<PAGE>
Rule No. 424(b)(4)
Registration No. 33-52463
$35,000,000
CONTINENTAL HOMES HOLDING CORP.
12% SENIOR NOTES DUE 1999
(INTEREST PAYABLE FEBRUARY 1 AND AUGUST 1)
-------------------------
The Notes offered hereby will bear interest at a rate of 12% per annum,
payable semi-annually on each February 1 and August 1, commencing August 1,
1994, and will mature on August 1, 1999. The Notes will not be redeemable
until August 1, 1997. On or after such date, the Notes will be redeemable at
the option of the Company, in whole or in part, at the prices set forth
herein, together with accrued and unpaid interest to the redemption date. In
certain circumstances involving a Change in Control (as defined in the
Indenture) of the Company, the holders of the Notes may require the Company to
repurchase the Notes, in whole or in part, at a purchase price of 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. See "Description of Notes".
The Notes offered hereby will be senior unsecured obligations of the
Company, will rank pari passu in right of payment with all senior indebtedness
of the Company, and will be senior in right of payment to all subordinated
indebtedness of the Company. With certain exceptions, the Company must satisfy
specified financial ratios to incur future indebtedness, and such indebtedness
must be subordinate in right of payment to the Notes, must be unsecured and
must be payable after the maturity of the Notes. The Notes offered hereby will
be structurally subordinated to obligations of the Company's subsidiaries. The
amount of future indebtedness that may be incurred by the Company's
subsidiaries will be limited as set forth in the Indenture. At November 30,
1993, after giving effect to this offering and the use of the net proceeds as
described herein, the aggregate amount of outstanding senior indebtedness of
the Company would have been $111,764,000. The aggregate amount of outstanding
indebtedness of the Company's subsidiaries would have been $27,255,000,
consisting of mortgage banking bonds payable. See "Description of Notes".
The Notes will be limited to $110,000,000 aggregate principal amount, of
which $75,000,000 aggregate principal amount were issued in a public offering
in August 1992 and $35,000,000 aggregate principal amount are being offered
hereby. On March 22, 1994, the Company obtained the consent of the holders of
a majority of the outstanding Notes to certain amendments to the Indenture
(including increasing to $110,000,000 the aggregate principal amount of Notes
which may be issued thereunder) so the terms of the outstanding Notes will be
identical to the terms of the Notes offered hereby.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note................... 107.000% 2.143% 104.857%
- -------------------------------------------------------------------------------------------
Total...................... $37,450,000 $750,000 $36,700,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest from February 1, 1994.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting expenses payable by the Company estimated at $1,325,000.
-------------------------
The Notes are being offered by the Underwriter, subject to receipt and
acceptance by it and its right to reject any order in whole or in part. It is
expected that delivery of the Notes will be made on or about March 31, 1994.
KIDDER, PEABODY & CO.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS MARCH 24, 1994
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission") relating to its business, financial position,
results of operations and other matters. Such reports and other information can
be inspected and copied at the Public Reference Section maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its Regional Offices located at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such materials can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material can also be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form S-
3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Notes offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is made to the Registration Statement
and to the exhibits relating thereto for further information with respect to
the Company and the Notes offered hereby.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference herein its (i) Annual Report on
Form 10-K for the fiscal year ended May 31, 1993, (ii) Quarterly Report on Form
10-Q for the quarter ended August 31, 1993, as amended by report on Form 10-
Q/A, (iii) Quarterly Report on Form 10-Q for the quarter ended November 30,
1993, and (iv) report on Form 8-K dated July 29, 1993, as amended by report on
Form 8-K/A-1. All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
before the termination of the offering of the Notes offered hereby shall be
deemed incorporated herein by reference, and such documents shall be deemed to
be a part hereof from the date of filing such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
A copy of the documents incorporated by reference other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
the information contained in this Prospectus) will be provided without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus has been delivered upon the written or oral request of such person.
Requests for such copies should be made to Continental Homes Holding Corp.,
7001 N. Scottsdale Road, Suite 2050, Scottsdale, Arizona 85253, Attention:
Secretary, telephone number (602) 483-0006.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements (including the notes thereto)
appearing in the documents incorporated herein by reference. Unless otherwise
indicated, all information herein relating to the Company as of and for the six
months ended November 30, 1993 includes the operations of Milburn Investments,
Inc., a Texas corporation, and its related entities (collectively, "Milburn")
since August 1993. See "The Acquisitions".
THE COMPANY
Continental Homes Holding Corp. (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, the leading builder of single-family homes in the Austin
metropolitan area (the "Milburn Acquisition"). On January 28, 1994, the Company
acquired the operations of Aspen Homes, a single-family homebuilder in San
Antonio, Texas ("Aspen Homes"). See "The Acquisitions". The Company also offers
mortgage banking services in Arizona to its homebuyers and in Texas to its
homebuyers and to third parties.
The Phoenix area is the Company's primary market and accounted for
approximately 86% and 87% of the Company's revenues from homebuilding
operations for the fiscal years ended May 31, 1993 and 1992, respectively. The
Company has built and delivered more single-family homes in the Phoenix area
than any other homebuilder in each of the last nine years. In six of the last
seven years for which data is available, the Phoenix area was among the top ten
markets in the country in housing starts and was ranked the third market in the
country in housing starts in 1992. With the acquisition of Milburn in July 1993
and its entry into the Austin, Texas market, the Company has significantly
expanded and diversified its operations. Milburn has built and delivered more
single-family homes in the Austin area than has any other homebuilder in each
of the last eight years. On a pro forma basis for the year ended May 31, 1993,
Phoenix and Austin contributed 62% and 28%, respectively, of the Company's
revenues from homebuilding.
In addition to its operations in Phoenix and Austin, the Company has smaller
but expanding operations in Denver. The Company is currently building and
selling homes in three subdivisions in Denver. As a result of recent land
acquisitions, the Company expects to have eight operating subdivisions in
Denver by the end of calendar 1994. The Company also has two operating
subdivisions and a parcel of raw land in Southern California.
The Company markets its homes by emphasizing quality housing at affordable
prices. As of November 30, 1993, base prices for the Company's homes in
Phoenix, Austin and Denver ranged from $70,000 to $212,000, with an average
sales price for the six months ending November 30, 1993 of approximately
$111,000. In California, as of November 30, 1993, base prices for the Company's
homes ranged from $159,000 to $419,000. The Company seeks to maintain its
competitive pricing by (i) designing efficient floorplans to minimize
construction costs, (ii) negotiating favorable pricing and terms from certain
of its subcontractors on the basis of its consistent unit volume and (iii)
closely monitoring construction costs using the Company's custom designed
management information systems.
The Company will continue to review opportunities to enter new housing
markets that have demonstrated periods of strong population and employment
growth. The Company believes that it can capitalize on the operating methods
and strategy that it has successfully established in the different geographical
markets in which it operates.
3
<PAGE>
THE ACQUISITIONS
Austin, Texas. On July 29, 1993, the Company consummated the Milburn
Acquisition for total consideration of $26,272,000 and the assumption of
approximately $19,600,000 of outstanding indebtedness (excluding mortgage-
related indebtedness). Milburn has been the leading builder of single-family
homes in the Austin, Texas market in each of the last eight years. In addition
to designing, building and selling new homes, Milburn develops land for its
building operations and provides title policies and mortgage financing services
to its customers and to third parties. Milburn principally targets customers
who are first-time home buyers seeking a high quality home in an attractive
community at a reasonable price. For the twelve months ended May 31, 1993 and
the six months ended November 30, 1993, Milburn delivered 815 and 482 homes,
respectively, generating $76,513,000 and $51,073,000 of revenue, respectively.
The Company is providing additional capital and introducing updated product
designs and marketing strategies which the Company believes will improve
Milburn's operations.
San Antonio, Texas. On January 28, 1994, the Company acquired the operations
of Aspen Homes for total consideration of $6,982,000. Aspen Homes delivered 157
homes in calendar 1993 with revenues of $12,927,000. The acquisition of Aspen
Homes provides the Company with an entry into the San Antonio market, an
attractive housing market with strong demographics.
The Company believes that these acquisitions are consistent with its general
operating strategy of geographically diversifying its operations and targeting
the entry-level and move-up homebuyer.
THE OFFERING
Securities Offered.......... $35,000,000 aggregate principal amount of 12%
Senior Notes due August 1, 1999.
Total Class of Securities... Upon consummation of this offering, the Company
will have outstanding $110,000,000 aggregate
principal amount of 12% Senior Notes due August
1, 1999 (the "Notes") of which $75,000,000
aggregate principal amount of the Notes were
issued in a public offering in August 1992 and
$35,000,000 aggregate principal amount of the
Notes are being offered hereby.
Interest Payment Dates...... February 1 and August 1, commencing August 1,
1994.
Rank........................ The Notes offered hereby will be senior unsecured
obligations of the Company, will rank pari passu
in right of payment with all senior indebtedness
of the Company, and will be senior in right of
payment to all subordinated indebtedness of the
Company. With certain exceptions, the Company
must satisfy specified financial ratios to incur
future indebtedness and such indebtedness must be
subordinated in right of payment to the Notes,
must be unsecured and must be payable after the
maturity of the Notes. The Notes offered hereby
will be structurally subordinated to obligations
of the Company's subsidiaries, including trade
payables. The amount of future indebtedness that
may be incurred by the Company's subsidiaries
will be limited as set forth in the Indenture. At
November 30, 1993, after giving effect to this
offering and the use of proceeds as described
herein, the aggregate amount of outstanding
senior indebtedness of the Company would have
been
4
<PAGE>
$111,764,000. The aggregate amount of outstanding
indebtedness of the Company's subsidiaries would
have been $27,255,000, consisting of mortgage
banking bonds payable. At November 30, 1993, the
Company's subsidiaries had outstanding trade
payables of $20,329,000. See "Description of
Notes".
Optional Redemption......... The Notes will not be redeemable until August 1,
1997. On or after such date, the Notes will be
redeemable at the option of the Company, in whole
or in part, at the prices set forth herein, plus
accrued interest to the redemption date.
Offers to Purchase.......... The Company will be required to make an offer to
purchase Notes upon a Change in Control (as
defined) of the Company at a purchase price equal
to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of
repurchase. A Change in Control will generally
occur when a person or group of related persons
(other than current management) acquires
beneficial ownership of in excess of 50% of the
total voting power of all shares of capital stock
of the Company entitled to vote in elections of
directors.
The Company also will be required to offer to
purchase certain of the Notes at 100% of the
principal amount thereof, plus accrued and unpaid
interest to the date of repurchase (i) if its Net
Worth (as defined) decreases to less than
$20,300,000 at the end of any two consecutive
fiscal quarters or (ii) subject to certain
conditions and limitations, out of the Net
Proceeds of Asset Sales (as defined).
For more complete information regarding mandatory
offers to purchase the Notes, see "Description of
Notes--Certain Covenants--Change in Control", "--
Maintenance of Net Worth" and "--Limitation on
Asset Sales".
Certain Covenants........... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its subsidiaries to incur additional
indebtedness, pay dividends, make certain other
distributions, repurchase capital stock or
subordinated indebtedness, make certain Advances
(as defined), create certain liens, enter into
certain transactions with affiliates and apply
the net proceeds from the sale of certain assets.
See "Description of Notes--Certain Covenants".
Use of Proceeds............. The net proceeds of this offering will be used
for working capital and general corporate
purposes, including the acquisition of
residential development property or existing
homebuilding operations. See "Use of Proceeds".
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following table sets forth summary financial information regarding the
results of operations and financial position of the Company. The summary
financial information of the Company as of and for the five years ended May 31,
1993 has been derived from financial statements of the Company audited by
Arthur Andersen & Co. The summary financial information of the Company as of
November 30, 1993 and for the six months ended November 30, 1992 and 1993 have
been derived from unaudited financial statements which in the opinion of
management include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such information for the
unaudited interim periods. The operating results for the six months ended
November 30, 1993 are not necessarily indicative of results for the full year.
The unaudited pro forma combined financial data give effect to (i) the Milburn
Acquisition and (ii) application of $34,219,000 of net proceeds from the
Company's public offering of its common stock in November 1993 to reduce
indebtedness, as if each 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. This information should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto and corresponding "Management's Discussion and Analysis of
Results of Operations and Financial Condition" incorporated by reference in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS PRO FORMA
PRO FORMA ENDED SIX MONTHS
YEARS ENDED MAY 31, YEAR ENDED NOVEMBER 30, ENDED
------------------------------------------------------ MAY 31, ----------------- NOVEMBER
1989 1990 1991 1992 1993 1993(1) 1992 1993(2) 30, 1993(1)
-------- -------- -------- -------- -------- ---------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Home sales............. $117,912 $132,876 $130,611 $164,815 $200,012 $276,525 $98,771 $164,626 $182,287
Land sales............. 3,597 -- 4,977 3,114 4,113 4,113 3,182 420 420
Mortgage banking....... 1,313 1,519 2,930 1,905 2,426 5,016 1,271 2,865 3,716
Other income, net...... 266 102 97 590 482 1,211 306 606 1,348
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total revenues.......... 123,088 134,497 138,615 170,424 207,033 286,865 103,530 168,517 187,771
-------- -------- -------- -------- -------- -------- ------- -------- --------
Costs and expenses
Homebuilding
Cost of home sales.... 97,828 111,906 106,463 135,141 161,960 221,781 79,852 134,258 147,405
Cost of land sales.... 3,228 -- 4,994 3,156 4,766 4,766 3,335 427 427
Selling, general and
administrative
expenses............. 13,370 14,645 15,514 18,648 20,836 33,882 10,547 17,772 21,570
Interest, net......... 4,979 3,570 2,239 1,341 5,498 5,305 2,785 2,519 2,158
Inventory writedown... -- -- 5,000 7,500 -- -- -- -- --
Mortgage banking
Selling, general and
administrative
expenses............. 736 1,039 2,637 1,713 1,544 3,774 750 2,028 2,432
Interest, net......... (170) (52) (51) (178) 14 10 (54) 19 23
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total costs and
expenses............... 119,971 131,108 136,796 167,321 194,618 269,518 97,215 157,023 174,015
-------- -------- -------- -------- -------- -------- ------- -------- --------
Equity in income (loss)
of unconsolidated joint
ventures............... (684)(3) 2,490 (1,342) (948) (332) (467) (332) (32) (43)
-------- -------- -------- -------- -------- -------- ------- -------- --------
Income before taxes and
extraordinary credits.. 2,433 5,879 477 2,155 12,083 16,880 5,983 11,462 13,713
Income taxes............ 925 2,469 361 863 4,983 6,921 2,398 4,998 5,622
-------- -------- -------- -------- -------- -------- ------- -------- --------
Income from operations.. 1,508 3,410 116 1,292 7,100 9,959 3,585 6,464 8,091
Extraordinary gain from
extinguishment of debt. 182 141 -- 5,299(4) -- -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... 325 -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- -------- --------
Net income.............. $ 2,015 $ 3,551 $ 116 $ 6,591 $ 7,100 $ 9,959 $ 3,585 $ 6,464 $ 8,091
======== ======== ======== ======== ======== ======== ======= ======== ========
Ratio of earnings to
fixed charges (5)...... 1.22x 1.43x (6) 1.44x 1.91x 1.95x 2.40x
OPERATING DATA (7)
Deliveries.............. 1,151 1,280 1,249 1,470 1,769 888 1,409
New contracts, net...... 1,115 1,269 1,317 1,627 2,000 862 1,242
Backlog at end of period
(units)................ 422 414 486 669 900 643 895
Backlog at end of period
....................... $ 47,607 $ 42,808 $ 53,180 $ 76,215 $107,499 $74,014 $113,771
</TABLE>
Footnotes on following page
6
<PAGE>
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS
FOUR FISCAL QUARTERS ENDED MAY 31, ENDED NOVEMBER 30,
------------------------------------------- -------------------------
1989 1990 1991 1992 1993 1992 1993(2)
------- ------- ------- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO DATA(8)
EBITDA.................. $16,372 $15,768 $14,134 $17,599 $24,846 $21,796 $30,392
Consolidated Interest
Incurred............... 9,085 9,203 10,233 9,366 12,040 10,514 12,527
Coverage Ratio.......... 1.80x 1.71x 1.38x 1.88x 2.06x 2.07x 2.43x
<CAPTION>
NOVEMBER 30, 1993
-------------------------
ACTUAL(2) AS ADJUSTED(9)
--------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets
Homebuilding................................................... $217,641 $250,568
Mortgage banking............................................... 46,576 46,576
-------- --------
Total......................................................... $264,217 $297,144
======== ========
Debt
Homebuilding................................................... $106,429 $143,879
Mortgage banking............................................... 31,778 27,255
Stockholders' equity............................................ 92,041 92,041
</TABLE>
- --------
(1) Pro forma amounts assume the Milburn Acquisition and the Company's common
stock offering completed in November 1993 occurred on the first day of the
fiscal period. See "Unaudited Pro Forma Combined Financial Data".
(2) The information as of and for the six months ended November 30, 1993
includes the operations of Milburn from August 1993.
(3) Includes a pre-tax asset writedown of $2,000,000.
(4) Fiscal 1992 reflects the retirement of a note payable at an amount less
than par.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes plus fixed
charges (net of capitalized interest). Fixed charges include interest
expense plus capitalized interest and a portion of operating lease rental
expense deemed to be representative of interest.
(6) Fiscal 1991 includes a pre-tax writedown of $5,000,000. After giving
effect to such writedown, earnings for the fiscal year ended May 31, 1991
were inadequate to cover fixed charges and resulted in a coverage
deficiency of $3,009,000.
(7) Data excludes the Company's proportionate share of homes sold and closed
in unconsolidated joint ventures.
(8) Calculated in accordance with the definitions of such terms contained in
the Indenture and set forth herein under "Description of Notes--Certain
Definitions". The Coverage Ratio is not intended to be an indication of
the Company's historical or future cash flow.
(9) As adjusted to give effect to the issuance and sale by the Company of the
Notes offered hereby and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds".
7
<PAGE>
THE RESIDENTIAL REAL ESTATE INDUSTRY
Homebuilders, including the Company, are subject to various risks, such as
economic recession, competitive overbuilding, changes in governmental
regulation, increases in real estate taxes, energy costs or costs of materials
and labor, the availability of suitable land, and the availability of
construction funds or mortgage loans at rates acceptable to builders and
homebuyers.
The housing industry is cyclical and is significantly affected by prevailing
economic conditions. The Company's business and earnings are substantially
dependent on the Phoenix market. Overall starts in the Phoenix area (the
Company's primary market) declined from over 25,000 starts in calendar 1985 to
approximately 10,000 starts in calendar 1990. Starts in Phoenix have since
increased to approximately 22,500 in calendar 1993. During this period, the
Company has been able to maintain a relatively stable level of home deliveries
in Phoenix (1,342, 1,125, 1,078, 1,216, 1,193, 1,361 and 1,629 in fiscal years
1987 through 1993, respectively). There can be no assurance that the increase
in housing starts in Phoenix will continue, or that the Company will be able to
maintain its level of home deliveries.
The Company's business and earnings have also been dependent on its ability
to obtain financing on acceptable terms for its acquisition, development and
construction activities. In recent years, the availability of borrowed funds,
especially for the acquisition of land, has been greatly reduced because of
thrift failures and more stringent lending policies of savings institutions.
The Company has experienced no significant difficulties in obtaining financing
for its operations to date.
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. The Company also competes with developers of
rental housing units and, to a lesser extent, condominiums.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
will be approximately $35,375,000. The Company will use the net proceeds for
working capital and general corporate purposes. The Company intends to use
part of the net proceeds to expand its operations in its existing markets and
to enter new markets that have demonstrated periods of strong population and
employment growth. Such expansion may be accomplished in a number of ways,
including through the acquisition of residential development properties or
existing homebuilding operations. Although the Company is continually
evaluating acquisition opportunities, the Company currently has no agreements
or understandings with respect to the acquisition of any homebuilding
operations. Pending such uses, the net proceeds will be applied as follows:
(i) to reduce temporarily all outstanding amounts under the Company's
revolving lines of credit (bearing interest at approximately 7% per annum at
March 24, 1994), which was approximately $19,416,000 as of March 24, 1994, and
(ii) to reduce temporarily all outstanding amounts under the Company's
mortgage banking warehouse lines of credit, including funding drafts
outstanding (bearing interest at 7% per annum at February 28, 1994), which was
approximately $4,500,000 as of February 28, 1994.
CAPITALIZATION
The following table sets forth the capitalization of the Company at November
30, 1993 and as adjusted to give effect to the issuance and sale by the
Company of the Notes offered hereby (at an offering price of 107% of the
aggregate principal amount of Notes offered hereby) and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds".
<TABLE>
<CAPTION>
NOVEMBER 30, 1993
------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Debt(2)
Homebuilding
12% Senior Notes due 1999 (net of unamortized dis-
count and unaccreted premium).................... $ 74,314 $111,764
6 7/8% Convertible Subordinated Notes due 2002 32,115 32,115
(net of unamortized discount).................... -------- --------
Total........................................... 106,429 143,879
-------- --------
Mortgage banking
Notes payable due within one year................. 4,523 --
Bonds payable..................................... 27,255 27,255
-------- --------
Total........................................... 31,778 27,255
-------- --------
Total debt.................................... 138,207 171,134
-------- --------
Stockholders' equity
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding....... -- --
Common Stock, $.01 par value; 20,000,000 shares au-
thorized, 7,080,900 shares issued and outstanding
(3)................................................ 71 71
Treasury stock, at cost, 151,305 shares............. (303) (303)
Capital in excess of par value...................... 59,235 59,235
Retained earnings................................... 33,038 33,038
-------- --------
Total stockholders' equity.................... 92,041 92,041
-------- --------
Total capitalization.................................. $230,248 $263,175
======== ========
</TABLE>
- --------
(1) As adjusted to give effect to the issuance and sale by the Company of the
Notes offered hereby and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds".
(2) See Note F of "Notes to Consolidated Financial Statements" incorporated
herein by reference for further information regarding the terms of the
Company's indebtedness.
(3) Excludes 1,489,250 shares reserved for issuance upon conversion of the
Company's 6 7/8% Convertible Subordinated Notes due 2002 and 474,805
shares reserved for issuance pursuant to options granted under the
Company's stock option plans.
9
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data give effect to (i)
the Milburn Acquisition and (ii) application of $34,219,000 of net proceeds
from the Company's public offering of its common stock in November 1993 to
reduce indebtedness, as if each 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. This information
should be read in conjunction with the historical financial statements and
notes thereto, which are incorporated by reference in this Registration
Statement. 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 Milburn Acquisition had been effected during the periods
presented. The pro forma financial information is based on the purchase method
of accounting for the Milburn Acquisition.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED MAY 31, 1993 MONTHS ENDED NOVEMBER 30, 1993
----------------------------------------- -------------------------------------------
PRO PRO PRO PRO
FORMA FORMA FORMA FORMA
COMPANY MILBURN ADJUSTMENTS COMBINED COMPANY(1) MILBURN ADJUSTMENTS COMBINED
-------- ------- ----------- -------- ---------- ------- ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Home sales............... $200,012 $76,513 $ -- $276,525 $164,626 $17,661 $ -- $182,287
Land sales............... 4,113 -- -- 4,113 420 -- -- 420
Mortgage banking......... 2,426 2,590 -- 5,016 2,865 851 -- 3,716
Other income, net........ 482 729 -- 1,211 606 742 -- 1,348
-------- ------- ------- -------- -------- ------- -------- --------
Total revenues............ 207,033 79,832 -- 286,865 168,517 19,254 -- 187,771
-------- ------- ------- -------- -------- ------- -------- --------
Costs and expenses
Homebuilding
Cost of home sales....... 161,960 58,363 1,458 (2) 221,781 134,258 12,974 173 (2) 147,405
Cost of land sales....... 4,766 -- -- 4,766 427 -- -- 427
Selling, general and
administrative expenses. 20,836 12,347 699 (3) 33,882 17,772 3,678 120 (3) 21,570
Interest, net............ 5,498 299 (492)(4) 5,305 2,519 209 (570)(4) 2,158
Mortgage banking
Selling, general and
administrative expenses. 1,544 2,230 -- 3,774 2,028 404 -- 2,432
Interest, net............ 14 (4) -- 10 19 4 -- 23
-------- ------- ------- -------- -------- ------- -------- --------
Total costs and expenses.. 194,618 73,235 1,665 269,518 157,023 17,269 (277) 174,015
-------- ------- ------- -------- -------- ------- -------- --------
Equity in loss of
unconsolidated joint
ventures................. (332) (135) -- (467) (32) (11) -- (43)
-------- ------- ------- -------- -------- ------- -------- --------
Income before taxes and
extraordinary credits.... 12,083 6,462 (1,665) 16,880 11,462 1,974 277 13,713
Income taxes.............. 4,983 1,844 94 (5) 6,921 4,998 730 (106)(5) 5,622
-------- ------- ------- -------- -------- ------- -------- --------
Income from operations.... 7,100 4,618 (1,759) 9,959 6,464 1,244 383 8,091
Extraordinary gain from
extinguishment of debt... -- 3,605 (3,605)(6) -- -- 50 (50)(6) --
-------- ------- ------- -------- -------- ------- -------- --------
Net income................ $ 7,100 $ 8,223 $(5,364) $ 9,959 $ 6,464 $ 1,294 $ 333 $ 8,091
======== ======= ======= ======== ======== ======= ======== ========
Earnings per common share. $ 1.45 $ 1.18
Earnings per common share
assuming full dilution... $ 1.38 $ 1.05
</TABLE>
- --------
(1) Includes the results of Milburn since August 1993.
(2) To record the profit of acquired inventories.
(3) To amortize the non-compete agreement and the excess purchase price over
the underlying value of net assets acquired.
(4) To reflect the net of additional interest on acquisition indebtedness
assumed in connection with the Milburn Acquisition and the reduction in
interest due to the use of the proceeds from the Company's common stock
offering completed in November 1993.
(5) To adjust income taxes for the pro forma adjustments.
(6) To eliminate non-recurring operations.
10
<PAGE>
DESCRIPTION OF NOTES
The Notes offered hereby are to be issued under an Indenture, dated as of
August 1, 1992, as amended (the "Indenture"), between the Company and First
Fidelity Bank, National Association (formerly Fidelity Bank, National
Association), as Trustee (the "Trustee"), a copy of which is an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Indenture, including the definitions therein of certain
terms. Wherever particular defined terms of the Indenture are referred to, such
defined terms are incorporated herein by reference.
GENERAL
The Notes will be limited to $110,000,000 aggregate principal amount, of
which $75,000,000 aggregate principal amount were issued in a public offering
in August 1992 and $35,000,000 aggregate principal amount are being offered
hereby. On March 22, 1994, the Company obtained the consent of the holders of a
majority of the outstanding Notes to certain amendments to the Indenture
(including increasing to $110,000,000 the aggregate principal amount of Notes
which may be issued thereunder) so the terms of the outstanding Notes will be
identical to the terms of the Notes offered hereby. In connection therewith,
the Company has agreed to pay a total of $1,102,020 to the holders of the
outstanding Notes. The Notes offered hereby will mature on August 1, 1999. The
Notes will bear interest from the date of issuance, or from the most recent
date to which interest has been paid or provided for, at the rate stated on the
cover page hereof, payable in arrears on February 1 and August 1 of each year,
commencing August 1, 1994 to the persons in whose names the Notes are
registered at the close of business on the fifteenth day of the month preceding
the month in which the interest payment date occurs. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
The Notes offered hereby will be senior unsecured obligations of the Company,
will rank pari passu in right of payment with all senior indebtedness of the
Company, and will be senior in right of payment to all subordinated
indebtedness of the Company. With certain exceptions, the Company must satisfy
specified financial ratios to incur future indebtedness and any such
indebtedness must be subordinate in right of payment to the Notes, must be
unsecured and must be payable after the maturity of the Notes. The Notes
offered hereby will be structurally subordinated to obligations of the
Company's subsidiaries, including trade payables. The amount of future
indebtedness that may be incurred by the Company's subsidiaries will be limited
as set forth in the Indenture. At November 30, 1993, after giving effect to the
offering and the use of the net proceeds as described herein, the aggregate
amount of outstanding senior indebtedness of the Company would have been
$111,764,000. The aggregate amount of outstanding indebtedness of the Company's
subsidiaries would have been $27,255,000, consisting of mortgage banking bonds
payable. At November 30, 1993, the Company's subsidiaries had outstanding trade
payables of $20,329,000.
Principal and premium, if any, and interest on the Notes are to be payable,
and the Notes offered hereby will be exchangeable and transfers thereof will be
registrable, at the offices of the Company or its agent maintained for such
purposes in The City of New York; provided that payment of interest may, at the
option of the Company, be made by check mailed to a holder at his registered
address.
The Notes offered hereby will be issued only in fully registered form without
coupons, in denominations of $1,000 and any integral multiple thereof. The
Notes are exchangeable and transfers thereof will be registered without charge
therefor, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are redeemable at the option of the Company, in whole or in part
(in any integral multiple of $1,000), at any time on or after August 1, 1997,
on not less than 30 days, nor more than 60 days, notice mailed to the
registered holders thereof at their last registered addresses, at a redemption
price of 104% of principal amount thereof if redeemed on or after August 1,
1997 but prior to August 1, 1998 and at a redemption price of 102% of principal
amount thereof if redeemed on or after August 1, 1998, in each case, together
with accrued and unpaid interest to the redemption date.
11
<PAGE>
If less than all of the Notes are to be redeemed, the Trustee will select the
particular Notes (or the portions thereof) to be redeemed either by lot, pro
rata or by such other method as the Trustee shall deem fair and appropriate,
but in any such event, in such manner as complies with applicable legal and
stock exchange requirements. On or after the redemption date, interest will
cease to accrue on Notes or portions thereof called for redemption.
CERTAIN COVENANTS
Change in Control.
If, at any time, there occurs a Change in Control (as defined below) with
respect to the Company, each holder of Notes shall have the right upon receipt
of a Change in Control Notice (as defined below), at such holder's option, to
require the Company to repurchase all of such holder's Notes, or a portion
thereof which is $1,000 or any integral multiple thereof, on the date (the
"Change in Control Repurchase Date") that is 45 days after the date of the
Change in Control Notice at a price equal to 101% of the principal amount
thereof, plus accrued interest to the Change in Control Repurchase Date.
Within 30 days after the occurrence of a Change in Control, the Company or,
at the request of the Company, the Trustee, shall deliver to all holders of
record of the Notes a notice (the "Change in Control Notice") of the occurrence
of such Change in Control and of the repurchase right arising as a result
thereof. The Company shall deliver a copy of the Change in Control Notice to
the Trustee. To exercise the repurchase right, on or before the 30th day after
the date of the Change in Control Notice, holders of Notes must deliver written
notice to the Company (or an agent designated by the Company for such purposes)
of the holder's exercise of such right, together with the Notes with respect to
which the right is being exercised, duly endorsed for transfer. Such written
notice shall be irrevocable.
The right to require the repurchase of Notes shall not continue after a
discharge of the Company from its obligations under the Notes and the Indenture
with respect to the Notes in accordance with Article 8 of the Indenture.
If the Change in Control Repurchase Date is between a regular record date for
the payment of interest and the next succeeding interest payment date, any Note
to be repurchased must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount to be repurchased
(unless such Note shall have been called for redemption, in which case no such
payment shall be required), and the interest on the principal amount of the
Note being repurchased will be paid on such next succeeding interest payment
date to the registered holder of such Note on the immediately preceding record
date. A Note repurchased on an interest payment date need not be accompanied by
any payment, and the interest on the principal amount of the Note being
repurchased will be paid on such interest payment date to the registered holder
of such Note on the immediately preceding record date.
As used herein, a "Change in Control" of the Company shall be deemed to have
occurred at such time as any person, together with its affiliates or
associates, other than the Management Group (as defined below), is or becomes
the beneficial owner, directly or indirectly, through a purchase, merger or
other acquisition transaction, of shares of capital stock of the Company
entitling such person to exercise in excess of 50% of the total voting power of
all shares of capital stock of the Company entitled to vote in elections of
directors. "Beneficial owner" shall be determined in accordance with Rule 13d-
3, as in effect on the date of the execution of the Indenture, promulgated by
the Commission under the Exchange Act. The "Management Group" shall consist of
the executive officers of the Company as of the date of the Indenture, members
of their immediate families, certain trusts for their benefit, and legal
representatives of, or heirs, beneficiaries or legatees receiving Common Stock
(or securities convertible or exchangeable for Common Stock) under, any such
person's estate.
12
<PAGE>
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable. The Company could, in the future, enter into
certain significant transactions that would not constitute a Change in Control
with respect to the Change in Control purchase feature of the Notes. The Change
in Control purchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise,
or part of a plan by management to adopt a series of anti-takeover provisions.
Maintenance of Net Worth.
In the event that the Company's Net Worth at the end of each of any two
consecutive fiscal quarters (the last day of such second fiscal quarter being
referred to as the "Trigger Date") is less than $20,300,000 (the "Minimum Net
Worth"), then the Company shall make an offer to all holders (a "Net Worth
Offer") to acquire on a pro rata basis on the date (the "Net Worth Repurchase
Date") that is 45 days following the date of the Net Worth Notice (as defined
below), Notes in an aggregate principal amount equal to 10% of the initial
outstanding principal amount of the Notes (or if less than 10% of the aggregate
principal amount of the Notes issued are then outstanding, all the Notes
outstanding at the time) (the "Net Worth Offer Amount") at a purchase price of
100% of the principal amount thereof, plus accrued interest to the Net Worth
Repurchase Date (the "Net Worth Price"). The Company may credit against the Net
Worth Offer Amount the principal amount of Notes acquired by the Company prior
to the Trigger Date through purchase, optional redemption or exchange. The
Company, however, may not credit a specific Note in more than one Net Worth
Offer. In no event shall the failure to meet the Minimum Net Worth at the end
of any fiscal quarter be counted toward the making of more than one Net Worth
Offer. The Company shall notify the Trustee promptly after the occurrence of
any of the events specified in this provision and shall notify the Trustee in
writing if its Net Worth is equal to or less than the Minimum Net Worth for any
fiscal quarter.
Within 30 days after the Trigger Date, the Company, or, at the request of the
Company, the Trustee, shall give notice of the Net Worth Offer to each holder
(the "Net Worth Notice"). To accept a Net Worth Offer a holder shall deliver to
the Company (or to a Paying Agent designated by the Company for such purpose),
on or before the 30th day after the date of the Net Worth Notice, a written
notice of the holder's acceptance of such offer, together with the Notes with
respect to which the offer is being accepted, duly endorsed for transfer to the
Company. Such written notice may be withdrawn upon further written notice
delivered to the Trustee on or prior to the third day preceding the Net Worth
Repurchase Date.
If the Net Worth Repurchase Date is between a regular record date for the
payment of interest and the next succeeding interest payment date, any Note to
be repurchased must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount to be repurchased
(unless such Note shall have been called for redemption, in which case no such
payment shall be required), and the interest on the principal amount of the
Note being repurchased will be paid on such next succeeding interest payment
date to the registered holder of such Note on the immediately preceding record
date. A Note repurchased on an interest payment date need not be accompanied by
any payment, and the interest on the principal amount of the Note being
repurchased will be paid on such interest payment date to the registered holder
of such Note on the immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
Limitation on Debt.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee or otherwise become
liable for ("Incur"), any Debt, except Permitted Debt. "Permitted
13
<PAGE>
Debt" means (a) Debt evidenced by the Notes, (b) Debt Incurred under or in
respect of a Bank Facility (including any guarantees related thereto) for
working capital or general corporate purposes, Debt evidenced by letters of
credit, and guarantees of Debt of the Great Singing Hills joint venture in
excess of amounts committed on the date of the Indenture and which are Incurred
after the date of the Indenture; provided that the aggregate amount of all such
Debt outstanding at any time pursuant to this clause (b) may not exceed
$30,000,000, (c) Debt Incurred under a Warehouse Facility; provided that the
amount of such Debt (including funding drafts issued thereunder) outstanding at
any time pursuant to this clause (c) may not exceed $30,000,000 and the amount
of such Debt (excluding funding drafts issued thereunder) may not exceed 98% of
the value of the Mortgages available to be pledged to secure Debt thereunder,
(d) Debt of the Company to any of its Subsidiaries or of any Subsidiary of the
Company to the Company or to any other Subsidiary of the Company, provided that
such Debt is evidenced by a promissory note that is not pledged to any Person
(other than to secure a Bank Facility), (e) Existing Debt (without duplication
of Debt indicated under clauses (a)-(d) above) of the Company and its
Subsidiaries, (f) Non-Recourse Debt Incurred by the Carlsbad Subsidiary in an
amount not to exceed $18,000,000 at any time outstanding, (g) Debt in respect
of performance, completion, guarantee, surety and similar bonds or banker's
acceptances provided by the Company or any of its Subsidiaries in the ordinary
course of business, (h) Purchase Money Obligations incurred in the ordinary
course of business in an amount not exceeding $5,000,000 at any time
outstanding, (i) Acquisition Debt of a Subsidiary of the Company which, if
Incurred by the Company, would be permitted pursuant to the next succeeding
paragraph and (j) Refinancing Debt. In connection with the Milburn Acquisition,
a Subsidiary of the Company assumed as Permitted Debt a revolving credit
facility and a mortgage warehouse facility with bank commitments thereunder of
$25,000,000 and $10,000,000, respectively.
Notwithstanding the foregoing, and subject to the immediately succeeding
paragraph, the Company may Incur Debt if, at the time such Debt is so Incurred
and after giving effect thereto and the application of the proceeds therefrom,
the Company's Coverage Ratio shall not be less than 2.0 to 1.0 and its Debt to
Equity Ratio shall not exceed 3.5 to 1.0.
The Company shall not Incur any Debt (other than Permitted Debt) which is
pari passu with the Notes or requires any principal payment, redemption payment
or sinking fund payment thereon, in whole or in part, to be made prior to or at
the final stated maturity of the Notes; provided that entering into an
agreement that requires the Company to make an offer to purchase outstanding
Debt upon the occurrence of certain specified events shall not be deemed to be
restricted by this paragraph.
For purposes of this provision, any waiver, extension or continuation of any
or all mandatory prepayments or installment payments or the maturity date of
any of the Debt incurred pursuant to this provision shall not be or be deemed
to be the Incurrence of Debt by the Company.
Limitation on Restricted Payments.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment, if, after giving effect
thereto (a) an Event of Default, or an event that through the passage of time
or the giving of notice, or both, would become an Event of Default, shall have
occurred and be continuing, or (b) the aggregate amount of all Restricted
Payments (giving effect to Restricted Payments that are Advances only to the
extent then outstanding) made by the Company and its Subsidiaries (the amount
expended or distributed for such purposes, if other than in cash, to be
determined in good faith by the board of directors of the Company) from and
after the Closing Date shall exceed the sum of (i) the aggregate of 50% of the
Consolidated Net Income of the Company accrued for the period (taken as one
accounting period) commencing with June 1, 1992 to and including the first full
month ended immediately prior to the date of such calculation (or, in the event
Consolidated Net Income is a deficit, then minus 100% of such deficit),
(ii) the aggregate net cash proceeds received by the Company from the issuance
or sale (other than to a Subsidiary of the Company) of its Capital Stock (other
than Redeemable Stock), including the principal amount of any Convertible Notes
or other convertible securities issued for cash that are converted
14
<PAGE>
into Capital Stock, from and after the date of the Indenture, and options,
warrants and rights to purchase its Capital Stock (other than Redeemable
Stock), (iii) amounts received by the Company or any of its Subsidiaries
representing a return of capital of Advances made to the Great Singing Hills
joint venture outstanding on the date of the Indenture and (iv) $7,000,000. At
November 30, 1993 the Company had $30,973,000 available for Restricted
Payments.
The foregoing clauses (a) and (b) will not prevent (i) Permitted Payments,
(ii) the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions, and (iii) the
repurchase or redemption of shares of Capital Stock from any officer, director
or employee of the Company or its Subsidiaries whose employment has been
terminated or who has died or become disabled in an aggregate amount not to
exceed $500,000 per annum; provided that amounts paid pursuant to clause (iii)
shall reduce amounts available for future Restricted Payments.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, assume or otherwise cause or suffer to exist or
to become effective any consensual encumbrance or restriction on the ability of
any Subsidiary of the Company to (a) pay dividends or make any other
distributions on its Capital Stock to the Company or any of its Subsidiaries;
(b) make payments in respect of any Debt owed to the Company or any of its
Subsidiaries; or (c) make loans or advances to the Company or any of the
Company's Subsidiaries; provided, however, that the following restrictions
shall not be prohibited pursuant to this provision: (i) those contained in the
Indenture, the Bank Facility, the Warehouse Facility, any Non-Recourse Debt
Incurred by the Carlsbad Subsidiary (to the extent that restrictions in such
Non-Recourse Debt apply only to the Carlsbad Subsidiary or any Subsidiary
thereof) and Refinancing Debt (to the extent restrictions contained in such
Refinancing Debt are not more restrictive than those contained in the Debt
being refinanced); (ii) consensual encumbrances or restrictions binding upon
any person at the time such Person becomes a Subsidiary of the Company,
provided that such encumbrances or restrictions are contained in Acquisition
Debt or are not created, incurred or assumed in contemplation of such Person
becoming a Subsidiary of the Company and do not extend to any other property of
the Company or another of its Subsidiaries; (iii) restrictions contained in
security agreements permitted by the Indenture securing Debt permitted by the
Indenture to the extent such restrictions restrict the transfer of assets
subject to such security agreements; (iv) any encumbrance or restriction
consisting of customary non-assignment provisions in leases to the extent such
provisions restrict the transfer of the leases; (v) any encumbrance or
restriction pursuant to an agreement in effect on the date of the Indenture;
(vi) any restrictions with respect to a Subsidiary of the Company imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all the capital stock or assets of such
Subsidiary, or (vii) restrictions with respect to Subsidiaries of the Company
(other than wholly-owned Subsidiaries of the Company) that are not more
restrictive than those contained in the Indenture.
Limitation on Liens.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or permit to exist any Lien upon
or with respect to any of the assets of the Company or any such Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom;
provided that the restrictions in this provision shall not prohibit Permitted
Liens.
Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into any transactions with Affiliates of the
Company unless (i) such transactions are between or among the Company and its
Subsidiaries, (ii) such transactions are in the ordinary course of business and
consistent with past practice or (iii) the terms of such transactions are fair
and reasonable to the Company or such Subsidiary, as the case may be, and are
at least as favorable as the terms which could be obtained by the Company or
such Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis
15
<PAGE>
between unaffiliated parties. In the event of any transaction or series of
transactions occurring subsequent to the date of the Indenture with an
Affiliate of the Company which involves in excess of $500,000 and is not
permitted under clause (i) or (ii) of the preceding sentence, all of the
disinterested members of the Board of Directors shall by resolution determine
that such transaction or series of transactions meets the criteria set forth in
clause (iii) of the preceding sentence. Notwithstanding the foregoing, such
provisions do not prohibit the payment of regular fees to directors of the
Company who are not employees of the Company and wages and other compensation
to officers of the Company or any of its Subsidiaries.
Limitation on Certain Transfers by Subsidiaries.
The Company will not, directly or indirectly, (i) permit the Carlsbad
Subsidiary to sell, assign, transfer or otherwise dispose of all or a portion
of the Carlsbad Property to the Company or any of its Subsidiaries (other than
the Carlsbad Subsidiary); or (ii) sell, assign, transfer or otherwise dispose
of any capital stock of KDB or permit KDB to sell, assign, transfer or
otherwise dispose of any of its real property assets to the Company or any of
its Subsidiaries.
Limitation on Asset Sales.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly consummate an Asset Sale, unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the fair market value (as determined in good faith
by the board of directors of the Company) of the assets disposed of, and (ii)
the consideration for such Asset Sale consists of at least 85% cash, provided
that the amount of Debt assumed by the transferee and any notes or other
obligations received by the Company or such Subsidiary and immediately
converted into cash shall be deemed to be "cash".
Within 30 days from the date that any Carlsbad Asset Sale or Subsidiary
Common Stock Sale is consummated, the Company or such Subsidiary, as the case
may be, will use the Net Proceeds thereof (less any amounts used to pay
reasonable fees and expenses connected with a Net Proceeds Offer) to make an
offer to repurchase the Notes at a price equal to 100% of the principal amount
thereof, plus accrued interest to the Net Proceeds Repurchase Date (a "Net
Proceeds Offer").
Within 12 months from the date that any Other Asset Sale is consummated, the
Net Proceeds thereof will be reinvested in Additional Assets or applied to the
redemption or repurchase of Debt of the Company under the Bank Facility or Debt
of a Subsidiary of the Company (which, in each case, will be a permanent
reduction of such Debt). To the extent that the Net Proceeds of an Other Asset
Sale are not so applied, the Company or such Subsidiary, as the case may be,
will, within 30 days from the expiration of such 12-month period, use the
remaining Net Proceeds (less any amounts used to pay reasonable fees and
expenses connected with a Net Proceeds Offer) to make a Net Proceeds Offer for
the Notes at a price equal to 100% of the principal amount thereof, plus
accrued interest to the Net Proceeds Repurchase Date.
Notwithstanding the foregoing, the Net Proceeds of an Other Asset Sale are
not required to be applied in accordance with the preceding paragraph, unless
and until the aggregate Net Proceeds for all such Other Asset Sales in a 12-
month period exceeds $1,000,000.
To accept a Net Proceeds Offer a holder shall deliver to the Company (or to a
Paying Agent designated by the Company for such purpose) on or before the 30th
day after the date of the Net Proceeds Offer, a written notice of the holder's
acceptance of the Net Proceeds Offer, together with the Notes with respect to
which the offer is being accepted, duly endorsed for transfer to the Company.
Such written notice may be withdrawn upon further written notice to the Trustee
on or prior to the third day preceding the Net Proceeds Repurchase Date.
If the Net Proceeds Repurchase Date is between a regular record date for the
payment of interest and the next succeeding interest payment date, any Note to
be repurchased must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount to be repurchased
16
<PAGE>
(unless such Note shall have been called for redemption, in which case no such
payment shall be required), and the interest on the principal amount of the
Note being repurchased will be paid on such next succeeding interest payment
date to the registered holder of such Note on the immediately preceding record
date. A Note repurchased on an interest payment date need not be accompanied by
any payment, and the interest on the principal amount of the Note being
repurchased will be paid on such interest payment date to the registered holder
of such Note on the immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
Any amount of Net Proceeds remaining after a Net Proceeds Offer shall be
returned by the Trustee to the Company and may be used by the Company for any
purpose not inconsistent with the Indenture.
Limitation on the Issuance of Preferred Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries, directly or indirectly,
to issue or sell any shares of its Preferred Stock (including options, warrants
or other rights to purchase shares of such Preferred Stock) other than shares
of Preferred Stock that are Acquisition Debt which, if incurred by the Company,
would be Debt (other than Permitted Debt) permitted to be Incurred by the
Company under the "Limitation on Debt" covenant.
CERTAIN DEFINITIONS
In addition to the terms defined above, the Indenture contains, among other
things, the following definitions:
"Acquisition Debt" means (i) Debt or Preferred Stock of any Person existing
at the time such Person becomes a Subsidiary of the Company, including but not
limited to Debt or Preferred Stock incurred or created in connection with, or
in contemplation of, such Person becoming a Subsidiary of the Company (but
excluding Debt of such Person which is extinguished, retired or repaid in
connection with such Person becoming a Subsidiary of the Company), (ii) Debt
incurred or created by any Subsidiary of the Company in connection with the
transaction or series of transactions pursuant to which such Person became a
Subsidiary of the Company or (iii) Debt incurred or created by any Subsidiary
of the Company in connection with the acquisition of substantially all of the
assets of an operating unit or business of another Person, provided that, in
the case of Debt incurred or created pursuant to clause (ii) or (iii) hereof,
such Subsidiary had no other prior assets or operations prior to such
acquisition, transaction or series of transactions other than Advances
permitted by the "Limitation on Restricted Payments" covenant or made by a
Person other than the Company or any of its Subsidiaries.
"Additional Assets" means assets used or usable by the Company or any of its
Subsidiaries in the operation of the existing lines of business of the Company
and its Subsidiaries.
"Advances" means any direct or indirect advance, loan or other extension of
credit or capital contribution to, or any purchase or acquisition of capital
stock, bonds, notes, debentures or other securities issued or owned by, any
other Person, including, without limitation, payments by the Company or any of
its Subsidiaries to a Person other than the Company or any of its Subsidiaries
in connection with an acquisition in which Acquisition Debt is Incurred.
"Affiliate" of any Person means (i) any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person and (ii) any other Person that beneficially owns at least 10% of
the voting common stock of such Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Asset Sale" means a Carlsbad Asset Sale, Subsidiary Common Stock Sale or
Other Asset Sale, as the case may be.
"Bank Facility" means, collectively, one or more commitments from one or more
banks or other lending institutions to lend funds, together with any and all
agreements, documents and instruments from time to time delivered in connection
therewith as such commitments or any such agreements, documents or instruments
may be in effect or amended, amended and restated, renewed, extended,
restructured, supplemented or otherwise modified from time to time and any
credit agreement, loan agreement, note purchase agreement, indenture or other
agreement, document or instrument refinancing, refunding or otherwise replacing
such Bank Facility, whether or not with the same agent, trustee, representative
lenders or holders, and, subject to the proviso to the next succeeding
sentence, irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Bank Facility"
shall include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any Bank Facility and all
refundings, refinancings and replacements of any Bank Facility, including any
agreement (i) extending the maturity of any Debt incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, provided that such borrowers and issuers include one or more of the
Company and its Subsidiaries and their respective successors and assigns, (iii)
increasing the amount of Debt incurred thereunder or available to be borrowed
thereunder, provided that on the date thereof such Debt would not be prohibited
by clause (b) of the definition of Permitted Debt set forth under the
"Limitation on Debt" covenant, or (iv) otherwise altering the terms and
conditions thereof in a manner not prohibited by the terms of the Indenture.
"Carlsbad Asset Sale" means the sale of the stock of the Carlsbad Subsidiary
or the sale of all or substantially all of the assets of the Carlsbad
Subsidiary where the Net Proceeds of any such sale are received by the Company
and not one of its Subsidiaries.
"Carlsbad Property" means the 417 acres owned by the Carlsbad Subsidiary in
Carlsbad, California, located in San Diego County.
"Carlsbad Subsidiary" means Rancho Carillo, Inc., a Delaware corporation and
a Subsidiary of the Company.
"Closing Date" means the date on which the Notes are originally issued.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount of interest which, in accordance with generally accepted
accounting principles, would be included on an income statement for such Person
and its Subsidiaries on a consolidated basis, whether expensed directly, or
included as a component of cost of goods sold, or allocated to joint ventures
or otherwise (including, but not limited to, imputed interest included on
capitalized lease obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, amortization of
other financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount or premium, if any, and all other non-cash
interest expense), excluding interest expense related to such Person's mortgage
banking operations, plus the product of (x) the sum of (i) cash dividends paid
on any Preferred Stock of such Person plus (ii) cash dividends, the principal
amount of any debt securities issued as a dividend, the liquidation value of
any Preferred Stock issued as a dividend and the fair market value (as
determined by such Person's board of directors in good faith) of any other non-
cash dividends, in each case, paid on any Preferred Stock of any Subsidiary of
such Person (other than a wholly-owned Subsidiary), times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective aggregate federal, state and local tax rate of such Person,
expressed as a decimal.
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"Consolidated Interest Incurred" of any Person means, for any period, (a) the
aggregate amount of interest which, in accordance with generally accepted
accounting principles, would be included on an income statement for such Person
and its Subsidiaries on a consolidated basis, whether expensed directly, or
included as a component of cost of goods sold, or allocated to joint ventures
or otherwise (including, but not limited to, imputed interest included on
capitalized lease obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, amortization of
other financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount or premium, if any, and all other non-cash
interest expense), excluding interest expense related to such Person's mortgage
banking operations, plus or minus, without duplication, (b) the difference
between capitalized interest for such period and the interest component of cost
of goods sold for such period, plus (c) the product of (x) the sum of (i) cash
dividends paid on any Preferred Stock of such Person plus (ii) cash dividends,
the principal amount of any debt securities issued as a dividend, the
liquidation value of any Preferred Stock issued as a dividend and the fair
market value (as determined by such Person's board of directors in good faith)
of any other non-cash dividends, in each case, paid on any Preferred Stock of
any Subsidiary of such Person (other than a wholly-owned Subsidiary), times (y)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current effective aggregate federal, state and local tax rate of
such Person, expressed as a decimal.
"Consolidated Net Income" of any Person, for any period, means the net income
(loss) of such Person and its Subsidiaries for such period, determined on a
consolidated basis, in accordance with generally accepted accounting
principles, provided that, without duplication, (i) the net income of any
Person, other than a Subsidiary which is consolidated with such Person, in
which such Person or any of its Subsidiaries has a joint interest with a third
party shall be included only to the extent of the amount of dividends or
distributions actually paid in cash to such Person or a Subsidiary during such
period, (ii) the net income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iii) the net income of any Subsidiary of such Person shall be
excluded to the extent such Subsidiary is prohibited, directly or indirectly,
from distributing such net income or any portion thereof to such Person and
(iv) all extraordinary gains and losses (after taxes) that would be included on
an income statement for such Person on a consolidated basis for such period
shall be excluded.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges (other than
reserves or expenses established in anticipation of future cash requirements
such as reserves for taxes and uncollectible accounts) of such Person and its
Subsidiaries, on a consolidated basis, for such period, as determined in
accordance with generally accepted accounting principles, provided that
Consolidated Non-cash Charges shall exclude (i) any charges that are not
included for the purpose of determining Consolidated Net Income, (ii) any
charges that are included for the purpose of determining Consolidated Interest
Expense or Consolidated Tax Expense and (iii) any charges representing
capitalized selling, general and administrative expenses that are expensed
during such period as cost of goods sold.
"Consolidated Tax Expense" of any Person means, for any period, the aggregate
of the tax expense of such Person and its Subsidiaries for such period,
determined on a consolidated basis, in accordance with generally accepted
accounting principles.
"Convertible Notes" means the Company's 6 7/8% Convertible Subordinated Notes
due 2002.
"Coverage Ratio" of any Person means the ratio of such Person's EBITDA to its
Consolidated Interest Incurred for the four fiscal quarters ending immediately
prior to the date of determination. Notwithstanding clause (ii) of the
definition of Consolidated Net Income, if the Debt which is being Incurred is
Acquisition Debt, the Coverage Ratio shall be determined after giving effect to
both the Consolidated Interest Incurred related to the Incurrence of such
Acquisition Debt and the EBITDA (x) of the Person becoming a Subsidiary of such
Person or (y) in the case of an acquisition of assets that constitute
substantially all of an operating unit or business, relating to the assets
being acquired by such Person.
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"Debt" means, as to any Person, without duplication, (a) any indebtedness of
such Person, for borrowed money, (b) all indebtedness of such Person evidenced
by bonds, debentures, notes, letters of credit, drafts or similar instruments,
(c) all indebtedness of such Person to pay the deferred purchase price of
property or services, but not including accounts payable and accrued expenses
arising in the ordinary course of business, (d) all capitalized lease
obligations of such Person, (e) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person or
guaranteed by such Person, (f) Redeemable Stock and (g) all Debt of others
guaranteed by such Person. The amount of Debt of any Person at any date
pursuant to clauses (a)-(d) and (f) above shall be as would appear as a
liability upon a balance sheet of such Person prepared on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt to Equity Ratio" of any Person means the ratio of all of such Person's
then outstanding Debt, on a consolidated basis, excluding Mortgage Debt, to Net
Worth at the end of the fiscal quarter ended immediately preceding the date of
determination.
"EBITDA" for any Person, for any period, means, without duplication, the
Consolidated Net Income of such Person plus, to the extent deducted in
calculating Consolidated Net Income, the sum of (a) Consolidated Tax Expense,
(b) Consolidated Interest Expense and (c) Consolidated Non-cash Charges.
"Existing Debt" means all of the Debt of the Company and its Subsidiaries
that was outstanding on August 1, 1992.
"FHA" means The Federal Housing Administration and any successor thereto.
"guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such Person to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt of such other
Person (whether by agreement to keep-well or to maintain financial condition or
otherwise), provided that the term "guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
"KDB" means KDB Homes, Inc., a Delaware corporation and a Subsidiary of the
Company.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
assignment (including any assignment of rights to receive payments of money
other than in connection with mortgage banking operations in the ordinary
course of business), charge, security interest or encumbrance of any kind
(including any conditional sale or other title retention agreement or any lease
in the nature thereof) in respect of such asset and any agreement to grant to
any Person any such Lien.
"Mortgage" means a first priority mortgage or first priority deed of trust on
improved real property.
"Mortgage Debt" means such mortgage banking debt as would be shown on the
consolidated balance sheet of the Company prepared in accordance with generally
accepted accounting principles.
"Net Proceeds" with respect to any Asset Sale means (i) cash (in U.S. dollars
or freely convertible into U.S. dollars) received by the Company or any of its
Subsidiaries from such Asset Sale (including cash received as consideration for
the assumption or incurrence of liabilities incurred in connection with or in
anticipation of such Asset Sale), after (a) provision for all income or other
taxes measured by or resulting from such Asset Sale to the Company or any of
its Subsidiaries, whether or not offset by net operating loss and tax credit
carry-forwards, (b) payment of all brokerage commissions and the underwriting
fees and, without limitation, all other fees and expenses related to such Asset
Sale, and (c) deduction of appropriate amounts to be provided by the Company or
any of its Subsidiaries as a reserve, in accordance with generally accepted
accounting principles, against any liabilities associated with the assets sold
or otherwise disposed of in such Asset Sale (including, without limitation,
pension and other post-employment benefit liabilities and liabilities related
to
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environmental matters) or against any indemnification obligations associated
with the sale or other disposition of the assets sold or otherwise disposed of
in such Asset Sale, and (ii) all noncash consideration received by the Company
or any of its Subsidiaries from such Asset Sale upon the liquidation or
conversion of such consideration into cash.
"Net Worth" of any Person means, at any date, the aggregate of capital,
surplus and retained earnings of such Person as would be shown on a
consolidated balance sheet of such Person prepared in accordance with generally
accepted accounting principles, adjusted to exclude (to the extent included)
investments by such Person and its Subsidiaries in joint ventures and the
amount of equity attributable to Affiliates other than Subsidiaries of such
Person.
"Non-Recourse Debt" means Debt or other obligations to the extent that the
liability for such Debt or other obligations does not extend to the Company or
any of its Subsidiaries (other than the Subsidiary incurring such Debt or which
holds title to any property securing such Debt) for any deficiency, including
liability by reason of any agreement by the Company or any of its Subsidiaries
to maintain the financial condition of, keep-well or otherwise support the
credit of the Subsidiary incurring such Debt.
"Other Asset Sale" means the sale of all or substantially all of the assets
of any Subsidiary of the Company (other than the Carlsbad Subsidiary) other
than in the ordinary course of business, except sales to a wholly-owned
Subsidiary of the Company, sales of stock of the Carlsbad Subsidiary, and
Subsidiary Common Stock Sales.
"Permitted Liens" with respect to the Company and its Subsidiaries means (i)
Liens on assets of the Company or any Subsidiary of the Company securing a Bank
Facility, provided that the Liens granted in respect of a Bank Facility shall
not extend to assets having a book value in the aggregate in excess of two
times the amount committed under such Bank Facility; (ii) Liens securing a
Warehouse Facility, provided that such Liens shall not extend to any assets
other than the mortgages, promissory notes and other collateral that secures
mortgage loans made by the Company or any of its Subsidiaries; (iii) Liens
securing Non-Recourse Debt incurred by the Carlsbad Subsidiary, provided that
such Liens shall not extend to any assets of the Company or any of its
Subsidiaries other than the Carlsbad Subsidiary; (iv) Liens for taxes,
assessments or governmental charges or claims that either (a) are not yet
delinquent or (b) are being contested in good faith by appropriate proceedings
and as to which appropriate reserves have been established or other provisions
have been made in accordance with generally accepted accounting principles; (v)
statutory Liens of landlords and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's or other Liens imposed by law and
arising in the ordinary course of business; (vi) Liens (other than any Lien
imposed by the Employee Retirement Income Security Act of 1974, as amended)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (vii) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds, progress
payments, government contracts and other obligations of like nature (exclusive
of obligations for the payment of borrowed money), in each case, incurred in
the ordinary course of business; (viii) attachment or judgment Liens not giving
rise to a Default or Event of Default; (ix) easements, rights-of-way,
restrictions and other similar charges or encumbrances not materially
interfering with the ordinary conduct of the business of the Company or any of
its Subsidiaries; (x) leases or subleases granted to others not materially
interfering with the ordinary conduct of the business of the Company or any of
its Subsidiaries; (xi) Liens with respect to Acquisition Debt; provided that
such Liens do not extend to any other assets of the Company or the assets of
any of the Company's other Subsidiaries; (xii) Liens securing Refinancing Debt;
provided that such Liens only extend to the assets securing the Debt being
refinanced, such refinanced Debt was previously secured and such Liens do not
extend to any other assets of the Company or the assets of any of the Company's
other Subsidiaries; (xiii) Liens securing Purchase Money Obligations (including
capitalized lease obligations); (xiv) Liens existing on the date of the
Indenture; and (xv) any contract to sell an asset provided such sale is
otherwise permitted under the Indenture.
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"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (i) the redemption, repurchase or other acquisition or retirement
of any shares of any class of Capital Stock in exchange for (including any
exchange pursuant to the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of fractional
shares), or out of the proceeds of a substantially concurrent issue and sale
(other than to a Subsidiary) of, shares of Capital Stock (other than Redeemable
Stock) of the Company, provided that the proceeds of any such issuance and sale
of shares of Capital Stock of the Company shall not be included in
determination of amounts available for Restricted Payments, (ii) any dividend
or other distribution on any shares of its Capital Stock payable by a
Subsidiary to the Company or another of its Subsidiaries, or (iii) any wages or
other compensation paid by the Company or any of its Subsidiaries to their
employees.
"Person" means any individual, corporation, partnership, association, trust
or other entity or organization, including a government or political
subdivision or agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"Purchase Money Obligations" means Debt of any Person secured by Liens (i) on
property purchased, acquired, or constructed by such Person or its Subsidiaries
after the date of the Indenture and used in the ordinary course of business by
such Person and (ii) securing the payment of all or any part of the purchase
price or construction cost of such assets and limited to the property so
acquired and improvements thereof; provided that such Debt is incurred no later
than 90 days after the acquisition of such property or completion of such
construction or improvements.
"Redeemable Stock" means, with respect to any Person, any class or series of
Capital Stock of such Person that is redeemable at the option of the holder
(except pursuant to a change in control provision that does not (i) cause such
Capital Stock to become redeemable in circumstances which would not constitute
a Change in Control and (ii) require the Company to pay the redemption price
therefor prior to the Change in Control Repurchase Date) or is subject to
mandatory redemption or otherwise matures prior to the final stated maturity of
the Notes.
"Refinancing Debt" means Debt that refunds, refinances or extends any Notes,
Existing Debt (other than Existing Debt to be repaid with the net proceeds of
the offering of the Notes) or other Debt incurred by the Company or its
Subsidiaries pursuant to the terms of the Indenture, but only to the extent
that (i) the Refinancing Debt is subordinated to the Notes to the same extent
as the Debt being refunded, refinanced or extended, if at all, (ii) the
Refinancing Debt is scheduled to mature either (a) no earlier than the Debt
being refunded, refinanced or extended, or (b) after the maturity date of the
Notes, (iii) the portion, if any, of the Refinancing Debt that is scheduled to
mature on or prior to the maturity date of the Notes has a Weighted Average
Life to Maturity at the time such Refinancing Debt is Incurred that is equal to
or greater than the Weighted Average Life to Maturity of the portion of the
Debt being refunded, refinanced or extended that is scheduled to mature on or
prior to the maturity date of the Notes, (iv) the obligor of such Refinancing
Debt shall be the Company or the same obligor as the Debt being refunded,
refinanced or extended, (v) the gross proceeds of such Refinancing Debt is an
amount that is equal to or less than the aggregate principal amount then
outstanding under the Debt being refunded, refinanced or extended and (vi) any
guarantees of Debt of the Great Singing Hills joint venture that are
outstanding after the second anniversary of the Closing Date shall be expressly
subordinated to the Notes.
"Restricted Payments" means with respect to any Person (i) any dividend or
other distribution on any shares of such Person's Capital Stock (except
dividends or distributions in additional shares of Capital Stock other than
Redeemable Stock), (ii) any payment on account of the purchase, redemption or
other acquisition of (a) any shares of such Person's Capital Stock or (b) any
option, warrant or other right to acquire shares of
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such Person's Capital Stock, (iii) any Advances to Affiliates Incurred after
the date of the Indenture; provided, that for purposes of this provision an
individual shall not be deemed to be an Affiliate of the Company or any of its
Subsidiaries solely because such individual is employed by the Company or any
of its Subsidiaries or, (iv) any principal payment, redemption, repurchase,
defeasance or other acquisition or retirement, prior to scheduled principal
payment or scheduled maturity, of Debt of the Company or its Subsidiaries which
is subordinated in right of payment to the Notes, provided, however, that with
respect to the Company and its Subsidiaries, Restricted Payments shall not
include (a) any payment described in clause (i), (ii) or (iii) above made to
the Company or any of its Subsidiaries (other than the Carlsbad Subsidiary (in
the case of clause (iii)) or any of its Subsidiaries which has liability in
respect of Acquisition Debt) by the Company or any of its Subsidiaries, (b) any
underwritten call of the Convertible Notes or other Debt of the Company which
is convertible into Capital Stock (other than Redeemable Stock) but only to the
extent the Company is not required to make any redemption or principal payments
in respect of Debt subject to such underwritten call (other than redemption and
principal payments which are covered by the net proceeds received by the
Company from a concurrent sale of Capital Stock (other than Redeemable Stock)
to the underwriters effecting such underwritten call), (c) any repurchase,
redemption or defeasance of Existing Debt to be repaid with the net proceeds of
the offering of the Notes as set forth on Schedule I to the Indenture or (d)
the use of any Net Proceeds from Asset Sales remaining after the consummation
of any required Net Proceeds Offer to redeem, repurchase, defease or otherwise
acquire or retire any Debt of the Company that ranks subordinate in right of
payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation of which
a majority of the capital stock having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar
functions is at the time directly or indirectly owned by such Person or one or
more of the other Subsidiaries of that Person or (ii) any partnership or joint
venture at least a majority of the voting power of which is at the time
directly or indirectly owned by such Person or one or more of the other
Subsidiaries of that Person, or a combination thereof or a successor thereto.
"Subsidiary Common Stock Sale" means the issuance or sale of in excess of 10%
of the common stock of any Subsidiary of the Company to any Person other than
the Company or one of its Subsidiaries, other than a sale of the common stock
of the Carlsbad Subsidiary.
"Tangible Net Worth" of any Person means such Person's Net Worth less
unamortized debt and expense, unamortized deferred charges, goodwill, patents,
trademarks, copyrights, and all other items which would be treated as
intangibles on the consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles.
"VA" means the Veterans Administration and any successor thereto.
"Warehouse Facility" means a Bank Facility to finance the making of FHA/VA
and conforming conventional mortgage loans originated by the Company or any of
its Subsidiaries.
"Weighted Average Life to Maturity" means, when applied to any Debt or
portion thereof, if applicable, at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Debt or portion
thereof, if applicable, into (ii) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
EVENTS OF DEFAULT
The following shall constitute Events of Default with respect to the Notes:
(i) failure to pay the principal of any Note when such principal becomes due
and payable at maturity, upon acceleration or otherwise, (ii) failure to pay
interest when due, and such failure continues for a 30-day period; (iii) a
default in the
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observance or performance of any other covenant or agreement of the Company in
the Note or the Indenture that continues for the period and after the notice
specified below; (iv) an event of default shall have occurred under any other
evidence of indebtedness of the Company or any of its Subsidiaries, whether
such indebtedness now exists or is created hereafter, which event of default
results in the acceleration of such indebtedness which, together with any such
other indebtedness so accelerated, aggregates more than $2,000,000 and such
acceleration shall be in effect; (v) any final judgment or judgments for
payment of money in excess of $2,000,000 in the aggregate shall be rendered
against the Company or any of its Subsidiaries and shall remain unstayed,
unsatisfied or undischarged for the period and after the notice specified
below; and (vi) certain events of bankruptcy, insolvency or reorganization. The
Company is required to deliver to the Trustee within 120 days after the end of
each fiscal year of the Company, an officer's certificate stating whether or
not the signatories know of any default by the Company under the Indenture and
the Notes and, if any default exists, describing such default.
A default under clause (iii) or (v) above is not an Event of Default until
the Trustee or the holders of at least 25% in principal amount of the Notes
then outstanding notify the Company of the default and the Company does not
cure the default within 60 days. The notice must specify the default, demand
that it be remedied and state that the notice is a "Notice of Default." If the
holders of 25% in principal amount of Notes then outstanding request the
Trustee to give such notice on their behalf, the Trustee shall do so.
In case an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) shall have occurred and be
continuing, the Trustee, by notice to the Company, or the holders of 25% of the
principal amount of the Notes then outstanding, by notice to the Company and
the Trustee, may declare the principal of the Notes, plus accrued interest, to
be immediately due and payable. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization shall occur, such
amounts shall be due and payable without any declaration or any act on the part
of the Trustee or the holders of the Notes. Any declaration of acceleration may
be rescinded and past defaults may be waived by the holders of a majority of
the principal amount of the Notes then outstanding upon conditions provided in
the Indenture. Except to enforce the right to receive payment of principal or
interest when due, no holder of a Note may institute any proceeding with
respect to the Indenture or for any remedy thereunder unless such holder has
previously given to the Trustee written notice of a continuing Event of Default
and unless the holders of 25% of the principal amount of the Notes then
outstanding have requested the Trustee to institute proceedings in respect of
such Event of Default and have offered the Trustee reasonable indemnity against
loss, liability and expense to be thereby incurred, the Trustee has failed so
to act for 60 days after receipt of the same and during such 60-day period the
holders of a majority of the principal amount of the Notes then outstanding
have not given the Trustee a direction inconsistent with the request. Subject
to certain restrictions, the holders of a majority in principal amount of the
Notes then outstanding will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of any holder of a Note or that would
involve the Trustee in personal liability and the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
MODIFICATION OF THE INDENTURE
Except in certain circumstances, the Indenture, and the obligations of the
Company and the rights of the holders of the Notes may be modified by the
Company only with the consent of the holders of more than 50% in aggregate
principal amount of the outstanding Notes; but no modifications of certain
provisions of the Indenture including any modification of the terms of payment
of principal (or premium, if any) or interest (which shall not include required
offers to purchase) or a modification reducing the percentage required for
modification or waiver of compliance with certain provisions of the Indenture
or for waiver of certain defaults will be effective against any holder of Notes
without such holder's consent. On March 22, 1994, the Company obtained the
consent of the holders of a majority of the outstanding Notes to certain
amendments to the Indenture, including to permit the sale of the Notes being
offered hereby.
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<PAGE>
MERGER AND CONSOLIDATION
The Company shall not consolidate or merge with or into any other entity or,
directly or indirectly, sell, assign, transfer, lease or otherwise dispose of
all or substantially all of its assets to any Person unless (i) the surviving
or successor entity in the event of a merger or consolidation, or the person to
which a sale, assignment, transfer or lease is made (the "Surviving Entity")
(a) is an entity organized and existing under the laws of the United States,
any state thereof or the District of Columbia and (b) expressly assumes by
supplemental indenture all the obligations of the Company under the Notes and
the Indenture; (ii) immediately after giving effect to such transaction, no
Event of Default and no event which, after notice or lapse of time, or both,
would become an Event of Default, would exist; (iii) the Tangible Net Worth of
the Company or the Surviving Entity, as the case may be, on a pro forma basis
after giving effect to such consolidation, merger or sale, lease or conveyance
of assets would be at least equal to the Tangible Net Worth of the Company
immediately prior to the date of such transaction; and (iv) immediately after
giving effect to such transaction, the Company or the Surviving Entity, as the
case may be, would be able to incur $1.00 of additional Debt (other than
Permitted Debt) under the "Limitation on Debt" covenant. Notwithstanding the
foregoing, clauses (iii) and (iv) shall not prohibit a transaction, the
principal purpose of which is (as determined in good faith by the board of
directors of the Company) to change the state of incorporation of the Company,
and such transaction does not have as one of its purposes the evasion of the
restrictions of this provision.
DEFEASANCE
Under the terms of the Indenture and the Notes, the Company, at its option,
(a) will be Discharged (as defined in the Indenture) from any and all
obligations in respect of the Notes (except in each case for certain
obligations to register the transfer or exchange of Notes, replace stolen, lost
or mutilated Notes, maintain paying agencies and hold moneys for payment in
trust) or (b) need not comply with the covenants of the Indenture nor be
subject to the operation of the cross acceleration provisions described under
"Events of Default," in each case, if the Company irrevocably deposits with the
Trustee, in trust, money or U.S. Government Obligations (as defined in the
Indenture) which through the payment of interest thereon and principal thereof
in accordance with their terms will provide money in an amount sufficient to
pay the principal of and interest on the Notes on the dates such payments are
due in accordance with the terms of the Notes.
To exercise either option above, the Company is required to deliver to the
Trustee an opinion of counsel that the holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
defeasance and will be subject to Federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
defeasance had not occurred.
In the event the Company exercises its option under clause (b) of the second
preceding paragraph and the Notes are declared due and payable because of the
occurrence of any Event of Default (other than the cross acceleration
provisions described under "Events of Default" which will be inapplicable), the
amount of money and U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their stated
maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
shall remain liable for such payments.
GOVERNING LAW
The Indenture and the Notes are governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
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<PAGE>
UNDERWRITING
Kidder, Peabody & Co. Incorporated, the Underwriter, has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company all of the Notes offered hereby. The Underwriting Agreement provides
that the Underwriter is obligated to purchase all the Notes offered hereby if
any are purchased.
The Company has been advised by the Underwriter that it proposes to offer the
Notes offered hereby to the public at the offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of 1.00% of the principal amount of the Notes offered hereby, and
that it and such dealers may re-allow a discount of not more than 0.25% of the
principal amount of the Notes offered hereby to other dealers. After the public
offering of the Notes offered hereby, the public offering price, the selling
concession and discount to dealers may be changed by the Underwriter.
When issued, the Notes offered hereby will be part of a class of securities
with an aggregate principal amount of $110,000,000. The Notes will not be
listed on any national securities exchange and will not be quoted on NASDAQ.
The Company has been advised by the Underwriter that it presently makes a
market in the outstanding Notes and intends to make a market in the Notes
offered hereby, but it is not obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Underwriter is
providing financial advisory services to the Company in connection with the
Company's concurrent solicitation of consents from holders of outstanding
Notes.
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the Notes offered
hereby are being passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and for
the Underwriter by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The audited financial statements and schedules of the Company incorporated by
reference in this Prospectus have been audited by Arthur Andersen & Co.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Milburn Investments, Inc. appearing
in the Continental Homes Holding Corp. report on Form 8-K/A-1 dated July 29,
1993, have been audited by Ernst & Young, independent auditors as set forth in
their report thereon included therein and incorporated herein by reference,
which, as it relates to the years 1991 and 1990, is based in part on the
reports of Price Waterhouse and Pena, Swayze & Co., respectively, on the
financial statements of Miltex Mortgage of Texas, Inc. (a subsidiary) as of and
for the years ended November 30, 1991 and 1990. Such financial statements
referred to above are incorporated herein by reference in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
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<PAGE>
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND ANY INFOR-
MATION OR REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE HEREIN
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDER-
WRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITY OTHER
THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information...................................................... 2
Incorporation of Documents by Reference.................................... 2
Prospectus Summary......................................................... 3
The Residential Real Estate Industry....................................... 8
Use of Proceeds............................................................ 9
Capitalization............................................................. 9
Unaudited Pro Forma Combined Financial Data................................ 10
Description of Notes....................................................... 11
Underwriting............................................................... 26
Legal Matters.............................................................. 26
Experts.................................................................... 26
</TABLE>
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$35,000,000
CONTINENTAL HOMES HOLDING CORP.
12% SENIOR NOTES DUE 1999
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PROSPECTUS
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KIDDER, PEABODY & CO.
INCORPORATED
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