prepayment. Borrower shall have the right to
prepay the outstanding Advances in whole or in part, from time to time, without
premium or penalty.
(c) Other Mandatory Principal Payments. In addition,
Borrower shall be obligated to pay to Bank, without the necessity of prior
demand or notice from Bank, the amount of any outstanding Advance against a
specific Eligible Mortgage Loan as shown on Bank's records, upon the occurrence
of any of the following events:
(i) Maximum Period after Funding Date. One
hundred twenty (120) days have elapsed from the initial Funding Date for such
Eligible Mortgage;
(ii) Loss of Approved Purchase Commitment.
Two (2) Business Days have elapsed since the Approved Purchase Commitment with
respect to such Eligible Mortgage Loan has been canceled, expired, or otherwise
lapsed.
(iii) Ineligible Mortgage Loans. Any Mortgage
Loan with respect to which Bank has made an Advance is found not to constitute
an Eligible Mortgage Loan upon examination by Bank of the Collateral Documents
with respect thereto or other information received by Bank;
(iv) Failure to Deliver Collateral Documents.
With respect to Collateral to Come Fundings, five (5) Business Days have elapsed
from the date the Advance Request was telecopied to Bank without Borrower
providing the Collateral Documents.
(v) Rejection by Purchaser. Twenty (20)
calendar days have elapsed after the Collateral Documents for such Eligible
Mortgage are rejected by the Approved Investor as unsatisfactory;
(vi) Failure to Purchase. Twenty (20)
calendar days have elapsed from the delivery of an Eligible Mortgage Loan to an
Approved Investor for purchase without the purchase being made;
(vii) Inaccuracy of Representations and
Warranties. If any of the representations and warranties set forth in Sections
5.7, 5.13, 6.6 or 6.17 with respect to an Eligible Mortgage Loan are untrue or
incorrect in any material respect;
(viii) Commitment Exceeded. If the aggregate
amount of all Advances exceeds the available Commitment;
(ix) Attached Housing Loans Exceeded. If
the aggregate number of Attached Housing Mortgage Loans exceeds the limitation
established in Section 2.1(d)(i);
(x) Jumbo Loans Exceeded. If the aggregate
number of Jumbo Loans exceeds the limitations established in Section 2.1(d)(ii);
(xi) Collateral to Come Advances Exceeded.
If the aggregate number of Advances constituting Collateral to Come Advances
exceeds the respective limitations established in Section 2.1(d)(iii);
(xii) Correction of Documents. Ten (10)
Business Days have elapsed from the date the Collateral Document was delivered
to Borrower for correction or completion, without being returned to Bank;
(xiii) Defaults. Such Eligible Mortgage Loan
is defaulted and remains in default for sixty (60) days; or
(xiv) Sale. Upon consummation of the sale of
such Eligible Mortgage Loan.
III. COLLATERAL
3.1 Grant of Security Interest. As security for the
payment of all present and future Advances made or to be made by Bank to
Borrower under this Agreement and as security for the performance of the Note,
and all obligations, indebtedness and liabilities of Borrower to Bank, due or to
become due, joint or several, absolute or contingent, now existing or hereafter
created, arising pursuant to, or in connection with, this Agreement
(collectively, the "Obligations"), Borrower hereby grants to Bank, a security
interest in and lien upon and pledge to Bank all of Borrower's right, title and
interest in the following described property (collectively, the "Collateral"):
(a) Pledged Mortgages. All pledged Mortgages;
(b) Payments, etc. All cash, payments and prepayments
of principal, interest, penalties and other income due or to become due in
respect of the Pledged Mortgages;
(c) Other Property. All of the right, title and
interest of every nature whatsoever of Borrower in and to the following:
(i) All rights, liens and security
interests existing with respect to, or as security for, the Pledged Mortgages or
any part thereof;
(ii) All hazard and liability insurance
policies, title insurance policies, (or any binders or commitments to issue any
of such policies) and all condemnation proceeds and insurance proceeds with
respect to or relating to any of the Pledged Mortgages;
(iii) All insurance and guarantees with
respect to the Pledged Mortgages, or any binders or commitments or agreements to
issue any such insurance or guarantees, and all insurance proceeds, with respect
to any of the Pledged Mortgages;
(iv) All private mortgage insurance
policies or any binders or commitments to issue any such policies with respect
to any of the Pledged Mortgages;
(v) All securities issued with respect to
any of the Pledged Mortgages;
(vi) All other rights and interests of
Borrower in respect of the Pledged Mortgages.
(d) Files, etc. All files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards, accounting
records, and other records, information, and data of Borrower relating to the
Pledged Mortgages, including all information, records, data, programs, tapes,
discs and cards necessary to administer and service such Collateral;
(e) Approved Purchase Commitments and Other
Agreements. All rights of Borrower under all oral and written purchase
commitments, sales contracts, bailee agreements and other agreements and
commitments covering the Pledged Mortgages (including without limitation all
Approved Purchase Commitments and Approved Bailee Agreements);
(f) Other Rights. All personal property, contract
rights, accounts and general intangibles of whatsoever kind relating to the
Pledged Mortgages, and all oral and written purchase commitments, sales
contracts and other agreements and commitments covering the Pledged Mortgages
(including without limitation all Approved Purchase Commitments) and all other
documents or instruments delivered to Bank in respect of the Pledged Mortgages,
including, without limitation, the right to receive all insurance proceeds and
condemnation awards which may be payable in respect of the premises encumbered
by any Pledged Mortgage; and
(g) Proceeds. All products and proceeds of any of
the foregoing.
3.2 Release of Collateral ; Bailee Agreements.
(a) Releases. Provided no Event of Default has
occurred and is continuing, Bank will release a Pledged Mortgage from the pledge
created hereby, upon receipt by Bank of the amount advanced by Bank under this
Agreement with respect to such Pledged Mortgage as shown on Bank's records.
(b) Transmittal of Mortgages. Bank will, upon
request of Borrower, transmit original Mortgage Notes held by Bank in connection
with Pledged Mortgages to Approved Investors or other responsible third parties
(as determined by Bank) for the purpose of sale. Borrower may transmit other
documents and instruments related to Pledged Mortgages to such Approved
Investors or other responsible third parties. Such transmission or delivery by
Bank or Borrower to an Approved Investor or other third party shall be made
pursuant to and shall be subject to the terms of an Approved Bailee Agreement or
otherwise upon such terms and conditions reasonably satisfactory to Bank.
(c) Proceeds of Sale. All proceeds from the sale or
other disposition of Collateral shall be paid directly to Bank for application
to the release payment described in Section 3.2(a). If the proceeds from the
sale or disposition of any such Collateral are insufficient to pay Bank an
amount equal to the amount advanced by Bank under this Agreement with respect to
such Pledged Mortgage, Borrower agrees to immediately after demand by Bank pay
the amount of any such insufficiency. If such proceeds from the sale or
disposition of such Collateral are in excess of the amount advanced by Bank
under this Agreement with respect to such Pledged Mortgage, so long as no
Unmatured Event of Default or Event of Default has occurred and is continuing,
Bank will release such excess to Borrower.
3.3 Return of Collateral at End of Commitment. If (i) the
Commitment shall have expired or been terminated and (ii) no Advances, interest
or other amounts evidenced by the Note or due under this Agreement shall be
outstanding and unpaid, Bank shall deliver or release all Collateral in its
possession to Borrower or as directed in writing by Borrower. The receipt by
Borrower of any Collateral released or delivered to Borrower pursuant to any
provision of this Agreement shall be a complete and full acquittance for the
Collateral so returned, and Bank shall thereafter be discharged from any
liability or responsibility therefor.
3.4 No Duty to Protect Collateral. Bank shall have no duty
to Borrower or any other Person as to the collection or protection of Collateral
held hereunder or any income thereon, nor as to the preservation of any rights
pertaining thereto, beyond the reasonable care thereof during the time the
Collateral is in the actual possession of Bank. Such care as Bank gives to the
safekeeping of its own property of like kind shall constitute reasonable care of
Collateral when in Bank's actual possession; but Bank is not required to make
presentment, demand or protest, or give notice, and need not take action to
preserve any rights against prior parties, obligors, account debtors, or others,
in connection with any obligation or evidence of indebtedness held as Collateral
or in connection with Borrower's obligations. Notwithstanding any provision
hereof or of any Approved Bailee Agreement to the contrary, the transmittal and
delivery of any Pledged Mortgages, Collateral Documents and other documents or
instruments shall be at the sole risk and expense of Borrower and Bank shall not
be liable or obligated in any respect in the event of the loss, damage, or
destruction of any Collateral Documents, Pledged Mortgages and other documents
or instruments or any delay in the transmission or delivery thereof.
IV. CONDITIONS PRECEDENT
4.1 Closing. The obligation of Bank to make Advances and
the other provisions of this Agreement that are binding upon Bank shall become
effective upon the receipt by Bank of the following, all of which must be
satisfactory in form and content to Bank, in its sole discretion:
(a) Note. The Note in the form attached hereto as
Exhibit B, duly executed by Borrower;
(b) Guaranty. The Guaranty in the form attached as
Exhibit C, duly executed by Guarantor;
(c) Partnership Documentation. Certified copies of
the partnership agreement of Borrower, together with current certificates of
limited partnership for Texas;
(d) Articles, Bylaws and Good Standing. Certified
copies of articles of incorporation and bylaws of Guarantor and the general
partner in Borrower, and a current certificate of good standing for each for
Texas;
(e) Resolutions. A resolution of the board of
directors of Guarantor and the general partner in Borrower, certified as of the
date thereof by its corporate secretary or assistant secretary, authorizing the
execution, delivery and performance of this Agreement and the Note and the
Guaranty, as applicable, and all other instruments or documents to be delivered
by Borrower pursuant to this Agreement;
(f) Incumbency Certificate. A certificate of the
corporate secretary or assistant secretary of Guarantor and the general partner
in Borrower as to the incumbency and authenticity of the signatures of the
officers of such corporation executing this Agreement and the Note and the
Guaranty and each Advance Request and all other instruments or documents to be
delivered pursuant hereto (Bank being entitled to rely thereon until a new such
certificate has been furnished to Bank);
(g) Financial Statement. Financial statements of
Borrower and Guarantor for the period which ended on February 28, 1994.
(h) Licenses and Approvals. Evidence satisfactory to
Bank that Borrower (i) is a licensed mortgage banker under the laws of the State
of Texas, if required by Texas law; (ii) has all necessary permits, licenses and
approvals necessary to conduct its business in Texas, and (iii) has all other
necessary licenses and approvals to conduct its business and engage in the
activities contemplated hereby.
(i) Closing Letters. If requested by Bank, an insured
closing letter from each title insurance company from which mortgagee title
insurance is procured, in form satisfactory to Bank, indemnifying and holding
Borrower harmless from and against the failure of the agents of such title
insurance companies to comply with the written closing instructions of Borrower
as to Pledged Mortgages.
(j) Form Documents. Forms of the Mortgages, Mortgage
Notes and other Mortgage Loan documents used by Borrower in Texas.
(k) Opinion of Counsel. An opinion of Borrower's
counsel, from an attorney reasonably satisfactory to Bank.
4.2 Approved Investors. As of the date of this Agreement,
Bank has approved the proposed purchasers of Eligible Mortgage Loans listed on
Exhibit D hereto as Approved Investors hereunder and (unless otherwise indicated
on Exhibit D) the bailee agreements with such Approved Investors as Approved
Bailee Agreements hereunder. Borrower may, from time to time, request Bank to
approve (i) other proposed purchasers of Eligible Mortgage Loans as Approved
Investors hereunder and (ii) the purchase agreements and Bailee Agreements with
such additional investors as Approved Purchase Commitments and Approved Bailee
Agreements, as applicable, hereunder. Any such request shall be made in writing
and shall include such information as Bank may request, including, without
limitation, financial statements and other financial information with respect to
the proposed investor, credit and other references with respect to the proposed
investor, a description of the experience of the proposed investor and a copy of
all purchase agreements and any proposed bailee agreement with respect to such
Investor. Any such approval of a proposed investor and such agreements may be
granted or withheld in the reasonable discretion of Bank.
V. REPRESENTATIONS
Borrower hereby represents and warrants to Bank, as of the
date of this Agreement and as of the date of each Advance Request, that:
5.1 Organization and Good Standing. Borrower, the general
partner in Borrower, and Guarantor are each a partnership or corporation, as
applicable, duly organized, validly existing and in good standing under the laws
of the jurisdiction of their formation or incorporation, have the full legal
power and authority to own their respective properties and to carry on their
respective businesses as currently conducted and are duly qualified as a foreign
partnership or corporation to do business and are in good standing in each
jurisdiction in which the transaction of their business makes such qualification
necessary, except in jurisdictions, if any, where a failure to be in good
standing has no material adverse effect on the business operations, assets or
financial condition of Borrower, the general partner in Borrower, or Guarantor.
5.2 Borrower's Ownership. One hundred percent (100%) of the
partnership interests in Borrower is owned directly or indirectly by Guarantor.
One hundred percent (100%) of the issued and outstanding shares of stock in
Guarantor is owned by Continental Homes Holding Corp. None of the stock of
Borrower or of Guarantor has been pledged, assigned, transferred nor does a Lien
exist against or with respect to such stock.
5.3 Authorization and Enforceability. Borrower has the
power and authority to execute, deliver and perform this Agreement, the Note and
all other documents contemplated hereby or thereby. Guarantor has the power and
authority to execute, deliver and perform the Guaranty. The execution, delivery
and performance by Borrower of this Agreement, and all other documents
contemplated hereby and the borrowing hereunder and thereunder, have been duly
and validly authorized by all necessary partnership action on the part of
Borrower (none of which actions have been modified or rescinded, and all of
which actions are in full force and effect) and do not and will not conflict
with or violate any provision of law or of the partnership agreement of
Borrower, conflict with or result in a breach of or constitute a default or
require any consent under, or result in the creation of any Lien upon any
property or assets of Borrower, or result in or require the acceleration of any
indebtedness of Borrower pursuant to, any agreement, instrument or indenture to
which Borrower is a party or by which Borrower or its property may be bound or
affected. The execution, delivery and performance by Guarantor of the Guaranty
has been duly and validly authorized by all necessary corporate action on the
part of Guarantor (none of which actions have been modified or rescinded, and
all of which actions remain in full force and effect) and do not and will not
conflict with or violate any provision of law or of the articles of
incorporation or bylaws of Guarantor, conflict with or result in a breach of or
constitute a default or require any consent under, or result in the creation of
any lien upon any property or assets of Guarantor pursuant to any agreement,
instrument or indenture to which Guarantor is a party or by which Guarantor or
its property may be bound or affected. This Agreement, the Note and all other
documents contemplated hereby or thereby and the Guaranty constitute legal,
valid, and binding obligations of Borrower and Guarantor, as applicable,
enforceable in accordance with their respective terms.
5.4 Approvals. The execution and delivery of this
Agreement, the Note, the Guaranty and all other documents contemplated hereby or
thereby and the performance of Borrower's and Guarantor's respective obligations
hereunder and thereunder do not require any license, consent, approval or other
action of any state or federal agency or governmental or regulatory authority.
5.5 Financial Condition. The financial statements of
Borrower and Guarantor furnished to Bank are complete and accurate and fairly
present the financial condition of Borrower and Guarantor in accordance with
GAAP as of the date of such financial statements. Since the date of such
financial statements, there has been no material adverse change in the financial
condition of Borrower or Guarantor.
5.6 Litigation. There are no actions, claims, suits or
proceedings pending, or to the knowledge of Borrower, threatened or reasonably
anticipated against or affecting Borrower or Guarantor in any court or before
any arbitrator or before any government commission, board, bureau or other
administrative agency which, if adversely determined, may reasonably be expected
to result in any material and adverse change in the business, operations, assets
or financial condition of Borrower or Guarantor.
5.7 Licenses and Approvals. Borrower (i) is a licensed
mortgage banker under the laws of the State of Texas, if required by Texas law,
(ii) has all permits, licenses and approvals necessary to conduct its business
in Texas and is an approved FHA/VA/FNMA/FHLMC/GNMA lender, issuer, seller,
and/or servicer, as applicable, and (iii) has all other necessary licenses and
approvals to conduct its business and engage in the activities contemplated
hereby.
5.8 Compliance with Laws. Borrower and Guarantor are not in
violation of any provision of any law, or of any judgment, award, rule,
regulation, order, decree, writ or injunction of any court or public regulatory
body or authority which might have a material adverse effect on the business,
operations, assets or financial condition of Borrower or Guarantor.
5.9 Regulation U. Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advances will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. If requested by Bank, Borrower shall
furnish to Bank a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in said Regulation U.
5.10 Investment Company Act. Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
5.11 Payment of Taxes. Borrower and Guarantor have filed or
caused to be filed all federal, state and local income, excise, property and
other tax returns which are required to be filed, all such returns are true and
correct, and Borrower and Guarantor have paid or caused to be paid all taxes as
shown on such returns or on any assessment, to the extent that such taxes have
become due.
5.12 Agreements. Neither Borrower nor Guarantor is a party
to any agreement, instrument or indenture or subject to any restriction
materially and adversely affecting its business, operations, assets or financial
condition, except as disclosed to Bank. Neither Borrower nor Guarantor is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement, instrument, or indenture
which default could have a material adverse effect on the business, operations,
properties or financial condition of Borrower or Guarantor. No holder of any
indebtedness of Borrower or Guarantor has given notice of any asserted default
thereunder, and no liquidation or dissolution of Borrower or Guarantor, and no
receivership, insolvency, bankruptcy, reorganization or other similar
proceedings relative to Borrower or Guarantor or any of its properties is
pending, or to the knowledge of Borrower, threatened.
5.13 Special Representations Concerning Collateral. Borrower
hereby represents and warrants to Bank, as of the date of this Agreement and as
of the date of each Advance Request, that:
(a) Ownership. Borrower is the legal and equitable
owner and holder, free and clear of all Liens, of the Pledged Mortgages. All
Pledged Mortgages have been and will continue to be validly pledged or assigned
to Bank, subject to no other Liens.
(b) Borrower's Authority. Borrower has, and will
continue to have, the full right, power and authority to pledge the Collateral
pledged and to be pledged by it hereunder.
(c) Mortgage Loans. All Mortgage Loans and related
documents included in the Pledged Mortgages (including without limitation
Purchase Commitments and Approved Bailee Agreements, as applicable), (i) as of
any date of determination, have been duly executed and delivered by the parties
thereto at a closing held not more than 120 days prior to such date, (ii) have
been made in compliance with all applicable requirements, if any, of the Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, the federal
Truth-In-Lending Act and all other applicable laws and regulations (including,
without limitation, laws, rules and regulations of the State of Texas), (iii)
are and will continue to be valid and enforceable in accordance with their
terms, without defense or offset, (iv) have not been modified or amended nor
have any requirements thereof waived, (v) satisfy all requirements of the
applicable Approved Purchase Commitment and any issuing and selling guides from
time to time issued in connection therewith, (vi) comply and will continue to
comply with the terms of this Agreement, (vii) have been fully advanced by
Borrower in the face amount thereof, (viii) are first Liens on the premises
described therein, and (ix) are not in default beyond the time period provided
in Section 2.5(c)(xiii).
(d) Compliance with FHA Rules, etc. Borrower has
complied with and will continue to comply with all laws, rules and regulations
in respect of the FHA insurance of each Mortgage Loan included in the Pledged
Mortgages designated by Borrower as an FHA Loan, and such insurance is and will
continue to be in full force and effect.
(e) Compliance with VA Rules, etc. Borrower has
complied with and will continue to comply with all laws, rules and regulations
in respect of the VA guaranty of each Mortgage Loan included in the Pledged
Mortgages designated by Borrower as a VA Loan, and such guaranty is and will
continue to be in full force and effect.
(f) Compliance with FHLMC, FNMA Rules, etc. Borrower
has complied with and will continue to comply with all rules and regulations of
FHLMC, FNMA and GNMA, all requirements of the issuers of Approved Purchase
Commitments, and all private Mortgage insurer requirements that are applicable
to the Pledged Mortgages and all Eligible Mortgage Loans, and all Eligible
Mortgage Loans that are not FHA Loans or VA Loans are and will continue to be
eligible for purchase by FHLMC, FNMA and/or GNMA.
(g) Insurance Policies. All fire and casualty
policies covering the premises encumbered by each Mortgage included in the
Pledged Mortgages (1) name and will continue to name Borrower as the insured
under a standard mortgagee clause, (2) are and will continue to be in full force
and effect, and (3) afford and will continue to afford insurance against fire
and such other risks as are usually insured against in the broad form of
extended coverage insurance from time to time available.
(h) Flood Insurance. Pledged Mortgages secured by
premises located in a special flood hazard area where special flood insurance is
required by an Approved Investor (or, if applicable, by a private insurer
acceptable to the Approved Investors) are and shall continue to be covered by
special flood insurance under the National Flood Insurance Program.
VI. AFFIRMATIVE COVENANTS
Borrower agrees that so long as the Commitment is outstanding
or there remain any obligations of Borrower to be paid or performed under this
Agreement or under the Note, Borrower will comply with the following covenants.
6.1 Payment of Note. Borrower shall punctually pay or cause
to be paid the principal of, interest on and all other amounts payable hereunder
and under the Note in accordance with the terms thereof.
6.2 Financial Statements and Other Reports. Borrower shall
deliver to Bank:
(a) Annual Statements. Within ninety (90) days
after the end of each fiscal year of the Borrower, balance sheets and statements
of income, retained earnings and cash flow, showing the financial condition of
Borrower as of the close of such fiscal year and the results of Borrower's
operations during such year, together with a computation of Borrower's net
worth, all the foregoing financial statements to be audited by independent
accountants reasonably acceptable to Bank and to include the statement of such
independent accountants that such financial statements present fairly the
financial position and results of operations of Borrower, and have been prepared
in accordance with GAAP.
(b) Quarterly Statements. Within forty-five (45) days
after the end of each of the first three (3) fiscal quarters of each fiscal
year, balance sheets and statements of income, and reconciliation of net worth
of Borrower showing the financial condition of Borrower as of the close of such
fiscal quarter and the results of Borrower's operations during such quarter, all
of which shall be certified by the chief financial officer or such other officer
of Borrower approved by Bank and prepared in accordance with GAAP.
(c) Guarantor Statements
(i) Quarterly Statements. Within
forty-five (45) days after the end of each of the first three (3)
fiscal quarters of each fiscal year, balance sheets and statements of
income, and reconciliation of net worth of Guarantor showing the
financial condition of Guarantor as of the close of such fiscal quarter
and the results of Guarantor's operations during such quarter, all of
which shall be certified by the chief financial officer or such other
officer of Guarantor approved by Bank and prepared in accordance with
GAAP.
(ii) Annual Statements. Within ninety (90)
days after the end of each fiscal year of the Guarantor, balance sheets
and statements of income, retained earnings and cash flow, showing the
financial condition of Guarantor as of the close of such fiscal year
and the results of Guarantor's operations during such year, together
with a computation of Guarantor's net worth, all the foregoing
financial statements to be audited by independent accountants
reasonably acceptable to Bank and to include the statement of such
independent accountants that such financial statements present fairly
the financial position and results of operations of Guarantor, and have
been prepared in accordance with GAAP.
(d) Registration Statements, etc. Promptly after the
same become publicly available, copies of such registration statements, annual,
periodic and other reports, such as proxy statements and other information, if
any, as shall be filed by Borrower with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933 or the Securities
Exchange Act of 1934.
(e) Regulatory Notices, etc. Within thirty (30) days
after receipt thereof, copies of all notices, audits, filings, disclosures,
responses, reports, orders, claims, and other information filed with or made by
or from any regulatory authority (federal, state or local) having regulatory
jurisdiction over any part of Borrower's business of soliciting, making,
selling, servicing or otherwise dealing in Mortgage Loans.
(f) Production Report. After the end of each fiscal
quarter, a production report reflecting the Mortgage Loans closed during the
fiscal quarter, which production reports shall be delivered with the financial
statements for such quarter pursuant to Section 6.2(a) or 6.2(b).
(g) Schedule of Purchase Commitments. If requested by
Bank, weekly on or before the first day of each week, a schedule in form
acceptable to Bank of all purchase commitments issued by Approved Investors
identified to a Mortgage Loan and grouped by type of Mortgage Loan which
qualifies for delivery pursuant to such purchase commitments, listing the name
of the investor, the commitment type (i.e., mandatory, optional, standby, etc.),
the commitment amount which remains available for future deliveries, the yield
requirement or the price and interest rate for which said price is quoted, and
the expiration, delivery or settlement date for each such purchase commitment.
(h) Pipeline Report. At Bank's request, monthly on or
before the tenth day of each month, a pipeline report reflecting loans
originated, loans in process, loans closed, together with information regarding
any delinquencies or defaults.
(i) Default Report. If any Mortgage Loans that are
Collateral are sixty (60) days or more past due, monthly on or before the tenth
day of each month, a listing of all such Mortgage Loans.
(j) Officer's Certificates. Together with each
delivery of financial statements pursuant to Sections 6.2(a) and 6.2(b), an
Officer's certificate of Borrower in the form of Exhibit E hereto.
(k) Other Information. From time to time, with
reasonable promptness, such further information regarding the business,
operations, properties or financial condition of Borrower and Mortgage Loans as
Bank may reasonably request.
6.3 Maintenance of Existence; Conduct of Business. Borrower
shall preserve and maintain its corporate existence in good standing and all of
its rights, privileges, licenses and franchises necessary or desirable in the
normal conduct of its business; conduct its business in an orderly and efficient
manner; and make no material and adverse change in the nature or character of
its business or engage in any business which is not directly related to the
business of soliciting, making, selling, servicing or otherwise dealing in
Mortgage Loans.
6.4 Change of Control. One hundred percent (100%) of the
partnership interests in Borrower shall continue to be owned directly or
indirectly by Guarantor and one hundred percent (100%) of the issued and
outstanding shares of stock in Guarantor shall continue to be owned by
Continental Homes Holding Corp., in each case free and clear of any Liens or
encumbrances.
6.5 Sale of Assets; Merger. Borrower shall not, without the
consent of Bank, sell, transfer, lease, lend or otherwise dispose of (whether in
one transaction or in a series of related transactions) all of its assets or any
substantial part of its assets which disposition has or could have a material
adverse effect on Borrower (provided, however, that the foregoing shall not
restrict sales of servicing rights or sales of Mortgage Loans contemplated
hereby); and Borrower will not consolidate with or merge into any other Person
without the consent of Bank, which consent may be granted or withheld in Bank's
reasonable discretion.
6.6 Compliance with Applicable Laws. Borrower shall comply
with the requirements of all applicable laws, rules, regulations and orders of
any governmental authority, a breach of which could materially adversely affect
its business, operations, assets, or financial condition; Borrower shall
maintain its status as an approved FHA/VA/FNMA/FHLMC/GNMA seller, servicer,
lender and/or issuer and all other permits, licenses and approvals necessary or
desirable for Borrower to maintain and conduct the business of Borrower
contemplated hereby, including, without limitation, all such permits, licenses
and approvals necessary to conduct such business in each state in which Borrower
makes or proposes to make Mortgage Loans.
6.7 Inspection of Properties and Books. Borrower shall
permit authorized representatives of Bank, upon request by Bank to Borrower, to
discuss the business and operations of Borrower with its officers and employees,
to discuss the assets and financial condition of Borrower with its officers and
employees, and to examine its books and records and make copies or extracts
thereof, all at such reasonable times as Bank may request.
6.8 Financial Covenants
(a) Net Worth Ratio. Borrower shall not permit the
ratio of (i) Borrower's Debt to (ii) Borrower's Tangible Net Worth to be greater
than 8:1.
(i) "Borrower's Debt" means, without
limitation, (A) any indebtedness of Borrower for borrowed money, (B) all
indebtedness of Borrower evidenced by bonds, debentures, notes, letters of
credit, drafts or similar instruments, (C) all indebtedness of Borrower to pay
the deferred purchase price of property or services received, including accounts
payable and accrued expenses arising in the ordinary course of business, (D) all
capitalized lease obligations of Borrower, (E) all debt of others secured by a
lien on any asset of Borrower, whether or not such debt is assumed by Borrower
or guaranteed by Borrower, (F) all debt of others guaranteed by Borrower, and
(G) all other indebtedness that would appear as a liability upon a balance sheet
of Borrower prepared in accordance with GAAP.
(ii) "Tangible Net Worth" means, as of any
date, Borrower's net worth as determined in accordance with GAAP, less
Intangible Assets reflected on the balance sheet of Borrower.
(iii) "Intangible Assets" means all
unamortized debt discount and expense, unamortized deferred charges, goodwill,
patents, trade marks, service marks, trade names, copyrights, write-ups of
assets over their carrying value, and all other items which would be treated as
intangibles on the consolidated balance sheet of Borrower in accordance with
GAAP.
(b) Minimum Tangible Net Worth. Borrower shall not
permit Borrower's Tangible Net Worth to be less than $3,000,000.00.
Borrower's compliance with the requirements in this Section 6.8 shall be
measured quarterly pursuant to the Officer's Certificates provided under Section
6.2(h).
6.9 Notice. Borrower shall give prompt written notice to
Bank of (a) any action, suit or proceeding instituted by or against Borrower or
Guarantor in any federal or state court or before any commission or other
regulatory body (federal, state or local, domestic or foreign), or any such
proceedings threatened against Borrower or Guarantor, the outcome of which could
have a material adverse effect upon Borrower's or Guarantor's business,
operations, assets or financial condition, (b) the filing, recording or
assessment of any federal, state or local tax lien for delinquent taxes against
Borrower or Guarantor or any of their respective assets, (c) the occurrence of
any Event of Default hereunder or the occurrence of any Unmatured Event of
Default, (d) the receipt by Borrower of notice of any default or "event of
default" under any Approved Purchase Commitment or Approved Bailee Agreement or
the occurrence of any "event of default" or the occurrence of any material
default or violation under any Approved Purchase Commitment or Approved Bailee
Agreement for which applicable cure periods (if any) have expired regardless of
whether notice thereof shall have been given to Borrower by the Approved
Investor; and (e) the occurrence of any material adverse change in the business,
operations, assets or financial condition of Borrower or Guarantor.
6.10 Payment of Debt, Taxes, etc. Borrower shall pay and
perform all obligations of Borrower promptly and in accordance with the terms
thereof and pay and discharge or cause to be paid and discharged promptly all
taxes, assessments and governmental charges or levies imposed upon Borrower or
upon its income, receipts or properties before the same shall become past due,
as well as all lawful claims for labor, materials and supplies or otherwise
which, if unpaid, might become a Lien or charge upon such properties or any part
thereof and which, in each case, may reasonably be expected to result in any
material and adverse change in the business, operations, assets, or financial
condition of Borrower; provided, however, that Borrower shall not be required to
pay taxes, assessments or governmental charges or levies or claims for labor,
materials or supplies for which Borrower shall have obtained an adequate bond or
adequate insurance or which are being contested in good faith and by proper
proceedings which are being reasonably and diligently pursued.
6.11 Payment of Expenses. Borrower hereby authorizes Bank to
pay any reasonable expenses, charges and levies required to be paid hereunder
(other than such expenses, charges and levies as are being contested in good
faith and by proper proceedings in accordance with Section 6.10 hereof),
notwithstanding that Borrower may not have requested Bank to make such payments,
to the extent that if not paid such expenses, charges and levies could, in
Bank's reasonable opinion, have a material and adverse affect on the Collateral
or on the existence, perfection or priority of Bank's security interest therein.
Bank may make such payments notwithstanding the fact that Borrower is in default
under the terms of this Agreement. Such payments shall be added to the
outstanding principal balance of the Note and shall be due and payable on
demand. The authorization hereby granted shall be irrevocable, and no further
direction or authorization from Borrower shall be necessary for Bank to make
such payments.
6.12 Insured Closings. If available, Borrower shall obtain
and maintain in effect at all times an insured closing letter from each title
insurance company from which mortgagee title insurance is procured, indemnifying
and holding Borrower harmless from and against the failure of the agents of such
title insurance companies to comply with the written closing instructions of
Borrower as to the Pledged Mortgages hereunder and will provide Bank with
evidence of the same from time to time upon request. Borrower agrees to
indemnify and hold harmless Bank of, from, for and against any loss, claim, or
damages, including reasonable attorneys' fees and costs, attributable to the
failure of such title insurance company, agent or approved attorney to comply
with the disbursement or instruction letter or letters of Borrower or Bank
relating to such Mortgage Loan.
6.13 Other Loan Obligations. Borrower shall perform all
obligations under the terms of each loan agreement, note, mortgage, security
agreement or debt instrument by which Borrower is bound or to which any of its
property is subject and which may reasonably be expected to result in any
material and adverse change in the business, operations, assets, or financial
condition of Borrower, and will promptly notify Bank in writing of the
cancellation or reduction of any of its other mortgage warehousing lines of
credit or agreements with any other lender.
6.14 Use of Proceeds of Advances. Borrower shall use the
proceeds of each Advance solely for the purpose of financing the origination of
Eligible Mortgage Loans.
6.15 Approved Purchase Commitments. Borrower shall not
assign, transfer, or otherwise convey or pledge any of its rights under the
Approved Purchase Commitments or the Approved Bailee Agreements, except with the
express written consent of Bank, which consent may be granted or withheld in the
sole and absolute discretion of Bank. Borrower shall comply with all of the
terms and conditions of the Approved Purchase Commitments and the Approved
Bailee Agreements and shall not permit any event to occur or condition to exist
which either immediately or with notice or the lapse of time or both would
permit any party to the Approved Purchase Commitments or the Approved Bailee
Agreements to terminate such Agreements or otherwise not to perform any of their
respective obligations thereunder.
6.16 Insurance. Borrower shall maintain a policy of errors
and omissions insurance and a fidelity bond, each in form and amount and with an
insurance company reasonably satisfactory to Bank with due regard to generally
accepted mortgage banking practices. Borrower shall also maintain insurance with
respect to the risk of loss of Collateral Documents during the transport thereof
in form and amount and with an insurance company reasonably satisfactory to
Bank.
6.17 Special Covenants Concerning Collateral
(a) Ownership; Perfection of Liens. Borrower warrants
and will defend the right, title and interest of Bank in and to the Pledged
Mortgages against the claims and demands of all persons whomsoever and shall
take all action necessary to assure that Bank has and will at all times have a
valid and perfected first priority security interest in each Pledged Mortgage.
(b) Financing Statements; Further Assurances.
Borrower shall execute and deliver to Bank such Uniform Commercial Code
financing statements with respect to the Collateral as Bank may request.
Borrower also shall execute and deliver to Bank such further instruments of
sale, pledge or assignment or transfer, and such powers of attorney exercisable
upon the occurrence and during the continuation of an Event of Default, as
required by Bank, and shall do and perform all matters and things necessary or
desirable to be done or observed, for the purpose of effectively creating,
maintaining and preserving the security and benefits intended to be afforded
Bank under this Agreement. Bank shall have all the rights and remedies of a
secured party under the Uniform Commercial Code of the State of Arizona, or any
other applicable law, in addition to all rights provided for herein.
(c) No Amendments. Borrower shall not amend or
modify, or waive any of the terms and conditions of, or settle or compromise any
claim in respect of, any Pledged Mortgages or Approved Purchase Commitments or
any related rights except upon the written consent of Bank.
(d) No Sale, Assignment or Encumbering. Borrower
shall not sell, assign, transfer or otherwise dispose of, or grant any option
with respect to, or pledge or otherwise encumber (except pursuant to this
Agreement), any of the Collateral or any interest therein other than sales to
Approved Investors pursuant to the Approved Purchase Commitments or as otherwise
permitted hereby.
6.18 Collection Rights. Except as otherwise set forth
herein, and unless any Event of Default has occurred, Borrower shall be entitled
to receive and collect directly all sums payable in respect of the Collateral,
in a manner not inconsistent with the terms of this Agreement; provided,
however, that all amounts payable by an Approved Investor to purchase a Pledged
Mortgage shall be paid directly to Bank by such Approved Investor. Upon the
occurrence of an Event of Default, Bank shall thereafter be entitled to receive
and collect all sums payable in respect of the Collateral pursuant to Section
7.2(b) of this Agreement.
6.19 Appraisals. Borrower acknowledges that Bank as a
federally regulated institution is required to meet certain regulations
regarding appraisals of loans secured by real estate. Borrower agrees that it
shall be Bank's agent for the purpose of ordering such appraisals and that upon
request, Borrower shall make available to Bank all information regarding such
appraisals, including, without limitation, identification of the appraisers,
copies of all appraisals, copies of all instruction letters regarding such
appraisals, and copies of all other applicable policies and procedures of
Borrower related to obtaining appraisals. In the event Bank shall ever
reasonably determine that appraisals obtained by Borrower are not in compliance
with such regulations or Bank's internal policies, Borrower shall change
Borrower's appraisal policies to Bank's satisfaction.
VII. DEFAULTS; REMEDIES
7.1 Events of Default. The occurrence of any of the
following conditions or events shall be an event of default ("Event of
Default"):
(a) Failure to Pay. Failure of Borrower to pay the
principal of any Advance within fifteen (15) days after the date it is due,
whether at stated maturity, by acceleration, or otherwise; or failure of
Borrower to pay any installment of interest on any Advance within fifteen (15)
days after the date it is due; or failure of Borrower to pay any other amount
due under this Agreement within fifteen (15) days after the date it is due; or
(b) Breach of Representations and Warranties. Any of
Borrower's or Guarantor's representations or warranties made herein or in any
statement or certificate at any time given by Borrower or Guarantor in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect on the date made or renewed; or
(c) Other Loans. Failure of Borrower or any Person
that controls, is controlled by, or is under common control with, Borrower to
pay amounts due Bank in regard to indebtedness heretofore or hereafter issued,
assumed, guaranteed, contracted for or incurred; or
(d) Other Defaults. Borrower shall default in the
performance of or compliance with any other covenant or other term contained
in this Agreement; or
(e) Adverse Change. The occurrence of any adverse
change in the business, operations, assets or financial conditio of Borrower
or Guarantor deemed material to Bank; or
(f) Insolvency, etc. Borrower or Guarantor shall
admit in writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or Borrower or Guarantor shall apply
for or consent to the appointment of any receiver, trustee or similar officer
for Borrower or Guarantor or for all or substantially all of its property; or
Borrower or Guarantor shall institute (by petition, application, answer, consent
or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debts, dissolution, liquidation, or similar proceedings relating
to Borrower or Guarantor under the laws of any jurisdiction; or
(g) Receivership, etc. A receiver, trustee or similar
officer shall be appointed for Borrower or Guarantor or for all or substantially
all of its property without the application or consent of Borrower or Guarantor
and such appointment shall continue undischarged for a period of sixty (60)
days; or any bankruptcy, insolvency, reorganization, arrangements, readjustment
of debt, dissolution, liquidation or similar proceedings shall be instituted (by
petition, application or otherwise) against Borrower or Guarantor without its
consent, and shall remain undismissed for a period of sixty (60) days; or
(h) Judgments. Any money judgment, writ or warrant of
attachment, or similar process involving in any case an amount in excess of
$100,000.00 shall be entered or filed against Borrower or Guarantor or any of
its assets and shall remain undischarged, unvacated, unbonded or unstayed for a
period of thirty (30) days or in any event later than five (5) days prior to the
date of any proposed execution sale thereunder; or
(i) Dissolution. Any order, judgment or decree shall
be entered against Borrower or Guarantor decreeing the dissolution or split up
of Borrower or Guarantor and such order shall remain undischarged or unstayed
for a period in excess of twenty (20) days; or
(j) Challenge to Borrower's Obligations. Borrower
shall purport to disavow its obligations hereunder or shall contest the validity
or enforceability hereof; or Bank's security interest on any portion of the
Collateral shall become unenforceable or otherwise impaired; provided that,
subject to Bank's approval, no Event of Default shall occur as a result of such
improvement if all Advances made against such Collateral shall be paid in full
within ten (10) days of the date of such impairment; or
(k) Revocation or Suspension of Licenses. Any
license, approval, or other authorization necessary for Borrower to make the
Mortgage Loans and conduct the other activities contemplated hereby, including,
without limitation, any mortgage banking or other lending license, and any GNMA,
FNMA or FHLMC seller/servicer or other approval shall be suspended or revoked;
or
(l) Other Default. An Event of Default shall occur
under any other Loan Document.
7.2 Remedies
(a) Acceleration. Upon the occurrence of an Event of
Default, at Bank's option, the unpaid principal amount of and accrued interest
on the Note shall become due and payable automatically, without presentment,
demand or other requirements of any kind, all of which are hereby expressly
waived by Borrower.
(b) Other Remedies. Upon the occurrence of an Event
of Default (and in the case of subparagraph (b)(vi) below upon the occurrence of
an Unmatured Event of Default), Bank may also do any of the following:
(i) Enforcement of Security Interest.
Foreclose upon or otherwise enforce its security interest in and the Lien on the
Collateral to secure all payments and performance of obligations owed by
Borrower under this Agreement.
(ii) Notification of Obligors. Notify
all obligors and Approved Investors of the Collateral that the Collateral has
been assigned to Bank and that all payments thereon are to be made directly to
Bank or such other party as may be designated by Bank; settle, compromise, or
release, in whole or in part, any amounts owing on the Collateral, or by any
such obligor or Approved Investor on terms acceptable to Bank; enforce payment
and prosecute any action or proceeding with respect to any and all the
Collateral; and where any such Collateral is in default, foreclose on and
enforce security interests in such Collateral by any available judicial process
and sell property acquired as a result of any such foreclosure.
(iii) Servicing. Act, or contract with a
third party to act, as servicer of each item of Collateral requiring servicing
and perform all obligations required in connection with Purchase Commitments,
such third party's reasonable fees to be
paid by Borrower.
(iv) UCC Remedies. Enforce the purchase
obligation of an Approved Investor under the applicable Approved Purchase
Commitment, and exercise all other rights and remedies of a secured creditor
under the Uniform Commercial Code of the State of Arizona, including but not
limited to selling the Collateral at public or private sale. Bank shall give
Borrower not less than ten (10) days' notice of any such public sale or of the
date after which private sale may be held. Borrower agrees that ten (10) days'
notice shall be reasonable notice. At any such sale the Collateral may be sold
as an entirety or in separate parts, as Bank may determine. Bank may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the same may
be adjourned. In case of any sale of all or any part of the Collateral on credit
or for future delivery, the Collateral so sold may be retained by Bank until the
selling price is paid by the purchaser thereof, but Bank shall not incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may again
be sold upon like notice. Bank may, however, instead of exercising the power of
sale herein conferred upon it, proceed by a suit or suits at law or in equity to
collect all amounts due hereunder or to foreclose the pledge and sell the
Collateral or any portion thereof under a judgment or decree of a court or
courts of competent jurisdiction, or both. Borrower hereby waives any claims it
may have against Bank arising by reason of the fact that the price at which the
Collateral may have been sold at a private sale was less than the price which
might have been obtained at a public sale, or was less than the aggregate amount
of the indebtedness outstanding hereunder.
(v) Direct Action. Proceed against Borrower
on the Note.
(vi) Suspension of Advances. Cease making
any further Advances.
(vii) Other Commitments. Terminate any
commitments contained in any agreement between Bank and Borrower to make any
further loans or advances.
(viii) Other Acceleration. Declare
immediately due and payable any one or more of all other debts or obligations of
Borrower to Bank.
(ix) Other Remedies. Otherwise exercise its
rights and remedies available hereunder or under applicable law.
(x) Rights Under Bailee Agreements. Enforce
Bank's rights pursuant to any Approved Bailee Agreements to require any Approved
Investors to purchase Mortgage Loans.
(xi) Receiver. Obtain the appointment of a
receiver of the business and assets of Borrower.
(c) Waivers. Borrower waives any right to require
Bank to (i) proceed against any Person, (ii) proceed against or exhaust any of
the Collateral or pursue its rights and remedies as against the Collateral in
any particular order, or (iii) pursue any other remedy in its power.
(d) Protection of Lien. Bank may, but shall not be
obligated to, advance any sums or do any act or thing necessary to uphold and
enforce the Lien and priority of, or the security intended to be afforded by,
any Mortgage included in the Collateral, including, without limitation, payment
of delinquent taxes or assessments and insurance premiums, to the extent
permitted by such Mortgage. All advances, charges, costs and expenses, including
reasonable attorneys' fees and disbursements, incurred or paid by Bank in
exercising any right, power or remedy conferred by this Agreement, or in the
enforcement hereof, shall become a part of the principal balance outstanding
under the Note and shall accrue interest at the rate or rates specified in the
Note.
(e) No Waivers. No failure on the part of Bank to
exercise, and no delay in exercising, any right, power or remedy provided
hereunder, at law or in equity shall operate as a waiver thereof; nor shall any
single or partial exercise by Bank of any right, power or remedy provided
hereunder, at law or in equity preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies herein provided
are cumulative and are not exclusive of any remedies provided at law or in
equity.
7.3 Binding Arbitration. All controversies and claims of
any nature arising directly or indirectly out of any and all loan transactions
between Borrower and Bank and any related agreements, instruments or documents,
shall at the written request of Borrower or Bank be arbitrated pursuant to the
applicable rules of the American Arbitration Association. The arbitration shall
occur in the State of Arizona. Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The Federal
Arbitration Act shall apply to the construction and interpretation of this
arbitration agreement.
(a) Arbitration Panel. A single arbitrator shall have
the power to render a maximum award of one hundred thousand dollars. When any
party files a claim in excess of this amount, the arbitration decision shall be
made by the majority vote of three arbitrators. No arbitrator shall have the
power to restrain any act of any party.
(b) Provisional Remedies, Self-Help, and Foreclosure.
No provision of this Section 7.3 shall limit the right of any party to exercise
self-help remedies, to foreclose against any real or personal property
collateral, or to obtain any provisional or ancillary remedies (including but
not limited to injunctive relief or the appointment of a receiver) from a court
of competent jurisdiction. At Bank's option, it may enforce its rights under a
security agreement by private or public sale, a mortgage by judicial
foreclosure, and under a deed of trust either by exercise of power of sale or by
judicial foreclosure. The institution and maintenance of any remedy permitted
above shall not constitute a waiver of the right to submit any controversy or
claim to arbitration. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding.
7.4 Application of Proceeds. The proceeds of any sale or
other enforcement of Bank's security interest in all or any part of the
Collateral shall be applied by Bank:
First, to the payment of the costs and expenses of such sale
or enforcement, including reasonable compensation to Bank's agents and counsel,
and all expenses, liabilities and advances made or incurred by or on behalf of
Bank in connection therewith;
Second, to the payment of any other amounts due (other than
principal and interest) under the Note or this Agreement;
Third, to the payment of interest accrued and unpaid on the
Note;
Fourth, to the payment of the outstanding principal balance of
the Note; and
Finally, to the payment to Borrower or to its successors or
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
If the proceeds of any such sale are insufficient to cover the costs and
expenses of such sale, as aforesaid, and the payment in full of the Note and all
other amounts due hereunder, Borrower shall remain liable for any deficiency.
7.5 Bank Appointed Attorney-in-Fact. Bank is hereby
appointed the attorney-in-fact of Borrower, effective from and after the
occurrence and during the continuation of an Event of Default, with full power
of substitution, for the purpose of executing any instruments and performing
other acts which Bank may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, Bank shall have the
right and power to give notices of its security interest in the Collateral to
any Person, in the name of the holder of the Pledged Mortgages, or to receive,
endorse and collect all checks made payable to the order of Borrower
representing any payment on account of the principal of or interest on, or the
proceeds of sale of, any of the Pledged Mortgages and to give full discharge for
the same.
7.6 Right of Set-Off. Upon the occurrence of an Event of
Default, Bank shall have the right, at any
time and from time to time, without notice, to set-off and to appropriate or
apply any and all deposits of money or property held by Bank in the name of
Borrower (other than accounts which are held by Borrower in a trust or fiduciary
capacity that is reflected on the books of Bank) or any other indebtedness owing
by Bank to Borrower against and on account of the obligations and liabilities of
Borrower under the Note and this Agreement, irrespective of whether or not Bank
shall have made any demand hereunder and whether or not said obligations and
liabilities shall have matured. Borrower hereby grants to Bank a security
interest in all such deposits or money or property and Bank shall have all
rights of a secured party with respect thereto.
VIII. NOTICES
All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly provided
hereunder, be in writing and shall be delivered (i) in person, (ii) mailed,
first class, return receipt requested, postage prepaid, addressed to the
respective parties hereto at their respective addresses hereinafter set forth
or, as to any such party, at such other address as may be designated by it in a
notice to the other or (iii) by telecopier to the respective parties hereto at
their respective telecopier numbers hereinafter set forth or, as to any such
party, at such other telecopier number as may be designated by it in a notice to
the other. All Notices shall be conclusively deemed to have been properly given
or made two (2) Business Days after being duly deposited in the mails, addressed
as set forth below or, in the case of notices delivered personally or by
telecopier, upon actual receipt thereof by the party to whom such notice is
directed:
if to Borrower: Miltex Mortgage of Texas Limited Partnership
Attn: President
11911 Burnet Road
Austin, Texas 78758-2999
Telecopier: (512) 835-9207
if to Bank: Bank One, Arizona, NA
Real Estate Division
Mortgage Finance Division
Post Office Box 29542
Phoenix, Arizona 85038
Attn: Dept. A-581
Telecopier: (602) 221-1372
IX. REIMBURSEMENT OF EXPENSES; INDEMNITY
Borrower shall:
(a) pay all out-of-pocket costs and expenses of Bank,
including reasonable attorneys' fees, in connection with the negotiation,
documentation, and enforcement of this Agreement, the Note, and other documents
and instruments related hereto and the making and repayment of the Advances and
the payment of interest thereon;
(b) upon demand, pay, and hold Bank and any holder of
the Note harmless of, from, for and against, any and all present and future
stamp, documentary and other similar taxes with respect to the foregoing matters
and save Bank and the holder or holders of the Note harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
to pay such taxes;
(c) upon demand, indemnify, pay and hold harmless
Bank and any of its officers, directors, employees or agents and any subsequent
holder of the Note of, from, for and against any and all liabilities,
obligations losses, damages, penalties, judgments, suits, costs, expenses
(including reasonable attorney's fees) and disbursements of any kind whatsoever
arising out of or relating to this Agreement, including without limitation,
(i) any suit, claim or demand on account of
any action or failure to act by Borrower,
(ii) any suit, claim or demand arising from
or relating to the failure of any Mortgage Loans to be made in full compliance
with all applicable requirements, if any, of the Real Estate Settlement
Procedures Act, the Equal Credit Opportunity Act, the Federal Truth-In-Lending
Act, all other applicable laws and regulations, and/or the applicable Approved
Investor Agreements,
(iii) any other claims, defenses or offsets
with respect to any Mortgage Loans or the failure of any Mortgage Loan to
otherwise comply with the provisions of this agreement, and
(iv) any suit, claim or demand arising out of
any actual or alleged disposal, generation, manufacture, presence, processing,
production, release, storage, transportation, treatment, or use of any and all
nuclear, toxic, radioactive or other hazardous waste on any property encumbered
by any of the Mortgages regardless of whether intentional, negligent, or
accidental.
(all of the above are collectively the "Indemnified Liabilities").
X. MISCELLANEOUS
10.1 Terms Binding Upon Successors; Survival of
Representations. The terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. All representations, warranties, covenants and
agreements herein contained on the part of Borrower shall survive the making of
any Advance and the execution of the Note, and shall be effective so long as the
Commitment is outstanding or there remains any obligation of Borrower hereunder
or under the Note to be paid or performed.
10.2 Assignment. This Agreement may not be assigned by
Borrower. This Agreement and the Note, along with Bank's security interest in
any or all of the Collateral, may, at any time, be transferred or assigned, in
whole or in part, by Bank, and any assignee thereof may enforce this Agreement,
the Note and such interest. Bank shall use its reasonable efforts to provide
Borrower with notice of any such transfer or assignment; provided, however, that
Bank's failure to provide such notice shall not in any way invalidate such
transfer or assignment or otherwise constitute a breach by Bank of its
obligations pursuant to this Agreement, and any payments made or performance
rendered by Borrower to Bank prior to Borrower's receipt of such notice shall be
deemed to have been duly made or rendered under this Agreement.
10.3 Participation. Borrower agrees that Bank may enter
into agreements with other financial institutions to participate in this credit
accommodation. Borrower agrees to execute all documents and instruments
reasonably requested by Bank in order to facilitate said participation.
10.4 Amendments. This Agreement may not be amended,
modified or supplemented except in a writing signed by the parties hereto.
10.5 Governing Law. This Agreement and the Note shall be
governed and construed by the laws of the State of Arizona.
10.6 Entire Agreement. This Agreement and the documents
referred to in this Agreement represent the entire agreement between, and
reflect the reasonable expectations of, Borrower and Bank with respect to the
subject matter hereof.
10.7 Savings Clause. This Agreement and all of the other
Credit Agreement Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable usury laws. If any provision
hereof or of any of the other Credit Agreement Documents or the application
thereof to any person or circumstances shall, for any reason and to any extent,
be invalid or unenforceable, neither the application of such provision to any
other person or circumstance nor the remainder of the instrument in which such
provision is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed to be
the intent of the holder hereof to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable on the
indebtedness evidenced by the Note. If the applicable law is ever revised,
repealed or judicially interpreted so as to render usurious any amount called
for under the Note, this Agreement, or under any of the other Credit Agreement
Documents, or contracted for, charged, taken, reserved or received with respect
to the indebtedness evidenced by the Note, or if Bank's exercise of the option
to accelerate the maturity of the Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of the Note (or, if the
Note and all other indebtedness arising under or pursuant to the other Credit
Agreement Documents have been paid in full, refunded to Borrower), and the
provisions of the Note and the other Credit Agreement Documents immediately be
deemed reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Bank under
the Note or arising under or pursuant to the other Credit Agreement Documents
shall, to the maximum extend permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the usury ceiling from time to time in effect and
applicable to such indebtedness for so long as such indebtedness is outstanding.
To the extent federal law permits Bank to contract for, charge or receive a
greater amount of interest, Bank will rely on federal law, for the purpose of
determining the Maximum Rate. Notwithstanding anything to the contrary contained
herein or in any of the other Credit Agreement Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
If the laws of the State of Texas are ever deemed to govern this
Agreement or the Note notwithstanding the parties expressed intent to the
contrary, the parties agree that TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15
(which regulates certain revolving loan accounts and revolving tri-party
accounts) shall in no event apply to this Agreement or the Note. Further, to the
extent that TEX. REV. CIV. STAT. ANN. art 5069-1.04, as amended, is applicable
to the Note or this Agreement, the "indicated rate ceiling" specified in such
article is the applicable ceiling; provided that, if any law permits greater
interest, the law permitting the greatest interest shall apply.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date set forth above.
BORROWER:
MILTEX MORTGAGE OF TEXAS
LIMITED PARTNERSHIP, a Texas
limited partnership dba
Miltex Mortgage Company
BY: MILTEX MANAGEMENT, INC., a Texas
corporation
Its Sole General Partner
By:/s/ Randall C. Present
----------------------------
Name: Randy Present
--------------------------
Title: President
-------------------------
BANK:
BANK ONE, ARIZONA, NA, a national banking
association
By:/s/ Rhonda M. Williams
-----------------------------
Name: Rhonda Williams
--------------------------
Title: Corporate Officer
--------------------------
EXHIBIT 10.10
FORM OF PROMISSORY NOTE
REVOLVING LINE OF CREDIT
PROMISSORY NOTE
Phoenix, Arizona
$10,000,000.00 May 27, 1994
1. PROMISE TO PAY.
For value received, MILTEX MORTGAGE OF TEXAS LIMITED PARTNERSHIP, a
Texas limited partnership dba Miltex Mortgage Company ("Maker"),
promises to pay to the order of BANK ONE, ARIZONA, NA at its office at
241 North Central Avenue, Phoenix, Arizona 85004, or at such other
place as the holder hereof may from time to time designate in writing,
the principal sum of Ten Million Dollars ($10,000,000.00), or so much
thereof as shall from time to time be disbursed and outstanding under
that certain Mortgage Warehousing Credit and Security Agreement (as it
may be amended, modified, extended, and renewed and replaced from time
to time, the "Credit Agreement") of even date herewith between Maker
and the payee named above, together with accrued interest from the date
of disbursement on the unpaid principal at the applicable rate as set
forth in Section 4. The payee named above shall have no obligation to
make any Advances hereunder except in accordance with the Credit
Agreement. This note (as it may be amended, modified, extended, and
renewed from time to time, the "Note") is issued pursuant to, entitled
to the benefits of, and referred to as the "Note" in the Credit
Agreement. In the event of any inconsistency between the provisions of
this Note and the provisions of the Credit Agreement, the Credit
Agreement shall control. Capitalized terms used herein without
definition shall have the meanings set forth in the Credit Agreement.
2. MATURITY DATE.
Absent the occurrence of an Event of Default hereunder or under any of
the Credit Agreement, this Note, and other documents evidencing or
securing the loans contemplated by the Credit Agreement (collectively
the "Credit Agreement Documents"), the unpaid principal balance hereof,
together with all unpaid interest accrued thereon, and all other
amounts payable by Maker under the terms of the Credit Agreement
Documents, shall be due and payable on May 25, 1995 (the "Maturity
Date"). If the Maturity Date should fall (whether by acceleration or
otherwise) on a day that is not a Business Day, payment of the
outstanding principal shall be made on the next succeeding Business Day
and such extension of time shall be included in computing the interest
included in such payment.
3. PREPAYMENT.
Maker may prepay the unpaid principal balance, in whole or in part, at
any time without penalty or premium. Amounts prepaid may be reborrowed
in accordance with the Credit Agreement.
4. PAYMENTS.
(a) Absent an Event of Default hereunder or under any of the
Credit Agreement Documents, each Advance made hereunder shall
bear interest at a floating rate of interest equal to the sum
of the Prime Rate plus one-half of one percent (.5%) per
annum; provided, however, that if at any time the contract
rate shall exceed the Maximum Rate, thereby causing the
interest on this Note to be limited to the Maximum Rate, then
any subsequent reduction in the contract rate shall not reduce
the rate of interest on this Note below the Maximum Rate until
the total amount of interest accrued on this Note equals the
amount of interest which would have accrued on this Note if
the contract rate had at all times been in effect. Throughout
the term of this Note, interest shall be calculated on a
360-day year with respect to the unpaid balance of any Advance
and, in all cases, shall be computed for the actual number of
days in the period for which interest is charged. The floating
rate of interest will be adjusted as of the effective date of
each change in the Prime Rate.
The term "Maximum Rate," as used herein, shall mean at the
particular time in question the maximum rate of interest
which, under applicable law, may then be charged on this Note.
If such maximum rate of interest changes after the date hereof
and this Note provides for a fluctuating rate of interest, the
Maximum Rate shall be automatically increased or deceased, as
the case may be, without notice to Borrower from time to time
as of the effective date of each change in such maximum rate.
(b) All payments of principal and interest due hereunder shall
be made (i) without deduction of any present and future taxes,
levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Maker, and (ii) without any other set
off.
(c) Interest hereunder shall be payable by Maker to the holder
hereof on the first (1st) day of each and every month during
the term of this Note commencing with the first (1st) day of
the first month following the date hereof. If any payment of
interest to be made by Maker hereunder shall become due on a
day which is not a Business Day, such payment shall be made on
the next succeeding Business Day and such extension of time
shall be included in computing the interest in such payment.
(d) Payments of principal shall be due as provided in the Credit
Agreement.
5. LAWFUL MONEY.
Principal and interest are payable in lawful money of the United States
of America.
6. APPLICATION OF PAYMENTS/LATE CHARGE.
(a) Absent the occurrence of an Event of Default hereunder or
under any of the other Credit Agreement Documents, any
payments received by the holder hereof pursuant to the terms
hereof shall be applied in the manner set forth in the Credit
Agreement or, if not so set forth, in such order as the holder
hereof may, in its sole discretion, elect. Any payments
received by the holder hereof after the occurrence of an Event
of Default hereunder or under any of the Credit Agreement
Documents shall be applied in such order as the holder hereof
may, in its sole discretion, elect.
(b) If any payment of interest is not received by the holder
hereof within fifteen (15) days of the due date thereof, then
in addition to the remedies conferred upon the holder pursuant
to Section 9 hereof and the other Credit Agreement Documents,
a late charge of four percent (4%) of the amount due and
unpaid will be added to the delinquent amount to compensate
the holder hereof for the expense of handling the delinquency
for such payment; provided, however, that the obligation to
pay a late charge shall be subject to the provisions hereof
limiting the charging, collection, and receipt of interest to
the Maximum Rate.
7. SECURITY.
This Note is secured by and is entitled to the benefits of the Credit
Agreement. The provisions of the Credit Agreement are incorporated
herein by reference as if set forth in full, and this Note is subject
to all of the covenants and conditions contained in the Credit
Agreement. This Note is guaranteed by the Guaranty.
8. EVENT OF DEFAULT.
The occurrence of any of the following shall be deemed to be an event
of default ("Event of Default") hereunder:
(a) Failure to Pay. Failure of Maker to make a payment of
principal or interest within fifteen (15) days of the due date
thereof or failure of Maker to make any other payment or
perform any obligation hereunder; or
(b) The occurrence of an Event of Default under any of the other
Credit Agreement Documents.
9. REMEDIES.
Upon the occurrence of an Event of Default, the entire balance of
principal together with all accrued interest thereon, and all other
amounts payable by Maker under the Credit Agreement Documents shall, at
the option of the holder hereof and without demand or notice,
immediately become due and payable. Upon the occurrence of an Event of
Default (and so long as such Event of Default shall continue), the
entire balance of principal hereof, together with all accrued interest
thereon, all other amounts due under the Credit Agreement Documents,
and any judgment for such principal, interest, and other amounts, at
the option of the holder hereof, shall bear interest equal to the
lesser of (i) the Default Rate; or (ii) the Maximum Rate. No delay or
omission on the part of the holder hereof in exercising any right under
this Note or under any of the other Credit Agreement Documents hereof
shall operate as a waiver of such right. The remedies of the holder
hereof, as provided in this Note and in the Credit Agreement or any
other instrument securing this Note, shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at
the sole discretion of the holder hereof, and may be exercised as often
as occasion therefor shall arise.
10. WAIVER.
Maker, endorsers, guarantors, and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest, notice
of nonpayment, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, and notice of nonpayment,
and all other notices or demands of any kind and expressly agree that,
without in any way affecting the liability of Maker, endorsers,
guarantors, or sureties, the holder hereof may extend any maturity date
or the time for payment of any installment due hereunder, otherwise
modify the Credit Agreement Documents, accept additional security,
release any Person liable, and release any security or guaranty. Maker,
endorsers, guarantors, and sureties waive, to the full extent permitted
by law, the right to plead any and all statutes of limitations as a
defense.
11. CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
No provision of this Note may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom enforcement
of the change, discharge, termination, or waiver is sought. No failure
on the part of the holder hereof to exercise and no delay by the holder
hereof in exercising any right or remedy under this Note or under the
law shall operate as a waiver thereof.
12. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs,
Maker promises to pay all costs of enforcement and collection and
preparation therefor, including but not limited to, reasonable
attorneys' fees, whether or not any action or proceeding is brought to
enforce the provisions hereof (including, without limitation, all such
costs incurred in connection with any bankruptcy, receivership, or
other court proceedings (whether at the trial or appellate level)).
13. SEVERABILITY.
If any provision of this Note is unenforceable, the enforceability of
the other provisions shall not be affected and they shall remain in
full force and effect.
14. INTEREST RATE LIMITATION.
Maker hereby agrees to pay an effective rate of interest that is the
sum of the interest rate provided for herein, together with any
additional rate of interest resulting from any other charges of
interest or in the nature of interest paid or to be paid in connection
with the Credit Agreement, including without limitation, any fees to be
paid by Maker pursuant to the provisions of the Credit Agreement
Documents; provided, however, that in no event shall the amounts
payable herein exceed the Maximum Rate.
15. NUMBER AND GENDER.
In this Note the singular shall include the plural and the masculine
shall include the feminine and neuter gender, and vice versa.
16. HEADINGS.
Headings at the beginning of each numbered section of this Note are
intended solely for convenience and are not part of this Note.
17. CHOICE OF LAW.
This Note shall be governed by and construed in accordance with the
laws of the State of Arizona, without giving effect to conflict of laws
principles.
18. INTEGRATION.
The Credit Agreement Documents contain the complete understanding and
agreement of the holder hereof and Maker and supersede all prior
representations, warranties, agreements, arrangements, understandings,
and negotiations.
19. BINDING EFFECT.
The Credit Agreement Documents will be binding upon, and inure to the
benefit of, the holder hereof, Maker, and their respective successors
and assigns. Maker may not delegate its obligations under the Credit
Agreement Documents.
20. TIME OF THE ESSENCE.
Time is of the essence with regard to each provision of the Credit
Agreement Documents as to which time is a factor.
21. RELATIONSHIP.
The relationship of the parties hereto is that of borrower and lender
and it is expressly understood and agreed that nothing contained in
this Note or in the Credit Agreement shall be interpreted or construed
to make Maker and Payee partners, joint venturers or participants in
any other legal relationship except for borrower and lender.
22. SAVINGS CLAUSE.
This Note and all of the other Credit Agreement Documents are intended
to be performed in accordance with, and only to the extent permitted
by, all applicable usury laws. If any provision hereof or of any of the
other Credit Agreement Documents or the application thereof to any
person or circumstance shall, for any reason and to any extent, be
invalid or unenforceable, neither the application of such provision to
any other person or circumstance nor the remainder of the instrument in
which such provision is contained shall be affected thereby and shall
be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all
times comply with the usury and other applicable laws now or hereafter
governing the interest payable on the indebtedness evidenced by this
Note. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this
Note or under any of the other Credit Agreement Documents, or
contracted for, charged, taken, reserved or received with respect to
the indebtedness evidence by this Note, or if Holder's exercise of the
option to accelerate the maturity of this Note, or if any prepayment by
Borrower results in Borrower having paid any interest in excess of that
permitted by law, then it is the express intent of Borrower and Holder
that all excess amount theretofore collected by Holder be credited on
the principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Credit Agreement
Documents have been paid in full, refunded to Borrower), and the
provisions of this Note and the other Credit Agreement Documents
immediately be deemed reformed and the amounts thereafter collectable
hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable
law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be
paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to
Holder under this Note or arising under or pursuant to the other Credit
Agreement Documents shall, to the maximum extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout
the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not
exceed the usury ceiling from time to time in effect and applicable to
such indebtedness for so long as such indebtedness is outstanding. To
the extent federal law permits Holder to contract for, charge or
receive a greater amount of interest, Holder will rely on federal law,
for the purpose of determining the Maximum Rate. Notwithstanding
anything to the contrary contained herein or in any of the other Credit
Agreement Documents, it is not the intention of Holder to accelerate
the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such
acceleration.
If the laws of the State of Texas are ever deemed to govern this Note
notwithstanding the parties' expressed intent to the contrary,
the parties agree that TEX. REV. CIV. STAT. ANN. art 5069 Ch. 15
(which regulated certain revolving loan accounts and revolving
tri-party accounts) shall in no event apply to this Note. Further, to
the extent that TEX. REV. CIV. STAT. ANN. art 5069-1.04, as amended,
is applicable to this Note, the "indicated rate ceiling" specified in
such article is the applicable ceiling; provided that, if any
applicable law permits greater interest, the law permitting the
greatest interest shall apply.
23. NOTICES.
Notices under this Note will be given in the manner set forth in the
Credit Agreement.
MILTEX MORTGAGE OF TEXAS LIMITED
PARTNERSHIP, a Texas limited partnership,
dba Miltex Mortgage Company
BY: MILTEX MANAGEMENT, INC., a Texas corporation
Its Sole General Partner
By:/s/ Randall C. Present
-------------------------------------
Name: Randall Present
-----------------------------------
Title: President
----------------------------------
"Maker"
EXHIBIT 11
CONTINENTAL HOMES HOLDING CORP.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
Years ended May 31,
-------------------------
Fully diluted: 1994 1993
-------- -------
Net income $ 13,083 $ 7,100
Interest expense on convertible
subordinated notes net of income
taxes 1,604 1,660
-------- -------
$ 14,687 $ 8,760
======== =======
Weighted average number of
shares outstanding 6,203 5,144
Conversion of convertible
subordinated notes (42.55 shares
per $1,000 principal amount of
notes) 1,489 1,489
Incremental shares relating to
stock options exercisable 105 99
-------- -------
Weighted average number of shares
outstanding assuming full dilution 7,797 6,732
======== =======
Fully diluted net income per share $ 1.88 $ 1.30
======== =======
Company | ________________________________________________________
Description |
| Financial Highlights
Continental | ________________________________________________________
Homes Holding |
Corp. (the | (In thousands, except per share and unit backlog data)
"Company") |
designs, | 1994 1993 1992 1991 1990
constructs and | ---- ---- ---- ---- ----
sells single- |
family homes | Revenues.. $348,620 $207,033 $170,424 $138,615 $134,497
for the entry- | Gross
level and move- | profit
up buyer in | from
Phoenix, | home
Arizona, Austin | sales.... 62,153 38,052 29,674 24,148 20,970
and San | Net
Antonio, Texas, | Income... 13,083 7,100 6,591 116 3,551
Denver, | Primary
Colorado and | earnings
Southern | per
California. | share.... .20 .20 .20 .20 --
The Company | Total
entered the | assets... 305,490 187,525 162,774 142,712 147,144
Austin, Texas | Total
market in July | debt..... 168,319 114,787 101,741 104,381 106,907
1993 through | Stock-
the acquisition | holers'
of Milburn, the | equity... 98,560 51,550 44,428 28,562 29,166
leading builder | Stock-
of single- | holders-
family homes in | equity per
the Austin | common
metropolitan | share.... $ 14.15 $ 9.93 $ 8.71 $ 8.13 $ 8.30
area (the | Units in
"Milburn | backlog
Acquisition"). | at end of
In January | period... 1,136 900 669 486 414
1994, the | Aggregate
Company | sales
acquired the | value of
operations of | backlog.. $147,242 $107,499 $ 76,215 $ 53,180 $42,808
Aspen Homes, a |
single-family | ________________________________________________________
homebuilder in |
San Antonio. | Price Range of Common Shares
The Phoenix | ________________________________________________________
area is the |
Company's | Since December 15, 1993 the Company's Common Stock
primary market | has traded on the NYSE (Symbol: CON). Prior to that
and accounted | date the Company's Common Stock was traded on the AMEX.
for | The following table sets forth the high and low closing
approximately | sales prices of the Company's common stock for the
58% and 86% of | periods indicated:
its revenues |
from home- | First Second
building | Quarter Quarter
operations in | ------------- -------------
fiscal year | 1994 $13.38-$22.50 $20.63-$23.75
1993, | 1993 $10.00-$13.50 $10.25-$15.00
respectively. |
The Company has | Third Fourth
built and | Quarter Quarter
delivered more | ------------- -------------
single-family | 1994 $18.50-$23.88 $13.88-$21.38
homes in the | 1993 $13.00-$18.00 $12.50-$16.75
Phoenix area |
than any other | Since the first fiscal quarter of 1991, the Company has
homebuilder for | paid a quarterly cash dividend of $.05 per share, See
each of the | Note F to the consolidated financial statements for
last nine | restrictions related to the payment of dividends.
years. The |
Company also |
offers mortgage |
banking |
services in |
Arizona to its |
homebuyers and |
in Texas to its |
homebuyers and |
to third |
parties. |
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- - ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Homebuilding
The Phoenix area accounted for approximately 58%, 86% and 87% of the
Company's revenues from home sales in fiscal 1994, 1993 and 1992,
respectively. The following table sets forth, for the periods indicated, unit
activity, average sales price and revenue from home sales for the Company:
Years ended May 31,
----------------------------------------
1994 1993 1992
------------ ------------ ------------
Units delivered...................... 2,831 1,769 1,470
Average sales price.................. $120,110 $113,065 $112,119
Revenue from home sales (000's)...... $340,031 $200,012 $164,815
Percentage increase from prior year.. 70.0% 21.4%
Change due to volume................. 60.0% 20.4%
Change due to average sales price.... 10.0% 1.0%
The increase in volume in fiscal 1994 was attributable to the Texas
operations, improved housing markets in the Phoenix and Denver areas and
increased deliveries in California as a result of the Company's aggressive
marketing in that location. The increase in volume in fiscal 1993 was
attributable primarily to the improved housing markets in the Phoenix and
Denver areas. Single family housing starts increased by more than 23% and 34%
in calendar 1993 and 1992, respectively, compared to 1992 and 1991 in the
Phoenix area and by more than 20% and 50% in the same time periods in the
Denver area. The increase in average sales price in fiscal 1994 was primarily
due to the increased number of deliveries in California, most of which were in
the move-up market. The fiscal 1994 results include an aggregate of 810
deliveries from the Texas operations with an average sales price of $107,100
per home, resulting in incremental revenue of $86,776,000.
Revenues from land sales were $1,095,000 in fiscal 1994, $4,113,000 in
fiscal 1993 and $3,114,000 in fiscal 1992. Land sales revenue in fiscal 1993
was primarily the result of the sale of an undeveloped 11.5 acre commercial
site in Phoenix. Substantially all of the fiscal 1992 land sales were
effected as part of the series of transactions in which the Company sold
developed lots to unrelated third parties and retained an option to buy the
lots back at fixed prices within specified periods of time.
<TABLE>
The following table summarizes information related to the Company's backlog at the dates
indicated:
<CAPTION>
May 31,
------------------------------------------------------------------------
1994 1993 1992
----------------------- ----------------------- ----------------------
Units Dollars Units Dollars Units Dollars
--------- ------------ --------- ------------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Phoenix............... 659 $ 84,818 786 $ 86,436 599 $ 62,527
Texas................. 348 38,403 -- -- -- --
Denver................ 100 18,178 79 11,753 47 8,910
California............ 29 5,843 35 9,310 23 4,778
--------- ------------ -------- ------------ -------- -----------
1,136 $ 147,242 900 $ 107,499 669 $ 76,215
========= ============ ======== ============ ======== ===========
</TABLE>
The increases in backlog in fiscal 1994 and 1993 in Denver and fiscal 1993
in Phoenix were due to the improved housing markets in both locations, which
the Company believes resulted primarily from improved economic conditions in
these markets and lower mortgage interest rates. Significant volume increases
in earlier quarters resulted in the Company selling out of several
subdivisions in Phoenix faster than anticipated. This resulted in fewer homes
available for sale in Phoenix in the third and fourth fiscal quarters of
fiscal 1994 compared to the same periods in fiscal 1993. As a result of this
inventory shortage, the number of units in the backlog in Phoenix at May 31,
1994 was 16% less than the prior year. New subdivisions opened in late May and
early June increased the number of active subdivisions in Phoenix to a level
consistent with prior years. The aggregate sales value of new contracts signed
increased 54% in fiscal 1994 as a result of the Texas operations to
$351,536,000 representing 2,844 homes (including $101,094,000 in Texas
representing 935 homes) as compared with $228,338,000 representing 2,000 homes
in fiscal 1993.
<TABLE>
The following table summarizes information related to cost of home sales and selling, general and administrative
("SG&A") expenses and interest, net for homebuilding:
<CAPTION>
Years ended May 31,
----------------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------ ------------------------
Dollars % Dollars % Dollars %
------------ ---------- ------------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue from home sales..................... $ 340,031 100.0% $ 200,012 100.0% $ 164,815 100.0%
Cost of home sales.......................... 277,878 81.7 161,960 81.0 135,141 82.0
------------ ---------- ------------ ---------- ------------ ----------
Gross profit................................ 62,153 18.3 38,052 19.0 29,674 18.0
SG&A expenses............................... 37,065 10.9 20,836 10.4 18,648 11.3
------------ ---------- ------------ ---------- ------------ ----------
Operating income from homebuilding.......... 25,088 7.4 17,216 8.6 11,026 6.7
Interest, net............................... 4,456 1.3 5,498 2.7 1,341 .8
------------ ---------- ------------ ---------- ------------ ----------
Pre-tax profit from home-building........... $ 20,632 6.1% $ 11,718 5.9% $ 9,685 5.9%
============ ========== ============ ========== ============ ==========
</TABLE>
Gross profit from home sales was 18.3% (20.5%, excluding California
operations) in fiscal 1994 compared to 19.0% (20.7% excluding California
operations) in fiscal 1993. The Southern California market has been weak due
to difficult economic conditions, concerns about home values and low consumer
confidence. Accordingly, the Company has aggressively marketed its California
homes by offering sales incentives and discounts. During fiscal 1995 the
Company anticipates bringing to the market three new neighborhoods. These new
neighborhoods will generate a significant improvement in the Southern
California gross profit margins. The California market, however, will continue
to have a negative impact on the Company's earnings since current volume is
not sufficient to offset general and administrative expenses and interest
which is expensed and not capitalized.
The increase in total SG&A expenses for fiscal 1994 was due to higher
variable marketing costs (primarily sales commissions and model furniture
amortization) due to the increase in the number of homes delivered, higher
salaries and higher customer service costs. In addition, the current fiscal
year included $11,125,000 of SG&A expenses from Texas and $669,000 related to
the amortization of the excess of cost over related net assets acquired. The
increase in total SG&A expenses in fiscal 1993 was primarily due to higher
variable marketing costs (primarily sales commissions) due to the increase in
the number of homes delivered, higher salaries, higher customer service costs
and higher employee benefits (including the adoption of the executive split
dollar life insurance program). Additionally, SG&A increased in fiscal 1993
due to expenses related to the California office which was opened in the
second quarter of fiscal 1992. SG&A expenses for each home delivered were
$13,092, $11,778 and $12,685 in fiscal 1994, 1993 and 1992, respectively. The
Company capitalizes certain SG&A expenses for homebuilding. Accordingly, total
SG&A expenses incurred for homebuilding were $42,040,000, $24,005,000 and
$21,341,000 in fiscal 1994, 1993 and 1992, respectively.
The Company capitalizes certain interest costs for its homebuilding
operations and includes such capitalized interest in cost of home sales when
the related units are delivered. Accordingly, total interest incurred by the
Company was $13,378,000, $11,896,000 and $9,366,000 in fiscal 1994, 1993 and
1992, respectively. Interest, net for homebuilding was $4,456,000, $5,498,000
and $1,341,000 in fiscal 1994, 1993 and 1992, respectively. The increase in
interest expense in fiscal 1993 was primarily the result of the Company
expensing interest related to its Carlsbad, California project and an increase
in debt outstanding due to the issuance of the 12% Senior Notes in August
1992. The Company capitalized $1,816,000 of interest relating to the Carlsbad,
California project in fiscal 1992. The Company discontinued capitalizing
interest on this project in the fourth quarter of fiscal 1992 and will
continue to expense such interest until development commences on this project.
The Company's pre-tax profit from homebuilding for fiscal 1994 was
$20,632,000 compared to $11,718,000 for the year ended May 31, 1993 and
$9,685,000 for the year ended May 31, 1992. The increase in pre-tax profit was
primarily due to greater deliveries in Phoenix and, in fiscal 1994, inclusion
of the Texas results (which contributed $4,406,000 of pre-tax profit).
The Company owns 417 acres in Carlsbad, California, located in San Diego
County. When developed, the property is expected to consist of approximately
780 single family lots. The acquisition loan on the Carlsbad property was made
by a thrift that is now under the control of the Resolution Trust Corporation
("RTC") and had a maturity date of June 19, 1992. The loan balance at maturity
would have been approximately $24,500,000. The loan was repaid in April 1992
for $16,000,000. Thereafter, the Company re-evaluated the net realizable value
of the Carlsbad property and determined that an inventory writedown before
taxes of $7,500,000 should be recorded against the property. This writedown
was recorded in the fourth quarter of fiscal 1992.
Mortgage Banking
The Company's mortgage banking operations are conducted through its
wholly-owned subsidiaries American Western Mortgage Company ("AWMC") in
Arizona and Miltex Management, Inc. ("MMI") in Texas. The following table
summarizes operating information for the Company's mortgage banking
operations:
YEARS ENDED MAY 31,
------------------------------------
1994 1993 1992
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
Number of loans originaged.............. 2,451 983 955
Loan origination fees................... $ 2,186 $ 861 $ 801
Sale of servicing and marketing gains... 3,046 1,233 895
Other revenue........................... 459 332 209
----------- ---------- -----------
Total revenues........................ 5,691 2,426 1,905
General and administrative expenses..... 3,930 1,544 1,713
----------- ---------- -----------
Operating income from mortgage banking.. 1,761 882 192
Interest, net........................... (233) 14 (178)
----------- ---------- -----------
Pre-tax profit from
mortgage banking..................... $ 1,994 $ 868 $ 370
=========== ========== ===========
Revenues and general and administrative expense from mortgage banking
operations increased in fiscal 1994 primarily due to the Texas operations.
Included in fiscal 1994 results are 1,438 loan originations and $3,259,000 and
$917,000 of revenues and operating income, respectively, from MMI. Revenues
from mortgage banking operations increased in fiscal 1993 due to an increase
in revenue from loan servicing and the sale of approximately $15,065,000 in
servicing rights from the servicing portfolio which resulted in a gain of
approximately $200,000. The Company retains a portion of the loan servicing
and, at May 31, 1994, the servicing portfolio was approximately $61,864,000
compared to $52,986,000 at May 31, 1993. In 1990, after the failure of a
number of local thrifts and the resulting reduction of available permanent
financing in the Phoenix area, the Company began offering mortgage-related
services to customers other than its homebuyers. The decrease in general and
administrative expenses in fiscal 1993 is a result of such originations and
the related personnel being eliminated in the fourth quarter of fiscal 1992.
Consolidated Operations
Net income was $13,083,000 ($2.11 per share, $1.88 fully diluted) in
fiscal 1994 compared to $7,100,000 ($1.38 per share, $1.30 fully diluted) and
$6,591,000 ($1.39 per share, $1.34 fully diluted) in fiscal 1993 and 1992,
respectively. During fiscal 1992, the Company retired a subordinated note and
the note payable related to the Carlsbad property, both of which were payable
to the RTC, at an amount less than par. These payoffs resulted in a gain of
$5,299,000 net of income taxes. The gain has been reflected as an
extraordinary item in the Company's 1992 Consolidated Statement of Income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. The Company has financed,
and expects to continue to finance, its working capital needs through funds
generated by operations and borrowings. Funds for future land acquisitions
and construction costs are expected to be provided primarily by cash flows
from operations and future borrowings as permitted under the 12% Senior Note
Indenture. At May 31, 1994, the Company had unsecured lines of credit from two
lenders for aggregate borrowings (excluding mortgage warehouse lines) of up to
$15,000,000. In connection with the Milburn Acquisition, the Company assumed a
$25,000,000 secured revolving line of credit. At May 31, 1994 there were no
amounts outstanding under its credit lines. The Company's revolving lines of
credit bear interest at rates ranging from prime plus 1/2% to prime plus 1%.
The Company believes that amounts generated from operations and such
additional borrowings will provide funds adequate to finance its homebuilding
activities and meet its debt service requirements. The Company does not have
any current commitments for capital expenditures.
AWMC has a warehouse line of credit for $15,000,000 which is guaranteed by
the Company. In addition, MMI has a warehouse line of credit for $10,000,000.
Pursuant to the warehouse lines of credit, the Company issues drafts to fund
its mortgage loans. The amount represented by a draft is drawn on the
warehouse line of credit when the draft is presented for payment. At May 31,
1994, no amounts were outstanding under the warehouse lines of credit and the
amount of funding drafts outstanding was $3,439,000. The Company believes
that such line is sufficient for its mortgage banking operations.
On July 29, 1993 the Company acquired all of the outstanding capital stock
of Milburn for approximately $26.2 million ($20 million in cash and $6.2
million of Series A Preferred Stock). On January 28, 1994, the Company
acquired the operations of Aspen Homes for total cash consideration of
$6,982,000.
In November 1993, the Company completed a public offering of 1,704,400
shares of common stock at $21.50 per share. The net proceeds of the offering
(approximately $34,228,000) were used to redeem the Series A Preferred Stock
and to reduce temporarily all amounts outstanding under the Company's
revolving lines of credit and mortgage banking warehouse lines of credit.
On March 22, 1994, the Company obtained the consent of the holders of the
majority of the outstanding 12% Senior Notes to certain amendments to the
Indenture, including to permit the sale of an additional $35,000,000 of Senior
Notes. In connection therewith, the Company paid $1,102,020 to the holders of
the outstanding Notes. On March 31, 1994, the Company completed the sale of
the additional Senior Notes at 107% of par.
Inflation and Effects of Changing Prices
Real estate and residential housing prices are affected by inflation,
which can cause increases in the prices of land, raw materials and
subcontracted labor. In the past three years, the Company has not experienced
any significant inflationary pressure on land, raw materials or labor. Unless
costs are recovered through higher sales prices, gross profit margins will
decrease. As interest rates increase, construction and financing costs as
well as the cost of borrowing funds also increase, which can result in lower
gross profits. Relatively low interest rates during fiscal 1994 have made the
Company's homes more affordable in each of its markets. High mortgage
interest rates make it more difficult for the Company's customers to qualify
for home mortgage loans. These factors have a much more significant effect on
the Company's operations than does seasonality, in part because homes can be
constructed year-round.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- - ------------------------------------------------------------------------------
ARTHUR ANDERSEN & CO.
PHOENIX, ARIZONA
To Continental Homes Holding Corp.:
We have audited the accompanying consolidated balance sheets of
CONTINENTAL HOMES HOLDING CORP. (a Delaware corporation) and subsidiaries as
of May 31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Continental Homes Holding
Corp. and subsidiaries as of May 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended May 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN & CO.
Phoenix, Arizona,
June 17, 1994.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- - ------------------------------------------------------------------------------
May 31,
1994 1993
------------- -------------
(In thousands)
ASSETS
Homebuilding:
Cash (Note F)............................... $ 28,809 $ 11,552
Receivables (Note B)........................ 9,928 8,648
Homes, lots and improvements in
production (Notes A, C and F)............. 205,369 142,589
Property and equipment, net (Note A)........ 1,914 667
Prepaid expenses and other assets........... 13,621 7,107
Excess of cost over related net assets
acquired (Note A)......................... 6,743 2,235
------------- -------------
266,384 172,798
------------- -------------
Mortgage banking:
Mortgage loans held for sale
(Notes A and E)........................... 17,570 8,825
Mortgage loans held for long-term
investment, net (Note E).................. 20,132 5,003
Other assets................................ 1,404 899
------------- -------------
39,106 14,727
------------- -------------
Total assets............................ $ 305,490 $ 187,525
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities...... $ 35,179 $ 21,059
Notes payable, senior and convertible
subordinated debt (Note F)................ 144,048 106,183
Deferred income taxes (Notes A and G)....... 2,232 (89)
------------- -------------
181,459 127,153
------------- -------------
Mortgage banking:
Notes payable (Note F)...................... 3,439 3,500
Bonds payable (Notes E and F)............... 20,832 5,104
Other....................................... 1,200 218
------------- -------------
25,471 8,822
------------- -------------
Total liabilities....................... 206,930 135,975
------------- -------------
Commitments and contingencies (Notes F, I and J)
Stockholders' equity (Notes F and H):
Preferred stock, $.01 par value:
Authorized -- 2,000,000 shares --
Issued -- none.......................... -- --
Common stock, $.01 par value:
Authorized -- 20,000,000 shares --
Issued -- 7,080,900 and
5,376,500 shares........................ 71 54
Treasury stock, at cost -- 118,130 and
187,055 shares.......................... (83) (631)
Capital in excess of par value............ 59,610 25,033
Retained earnings......................... 38,962 27,094
------------- -------------
Total stockholders' equity.............. 98,560 51,550
------------- -------------
Total liabilities and
stockholders' equity.................. $ 305,490 $ 187,525
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
<TABLE>
Continental Homes Holding Corp.
CONSOLIDATED STATEMENTS OF INCOME
- - ------------------------------------------------------------------------------
<CAPTION>
Years ended May 31,
1994 1993 1992
-------------- -------------- --------------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUES
Home sales........................................... $ 340,031 $ 200,012 $ 164,815
Land sales........................................... 1,095 4,113 3,114
Mortgage banking and title operations................ 6,967 2,426 1,905
Other income, net.................................... 527 482 590
-------------- -------------- --------------
Total revenues................................. 348,620 207,033 170,424
-------------- -------------- --------------
COSTS AND EXPENSES
Homebuilding:
Cost of home sales................................. 277,878 161,960 135,141
Cost of land sales................................. 1,499 4,766 3,156
Selling, general and administrative expenses....... 37,065 20,836 18,648
Interest, net (Notes A and C)...................... 4,456 5,498 1,341
Inventory writedown (Note C)....................... -- -- 7,500
Mortgage banking and title operations:
Selling, general and administrative expenses....... 4,818 1,544 1,713
Interest, net (Note A)............................. (233) 14 (178)
-------------- -------------- --------------
Total costs and expenses....................... 325,483 194,618 167,321
-------------- -------------- --------------
Equity in loss of unconsolidated joint ventures
(Notes A and D).................................... -- (332) (948)
-------------- -------------- --------------
Income before income taxes and extraordinary credit.. 23,137 12,083 2,155
Income taxes (Note G)................................ 10,054 4,983 863
-------------- -------------- --------------
Income from operations............................... 13,083 7,100 1,292
Extraordinary credit: Gain on extinguishment of debt;
net of income taxes of $3,532 in 1992.............. -- -- 5,299
-------------- -------------- --------------
Net income..................................... $ 13,083 $ 7,100 $ 6,591
============== ============== ==============
Earnings per common share (Note A):
Income from operations............................. $ 2.11 $ 1.38 $ .27
Net income......................................... $ 2.11 $ 1.38 $ 1.39
============== ============== ==============
Earnings per common share assuming full dilution
(Note A):
Income from operations............................. $ 1.88 $ 1.30 $ .27
Net income......................................... $ 1.88 $ 1.30 $ 1.34
============== ============== ==============
Cash dividends per share............................. $ .20 $ .20 $ .20
============== ============== ==============
Weighted average number of shares outstanding........ 6,202,964 5,143,713 4,746,875
============== ============== ==============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
Continental Homes Holding Corp.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - ----------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1994, 1993 and 1992
(Dollars in thousands)
CAPITAL IN
COMMON STOCK EXCESS
------------------------- TREASURY OF PAR RETAINED
SHARES AMOUNT STOCK VALUE EARNINGS TOTAL
------------- ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1991........... 3,880,000 $ 39 $ (1,612) $ 14,772 $ 15,363 $ 28,562
Net income..................... -- -- -- -- 6,591 6,591
Sale of common stock........... 1,496,500 15 -- 9,761 -- 9,776
Cash dividends................. -- -- -- -- (934) (934)
Exercise of employee stock
options...................... -- -- 433 -- -- 433
------------- --------- ------------ ------------ ------------ ------------
Balance May 31, 1992........... 5,376,500 54 (1,179) 24,533 21,020 44,428
Net income..................... -- -- -- -- 7,100 7,100
Cash dividends................. -- -- -- -- (1,026) (1,026)
Exercise of employee stock
options...................... -- -- 548 500 -- 1,048
------------- --------- ------------ ------------ ------------ ------------
Balance May 31, 1993........... 5,376,500 54 (631) 25,033 27,094 51,550
Net Income..................... -- -- -- -- 13,083 13,083
Sale of common stock........... 1,704,400 17 -- 34,211 -- 34,228
Cash dividends................. -- -- -- -- (1,215) (1,215)
Exercise of employee stock
options...................... -- -- 548 366 -- 914
------------- --------- ------------ ------------ ------------ ------------
Balance May 31, 1994........... 7,080,900 $71 $ (83) $59,610 $38,962 $98,560
============= ========= ============ ============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
Continental Homes Holding Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------------------
<CAPTION>
Years ended May 31,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 13,083 $ 7,100 $ 6,591
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,410 1,619 797
Increase (decrease) in deferred income taxes...... (580) 497 1,322
Inventory writedown............................... -- -- 7,500
Extraordinary credit: Gain on extinguishment of
debt............................................ -- -- (8,831)
Tax benefit of employee stock options exercised... 366 500 --
Decrease (increase) in assets:
Homes, lots and improvements in production...... (28,573) (13,736) (2,327)
Receivables..................................... 16,748 5,755 1,764
Prepaid expenses and other assets............... (2,144) 72 (1,274)
Increase in liabilities:
Accounts payable and other liabilities.......... 5,415 3,912 4,621
------------- ------------- -------------
Net cash provided by operating activities............. 6,725 5,719 10,163
------------- ------------- -------------
Cash flows from investing activities:
Net additions to property and equipment............... (513) (170) (475)
Cash advanced to unconsolidated joint ventures........ -- (1,225) (4,782)
Cash received from unconsolidated joint ventures...... -- -- 1,325
Cash paid for Milburn Investments, Inc. and
Subsidiaries, net of cash acquired.................. (7,042) -- --
Cash paid for Aspen Homes............................. (6,982) -- --
------------- ------------- -------------
Net cash used by investing activities................. (14,537) (1,395) (3,932)
------------- ------------- -------------
Cash flows from financing activities:
Decrease in notes payable to financial institutions... (29,602) (48,087) (28,061)
Retirement of 123/4% Senior Notes..................... -- (16,817) --
Retirement of bonds payable........................... (10,140) (4,058) (2,502)
Sale of common stock.................................. 34,228 -- 9,776
Redemption of Series A Preferred Stock................ (6,200) -- --
Issuance of Convertible Subordinated Notes............ -- -- 29,895
Issuance of 12% Senior Notes.......................... 37,450 71,598 --
Stock options exercised............................... 548 548 433
Dividends paid........................................ (1,215) (1,026) (934)
Payment on subordinated note.......................... -- -- (12,419)
------------- ------------- -------------
Net cash provided (used) by financing activities...... 25,069 2,158 (3,812)
------------- ------------- -------------
Net increase in cash.................................... 17,257 6,482 2,419
Cash at beginning of year............................... 11,552 5,070 2,651
------------- ------------- -------------
Cash at end of year..................................... $ 28,809 $ 11,552 $ 5,070
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized.............. $ 7,431 $ 7,205 $ 3,774
Income taxes...................................... $ 13,080 $ 4,635 $ 3,850
Supplemental schedule of non-cash investing and financing activities:
On July 29, 1993, the Company acquired Milburn Investments, Inc. and Subsidiaries. Non-cash
consideration paid included the issuance of $6.2 million of Series A preferred stock. As a result
of the acquisition, the Company recorded additional assets of $92,660,000 (primarily homes, lots and
improvements in production and mortgage related assets) and liabilities of $66,590,000 (primarily
notes payable to financial institutions and mortgage related debt). See Note K.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
<PAGE>
Continental Homes Holding Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
A. ACCOUNTING POLICIES
The following accounting policies, together with those disclosed
elsewhere in the consolidated financial statements, represent the significant
accounting policies followed by Continental Homes Holding Corp. (the
"Company") and its subsidiaries.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly-owned subsidiaries after elimination of all significant
intercompany balances and transactions. The Company's investments in joint
ventures in which it had a 50% or less equity interest were accounted for
under the equity method of accounting. See Note D.
Income Taxes
The Company adopted the accounting for income taxes prescribed by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FAS 109") during the year ended May 31, 1992. The adoption of FAS
109 was not material to the financial statements. Among other things, FAS 109
requires the adoption of the liability method and further requires that
current and deferred tax balances be determined based on tax rates and laws
enacted as of the balance sheet date rather than the historical tax rates. See
Note G.
Homes, Lots and Improvements in Production
Homes, lots and improvements in production are stated at the lower of
accumulated cost or market. Interest costs incurred during construction or
development activities related to homes, lots and improvements in production
and certain indirect project costs (employee related costs) are
capitalized and subsequently charged to cost of home sales as the units
associated with such costs are sold. See Note C.
The components of homes, lots and improvements in production areas
follows:
May 31,
--------------------------
1994 1993
------------ ------------
(In thousands)
Homes and lots in production................... $ 88,034 $ 62,685
Land and developed lots held for housing....... 83,025 48,787
Unimproved land held for development or sale... 31,353 29,080
Capitalized interest........................... 2,957 2,037
------------ ------------
$ 205,369 $ 142,589
============ ============
Property and Equipment
Property and equipment is stated at cost and consists primarily of office
furniture and equipment. Depreciation expense is provided using the
straight-line method over the estimated useful lives (three to five years).
Depreciation expense was $472,000, $334,000 and $310,000 in 1994, 1993 and
1992, respectively. The costs of maintenance and repairs are charged to
expense as incurred.
Excess of Cost over Related Net Assets Acquired
The excess of cost over related net assets acquired of $10,217,000 is
being amortized over periods ranging from three to twenty years using the
straight- line method. Amortization expense was $856,000, $187,000 and
$187,000 in 1994, 1993 and 1992, respectively.
Fair Value of Financial Instruments
The carrying amounts of cash, receivables and trade payables approximate
fair value because of the short maturity of these financial instruments. The
fair value of the Company's senior and subordinated debt is estimated based on
quoted market prices. At May 31, 1994 and 1993, the estimated fair value of
the Company's senior and subordinated debt was $143,550,000 and $111,912,500,
respectively.
Mortgage loans held for sale are stated at the lower of cost or market
which approximates the fair value. The mortgage banking notes payable bear
interest at a rate indexed to the prime rate, therefore, the carrying amounts
of the outstanding borrowings at May 31, 1994 approximate fair value. The
carrying amounts of mortgage loans held for long-term investment and
mortgage-backed bonds approximate fair value.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement, and therefore, cannot be determined with precision.
Changes in assumptions could significantly affect estimates.
Statement of Financial Accounting Standards No. 115
The Company will adopt Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
effective June 1, 1994. This change in accounting is not expected to have a
material effect on the financial position or results of operations of the
Company.
Sales Recognition
The Company recognizes income from home and land sales in accordance with
Statement of Financial Accounting Standards No. 66. The Company includes the
discounts incurred in obtaining permanent financing for its customers in cost
of home sales. Substantially all of the 1992 land sales were effected as part
of a series of transactions in which the Company sold land to a third party
and retained an option to buy it back within specified periods of time.
Mortgage Banking Fee Recognition
Loan origination fees are recognized as income in accordance with
Statements of Financial Accounting Standards No. 65 and No. 91.
Interest, Net
Interest, net is comprised of interest expense and interest income. The
summary of the components of interest, net is as follows:
Years ended May 31,
1994 1993 1992
------------ ------------ ------------
(In thousands)
Interest expense, homebuilding...... $ 4,724 $ 5,862 $ 1,512
Interest income, homebuilding....... (268) (364) (171)
------------ ------------ ------------
$ 4,456 $ 5,498 $ 1,341
============ ============ ============
Interest expense, mortgage banking.. $ 2,707 $ 1,343 $ 1,557
Interest income, mortgage banking... (2,940) (1,329) (1,735)
------------ ------------ ------------
$ (233) $ 14 $ (178)
============ ============ ============
Earnings Per Common Share
Earnings per common share has been computed using the weighted average
number of common shares outstanding during the period. Earnings per common
share assuming full dilution has been computed assuming the conversion of the
Convertible Subordinated Notes issued in March 1992.
B. RECEIVABLES
Notes and accounts receivable are as follows:
May 31,
1994 1993
---------- ----------
(In thousands)
Proceeds receivable arising from
home sales........................... $ 4,760 $ 5,923
Municipal Utility District
receivables.......................... 3,512 --
Notes receivable on land sales......... 775 1,295
Other notes and accounts
receivable........................... 881 1,430
---------- ----------
$ 9,928 $ 8,648
========== ==========
C. INTEREST CAPITALIZATION
The Company follows the practice of capitalizing for its homebuilding
operations certain interest costs incurred on land under development and homes
under construction. Such capitalized interest is included in cost of home
sales when the units are delivered. The Company capitalized interest in the
amount of $8,654,000, $6,034,000 and $7,150,000 and expensed as a component of
cost of home sales $7,734,000, $6,236,000 and $4,930,000 in fiscal 1994, 1993
and 1992, respectively. Included in interest capitalized as of May 31, 1992
was $5,003,000 related to the Carlsbad, California property. This capitalized
interest was expensed as a component of the $7,500,000 inventory writedown in
1992.
D. INVESTMENT IN JOINT VENTURES
The Company currently accounts for its California operations on a
consolidated basis. The various California joint ventures were terminated
during fiscal 1992 and 1993. Summarized joint venture financial information
for each of the periods in the three years ended May 31, 1994 is as follows:
Years ended May 31,
1994 1993 1992
-------- ---------- -----------
(In thousands)
Revenues................. $ -- $ -- $ 2,386
Costs and expenses....... -- 666 2,872
-------- ---------- -----------
Loss before taxes.. $ -- $ (666) $ (486)
======== ========== ===========
E. CONSOLIDATED MORTGAGE SUBSIDIARIES
The Company's consolidated financial statements include its wholly-owned
mortgage banking and finance subsidiaries. Financial data of the mortgage
banking and finance subsidiaries is summarized as follows:
May 31,
1994 1993
----------- -----------
(In thousands)
Current assets, principally
mortgage loans held for sale............... $ 19,917 $ 9,627
Total assets, principally mortgage
loans and mortgage-backed securities....... 40,729 14,991
Current liabilities,
principally notes payable.................. 10,054 6,456
Total liabilities, principally
notes and bonds payable.................... 30,885 11,560
Stockholder's equity and
partnership capital........................ 9,844 3,431
Years ended May 31,
1994 1993 1992
----------- ----------- ----------
(In thousands)
Total revenues.......................... $ 5,691 $ 2,426 $ 1,905
Net interest income (expense)........... 233 (14) 178
Net income.............................. 1,176 521 222
Mortgage loans held for sale are stated at the lower of cost or market
determined in the aggregate. Mortgage loans held for sale consist of:
May 31,
1994 1993
------------ -----------
(In thousands)
Single-family first mortgage
loans............................................ $ 17,918 $ 8,875
Market discount.................................... (348) (50)
------------ -----------
$ 17,570 $ 8,825
============ ===========
Mortgage loans held for long term investment and the related bonds payable
are the result of the Company's mortgage banking subsidiaries selling a
portion of the mortgages they originated to related financing subsidiaries.
Bonds issued by the Company's financing subsidiaries are secured by GNMA
certificates and first mortgage loans. Payments are made on the bonds on a
periodic basis as a result of, and in amounts related to, corresponding
payments received on the underlying mortgage collateral. All principal and
interest on the collateral is remitted directly to a trustee and is available
for payment on the bonds. Neither the Company nor its mortgage banking
subsidiaries have guaranteed or otherwise are obligated with respect to these
bond issues.
F. NOTES, BONDS AND SENIOR AND CONVERTIBLE SUBORDINATED DEBT
Homebuilding:
Notes payable, senior and convertible subordinated debt consist of:
May 31,
1994 1993
------------ ------------
(In thousands)
12% senior notes, due 1999, net of
premium of $1,753 in 1994 and
discount of $752 in 1993...................... $ 111,753 $ 74,248
6-7/8% convertible subordinated notes,
due 2002, net of discount of
$2,705 and $3,065............................ 32,295 31,935
------------ ------------
$ 144,048 $ 106,183
============ ============
At May 31, 1994, the Company had available unsecured bank lines of credit
for borrowings (excluding mortgage warehouse lines) of $15,000,000. In
connection with the Milburn Acquisition, the Company assumed a $25,000,000
secured revolving line of credit. Interest rates range from prime + 1/2% to
prime + 1%. The unsecured bank lines of credit mature through October 1995.
The secured bank line of credit matures in July 1995. At May 31, 1994, the
Company had no amounts outstanding under the lines of credit. During fiscal
1994, the weighted average interest rate on the average month end balance was
6.9%. The average month end outstanding balance during the year was $5,464,000
and the maximum amount outstanding at any month end was $20,416,000. The
Company is required to maintain $750,000 of compensating balance deposits with
the lenders, minimum levels of liquidity and tangible net worth and maximum
levels of debt to net worth in conjunction with these unsecured lines of
credit.
In August 1992, the Company issued $75,000,000 principal amount of 12%
Senior Notes due August 1, 1999. The Senior Notes are redeemable in whole or
in part at the option of the Company at any time on or after August 1, 1997 at
redemption prices decreasing from 104%. The Senior Notes are senior unsecured
obligations of the Company.
On March 22, 1994, the Company obtained the consent of the holders of the
majority of the outstanding 12% Senior Notes to certain amendments to the
indenture, including to permit the sale of an additional $35,000,000 of Senior
Notes. On March 31, 1994, the Company completed the sale of the additional
Senior Notes.
The indenture relating to the Company's 12% Senior Notes contains certain
covenants which among other things, limit the amount of additional debt which
may be incurred, the making of restricted payments (as defined), including the
payment of dividends, and the ability to create certain liens, enter into
certain transactions with affiliates or merge, consolidate, transfer or sell
substantially all assets. As of May 31, 1994, approximately $24,419,000 was
available for making restricted payments. The indenture requires the Company
to maintain a net worth (as defined) of not less than $20,300,000. In the
event of a change in control, the Company will be required, subject to certain
conditions and limitations, to offer to purchase all Senior Notes then
outstanding at a purchase price equal to 101% of the principal amount of the
Senior Notes, plus accrued and unpaid interest to the date of purchase.
In March 1992, the Company issued $35,000,000 principal amount of 67/8%
Convertible Subordinated Notes due March 15, 2002. The Notes are convertible
at a rate of 42.55 shares of Common Stock per $1,000 principal amount of Notes
at any time prior to maturity. The Notes are redeemable in whole or in part at
the option of the Company at any time on or after March 18, 1995 at redemption
prices increasing from 95%. The Notes are subordinated to all senior
indebtedness of the Company.
Mortgage banking:
Mortgage warehousing notes payable enable American Western Mortgage
Company ("AWMC") and Miltex Management, Inc. ("MMI") to perform their loan
origination and warehousing functions. At May 31, 1994, AWMC had a warehouse
line of credit of $15,000,000 which is guaranteed by the Company. In
addition, MMI had a warehouse line of credit of $10,000,000. All such
borrowings are secured by the mortgage loans held for sale, mature on December
1, 1994 and May 25, 1995 and bear interest at prime + 1/2%. At May 31, 1994,
no amounts were outstanding under these lines of credit and $3,439,000 of
funding drafts were issued thereunder. At May 31, 1993, no amounts were
outstanding under these lines of credit and $3,500,000 of funding drafts were
issued thereunder.
Bonds issued by the Company's financing subsidiaries are secured by GNMA
certificates and first mortgage loans and are redeemable by the bondholders or
callable by the issuer under certain circumstances as defined in the indenture
under which the bonds were issued. Such bonds mature through August 2017 and
have a weighted average interest rate of 9.2%.
G. INCOME TAXES
The Company will file a consolidated Federal income tax return which will
include all subsidiaries. Components of current and deferred income taxes
follow:
CURRENT DEFERRED TOTAL
------------ ----------- -----------
(IN THOUSANDS)
Year ended May 31, 1994
Federal.............................. $ 8,344 $ (455) $ 7,889
State and other...................... 2,290 (125) 2,165
------------ ----------- -----------
$ 10,634 $ (580) $ 10,054
============ =========== ===========
Year ended May 31, 1993
Federal.............................. $ 3,520 $ 390 $ 3,910
State and other...................... 966 107 1,073
------------ ----------- -----------
$ 4,486 $ 497 $ 4,983
============ =========== ===========
Year ended May 31, 1992
Federal.............................. $ (358) $ 1,031 $ 673
State and other...................... (101) 291 190
------------ ----------- -----------
$ (459) $ 1,322 $ 863
============ =========== ===========
The effective income tax rate differs from the Federal statutory tax rate
for the following reasons:
U.S. statutory tax rate........................... 35% 34% 34%
State income taxes,
net of Federal tax benefit...................... 6 8 8
Other, net........................................ 2 (1) (2)
------- ------- -------
43% 41% 40%
======= ======= =======
The components of the net deferred tax asset (liability) are as follows:
May 31,
------------------------
1994 1993
------------ ----------
(In thousands)
Deferred tax assets:
Inventory basis differences.................... $ 4,201 $ 3,842
Other, net..................................... 510 1,776
------------ ----------
4,711 5,618
------------ ----------
Deferred tax liabilities:
Gain on repurchase of note..................... 3,559 3,472
Capitalized interest........................... 2,108 2,057
Receivable basis differences................... 1,276 --
------------ ----------
6,943 5,529
------------ ----------
Net deferred tax asset (liability)................. $ (2,232) $ 89
============ ==========
H. STOCK OPTIONS
The Company has two stock incentive plans (the "Plans"). The 1988 Stock
Incentive Plan was approved by the Board of Directors on July 29, 1988 and the
stockholders on August 26, 1988 and amended by the Board of Directors on July
23, 1992 and the stockholders on August 26, 1992. The 1986 Stock Incentive
Plan was approved by the Board of Directors and the stockholders of the
Company on July 26, 1986. The Plans are intended to provide an incentive to
officers and key employees of the Company and its subsidiaries to remain with
the Company. The Board of Directors has authorized the reservation of 700,000
shares of the Company's common stock for issuance under the Plans. Options
may be granted at a price equal to the market value on the date of the grant
(or 85% of market value in the case of non-qualified options) and may not be
exercised for one year (six months in the case of nonqualified options) from
the date of grant. Under the Plans, options must be exercised within 10 years
(5 years for a 10% holder) from the date the option was granted.
The following summarizes the stock option transactions for the two years
ended May 31, 1994:
Number
of Shares Option Price
------------ ------------------
Outstanding at May 31, 1992............ 250,580 $3.50-$12.875
Granted.............................. 72,500 $12.50
Exercised............................ (88,120) $3.50-$11.50
------------
Outstanding at May 31, 1993............ 234,960 $4.00-$12.875
Granted.............................. 42,600 $11.88-$21.38
Cancelled............................ (3,000) $11.88
Exercised............................ (68,925) $4.00-$12.875
------------
Outstanding at May 31, 1994............ 205,635 $4.00-$21.38
============
Exercisable at May 31, 1994............ 63,660 $4.00-$12.87
============
At May 31, 1994, there were 235,995 shares reserved for future grants.
I. CONTINGENCIES
In management's opinion the Company is not involved in any legal
proceedings which will have a material effect on the Company's financial
position or operating results.
J. COMMITMENTS
Rental expense for the Company was $914,000, $495,000 and $533,000 in
1994, 1993 and 1992, respectively. The following is a schedule by year of
future minimum rental payments required under operating leases as of May 31,
1994:
(In thousands)
Fiscal year ending May 31,
1995......................................... $ 1,249
1996......................................... 1,092
1997......................................... 129
1998......................................... 29
1999......................................... 4
--------------
Total minimum lease payments................. $ 2,503
==============
K. ACQUISITION OF MILBURN INVESTMENTS, INC.
On July 29, 1993, the Company completed the acquisition of 100% of the
Common Stock of Milburn Investments, Inc. ("Milburn") for approximately $26.2
million. The consideration consisted of approximately $20 million in cash and
$6.2 million in Series A Preferred Stock issued by the Company. On November
4, 1993 the Company redeemed the Series A Preferred Stock. Milburn is the
leading builder of single-family homes in the Austin, Texas metropolitan area.
The acquisition was accounted for by the purchase method with the results of
operations of Milburn included for the ten month period beginning August 1,
1993. The excess of cost over related net assets acquired of $4,788,000 is
being amortized over periods ranging from five to ten years using the straight
line method.
The following unaudited pro forma combined financial data give effect to
the acquisition as if it had occurred on the first day of each period. This
pro forma information has been prepared utilizing the historical consolidated
financial statements of the Company and Milburn. The pro forma financial data
is provided for comparative purposes only and does not purport to be
indicative of the results which would have been obtained if the acquisition
had been effected during the periods presented. The pro forma financial
information is based on the purchase method of accounting and reflects
adjustments to record the profit of acquired inventories, amortize the
non-compete agreement and the excess purchase price over the underlying value
of net assets acquired, reflect the additional interest on acquisition
indebtedness assumed and adjust income taxes for the pro forma adjustments.
Years ended May 31,
--------------------------
1994 1993
------------ ------------
(In thousands)
Total revenues....................... $ 367,866 $ 286,865
Net income........................... 13,524 8,612
Earnings per common share............ 2.18 1.67
Earnings per common share
assuming full dilution............. 1.94 1.53
<TABLE>
L. SELECTED UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
Unaudited quarterly consolidated financial information for the years ended May 31, 1994 and 1993
is summarized as follows:
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
------------- --------------- --------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
1994
Revenues................................. $ 78,390 $ 90,095 $ 74,640 $ 105,495
Gross profit from home sales............. 14,259 16,109 13,303 18,482
Net income............................... 3,237 3,227 2,727 3,892
Earnings per share:
Primary:
Net income........................... $ .62 $ .56 $ .39 $ .56
Fully diluted:
Net income........................... .53 .50 .37 .50
Weighted average shares outstanding...... 5,194,877 5,711,566 6,953,734 6,962,659
1993
Revenues................................. $ 51,599 $ 51,931 $ 45,705 $ 57,798
Gross profit from home sales............. 9,562 9,357 9,082 10,051
Net income............................... 1,970 1,615 1,476 2,039
Earnings per share:
Primary:
Net income........................... $ .39 $ .32 $ .29 $ .39
Fully diluted:
Net income........................... .36 .30 .28 .36
Weighted average shares outstanding...... 5,101,896 5,114,503 5,169,407 5,189,287
</TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
1. The Company holds 100% of the outstanding capital stock of:
Continental Homes, Inc. ("CHI") (Delaware)
KDB Homes, Inc. (Delaware)
L & W Investments, Inc. (California)
Rancho Carrillo, Inc. (Delaware)
Continental Homes of Texas, Inc. (Texas)
Miltex Management, Inc. ("MMI") (Texas)
Milburn Investments, Inc. ("MMI") (Texas)
Homeco, Inc. ("HI") (Texas)
2. CHI holds 100% of the outstanding capital stock of:
American Western Mortgage Company ("AWMC") (Colorado)
CHI Construction Company (Arizona)
3. AWMC holds 100% of the outstanding capital stock of:
CHI Finance Corp. (Arizona)
4. MMI holds 1% of the partnership interest of:
Miltex Mortgage of Texas Limited Partnership
Miltex Financial IV General Partnership
5. MII holds 99% of the partnership interest of:
Miltex Mortgage of Texas Limited Partnership
Miltex Financial IV General Partnership
Homeco/Killeen Limited Partnership
6. MII holds 100% of the ourstanding capital stock of:
Travis County Title Company (Texas)
Acheter, Inc. ("Acheter") (Texas)
R.O.S. Corporation (Texas)
7. HI holds 1% of the partnership interest of:
Homeco/Killeen Limited Partnership
8. Acheter holds 100% of the outstanding capital stock of:
Settlement Corporation (Texas)
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (File Numbers 33-65912 and
33-33550).
Arthur Andersen & Co.
Phoenix, Arizona,
August 15, 1994.
