SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-14830
CONTINENTAL HOMES HOLDING CORP.
(Exact name of registrant as specified in its charter)
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Delaware
State or other jurisdiction of 86-0554624
incorporation or organization) (I.R.S. Employer Identification Number)
7001 North Scottsdale Road, Suite 2050
Scottsdale, Arizona 85253
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 483-0006
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of July 29, 1996 was $122,289,320. (This calculation
assumes that all officers and directors of the Company are affiliates.)
The number of shares of Common Stock outstanding as of July 29, 1996
was 7,007,330.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders for the year
ended May 31, 1996 are incorporated herein by reference into Part II and
portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held August 29, 1996 are incorporated herein by reference
into Part III.
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended
May 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Business Page
General............................................................................ 1
Land Acquisition and Development................................................... 1
Product Lines...................................................................... 2
Contract Backlog................................................................... 3
Marketing.......................................................................... 3
Construction and Customer Service.................................................. 4
Mortgage Banking................................................................... 4
Competition........................................................................ 5
Regulation......................................................................... 5
Employees.......................................................................... 5
Item 2. Properties......................................................................... 6
Item 3. Legal Proceedings.................................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders................................ 6
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters................................................................ 6
Item 6. Selected Financial Data............................................................ 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 7
Item 8. Financial Statements and Supplementary Data........................................ 7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................... 7
Part III
Item 10. Directors and Executive Officers of the Registrant................................. 7
Item 11. Executive Compensation............................................................. 7
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 7
Item 13. Certain Relationships and Related Transactions..................................... 7
Part IV
Item 14. Exhibits and Reports on Form 8-K................................................... 7
</TABLE>
<PAGE>
Part I
Item 1. Business
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GENERAL
Continental Homes Holding Corp. (the "Company"), a Delaware corporation, was
formed in June 1986. The Company designs, constructs and sells high quality
single-family homes targeted primarily to entry-level and first-time move-up
homebuyers. The Company is geographically diversified, currently operating in
Phoenix, Arizona; Austin, San Antonio and Dallas, Texas; Denver, Colorado; South
Florida and Southern California. The Company entered the Dallas/Fort Worth,
Texas market in June 1996 through the acquisition of Westchester Homes. The
Company entered the Austin, San Antonio and South Florida markets in July 1993,
January 1994 and November 1994, respectively, through acquisitions of existing
homebuilders. In July 1996, the Company opened for sales at "Arizona
Traditions", its first active adult community. When completed, the community
will have approximately 1,800 homes, a golf course, community center and many
other amenities. The Company complements its homebuilding activities by
providing mortgage banking services to its homebuyers and to third parties in
most locations.
LAND ACQUISITION AND DEVELOPMENT
As of May 31, 1996, the Company operated 16 subdivisions in Phoenix, 15
subdivisions in Austin, 10 subdivisions in Denver, 8 subdivisions in San
Antonio, 5 subdivisions in Miami and 5 subdivisions in Southern California. The
following table summarizes the Company's available lot inventory at May 31, 1996
by location:
AVAILABLE LOT INVENTORY
<TABLE>
<CAPTION>
Sites Available
Homes Under for Future
Construction Construction
Total Lots ------------ -------------
Available Sold Specs(1) Models Unsold Sold
--------- ---- -------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Phoenix(2)................. 4,526 762 210 49 3,435 70
Texas(3)................... 6,164 626 173 42 5,297 26
Denver..................... 1,281 231 67 20 902 61
Miami...................... 1,364 125 37 18 1,120 64
California................. 479 83 72 9 293 22
------ ----- --- --- ------ ---
Total........ 13,814 1,827 559 138 11,047 243
====== ===== === === ====== ===
</TABLE>
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(1) Speculative units are unsold homes under construction.
(2) Includes 1,800 units at Arizona Traditions.
(3) Includes operations in Austin and San Antonio.
The Company's objective is to maintain a supply of land to meet anticipated
homebuilding requirements for approximately two to three years. At May 31, 1995
and 1996, the Company had an aggregate of 10,150 and 11,047 unsold lots,
respectively, which represents approximately 38 and 30 months of inventory,
respectively, based on actual deliveries in each of fiscal 1995 and 1996. The
Company believes that an adequate supply of undeveloped land is available in its
markets to maintain current levels of homebuilding. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources."
As of May 31, 1996, the Company also owned 417 acres in Carlsbad, California,
located in San Diego County. Discretionary city entitlements for this project,
which will result in approximately 760 dwelling units, were approved by the
Carlsbad City Council in March 1995. The Company is currently working
1
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with state and federal governmental agencies regarding environmental issues with
regard to the property and is preparing final improvement plans for the project.
The Company is unable to predict the date on which all additional approvals
necessary to commence development will be received, but it is currently actively
seeking these additional approvals and will commence development as soon as the
aforementioned approvals are received and financing is obtained.
PRODUCT LINES
The product line constructed by the Company in a particular subdivision is
dependent upon many factors, including the housing generally available in the
area, the needs of the particular market and the Company's cost of lots in the
subdivision. The Company typically offers between three and sixteen floorplans
within the same product line in each subdivision and often offers the same
models in similar subdivisions. Models are periodically reviewed and updated to
reflect changing homebuyer preferences. Both new models and design modifications
are generally developed by Company employees.
Homes sold by the Company typically have three to five bedrooms, two or more
bathrooms and at least a two car garage. The Company offers a variety of options
and upgrades, including the placement of certain walls, the style of kitchen and
bathroom cabinetry, a selection of floor coverings and light fixtures, patios,
decks, french doors and fireplaces, which allow homebuyers to customize their
homes. Options and upgrades are generally priced to have a positive effect on
profit margins.
PRODUCT LINES
<TABLE>
<CAPTION>
Living Area Base Price Range
(Square Feet) at May 31, 1996
------------- ---------------
<S> <C> <C>
Phoenix
Move-up single-family............. 1,391 - 3,761 $107,750 - $218,600
Entry-level single-family......... 1,287 - 2,484 $ 87,550 - $162,900
Texas
Move-up single-family............. 1,974 - 3,230 $126,400 - $167,400
Entry-level single-family......... 924 - 3,062 $ 58,950 - $153,250
Denver
Move-up single-family............. 1,820 - 3,096 $155,800 - $239,600
Entry-level single -family........ 1,358 - 1,834 $136,900 - $147,900
Miami
Move-up single-family............. 1,615 - 2,511 $136,900 - $174,900
Entry-level single-family......... 1,323 - 2,012 $ 92,900 - $141,900
California
Move-up single-family............. 2,883 - 4,093 $339,000 - $445,000
Entry-level single-family......... 1,808 - 3,165 $149,900 - $207,900
</TABLE>
2
<PAGE>
HOMES DELIVERED
<TABLE>
<CAPTION>
Years ended May 31,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Move-up single-family
Revenues (000's)................................ $222,918 $208,026 $128,494
Units........................................... 1,281 1,281 811
Average sales price............................. $174,000 $162,400 $158,400
Entry-level single-family
Revenues (000's)................................ $352,839 $206,692 $206,615
Units........................................... 3,073 1,921 1,976
Average sale price.............................. $114,800 $107,600 $104,600
Townhomes and duplex homes
Revenues (000's)................................ $ 1,316 $ -- $ 4,922
Units........................................... 13 -- 44
Average sales price............................. $101,200 $ -- $111,900
Total
Revenues (000's)................................ $577,073 $414,718 $340,031
Units........................................... 4,367 3,202 2,831
Average sale price.............................. $132,100 $129,500 $120,100
</TABLE>
Fluctuations in the number of homes delivered by product type are generally
related to product availability, market conditions or the introduction of a new
product.
CONTRACT BACKLOG
Sales of the Company's homes are made pursuant to standard sales contracts which
require a $500 to $2,500 deposit upon signing. The contract is generally
cancelable if the customer is unable to obtain a mortgage commitment, usually
within 60 days. A sale becomes part of backlog only upon receipt of a signed
contract and a deposit. See "Business -- Construction and Customer Service."
As of May 31, 1996, the Company's contract backlog had an aggregate sales value
of $295,484,000 and consisted of 2,070 homes. The contract backlog as of May 31,
1995 had an aggregate sales value of $198,126,000 and consisted of 1,493 homes.
The Company anticipates that substantially all of the homes in backlog at May
31, 1996 will be delivered during the calendar year ending December 31, 1996.
MARKETING
The Company markets its homes to first-time and move-up buyers. Although the
Company utilized the services of independent brokers, approximately 43% of its
homes sold in fiscal 1996 were sold by Company commissioned personnel (without
the assistance of independent brokers) from sales offices located in furnished
model homes in the subdivisions. Sales personnel are trained by the Company and
attend weekly meetings to be updated on financing availability, construction
schedules and marketing and advertising plans. Company sales personnel and
independent brokers are generally paid a commission at the time of closing of
between 1% and 2% (depending on the market) and 3%, respectively, of the sales
price of the home. The Company uses radio, newspaper, magazine, billboard
displays, special promotional events and, occasionally, television in its
marketing program.
The Company builds its homes under the guidelines and specifications of the
Federal Housing Administration ("FHA") and the Veterans Administration ("VA"),
thereby providing prospective buyers the added benefits of FHA-insured and
VA-guaranteed mortgages.
3
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CONSTRUCTION AND CUSTOMER SERVICE
The Company designs and supervises the development and building of its projects.
The construction period for the Company's homes during fiscal 1996 ranged from
100 to 180 days in Phoenix, from 75 to 120 days in Texas, from 120 to 180 days
in Denver, from 90 to 120 days in South Florida and from 100 to 150 days in
Southern California.
The actual construction is performed for a fixed price by independent
subcontractors, who are generally selected on a competitive basis. All stages of
construction are supervised by the Company's on-site superintendents who
coordinate the activities of subcontractors, subject their work to quality and
cost controls and monitor compliance with zoning and building codes. The
Company's management information systems also assist the Company in controlling
the costs of construction by making information available which allows the
Company to monitor subcontractor performance and expenditures. The Company
believes its relationships with its subcontractors are good. The Company is not,
and does not anticipate, experiencing a significant shortage of either
subcontractors or building materials.
The Company provides homebuyers with a one-year warranty on its homes for
non-structural defects and a two-year warranty with respect to structural
defects. In addition, the Company purchases, in certain locations, builder's
liability insurance protection for major structural defects in the third through
tenth year.
In Phoenix, Denver, South Florida and Southern California, the Company
constructs homes principally against orders which are evidenced by written
contracts and modest escrow deposits. In fiscal 1996, approximately 17% of such
contracts have been canceled, a majority of such cancellations being
attributable to the inability of the prospective purchaser to qualify for
financing. The Company attempts to limit cancellations by training its sales
force to determine the qualification of potential homebuyers at the sales
office. The Company classifies a unit as speculative when construction commences
on a unit that does not have a written contract. The Company may construct
speculative units in order to maintain an inventory for quick delivery or to
continue the construction sequence. The majority of the Company's speculative
units are less than 50% complete. As a result of such cancellations and
construction procedures, at May 31, 1995 and 1996, the Company had respectively,
494 and 559 speculative units under construction.
MORTGAGE BANKING
The Company commenced mortgage banking operations in 1986 and all mortgage
operations of the Company have been conducted by American Western Mortgage
Company ("AWMC") and Miltex Management, Inc. ("MMI"), which are approved by the
FHA and VA as qualified mortgage lenders. As of July 1, 1995, all mortgage
operations of the Company are being conducted by AWMC which has changed its name
to CH Mortgage Company ("CHMC"). For the year ended May 31, 1996, CHMC provided
mortgage financing for more than 63% and 66% of the Company's customers in
Arizona and Texas, respectively. The Company is currently licensed to do
business in Arizona, Colorado, Texas, Florida and California.
As a mortgage banker, CHMC completes the processing of loan applications,
performs credit checks, submits applications to mortgage lenders for approval,
and originates and sells mortgage loans. CHMC has a $25,000,000 warehouse line
of credit to fund the mortgage loans on an interim basis. CHMC bears the
interest expense and receives the interest income while mortgages are
warehoused. Accordingly, depending upon the relative interest rates of such
loans and the related mortgages and the extent to which mortgages are financed,
CHMC may have net interest income or expense during the warehouse period.
CHMC establishes its interest rates and terms to facilitate the sale of the
Company's homes through the origination of first mortgage loans utilizing
programs established by the FHA, VA, GNMA and FNMA. Interest rates are generally
established by prevailing market rates, although lower rates may be offered from
time to time to remain competitive in certain markets.
4
<PAGE>
Each mortgage originated by CHMC contains the provision for a servicing fee
(which is included as a part of the monthly payment made by the mortgagor) to be
paid for the collection of, and accounting for, mortgage payments. This
servicing fee provision is a separate interest in the mortgage that may be sold
independently of, or together with, the mortgage itself. CHMC began retaining a
portion of the servicing portfolio in fiscal 1991 and from time to time may
continue to do so, although this is not expected to become a material part of
the Company's business. During fiscal 1996, the Company sold significantly all
of the servicing rights it had previously retained.
COMPETITION
The single-family residential housing industry is highly competitive, and the
Company competes in each of its markets with numerous other national, regional
and local homebuilders, some of which have greater resources than the Company.
The Company's homes compete on the basis of quality, price, design, mortgage
financing terms and location. The Company also competes with developers of
rental housing units and, to a lesser extent, condominiums.
REGULATION
The housing and mortgage banking industries are subject to extensive and complex
regulations. The Company and its subcontractors must comply with various
federal, state and local laws and regulations including zoning and density
requirements, building, environmental, advertising and consumer credit rules and
regulations as well as other rules and regulations in connection with its
homebuilding and sales activities. These include requirements as to building
materials to be used, building designs and minimum elevation of properties. The
Company's homes are inspected by local authorities where required, and homes
eligible for insurance or guarantees provided by the FHA and VA, respectively,
are subject to inspection by the FHA or VA.
The Company is also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of health and the
environment ("environmental laws"), as well as effects of environmental factors.
The particular environmental laws which apply to any given homebuilding site
vary greatly according to the site's location, the site's environmental
condition and the present and former uses of the site. These environmental laws
may result in delays, may cause the Company to incur substantial compliance and
other costs, and can prohibit or severely restrict homebuilding activity in
certain environmentally sensitive regions or areas.
The Company's mortgage banking subsidiary must also comply with various federal
and state laws and consumer credit rules and regulations as well as rules and
regulations in connection with its mortgage lending activities. Additionally,
mortgage loans originated under the FHA, VA, FNMA and GNMA are subject to rules
and regulations imposed by such agencies.
EMPLOYEES
At May 31, 1996, the Company and its subsidiaries employed approximately 553
persons, including corporate staff, sales personnel, construction personnel and
mortgage and title staff. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
5
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Item 2. PROPERTIES
The Company's principal offices are located at 7001 North Scottsdale
Road, Suite 2050, Scottsdale, Arizona 85253. The offices, which include
approximately 22,000 square feet, are leased for a term expiring March
2001.
Item 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which it believes
would have a material effect on the Company's financial position or
operating results. The Company has filed suit against William O. Milburn
and Ernst & Young seeking reimbursement for the payments made to the
Internal Revenue Service in excess of the tax liability recorded at the
time Milburn was acquired.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Part II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Since December 15, 1993 the Company's Common Stock has traded on the New York
Stock Exchange (Symbol: CON). The following table sets forth for each period
indicated the high and low closing sales prices of the Company's Common Stock
and cash dividends paid:
<TABLE>
<CAPTION>
Dividends
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
Year Ended May 31, 1996
First Quarter............................. $21.00 $15.13 $.05
Second Quarter............................ 22.50 18.13 .05
Third Quarter............................. 24.63 18.88 .05
Fourth Quarter............................ 25.25 20.00 .05
Year Ended May 31, 1995:
First Quarter............................. $15.75 $13.38 $.05
Second Quarter............................ 17.25 13.50 .05
Third Quarter............................. 14.13 11.63 .05
Fourth Quarter............................ 15.88 11.00 .05
</TABLE>
DIVIDEND POLICY
Declarations of dividends are within the discretion of the Board of Directors
and are dependent upon various factors, including the earnings, cash flow,
capital requirements and operating and financial condition of the Company. In
addition, the company's ability to pay dividends in excess of current levels is
restricted by its 10% and 12% Senior Notes. See Note E of "Notes to Consolidated
Financial Statements" of the Company. As of August 14, 1996, there were 105
holders of record of the Company's Common Stock.
Item 6. SELECTED FINANCIAL DATA
Information relating to this item appears under the caption "Financial
Highlights" on page 3 of the Annual Report, and such information is
incorporated herein by reference in accordance with General Instruction
G(2) of Form 10-K. This information should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the Company's Consolidated Financial Statements
and the Notes thereto.
6
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information relating to this item appears under the caption "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
on pages 12 through 16 of the Annual Report, and such information is
incorporated herein by reference in accordance with General Instruction
G(2) of Form 10-K. Other financial statements and schedules required
under Regulation S-X promulgated under the Securities Act of 1933 are
identified in Item 14 hereof and are incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information relating to this item appears on pages 17 through 31 of the
Annual Report, and such information is incorporated herein by reference
in accordance with General Instruction G(2) of Form 10-K. There are no
other financial statements and schedules required under Regulations S-X
promulgated under the Securities Act of 1933.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to this item appears in the definitive Proxy
Statement for the Company's Annual Meeting of Stockholders to be held on
August 29, 1996, and such information is incorporated herein by reference
in accordance with General Instruction G(3) of Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Information relating to this item is contained in the definitive Proxy
Statement referred to above in "Item 10. Directors and Executive Officers
of the Registrant," and such information is incorporated herein by
reference in accordance with General Instruction G(3) of Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to this item is contained in the definitive Proxy
Statement referred to above in "Item 10. Directors and Executive Officers
of the Registrant," and such information is incorporated herein by
reference in accordance with General Instruction G(3) of From 10-K.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to this item is contained in the definitive Proxy
Statement referred to above in "Item 10. Directors and Officers of the
Registrant, " and such information is incorporated herein by reference in
accordance with General Instruction G(3) of Form 10-K.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements
The following consolidated financial statements of Continental Homes
Holding Corp. and Subsidiaries, included in the Annual Report to
Shareholders for the year ended May 31, 1996, are incorporated by
reference in Item 8:
7
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(a) 1. Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets - May 31, 1996 and 1995.
Consolidated Statements of Income - Years ended May 31, 1996, 1995 and
1994.
Consolidated Statements of Stockholder's Equity - Years ended May 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended May 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules
Not applicable.
(a) 3. Exhibits
2.1 Stock purchase Agreement between William O. Milburn and the
Company dated July 28, 1993. Incorporated by reference to
Exhibit 2.1 to the Company's report on Form 8-K dated July 29,
1993.
2.2(a) Stock Purchase Agreement between Seller and the Company dated
November 3, 1994. Incorporated by reference to Exhibit 2.1 to
the Company's report on Form 8-K dated November 18, 1994.
2.2(b) Amendment to Stock Purchase Agreement between Seller and the
Company dated November 18, 1994. Incorporated by reference to
Exhibit 2.2(b) to the Company's report on Form 10-K for the
year ended May 31, 1995.
2.2(c) Second Amendment to Stock Purchase Agreement between Seller
and the Company dated November 18, 1994. Incorporated by
reference to Exhibit 2.2(c) to the Company's report on Form
10-K for the year ended May 31, 1995.
2.2(d) Third Amendment to Stock Purchase Agreement between Seller and
the Company dated July 12, 1995. Incorporated by reference to
Exhibit 2.2(d) to the Company's report on Form 10-K for the
year ended May 31, 1995.
3.1(a) Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1(a) to Registration Statement No.
33-6797, as filed on June 25, 1986.
3.1(b) Amendment to Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1(b) to Amendment No. 2
to Registration Statement No. 33-6797, as filed on January 30,
1987.
3.1(c) Certificate of Second Amendment of the Certificate of
Incorporation. Incorporated by reference to Exhibit 3 to the
Company's report on Form 10-Q for the quarter ended August 31,
1993.
3.2 By-laws of the Company. Incorporated by reference to Exhibit
3.2 to registration Statement No. 33-6797, as filed on June
25, 1986.
4.1* Indenture dated as of April 15, 1996 between the Company and
First Union National Bank, as Trustee.
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(a) 3. Exhibits (continued)
4.2(a) Indenture dated as of August 1, 1992 between the Company and
Fidelity Bank, National Association, as Trustee. Incorporated
by reference to Exhibit 4.1 to the Company's report on Form
10-Q for the quarter ended August 31, 1992.
4.2(b) First Supplemental Indenture dated as of March 22, 1994 to the
Indenture dated August 1, 1992, between CHHC and First
Fidelity Bank, National Association, (formerly Fidelity Bank,
National Association), as Trustee. Incorporated by reference
to Exhibit 4.1 to the Company's report on Form 10-Q for the
quarter ended February 28, 1994.
4.3 Indenture dated as of November 1, 1995 between the Company and
Manufacturer's and Traders Trust Company, as Trustee.
Incorporated by reference to Exhibit 4.1 to the Company's
report on form 10-Q for the quarter ended November 30, 1995.
10.1(a) Lease Agreement dated August 1, 1990, as amended, for the
Company's principal office located at 7001 N. Scottsdale Road,
Suite 2050, Scottsdale, Arizona. Incorporated by reference to
Exhibit 10.1 to the Company's report on Form 10-K for the year
ended May 31, 1991.
10.1(b) Third Amendment to Lease Agreement dated June 27, 1994 for the
Company's principal office located at 7001 N. Scottsdale Road,
Suite 2050, Scottsdale, Arizona. Incorporated by reference to
Exhibit 10.1(b) to the Company's report on Form 10-K for the
year ended May 31, 1994.
10.2(a)+ The Company's Restated 1986 Stock Incentive Plan. Incorporated
by reference to Exhibit 10.3 to Amendment No. 2 to
Registration Statement No. 33-6797, as filed on January 30,
1987.
10.2(b)+ The Company's 1988 Stock Incentive Plan (As amended and
restated July 23, 1992). Incorporated by reference to Exhibit
A to the Company's Notice of Annual Meeting and Proxy
Statement dated August 3, 1992.
10.3 Amended and Restated Mortgage Warehousing Credit and Security
Agreement dated as of July 1, 1995 between Bank One, Arizona,
NA ("BOAZ") and CHMC. Incorporated by reference to Exhibit
10.3 to the Company's report on Form 10-K for the year ended
May 31, 1995.
10.3(a) Modification Agreement dated as of December 1, 1995 between
BOAZ and CHMC. Incorporated by reference to Exhibit 10.1 to
the Company's report on Form 10-Q for the quarter ended
November 30, 1995.
10.4 Replacement Revolving Line of Credit Promissory Note dated
July 1, 1995 by CHMC in favor of BOAZ in the principal amount
of up to $25,000,000. Incorporated by reference to Exhibit
10.4 to the Company's report on form 10-K for the year ended
May 31, 1995.
10.4(a) Amended and Restated Replacement Revolving Line of Credit
Promissory Note dated December 1, 1995 between BOAZ and CHMC
in favor of BOAZ in the amount of $25,000,000. Incorporated by
reference to Exhibit 10.2 to the Company's report on Form 10-Q
for the quarter ended November 30, 1995.
10.5* Credit Agreement dated as of June 27, 1996 between BOAZ,
Norwest, The First National Bank of Boston and CHHC.
10.6* Promissory Note dated June 27, 1996 between BOAZ and CHHC in
the principal amount of up to $65,000,000.
10.7* Promissory Note dated June 27, 1996 between The First National
Bank of Boston and CHHC in the principal amount of up to
$25,000,000.
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(a)3. Exhibits (continued)
10.8* Promissory Note dated June 27, 1996 between Norwest Bank
Arizona and CHHC in the principal amount of up to $20,000,000.
11.* Statement Re Computation of Per Share Earnings.
13.* Page 3 and pages 12 through 31 of the Annual Report to
Stockholders for the year ended May 31, 1996.
21.* Subsidiaries of the Company.
23.* Consent of Independent Public Accountants.
27.* Financial Data Schedule.
- ----------
+ Denotes a compensatory plan or agreement.
* Filed herewith.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the last
quarter of the year ended May 31, 1996. The Company filed a
report on Form 8-K dated November 18, 1994.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 23, 1996 CONTINENTAL HOMES HOLDING CORP.
By: /s/ Donald R. Loback
----------------------------
Donald R. Loback
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Donald R. Loback August 23, 1996
- ------------------------------------ ---------------
Donald R. Loback Date
Chief Executive Officer
/s/ W. Thomas Hickcox August 23, 1996
- ------------------------------------ ---------------
W. Thomas Hickcox Date
President and Director
/s/ Julie E. Collins August 23, 1996
- ------------------------------------ ---------------
Julie E. Collins Date
Secretary, Treasurer and
Financial Vice President
(Principal Financial and Accounting Officer)
/s/ Bradley S. Anderson August 23, 1996
- ------------------------------------ ---------------
Bradley S. Anderson Date
Director
/s/ Jo Ann Rudd August 23, 1996
- ------------------------------------ ---------------
Jo Ann Rudd Date
Director
/s/ William Steinberg August 23, 1996
- ------------------------------------ ---------------
William Steinberg Date
Director
11
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Page Number
<C> <C>
4.1 Indenture dated as of April 15, 1996 between the Company and First Union
National Bank, as Trustee.
10.5 Credit Agreement dated as of June 27, 1996 between BOAZ, Norwest, The
First National Bank of Boston and CHHC.
10.6 Promissory Note dated June 27, 1996 between BOAZ and CHHC in the
principal amount of up to $65,000,000.
10.7 Promissory Note dated June 27, 1996 between the First National Bank of
Boston and CHHC in the principal amount of up to $25,000,000.
10.8 Promissory Note dated June 27, 1996 between Norwest Bank Arizona and
CHHC in the principal amount of up to $20,000,000.
11. Statement Re: Computation of Per Share Earnings E-2
13. Page 3 and pages 12 through 31 of the Annual Report to Stockholders
for the year ended May 31, 1996.
21. Subsidiaries of the Company. E-3
23. Consent of Independent Public Accountants. E-4
27. Financial Data Schedule.
</TABLE>
================================================================================
CONTINENTAL HOMES HOLDING CORP.,
THE GUARANTORS PARTY HERETO
AND
FIRST UNION NATIONAL BANK,
as
Trustee
------------
Indenture
Dated as of April 15, 1996
------------
$150,000,000
10% SENIOR NOTES
DUE APRIL 15, 2006
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
TIA Indenture
Section Section
- ------- -------
310(a)(1).................................................. 7.11
(a)(2).................................................. 7.11
(a)(3).................................................. N.A.
(a)(4).................................................. N.A.
(a)(5).................................................. 7.11
(b) .................................................. 7.09; 7.11; 11.02
(c) .................................................. N.A.
311(a) .................................................. 7.12
(b) .................................................. 7.12
(c) .................................................. N.A.
312(a) .................................................. 2.05
(b) .................................................. 11.03
(c) .................................................. 11.03
313(a) .................................................. 7.07
(b)(1).................................................. N.A.
(b)(2).................................................. N.A.
(c) .................................................. 7.07; 11.02
(d) .................................................. 7.06
314(a) .................................................. 4.07; 11.02
(b) .................................................. N.A.
(c)(1).................................................. 11.04
(c)(2).................................................. 11.04
(c)(3).................................................. N.A.
(d) .................................................. N.A.
(e) .................................................. 11.05
(f) .................................................. N.A.
315(a) .................................................. 7.01(b)
(b) .................................................. 7.05; 11.02
(c) .................................................. 7.01(a)
(d) .................................................. 7.01(c)
(e) .................................................. 6.11
316(a)(last sentence)...................................... 2.09
(a)(1)(A)............................................... 6.05
(a)(1)(B)............................................... 6.04
(a)(2).................................................. N.A.
(b) .................................................. 6.07
317(a)(1).................................................. 6.08
(a)(2).................................................. 6.09
(b) .................................................. 2.04
318(a) .................................................. 11.01
(c) .................................................. 11.01
- -------------
N.A. means Not Applicable.
This cross-reference table does not constitute a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
1.01. Definitions............................................................................... 1
1.02. Other Definitions......................................................................... 19
1.03. Incorporation by Reference of Trust Indenture
Act................................................................................... 20
1.04. Rules of Construction..................................................................... 21
ARTICLE TWO
THE SECURITIES
2.01. Form and Dating........................................................................... 21
2.02. Execution and Authentication.............................................................. 21
2.03. Registrar and Paying Agent................................................................ 22
2.04. Paying Agent to Hold Money in Trust....................................................... 23
2.05. Securityholder Lists...................................................................... 23
2.06. Transfer and Exchange..................................................................... 23
2.07. Replacement Securities.................................................................... 24
2.08. Outstanding Securities.................................................................... 24
2.09. Securities Held by the Company or an Affiliate............................................ 25
2.10. Temporary Securities...................................................................... 25
2.11. Cancellation.............................................................................. 25
2.12. Defaulted Interest........................................................................ 26
ARTICLE THREE
REDEMPTION
3.01. Notices to Trustee........................................................................ 26
3.02. Selection of Securities to Be Redeemed.................................................... 26
3.03. Notice of Redemption...................................................................... 27
3.04. Effect of Notice of Redemption............................................................ 27
3.05. Deposit of Redemption Price............................................................... 27
3.06. Securities Redeemed in Part............................................................... 28
ARTICLE FOUR
COVENANTS
4.01. Payment of Securities..................................................................... 28
4.02. Maintenance of Office or Agency........................................................... 28
4.03. SEC Reports............................................................................... 29
4.04. Compliance Certificate.................................................................... 29
4.05. Stay, Extension and Usury Laws............................................................ 30
4.06. Corporate Existence....................................................................... 30
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
4.07. Notice of Default......................................................................... 30
4.08. Change of Control......................................................................... 30
4.09. Maintenance of Net Worth.................................................................. 33
4.10. Limitation on Debt........................................................................ 36
4.11. Limitation on Restricted Payments......................................................... 37
4.12. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries................................................... 39
4.13. Limitation on Liens....................................................................... 40
4.14. Transactions with Affiliates.............................................................. 40
4.15. Limitation on Asset Sales................................................................. 41
4.16. Additional Guarantors..................................................................... 44
ARTICLE FIVE
SUCCESSORS
5.01. When Company May Merge, etc............................................................... 45
5.02. Successor Substituted..................................................................... 46
ARTICLE SIX
DEFAULTS AND REMEDIES
6.01. Events of Default......................................................................... 47
6.02. Acceleration.............................................................................. 49
6.03. Other Remedies ...........................................................................
6.04. Waiver of Past Defaults................................................................... 49
6.05. Control by Majority....................................................................... 49
6.06. Limitation on Suits....................................................................... 50
6.07. Rights of Holders to Receive Payment...................................................... 50
6.08. Collection Suit by Trustee................................................................ 51
6.09. Trustee May File Proofs of Claim.......................................................... 51
6.10. Priorities................................................................................ 51
6.11. Undertaking for Costs..................................................................... 52
ARTICLE SEVEN
TRUSTEE
7.01. Duties of Trustee......................................................................... 52
7.02. Rights of Trustee......................................................................... 54
7.03. Individual Rights of Trustee.............................................................. 54
7.04. Trustee's Disclaimer...................................................................... 54
7.05. Notice of Defaults........................................................................ 55
7.06. Reports by Trustee to Holders............................................................. 55
7.07. Compensation and Indemnity................................................................ 55
7.08. Replacement of Trustee.................................................................... 56
7.09. Successor Trustee by Merger, etc.......................................................... 57
7.10. Eligibility; Disqualification............................................................. 57
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
7.11. Preferential Collection of Claims Against
Company............................................................................... 58
ARTICLE EIGHT
DEFEASANCE
8.01. Defeasance upon Deposit of Moneys or U.S.
Government Obligations................................................................ 58
8.02. Termination of Obligations Pursuant
to Redemption........................................................................... 59
8.03. Survival of Company's Obligations......................................................... 61
8.04. Application of Trust Money................................................................ 61
8.05. Repayment to Company or Guarantors........................................................ 61
8.06. Reinstatement............................................................................. 61
ARTICLE NINE
AMENDMENTS
9.01. Without Consent of Holders................................................................ 62
9.02. With Consent of Holders................................................................... 63
9.03. Compliance with Trust Indenture Act....................................................... 64
9.04. Revocation and Effect of Consents......................................................... 64
9.05. Notation on or Exchange of Securities..................................................... 65
9.06. Trustee Protected......................................................................... 65
ARTICLE TEN
GUARANTEES
10.01. Guarantee................................................................................. 65
10.02. Execution and Delivery of Guarantee....................................................... 68
10.03. Additional Guarantors..................................................................... 69
10.04. Release of Guarantor...................................................................... 69
ARTICLE ELEVEN
MISCELLANEOUS
11.01. Trust Indenture Act Controls.............................................................. 70
11.02. Notices................................................................................... 70
11.03. Communication by Holders with Other Holders............................................... 71
11.04. Certificate and Opinion as to Conditions
Precedent............................................................................. 71
11.05. Statements Required in Certificate or Opinion............................................. 72
11.06. Rules by Trustee and Agents............................................................... 72
11.07. Legal Holidays............................................................................ 73
11.08. No Recourse Against Others................................................................ 73
11.09. Duplicate Originals....................................................................... 73
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
11.10. Governing Law............................................................................. 73
11.11. No Adverse Interpretation of Other Agreements............................................. 73
11.12. Successors................................................................................ 74
11.13. Separability.............................................................................. 74
11.14. Table of Contents, Headings, etc.......................................................... 74
SIGNATURES . .......................................................................................... 75
EXHIBIT A - FORM OF SECURITY
EXHIBIT B - FORM OF GUARANTEE
</TABLE>
-v-
<PAGE>
INDENTURE dated as of April 15, 1996 between CONTINENTAL HOMES
HOLDING CORP., a Delaware corporation (the "Company"), the Guarantors signatory
hereto (the "Guarantors") and FIRST UNION NATIONAL BANK, a national banking
association organized and existing under the laws of the United States of
America, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's
10% Senior Notes due 2006 (the "Securities").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions.
-----------
"Additional Assets" means assets used or usable by the Company
or any of its Restricted Subsidiaries in the operation of the existing lines of
business of the Company and its Restricted Subsidiaries.
"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.
"Agent" means any Registrar, Paying Agent, or co-Registrar.
"Asset Sale" for any Person means the sale, lease, conveyance
or other disposition (including, without limitation, by merger, consolidation or
sale and leaseback transaction, and whether by operation of law or otherwise) of
any of that Person's assets (including, without limitation, the sale or other
disposition of Capital Stock of any Subsidiary of such Person, whether by such
Person or such Subsidiary) outside the ordinary course of business, whether
owned on the date of this Indenture or subsequently acquired in one transaction
or a series of related transactions, in which such Person and/or its
Subsidiaries receive cash and/or other consideration (including, without
limitation, the unconditional assumption of Indebtedness
<PAGE>
-2-
of such Person and/or its Subsidiaries) of $5,000,000 or more as to each such
transaction or series of related transactions; provided, however, that (i) a
transaction or series of related transactions that results in a Change of
Control will not constitute an Asset Sale, (ii) sales, leases, conveyances or
other dispositions of real estate related to the homebuilding business of the
Company or its Subsidiaries will not constitute Asset Sales, and (iii)
transactions between the Company and any Guarantor, or among such Guarantors,
will not constitute Asset Sales.
"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, or (iv) otherwise altering
the terms and conditions thereof in a manner not prohibited by the terms of this
Indenture.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of capital
stock of such Person and all warrants or options to acquire such capital stock.
<PAGE>
-3-
"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.
"Change of Control" of the Company shall be deemed to have
occurred upon the occurrence of any of the following events: (a) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act), excluding the Management Group, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately,
after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; provided, however, that the members of the Management Group do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company; (b)
the Company consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where immediately after such transaction no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
the Management Group, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately, after the passage of
time, upon the happening of an event or otherwise), directly or indirectly, of
more than 50% of the total Voting Stock of the surviving or transferee
corporation; provided, however, that the members of the Management Group do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company; (c)
at any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors
<PAGE>
-4-
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (d) the Company is
liquidated or dissolved or adopts a plan of liquidation.
"Closing Date" means the date on which the Securities are
originally issued.
"Common Stock" means the common stock, par value $.01 per
share, of the Company.
"Company" means the party named as such above and any other
obligor until a successor replaces it pursuant to the applicable provision
hereof and thereafter means the successor.
"Consolidated Interest Expense" of the Company 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 the
Company and its Restricted 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 the
Company's mortgage banking operations, plus the product of (x) the sum of (i)
cash dividends paid on any Preferred Stock of the Company 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 the Company's board of directors in good faith)
of any other non-cash dividends, in each case, paid on any Preferred Stock of
any Restricted Subsidiary of the Company (other than a Wholly-Owned Restricted
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 the Company, expressed as a decimal.
"Consolidated Interest Incurred" of the Company 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 the
Company and its
<PAGE>
-5-
Restricted 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 the Company'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 the Company 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 the Company's Board of Directors in good faith)
of any other non-cash dividends, in each case, paid on any Preferred Stock of
any Restricted Subsidiary of the Company (other than a Wholly-Owned Restricted
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 the Company, expressed as a decimal.
"Consolidated Net Income" of the Company, for any period,
means the net income (loss) of the Company and its Restricted 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 Restricted Subsidiary which is consolidated
with the Company, in which any Person other than the Company and its Restricted
Subsidiaries has an interest in shall be included only to the extent of the
amount of cash dividends or distributions actually paid to the Company or a
Restricted 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
the Company shall be excluded to the extent such Subsidiary is prohibited,
directly or indirectly, from distributing such net income or any portion thereof
to the Company or a Restricted Subsidiary, (iv) all extraordinary gains and
losses (after taxes) that would be included on an income statement for such
period shall be excluded and (v) all gains and losses (after taxes) attributable
to Asset Sales shall be excluded; provided that
<PAGE>
-6-
there shall be included in such net income, without duplication, the net income
of any Unrestricted Subsidiary to the extent such net income is actually
received by the Company or any of its Restricted Subsidiaries in cash during
such period.
"Consolidated Non-cash Charges" of the Company 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 the
Company and its Restricted 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 Tangible Assets" of the Company as of any date
means the total amount of assets of the Company and its Restricted Subsidiaries
(less applicable reserves and less the assets securing the payment of
Non-Recourse Debt of the Company and its Restricted Subsidiaries) on a
consolidated basis at the end of the fiscal quarter immediately preceding such
date, as determined in accordance with generally accepted accounting principles,
less: (i) unamortized debt and debt issuance expense, 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
Restricted Subsidiaries prepared in accordance with generally accepted
accounting principles and (ii) appropriate adjustments on account of minority
interests of other Persons holding equity investments in Restricted
Subsidiaries, in the case of each of clauses (i) and (ii) above, as reflected on
the consolidated balance sheet of the Company and its Restricted Subsidiaries.
"Consolidated Tangible Net Worth" of the Company means the
Company's Net Worth less unamortized debt and debt issuance expense, 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 Restricted Subsidiaries prepared in accordance with generally accepted
accounting principles.
<PAGE>
-7-
"Consolidated Tax Expense" of the Company means, for any
period, the aggregate of the tax expense of the Company and its Restricted
Subsidiaries for such period, determined on a consolidated basis, in accordance
with generally accepted accounting principles.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.02 or such other address as the
Trustee may give notice of to the Company.
"Coverage Ratio" of the Company means the ratio of the
Company'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 Incurred in connection with an acquisition by the Company or a
Restricted Subsidiary, the Coverage Ratio shall be determined after giving
effect to both the Consolidated Interest Incurred related to the Incurrence of
such Debt and the EBITDA (x) of the Person becoming a Restricted Subsidiary of
the Company 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 the Company or a Restricted Subsidiary.
"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 of such Person and Preferred
Stock of any Subsidiary of such Person, (g) all obligations of such Person with
respect to Interest Rate Protection Agreements and (h) all Debt of others
guaranteed by such Person. The amount of all 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. Notwithstanding the
foregoing, "Debt" of the Company shall not include the amount reflected on a
consolidated balance sheet of the Company with respect to options to acquire
real property which was purchased by the Company and sold to a third party
within 360 days of such purchase for consideration at least equal
<PAGE>
-8-
to the amount paid by the Company for such property less an amount equal to the
value of such option.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"EBITDA" for the Company, for any period, means, without
duplication, the Consolidated Net Income of the Company 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.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Debt" means all of the Debt of the Company and its
Restricted Subsidiaries that was outstanding on the Closing Date.
"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.
"Guarantee" means the guarantee of the Company's obligations
hereunder made by a Guarantor in favor of the Holders pursuant to the terms of
Article 10 hereof.
"Guarantor" means all of the Restricted Subsidiaries of the
Company existing on the date hereof and any person who becomes a guarantor
pursuant to Section 10.03.
"Holder" or "Securityholder" means a Person in whose name a
Security is registered on the Registrar's books.
"Indenture" means this Indenture, as amended, supplemented or
otherwise modified from time to time, in accordance with the terms hereof.
"Independent Financial Advisor" means a firm (i) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect financial interest
<PAGE>
-9-
in the Company and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"Interest Rate Protection Agreement" means any arrangement
with any other Person whereby, directly or indirectly, such Person is entitled
to receive from time to time periodic payments calculated by applying either a
floating or a fixed rate of interest on a stated notional amount in exchange for
periodic payments made by such Person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar agreements;
provided that any arrangement which is entered into by the Company or any of its
Restricted Subsidiaries in connection with Debt Incurred by the Company or any
of its Restricted Subsidiaries shall constitute Permitted Debt.
"Investment" means, with respect to any Person, any direct or
indirect loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Debt issued by, any other Person. "Investments" shall exclude
extensions of trade credit by the Company and its Subsidiaries in the ordinary
course of business in accordance with normal trade practices of the Company or
such Subsidiary, as the case may be.
"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 and any sale and leaseback of any asset.
"Management Group" means the executive officers of the Company
as of the date of this 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.
<PAGE>
-10-
"Material Subsidiary" means any Restricted Subsidiary of the
Company which accounted for 10 percent or more of the Consolidated Tangible
Assets or EBITDA of the Company for the fiscal year ending immediately prior to
any Default or Event of Default.
"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
listed 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 Restricted 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 Restricted 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 Restricted
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 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
Restricted Subsidiaries from such Asset Sale upon the liquidation or conversion
of such consideration into cash.
"Net Worth" of the Company means, at any date, the aggregate
of capital, surplus and retained earnings of the Company and its Restricted
Subsidiaries as would be shown on a consolidated balance sheet of the Company
prepared in accordance with generally accepted accounting principles, adjusted
to exclude (to the extent included) investments by the Company and its
Subsidiaries in joint ventures and the amount of equity
<PAGE>
-11-
attributable to Affiliates other than Restricted Subsidiaries of the Company.
"Non-Recourse Debt" with respect to any Person means Debt of
such Person for which the sole legal recourse for collection of principal and
interest on such Debt is against the specific property identified in the
instruments evidencing or securing such Debt and such property was acquired with
the proceeds of such Debt or such Debt was Incurred (i) within 90 days after the
acquisition of such property or (ii) in respect of the Carlsbad Property.
"Officer" means the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Company or any
Guarantor, as applicable.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary
of the Company or any Guarantor, as applicable.
"Opinion of Counsel" means a written opinion from legal
counsel who may be an employee of or counsel for the Company or other counsel
reasonably acceptable to the Trustee.
"Permitted Debt" means:
(a) Debt evidenced by the Securities and the Guarantees;
(b) Debt Incurred by the Company or any Guarantor under or in
respect of a Bank Facility (including any guarantees related thereto) for
working capital or general corporate purposes or evidenced by letters of credit;
provided that the aggregate amount of all such Debt outstanding at any time
pursuant to this clause (b) may not exceed $110,000,000;
(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) guaranteed by the Company or a
Restricted Subsidiary may not exceed $30,000,000 and the amount of such Debt
(excluding funding drafts issued thereunder) shall not exceed 98% of the value
of the Mortgages pledged to secure Debt thereunder;
(d) Debt of the Company to any Guarantor or of any Restricted
Subsidiary of the Company to the Company or to any Guarantor;
<PAGE>
-12-
(e) Existing Debt (without duplication of Debt indicated under
clauses (a)-(d) above) of the Company and its Restricted Subsidiaries other than
Debt to be repaid from the proceeds of the sale of the Securities;
(f) Non-Recourse Debt;
(g) Debt in respect of performance, completion, guarantee,
surety and similar bonds or banker's acceptances provided by the Company or any
of its Restricted Subsidiaries in the ordinary course of business;
(h) Additional Debt of the Company or any Guarantor in an
amount not exceeding $5,000,000 at any time outstanding;
(i) Debt referred to in the definition of Interest Rate
Protection Agreement; and
(j) Refinancing Debt.
"Permitted Investments" of any Person means Investments of
such Person in (i) direct obligations of the United States or any agency thereof
or obligations guaranteed by the United States or any agency thereof, in each
case maturing within 180 days of the date of acquisition thereof, (ii)
certificates of deposit maturing within 180 days of the date of acquisition
thereof issued by a bank, trust company or savings and loan association which is
organized under the laws of the United States or any state thereof having
capital, surplus and undivided profits aggregating in excess of $250 million and
a Keefe Bank Watch Rating of C or better, (iii) certificates of deposit maturing
within 180 days of the date of acquisition thereof issued by a bank, trust
company or savings and loan association organized under the laws of the United
States or any state thereof other than banks, trust companies or savings and
loan associations satisfying the criteria in (ii) above; provided that the
aggregate amount of all certificates of deposit issued to the Company at any one
time by such bank, trust company or savings and loan association will not exceed
$100,000, (iv) commercial paper given the highest rating by two established
national credit rating agencies and maturing not more than 180 days from the
date of the acquisition thereof, (v) repurchase agreements or money-market
accounts which are fully secured by direct obligations of the United States or
any agency thereof and (vi) in the case of the Company and its Subsidiaries, (1)
any receivables or loans taken by the Company or a Subsidiary in connection with
the sale of any asset otherwise permitted by this Indenture, (2) Investments in
any Guarantor, (3) Investments in
<PAGE>
-13-
the Securities or Debt pari passu with the Securities, (4) Investments in
evidences of Debt securities or other property received from another Person by
the Company or any of its Restricted Subsidiaries in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or a
reorganization of such Person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Debt, securities or other
property of such Person held by the Company or any of its Restricted
Subsidiaries, or for other liabilities or obligations of such other Person to
the Company or any of its Restricted Subsidiaries that were created, in
accordance with the terms of this Indenture, (5) Investments in Interest Rate
Protection Agreements which constitute Permitted Debt and (6) Investments in an
aggregate amount outstanding not greater than $30,000,000.
"Permitted Liens" with respect to the Company and its
Restricted Subsidiaries means (i) Liens on assets of the Company or any
Restricted Subsidiary of the Company securing Debt which may be incurred
pursuant to Section 4.10 hereof, provided that the aggregate amount of Debt
secured by Liens (excluding Non-Recourse Debt of the Company and its Restricted
Subsidiaries and Debt outstanding under a Warehouse Facility) may not exceed 40
percent of the Company's Consolidated Tangible Assets; (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 Restricted Subsidiaries; (iii)
Liens securing Non-Recourse Debt of the Company or any of its Restricted
Subsidiaries, provided that such Liens apply only to the property financed out
of the net proceeds of such Non-Recourse Debt within 90 days of the Incurrence
of such Non-Recourse Debt (except that such 90 day limitation shall not apply
with respect to the Carlsbad Property) (iv) Liens securing Debt of a Person
existing at the time that such Person is merged into or consolidated with the
Company or a Restricted Subsidiary, provided that such Liens were not created in
contemplation of such merger or consolidation and do not extend to any assets or
property of the Company or any Restricted Subsidiary, other than the surviving
Person and its Subsidiaries; (v) Liens on assets or property acquired by the
Company or a Restricted Subsidiary, provided that such Liens were not created in
contemplation of such acquisition and do not extend to any other assets or
property (other than proceeds of such acquired assets or property); (vi) Liens
in respect of Interest Rate Protection Agreements which constitute Permitted
Debt; (vii) Liens for taxes, assessments or governmental charges or claims that
either (a) are not yet delinquent or (b) are being contested in good
<PAGE>
-14-
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; (viii) 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; (ix)
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; (x) 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; (xi) attachment or
judgment Liens not giving rise to a Default or Event of Default; (xii)
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; (xiii) leases or subleases granted to others
not materially interfering with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries; (xiv) 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; (xv) Liens securing Purchase Money Obligations (including
capitalized lease obligations); (xvi) Liens existing on the date hereof; (xvii)
any contract to sell an asset provided such sale is otherwise permitted under
this Indenture; and (xviii) Liens on property or assets of any Restricted
Subsidiary securing Debt of such Restricted Subsidiary owing to the Company or
one or more Restricted Subsidiaries of the Company.
"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 this Indenture, and including, without limitation, all classes
and series of preferred or preference stock.
<PAGE>
-15-
"principal" of a debt security means the principal of the
security plus the premium, if any, on the security.
"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 this 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 of Control and (ii) require the Company to pay the
redemption price therefor prior to the Change of Control Repurchase Date) or is
subject to mandatory redemption or otherwise matures prior to the final stated
maturity of the Securities.
"Refinancing Debt" means Debt that refunds, refinances or
extends any Securities, Existing Debt (other than Existing Debt to be repaid
with the net proceeds of the offering of the Securities) or other Debt Incurred
by the Company or its Restricted Subsidiaries pursuant to the terms of this
Indenture, but only to the extent that (i) the Refinancing Debt is subordinated
to the Securities 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 Securities, (iii) the portion, if any, of the
Refinancing Debt that is scheduled to mature on or prior to the maturity date of
the Securities 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
Securities and (iv) the gross proceeds of such Refinancing Debt are an amount
that is equal to or less than the aggregate principal amount then outstanding
under the Debt being refunded, refinanced or extended (plus the premiums or
other payments paid in connection therewith (which shall not exceed the stated
amount of any premium or other payment required
<PAGE>
-16-
to be paid in connection with such a renewal, extension, substitution,
refunding, refinancing, redemption, repurchase or replacement pursuant to the
terms of the Debt being renewed, extended, substituted, refunded, refinanced,
amended, modified, supplemented, redeemed, repurchased or replaced) and the
expenses incurred in connection therewith).
"Restricted Payments" means with respect to the Company or any
Restricted Subsidiary (i) the declaration or payment of any dividend or other
distribution on any shares of such Person's Capital Stock (except (x) dividends
or distributions in additional shares of Capital Stock of the Company other than
Redeemable Stock or (y) the declaration or payment of any dividend or other
distribution by a Restricted Subsidiary to the Company or another Restricted
Subsidiary), (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 such Person's Capital Stock, except,
in each case, Capital Stock held by the Company or a Restricted Subsidiary,
(iii) any Investment (other than a Permitted Investment) in any Person, or (iv)
any principal payment, redemption, repurchase, defeasance or other acquisition
or retirement, prior to scheduled principal payment or scheduled maturity, of
Subordinated Debt of the Company or its Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary which is not an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under
this Indenture.
"Subordinated Debt" means, with respect to the Company and its
Restricted Subsidiaries, all Debt of such Person which is, pursuant to its
terms, expressly subordinated in right of payment to the Securities or the
Guarantees (other than Debt held by the Company or a Restricted Subsidiary).
"Subsidiary" means, with respect to any Person, (i) any
corporation or entity 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
<PAGE>
-17-
or more of the other Subsidiaries of that Person, or a combination thereof or a
successor thereto.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 9.03.
"Trust Officer" means any officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and thereafter means the successor.
"Unrestricted Subsidiary" means each of the Subsidiaries of
the Company (other than a Guarantor) so designated by a resolution adopted by
the Board of Directors of the Company as provided below; provided that (a)
neither the Company nor any of its other Subsidiaries (other than Unrestricted
Subsidiaries) (1) provides any direct or indirect credit support for any Debt of
such Subsidiary (including any undertaking, agreement or instrument evidencing
such Debt) or (2) is directly or indirectly liable for any Debt of such
Subsidiary, and (b) the creditors with respect to Debt for borrowed money of
such Subsidiary have agreed in writing that they have no recourse, direct or
indirect, to the Company or any other Subsidiary of the Company (other than
Unrestricted Subsidiaries), including, without limitation, recourse with respect
to the payment of principal or interest on any Debt of such Subsidiary. The
Board of Directors of the Company may designate an Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that (i) any such redesignation will be deemed
to be an Incurrence by the Company and its Restricted Subsidiaries of the Debt
(if any) of such redesignated Subsidiary for purposes of Section 4.10 hereof as
of the date of such redesignation, (ii) any Debt of such Unrestricted Subsidiary
could then be Incurred in accordance with Section 4.10 on the date of such
redesignation and (iii) the Liens of such Unrestricted Subsidiary could then be
incurred in accordance with Section 4.13 hereof as of the date of such
redesignation. Subject to the foregoing, the Board of Directors of the Company
also may designate any Restricted Subsidiary to be an Unrestricted Subsidiary;
provided that (i) all previous Investments by the Company and its Restricted
Subsidiaries in such Restricted Subsidiary (net of any returns previously paid
on such Investments) will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for
<PAGE>
-18-
Restricted Payments under Section 4.11 hereof, (ii) the Company and its
Restricted Subsidiaries could incur $1.00 of additional Indebtedness under the
Coverage Ratio test contained in Section 4.10 hereof and (iii) no Default or
Event of Default shall have occurred or be continuing. Any such designation or
redesignation by the Board of Directors of the Company will be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Board of Directors of the Company giving effect to such designation or
redesignation and an Officers' Certificate certifying that such designation or
redesignation complied with the foregoing conditions and setting forth the
underlying calculations.
"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged.
"Voting Stock" means with respect to any Person, Capital Stock
of any class or kind normally entitled to vote in the election of the board of
directors or other governing body of such Person.
"Warehouse Facility" means a Bank Facility to finance the
making of 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.
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary of the Company of which 100% of the outstanding Capital Stock is
owned by one or more Wholly Owned Restricted Subsidiaries of the Company or by
the Company and one or more Wholly Owned Restricted Subsidiaries of the Company.
For purposes of this definition, any directors' qualifying shares shall be
disregarded in determining the ownership of a Subsidiary.
<PAGE>
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SECTION 1.02. Other Definitions.
-----------------
Term Defined in Section
---- ------------------
"Bankruptcy Law" ...................................... 6.01
"business day" ........................................ 11.07
"Change of Control Notice" ............................ 4.08
"Change of Control Price" ............................. 4.08
"Change of Control Repurchase
Date" .......................................... 4.08
"Change of Control Repurchase
Right" ......................................... 4.08
"Custodian" ........................................... 6.01
"Discharged" .......................................... 8.01
"Event of Default" .................................... 6.01
"Incur" ............................................... 4.10
"Legal Holiday" ....................................... 11.07
"Minimum Net Worth" ................................... 4.09
"Net Proceeds Offer" .................................. 4.15
"Net Proceeds Offer Notice" ........................... 4.15
"Net Worth" ........................................... 4.09
"Net Worth Notice" .................................... 4.09
"Net Worth Offer" ..................................... 4.09
"Net Worth Offer Amount" .............................. 4.09
"Net Worth Price" ..................................... 4.09
"Net Worth Repurchase Date" ........................... 4.09
"Net Worth Repurchase Right" .......................... 4.09
"Paying Agent" ........................................ 2.03
"Purchase Amount" ..................................... 4.15
"Registrar ............................................ 2.03
"Successor" ........................................... 5.01
"Trigger Date" ........................................ 4.09
SECTION 1.03 Incorporation by Reference of Trust
Indenture Act.
-----------------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
<PAGE>
-20-
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles in effect on the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision.
ARTICLE 2.
THE SECURITIES
SECTION 2.01 Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication
shall be substantially in the form set forth in Exhibit A, which is incorporated
in and forms a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Security shall be dated the date of its authentication.
<PAGE>
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SECTION 2.02 Execution and Authentication.
----------------------------
Two Officers shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities.
If an Officer whose signature is on a Security no longer holds
that office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Security has been authenticated under this Indenture.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication; and the Trustee shall, upon a written
order or orders of the Company signed by two Officers or by an Officer and an
Assistant Treasurer or Assistant Secretary of the Company, authenticate and make
available for delivery such Securities. The order shall specify the amount of
Securities to be authenticated and the date on which such Securities are to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $150,000,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 2.03. Registrar and Paying Agent.
--------------------------
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Securities may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange.
<PAGE>
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The Company may appoint or change one or more co-Registrars and one or more
additional paying agents without notice and may act in any such capacity on its
own behalf. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such, and shall be entitled to appropriate compensation therefor pursuant
to Section 7.07.
The Company initially appoints the Trustee as Paying Agent and
Registrar.
SECTION 2.04. Paying Agent to Hold Money in
Trust.
-----------------------------
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all moneys held by such Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, such
Paying Agent shall have no further liability for the money. If the Company acts
as Paying Agent, it shall segregate and hold as a separate trust fund all money
held by it as Paying Agent.
SECTION 2.05. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Securityholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee on or before each interest payment date and at such
other times as the Trustee may request in writing a list, in such form and as of
such date as the Trustee may reasonably require, of the names, addresses and tax
identification numbers of Securityholders.
SECTION 2.06. Transfer and Exchange.
---------------------
Where Securities are presented to the Registrar or a
co-Registrar with a request to register the transfer or to
<PAGE>
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exchange them for an equal principal amount of Securities of other authorized
denominations, the Registrar shall register the transfer or make the exchange if
the requirements of Section 8-401(1) of the New York Uniform Commercial Code are
met. To permit registrations of transfer and exchanges, the Trustee shall
authenticate Securities at the Registrar's request. The Company or the Trustee,
as the case may be, shall not be required (a) to issue, authenticate, register
the transfer of or exchange any Security during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of the
Securities selected for redemption under Section 3.02 and ending at the close of
business on the day of such mailing, or (b) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except the
unredeemed portion of Securities being redeemed in part.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer, registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 2.10, 3.06 or 9.05 not
involving any transfer.
SECTION 2.07. Replacement Securities.
----------------------
If the Holder of a Security claims that the Security has been
mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the requirements of Section
8-405 of the New York Uniform Commercial Code are met and, in the case of a
mutilated Security, such mutilated Security is surrendered to the Trustee. If
required by the Trustee or the Company, an indemnity bond must be sufficient, in
the judgment of both, to protect the Company, the Trustee, or any Agent from any
loss which any of them may suffer if a Security is replaced. The Company or the
Trustee may charge for its expenses in replacing a Security.
In case any such mutilated, destroyed or wrongfully taken
Security has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, pay such Security when due.
Every replacement Security is an additional obligation of the
Company.
<PAGE>
SECTION 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding. A
Security does not cease to be outstanding because the Company or one of its
subsidiaries or Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it, or a
court holds, that the replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company) holds on a
redemption date, repurchase date or maturity date money sufficient to pay
Securities payable on that date, then on and after that date, such Securities
shall be deemed to be no longer outstanding and interest on them shall cease to
accrue.
SECTION 2.09. Securities Held by the Company or an Affiliate.
----------------------------------------------
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or a Subsidiary or an Affiliate shall be
disregarded, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall
<PAGE>
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cancel all Securities surrendered for registration of transfer, exchange,
payment or cancellation and may destroy cancelled Securities and deliver a
certificate of any such destruction to the Company. The Company may not issue
new Securities to replace Securities that it has paid or delivered to the
Trustee for cancellation.
SECTION 2.12. Defaulted Interest.
------------------
If and to the extent the Company defaults in a payment of
interest on the Securities, it shall pay the defaulted interest in any lawful
manner plus, to the extent not prohibited by applicable statute or case law,
interest payable on the defaulted interest. It may pay the defaulted interest to
the persons who are Securityholders on a subsequent special record date. The
Company shall fix such record date and payment date. At least 15 days before the
record date, the Company shall mail to Securityholders a notice that states the
record date, payment date and amount of interest to be paid.
ARTICLE 3.
REDEMPTION
SECTION 3.01. Notices to Trustee.
------------------
If the Company wants to redeem a portion of the Securities
pursuant to paragraph 5 of the Securities, it shall notify the Trustee at least
60 days prior to the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee) of the redemption date and the principal amount of
Securities to be redeemed.
SECTION 3.02. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all the Securities are to be redeemed, the
Trustee shall select the particular Securities (or portions thereof) to be
redeemed on either a pro rata basis or by lot or such other method as the
Trustee shall determine, such determination to be final and conclusive for all
purposes hereunder, but in any event, in such manner as complies with applicable
legal and stock exchange requirements. The Trustee shall make the selection from
Securities outstanding not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them it selects
shall be in amounts of $1,000 or whole multiples
<PAGE>
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of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail by first-class mail a notice of redemption to each
Holder whose Securities are to be redeemed.
The notice shall identify the Securities and the principal
amount thereof to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price (including the amount of accrued
interest to be paid on the Securities called for redemption);
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price; and
(5) that interest on Securities called for redemption
ceases to accrue on and after the redemption date.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event the
Company will provide the Trustee with the information required by clauses (1)
through (5).
SECTION 3.04. Effect of Notice of Redemption.
------------------------------
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date at the redemption price
and, on and after such date (unless the Company shall default in the payment of
the redemption price), such Securities shall cease to bear interest. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price plus accrued interest to the redemption date.
<PAGE>
-27-
SECTION 3.05. Deposit of Redemption Price.
---------------------------
On or before 12:00 Noon on the redemption date, the Company
shall deposit with the Paying Agent money in funds immediately available on the
redemption date sufficient to pay the redemption price of and accrued interest
on all Securities to be redeemed on that date.
SECTION 3.06. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for the Holder a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE 4.
COVENANTS
SECTION 4.01. Payment of Securities.
---------------------
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. Principal
and interest shall be considered paid on the date due if the Paying Agent holds
on that date money sufficient to pay all principal and interest then due.
The Company shall pay interest on overdue principal at the
rate borne by the Securities. The Company shall pay interest on overdue
installments of interest at the same rate to the extent not prohibited by
applicable statute or case law.
SECTION 4.02. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
<PAGE>
-28-
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee in the Borough of Manhattan, The City of New York, an agency of the
Company in accordance with Section 2.03.
SECTION 4.03. SEC Reports.
-----------
The Company shall deliver to the Trustee and mail to each
Holder within 15 days after it files them with the SEC copies of the quarterly
and annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) with respect to the Company and the Guarantors, if any,
which the Company and the Guarantors may be required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall
comply with the other provisions of TIA ss. 314(a).
Notwithstanding that neither the Company nor any of the
Guarantors may be required to remain subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company and the Guarantors will
continue to file with the SEC and provide the Trustee and Holders with such
annual and quarterly reports and such information, documents and other reports
with respect to the Company and the Guarantors as are required under Sections 13
and 15(d) of the Exchange Act. If filing of documents by the Company with the
SEC as aforementioned in this paragraph is not permitted under the Exchange Act,
the Company shall promptly upon written notice supply copies of such documents
to any prospective holder.
SECTION 4.04. Compliance Certificate.
----------------------
The Company shall deliver to the Trustee within 120 days after
the end of each fiscal year of the Company an Officers' Certificate stating
whether or not the signatories know of any Default by the Company in performing
any of its
<PAGE>
-29-
obligations under this Indenture or the Securities. If they do know of any such
Default, the certificate shall describe the Default and its status.
SECTION 4.05. Stay, Extension and Usury Laws.
------------------------------
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.06. Corporate Existence.
-------------------
Subject to Article 5, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence and the corporate existence of each of its Restricted Subsidiaries in
accordance with the respective organizational documents of each Restricted
Subsidiary and the rights (charter and statutory), licenses and franchises to
the Company and its Restricted Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or the
corporate existence of any Restricted Subsidiary if, in the judgment of the
Board of Directors of the Company, (i) such preservation or existence is not
material to the conduct of business of the Company and (ii) the loss of such
right, license or franchise or the dissolution of such Restricted Subsidiary
does not have a material adverse impact on the Holders.
SECTION 4.07. Notice of Default.
-----------------
In the event that any Default under Section 6.01 hereof shall
occur the Company will give prompt written notice of such Default to the
Trustee.
SECTION 4.08. Change of Control.
-----------------
(a) In the event that there shall occur a Change of Control of
the Company, each Holder of a Security shall have the right (a "Change of
Control Repurchase Right") upon receipt of a
<PAGE>
-30-
Change of Control Notice (as defined below), at such Holder's option, to require
the Company to repurchase any Securities of such Holder or any portion of the
principal amount thereof which is $1,000 or any integral multiple thereof, on
the date (the "Change of Control Repurchase Date") that is 45 days after the
date of the Change of Control Notice, or, if such 45th day is a Legal Holiday,
the next subsequent day which is not a Legal Holiday, unless otherwise required
by applicable law, at a price equal to 101% of the principal amount thereof,
plus accrued interest to the Change of Control Repurchase Date (the "Change of
Control Price"). The right to require the repurchase of Securities shall not
continue after a discharge of the Company from its obligations with respect to
the Securities in accordance with Article 8.
(b) Within 30 days after the occurrence of a Change of
Control, the Company, or, at the request of the Company, the Trustee, shall give
notice of the occurrence of the Change of Control and of the Change of Control
Repurchase Right set forth herein to each Holder (the "Change of Control
Notice"). The Company shall also deliver a copy of the Change of Control Notice
to the Trustee. Any such notice shall contain all instructions and materials
necessary to enable such Holders to deliver Securities pursuant to the Change of
Control Repurchase Right including, without limitation, the following:
(1) the Change of Control Repurchase Date;
(2) the date by which the Change of Control Repurchase Right
must be exercised;
(3) the Change of Control Price;
(4) that Securities are to be surrendered for payment of the
Change of Control Price; and
(5) that the exercise of the Change of Control Repurchase
Right is irrevocable.
(c) To exercise a Change of Control Repurchase Right a Holder
shall deliver to the Company (if it is acting as its own Paying Agent) or to a
Paying Agent designated by the Company for such purpose in the notice referred
to above on or before the 30th day after the date of the Change of Control
Notice, or, if such day is a Legal Holiday, the next subsequent day which is not
a Legal Holiday, (i) written notice of the Holder's exercise of such right,
which notice shall set forth the name of the Holder, the principal amount of
Securities (or portions thereof) to be
<PAGE>
-31-
repurchased and a statement that an election to exercise the Change of Control
Repurchase Right is being made thereby, and (ii) the Securities with respect to
which the Change of Control Repurchase Right is being exercised, duly endorsed
for transfer to the Company, and the Holder of such Securities shall be entitled
to receive from the Company (if it is acting as its own Paying Agent) or such
Paying Agent a nontransferable receipt of deposit evidencing such deposit. Such
written notice shall be irrevocable.
If the Change of Control Repurchase Date is between a regular
record date for the payment of interest and the next succeeding interest payment
date, any Security 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 Security shall have been called for
redemption, in which case no such payment shall be required), and the interest
on the principal amount of the Security being repurchased will be paid on such
next succeeding interest payment date to the registered holder of such Security
on the immediately preceding record date. A Security repurchased on an interest
payment date need not be accompanied by any payment, and the interest on the
principal amount of the Security being repurchased will be paid on such interest
payment date to the registered holder of such Security on the immediately
preceding record date.
(d) In the event a Change of Control Repurchase Right shall be
exercised in accordance with the terms hereof, the Company shall pay or cause to
be paid the applicable Change of Control Price with respect to the Securities as
to which the Change of Control Repurchase Right shall have been exercised to the
Holder on the Change of Control Repurchase Date.
(e) On or prior to a Change of Control Repurchase Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust in
accordance with Section 2.04) an amount of money sufficient to pay the Change of
Control Price payable in respect of all of the Securities which are to be
repurchased on that date.
(f) Both the notice of the Company and the notice of the
Holder having been given as specified in this Section 4.08, the Securities so to
be repurchased shall, on the Change of Control Repurchase Date, become due and
payable at the Change of Control Price applicable thereto and from and after
such date (unless the Company shall default in the payment of the Change of
<PAGE>
-32-
Control Price) such Securities shall cease to bear interest. If any Security
shall not be paid upon surrender thereof for repurchase, the principal shall,
until paid, bear interest from the Change of Control Repurchase Date at the rate
borne by such Security.
(g) Any Security which is to be submitted for repurchase only
in part shall be delivered pursuant to this Section 4.08 (with, if the Company
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Security without any service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, of the same tenor and in aggregate principal amount equal to and in
exchange for the portion of the principal of such Security not submitted for
repurchase.
(h) 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.
SECTION 4.09. Maintenance of Net Worth.
------------------------
(a) 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 $20,000,000 (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), Securities in an aggregate principal amount equal to 10% of the
initial outstanding principal amount of the Securities (or if less than 10% of
the aggregate principal amount of the Securities originally issued are then
outstanding, all the Securities 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
Securities acquired by the Company prior to the Trigger Date through purchase,
optional redemption or exchange. The Company, however, may not credit a specific
Security in more than one Net Worth Offer. In no event shall the failure to meet
the Minimum
<PAGE>
-33-
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 Section 4.09 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.
(b) 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"). The Company shall also deliver a
copy of the Net Worth Notice to the Trustee. Any such notice shall contain all
instructions and materials necessary to enable such Holders to deliver
Securities pursuant to the Net Worth Offer including, without limitation, the
following:
(1) the Net Worth Repurchase Date;
(2) the date by which the Net Worth Offer must be accepted by
a Holder;
(3) the Net Worth Price and the Net Worth Offer Amount; and
(4) that Securities are to be surrendered for payment of the
Net Worth Price.
(c) To accept a Net Worth Offer a Holder shall deliver to the
Company (if it is acting as its own Paying Agent) or to a Paying Agent
designated by the Company for such purpose in the Net Worth Notice, on or before
the 30th day after the date of the Net Worth Notice, or, if such day is a Legal
Holiday, the next subsequent day which is not a Legal Holiday, (i) written
notice of the Holder's acceptance of such offer, which notice shall set forth
the name of the Holder, the principal amount of Securities (or portions thereof)
to be repurchased, a statement that an acceptance of the Net Worth Offer is
being made thereby and (ii) the Securities with respect to which the Net Worth
Offer is being accepted, duly endorsed for transfer to the Company, and the
Holder of such Securities shall be entitled to receive from the Company (if it
is acting as its own Paying Agent) or such Paying Agent a nontransferable
receipt of deposit evidencing such deposit. 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
<PAGE>
-34-
interest payment date, any Security 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 Security shall have been
called for redemption, in which case no such payment shall be required), and the
interest on the principal amount of the Security being repurchased will be paid
on such next succeeding interest payment date to the registered holder of such
Security on the immediately preceding record date. A Security repurchased on an
interest payment date need not be accompanied by any payment, and the interest
on the principal amount of the Security being repurchased will be paid on such
interest payment date to the registered holder of such Security on the
immediately preceding record date.
(d) In the event a Net Worth Offer is accepted in accordance
with the terms hereof, the Company shall pay or cause to be paid the applicable
Net Worth Price with respect to the Securities as to which the Net Worth Offer
shall have been accepted (on a pro rata basis up to the Net Worth Offer Amount,
plus accrued interest) to the Holder on the Net Worth Repurchase Date.
(e) On the Net Worth Repurchase Date, the Company shall
deliver to the Trustee the amount of Securities to be credited against the Net
Worth Offer Amount and shall deposit with the Trustee or with a Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust in accordance with Section 2.04) an amount of money sufficient to pay the
Net Worth Price payable in respect of all of the Securities which are to be
repurchased on that date, but in no event shall the Company be obligated to
deposit an amount in excess of the Net Worth Offer Amount, plus accrued
interest.
(f) Both the notice of the Company and the notice of the
Holder having been given as specified in this Section 4.09, the Securities to be
repurchased shall, on the Net Worth Repurchase Date, become due and payable at
the Net Worth Price applicable thereto and from and after such date (unless the
Company shall default in the payment of the Net Worth Price) such Securities
shall cease to bear interest. If any Security shall not be paid upon surrender
thereof for repurchase, the principal and interest (to the extent lawful) shall,
until paid, bear interest from the Net Worth Repurchase Date at the rate borne
by such Security.
(g) Any Security which is to be submitted for repurchase only
in part shall be delivered (with, if the Company
<PAGE>
-35-
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the Holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Security without any service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, of the same tenor and in aggregate principal amount equal to and in
exchange for the portion of the principal of such Security not submitted for
repurchase.
(h) 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.
SECTION 4.10. Limitation on Debt.
------------------
The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee or otherwise become liable for ("Incur") any Debt, except Permitted
Debt.
Notwithstanding the foregoing, and subject to the immediately
succeeding paragraph, the Company and its Restricted Subsidiaries 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.
The Company will not, and will not cause or permit any
Guarantor to, directly or indirectly, Incur any Debt that purports to be by its
terms (or by the terms of any agreement governing such Debt) subordinated to any
other Debt of the Company or of such Guarantor, as the case may be, unless such
Debt is also by its terms (or by the terms of any agreement governing such Debt)
made expressly subordinated to the Securities or the Guarantee of such
Guarantor, as the case may be, to the same extent and in the same manner as such
Debt is subordinated to such other Debt.
For purposes of this Section 4.10, 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 Section 4.10 shall
not be or be deemed to be the Incurrence of Debt by the Company or its
Restricted Subsidiaries.
<PAGE>
-36-
SECTION 4.11. Limitation on Restricted Payments.
---------------------------------
The Company will not, and will not permit any of its
Restricted 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;
(b) the Company would be unable to Incur $1.00 of additional
Debt under the second paragraph set forth under Section 4.10; or
(c) the aggregate amount of all Restricted Payments made by
the Company and its Restricted Subsidiaries (the amount expended or
distributed for such purposes, if other than cash, to be determined in
good faith by the Board of Directors of the Company) from and after the
date of this Indenture 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 April 1, 1996 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 proceeds (the amount of such
proceeds, if other than in cash, to be determined in good
faith by the Board of Directors of the Company) 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 or exchangeable notes or other convertible or
exchangeable securities that are converted or exchanged into
Capital Stock, from and after the date of this Indenture, and
options, warrants and rights to purchase its Capital Stock
(other than Redeemable Stock);
(iii) in the case of the disposition or repayment
of any Investment constituting a Restricted Payment made after
the date of this Indenture (excluding any Investment described
in clause (iv) of the following paragraph, but including upon
the redesignation of an
<PAGE>
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Unrestricted Subsidiary as a Restricted Subsidiary), an amount
equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either
case, reduced (but not below zero) by the excess, if any, of
the cost of the disposition of such Investment over the gain,
if any, realized by the Company or such Restricted Subsidiary
in respect of such disposition of such Investment; and
(iv) $5,000,000.
The foregoing paragraphs will not prevent (i) 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; (ii) so long as no Default or Event of Default shall have
occurred and be continuing, the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the Company or any
Subsidiary of the Company in exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Company from any Person
(other than a Subsidiary of the Company) or (y) issue and sale of other shares
of Capital Stock (other than Redeemable Stock) of the Company to any Person
(other than to a Subsidiary of the Company); provided, however, that the amount
of any such net proceeds that are utilized for any such redemption, repurchase
or other acquisition or retirement shall be excluded from clause (ii) of the
preceding paragraph; (iii) so long as no Default or Event of Default shall have
occurred and be continuing, any redemption, repurchase or other acquisition or
retirement of Subordinated Debt by exchange for, or out of the net cash proceeds
of, a substantially concurrent (x) capital contribution to the Company from any
Person (other than a Subsidiary of the Company) or (y) issue and sale of (A)
Capital Stock (other than Redeemable Stock) of the Company to any Person (other
than to a Subsidiary of the Company); provided, however, that the amount of any
such net proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (ii) of the preceding
paragraph; or (B) Debt of the Company issued to any Person (other than a
Subsidiary of the Company), so long as such Debt (x) has no stated maturity
earlier than April 15, 2006, (y) has a Weighted Average Life to Maturity equal
to or greater than the remaining Weighted Average Life to Maturity of the
Securities and (z) is subordinated to the Securities in the same manner and at
least to the same extent as the Subordinated Debt so purchased, exchanged,
redeemed, acquired or retired; (iv) Investments constituting Restricted Payments
made as a result of the receipt of non-cash consideration from any Asset Sale
made
<PAGE>
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pursuant to and in compliance with Section 4.15; (v) so long as no Default or
Event of Default has occurred and is continuing, the repurchase or redemption of
shares of Capital Stock from any officer, director or employee of the Company or
its Restricted Subsidiaries whose employment has been terminated or who has died
or become disabled in an aggregate amount not to exceed $250,000 per annum; and
(vi) so long as no Default or Event of Default shall have occurred and be
continuing, the making of Restricted Payments in an aggregate amount not to
exceed $5,000,000, provided that amounts paid pursuant to clauses (v) and (vi)
(but not clauses (i), (ii), (iii) or (iv)) shall reduce amounts available for
future Restricted Payments.
SECTION 4.12. Limitation on Dividends and Other
Payment Restrictions Affecting
Restricted Subsidiaries.
---------------------------------
The Company will not, and will not permit any of its
Restricted 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 Restricted Subsidiary of the Company to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or any of its Restricted Subsidiaries; (b) make payments in respect of
any Debt owed to the Company or any of its Restricted Subsidiaries; or (c) make
loans or advances to the Company or any of the Company's Restricted
Subsidiaries; provided, however, that the following restrictions shall not be
prohibited pursuant to this Section 4.12: (i) those contained in this Indenture,
a Bank Facility, a 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 Restricted Subsidiary of the Company, provided that such encumbrances
or restrictions are not created, incurred or assumed in contemplation of such
Person becoming a Restricted Subsidiary of the Company and do not extend to any
other property of the Company or another of its Restricted Subsidiaries; (iii)
restrictions contained in security agreements permitted by this Indenture
securing Debt permitted by this 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;
<PAGE>
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(v) any encumbrance or restriction pursuant to an agreement in effect on the
date of this Indenture; or (vi) any restrictions with respect to a Restricted
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 Restricted Subsidiary.
SECTION 4.13. Limitation on Liens.
-------------------
The Company will not, and will not permit any of its
Restricted 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 Restricted Subsidiary, whether now owned or hereafter
acquired, or on any income or profits therefrom, other than Liens which
constitute Permitted Liens at the date such Liens are created, unless
contemporaneously therewith or prior thereto all payments due under this
Indenture and the Securities are secured on an equal and ratable basis with the
obligation or liability so secured until such time as such obligation or
liability is no longer secured by a Lien.
SECTION 4.14. Transactions with Affiliates.
----------------------------
The Company will not, and will not permit any of its
Restricted 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 Restricted Subsidiaries, (ii) such transactions are in the
ordinary course of business and consistent with past practice or (iii) the terms
of such transactions are as fair and reasonable to the Company or such
Restricted Subsidiary, as the case may be, as in a comparable transaction made
on an arm's-length basis between unaffiliated parties. In the event of any
transaction or series of transactions occurring subsequent to the Closing Date
with an Affiliate of the Company which involves in excess of $2,500,000 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. In the event of any transaction or
series of transactions occurring subsequent to the Closing Date with an
Affiliate of the Company which involves in excess of $10,000,000 and is not
permitted under clause (i) above, the Company will be required to deliver to the
Trustee an opinion of an Independent Financial Advisor to the effect that the
transaction is fair to the Company or the relevant Restricted Subsidiary, as the
case may be, from a financial point of view.
<PAGE>
-40-
Notwithstanding the foregoing, such provisions do not prohibit and will not
apply to (1) any Restricted Payment which is permitted by Section 4.11 or (2)
the payment of compensation 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.
SECTION 4.15. Limitation on Asset Sales.
-------------------------
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) the Company or such Restricted 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 (x) the amount of liabilities
assumed by the transferee, (y) any notes or other obligations received by the
Company or such Restricted Subsidiary and immediately converted into cash or (z)
with respect to the sale or other disposition of all of the Capital Stock of any
Restricted Subsidiary, the amount of liabilities that remain the obligation of
such Restricted Subsidiary subsequent to such sale or other disposition, shall
be deemed to be "cash".
(b) Within 12 months from the date that any Asset Sale is
consummated, the Net Proceeds thereof shall be reinvested in Additional Assets
or applied to the redemption or repurchase of Debt of the Company which ranks
pari passu with the Securities or Debt of a Restricted Subsidiary of the Company
which is not subordinated to other debt of such Restricted Subsidiary (which, in
each case, shall be a permanent reduction of such Debt). To the extent that the
Net Proceeds of an Asset Sale are not so applied, the Company or such Restricted
Subsidiary, as the case may be, shall, 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 (as defined
below)) to make an offer (a "Net Proceeds Offer") to repurchase the Securities
at a price equal to 100% of the principal amount thereof, plus accrued interest
to the date of such repurchase, which date shall be the 45th day after the date
of the Net Proceeds Offer Notice (the "Net Proceeds Repurchase Date"), in
accordance with the provisions of clause (c) below.
Notwithstanding the foregoing, the Net Proceeds of an Asset
Sale are not required to be applied in accordance with the
<PAGE>
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preceding paragraph, unless and until the aggregate Net Proceeds for all such
Asset Sales in a 12-month period exceeds $1,000,000.
(c) If the Company or one of its Restricted Subsidiaries is
required to make a Net Proceeds Offer pursuant to clause (b) above, the Company
or such Restricted Subsidiary, or, at the request of the Company, the Trustee,
shall give notice of the Net Proceeds Offer to each Holder (the "Net Proceeds
Offer Notice"). The Company shall also deliver a copy of the Net Proceeds Offer
Notice to the Trustee. Any such notice shall contain all instructions and
materials necessary to enable such Holders to deliver Securities pursuant to the
Net Proceeds Offer including, without limitation, the following:
(1) the Net Proceeds Repurchase Date,
(2) the date by which the Net Proceeds Offer must be accepted;
(3) the applicable amount of Net Proceeds being applied to the
repurchase of Securities in the Net Proceeds Offer (the "Purchase
Amount"); and
(4) that Securities are to be surrendered for payment.
To accept a Net Proceeds Offer a Holder shall deliver to the
Company (if it is acting as its own Paying Agent) or to a Paying Agent
designated by the Company for such purpose in the notice referred to above on or
before the 30th day after the date of the Net Proceeds Offer, or, if such day is
a Legal Holiday, the next subsequent day which is not a Legal Holiday, (i)
written notice of the Holder's acceptance of the Net Proceeds Offer, which
notice shall set forth the name of the Holder, the principal amount of
Securities (or portions thereof) to be repurchased and a statement that an
election to accept the Net Proceeds Offer is being made thereby and (ii) the
Securities with respect to which the Net Proceeds Offer is being accepted, duly
endorsed for transfer to the Company, and the Holder of such Securities shall be
entitled to receive from the Company (if it is acting as its own Paying Agent)
or such Paying Agent a nontransferable receipt of deposit evidencing such
deposit. 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 Security to be repurchased
<PAGE>
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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
Security shall have been called for redemption, in which case no such payment
shall be required), and the interest on the principal amount of the Security
being repurchased will be paid on such next succeeding interest payment date to
the registered holder of such Security on the immediately preceding record date.
A Security repurchased on an interest payment date need not be accompanied by
any payment, and the interest on the principal amount of the Security being
repurchased will be paid on such interest payment date to the registered holder
of such Security on the immediately preceding record date.
In the event a Net Proceeds Offer shall be accepted in
accordance with the terms hereof, the Company shall pay or cause to be paid the
pro rata portion of the Purchase Amount with respect to the Securities as to
which the Net Proceeds Offer shall have been accepted to the Holder on the Net
Proceeds Repurchase Date.
On or prior to a Net Proceeds Repurchase Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust in accordance with
Section 2.04) an amount of money equal to the Purchase Amount.
Both the notice of the Company and the notice of the Holder
having been given as specified above, the Securities to be repurchased shall, on
the Net Proceeds Repurchase Date, become due and payable and from and after such
date (unless the Company shall default in the payment of the Purchase Amount)
such Securities shall cease to bear interest. If any Security shall not be paid
upon surrender thereof for repurchase, the principal and interest shall, until
paid, bear interest from the Net Proceeds Repurchase Date at the rate borne by
such Security.
Any Security which is to be submitted for repurchase only in
part shall be delivered pursuant to this provision (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and make available for delivery to
the Holder of such Security without any service charge, a new Security or
Securities, of any authorized denomination as requested by such Holder, of the
same tenor and in aggregate principal amount equal to and in exchange for the
<PAGE>
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portion of the principal of such Security not submitted for repurchase.
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.
(d) 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.
SECTION 4.16. Additional Guarantors.
---------------------
The Company shall cause any Subsidiary with a net book value
greater than $10,000,000 which is designated as a Restricted Subsidiary to,
simultaneously with its designation as a Restricted Subsidiary, execute and
deliver (i) a supplemental indenture to this Indenture, providing for the
guarantee of payment of the Securities by such Subsidiary pursuant to the terms
of Article Ten hereof and Exhibit B hereto and (ii) a guarantee in the form of
Exhibit B hereto.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. When Company May Merge, etc.
---------------------------
Neither the Company nor any Guarantor shall consolidate or
merge with or into, or sell, lease, convey or otherwise dispose of all or
substantially all of its assets (including, without limitation, by way of
liquidation or dissolution), or assign any of its obligations under the
Securities, the Guarantees or this Indenture (as an entirety or substantially as
an entirety in one transaction or a series of related transactions), to any
Person or permit any of its Restricted Subsidiaries to do any of the foregoing
(in each case other than with the Company or another wholly owned Restricted
Subsidiary) unless:
(1) the person formed by or surviving any such consolidation
or merger (if other than the Company or such Guarantor, as the case may
be), or to which such sale, lease, conveyance or other disposition or
assignment will be made (collectively, the "Successor"), is a Person
organized
<PAGE>
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and existing under the laws of the United States, any State thereof or
the District of Columbia;
(2) the Successor assumes by supplemental indenture in a form
reasonably satisfactory to the Trustee all of the obligations of the
Company or such Guarantor, as the case may be, under the Securities or
such Guarantor's Guarantee, as the case may be, and this Indenture;
(3) immediately after giving effect to such transaction no
Default or Event of Default has occurred and is continuing;
(4) immediately after giving effect to such transaction and
the use of any net proceeds therefrom, on a pro forma basis, the
Consolidated Tangible Net Worth of the Company or the Successor (in the
case of a transaction involving the Company), as the case may be, would
be at least equal to the Consolidated Tangible Net Worth of the Company
immediately prior to such transaction; and
(5) in the case of a transaction involving the Company,
immediately after giving effect to such transaction and the use of any
net proceeds therefrom, on a pro forma basis, the Coverage Ratio of the
Company or the Successor (in the case of a transaction involving the
Company), as the case may be, would be such that the Company or the
Successor (in the case of a transaction involving the Company), as the
case may be, would be entitled to Incur at least $1.00 of additional
Debt under such Coverage Ratio test set forth in Section 4.10.
The foregoing provisions shall not apply to a transaction involving the
consolidation or merger of a Guarantor with or into another person, or the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of such Guarantor, that results in such Guarantor being released from its
Guarantee as provided under its Guarantee.
Notwithstanding the foregoing, clauses (4) and (5) 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 Section 5.01.
The Company shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate
<PAGE>
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to the foregoing effect and an Opinion of Counsel stating that the proposed
transaction and such supplemental indenture comply with this Indenture.
SECTION 5.02. Successor Substituted.
---------------------
Upon any consolidation, merger, sale, assignment, transfer,
lease or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01, the Successor shall succeed to, and be
substituted for, and may exercise every right and power of, and shall assume
every duty and obligation of, the Company under this Indenture with the same
effect as if such Successor had been named as the Company herein. When the
Successor assumes all obligations of the Company hereunder, all obligations of
the predecessor shall terminate.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
-----------------
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
acceleration or otherwise;
(3) the Company or any Guarantor fails to comply with any of
its other agreements in the Securities, the Guarantees or this
Indenture and the default continues for the period and after the notice
specified below;
(4) an event of default shall have occurred under one or more
evidences of Debt of the Company or any of its Restricted Subsidiaries
(other than Non-Recourse Debt) with an outstanding aggregate principal
amount of $5,000,000 or more, whether such Debt now exists or is
created hereafter, which event of default (i) consists of the failure
by the Company or any Restricted Subsidiary to make any payment in
respect of such Debt at its final maturity or (ii) results in the
acceleration of such Debt, which acceleration shall be in effect;
<PAGE>
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(5) a final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate are rendered against the Company
or any of its Restricted Subsidiaries and such judgment or judgments
remain unstayed, unsatisfied or undischarged for the period and after
the notice specified below;
(6) any Guarantee of a Material Subsidiary ceases to be in
full force and effect (other than in accordance with the terms of such
Guarantee and this Indenture) or is declared null and void and
unenforceable or found to be invalid or any Guarantor denies its
liability under its Guarantee (other than by reason of release of a
Guarantor from its Guarantee in accordance with the terms of the
Guarantee and this Indenture);
(7) the Company or any of its Material Subsidiaries pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of
it or for all or substantially all of its property, or
(D) makes a general assignment for the benefit of
its creditors; or
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case,
(B) appoints a Custodian of the Company for all or
substantially all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal or State law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
<PAGE>
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A default under clause (3) or (5) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities then outstanding notify the Company of the default and the Company
does not cure the default within 60 days after receipt of the notice. 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
Securities then outstanding request the Trustee to give such notice on their
behalf, the Trustee shall do so.
The Trustee shall not be deemed to have notice of any Default
hereunder unless it shall have actual knowledge of such Default or it shall have
received written notice thereof making specific reference to such Default as a
Default.
SECTION 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default
specified in Section 6.01(7) or Section 6.01(8), with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in principal amount of the Securities then outstanding by notice
to the Company and the Trustee, may declare the principal of and accrued
interest on all the Securities to be due and payable. Upon such declaration such
principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or Section 6.01(8), with respect to the
Company occurs, all unpaid principal and accrued interest on the Securities then
outstanding shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholder.
The Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration.
SECTION 6.03. Other Remedies.
--------------
Notwithstanding any other provision of this Indenture, if an
Event of Default occurs and is continuing, the Trustee may pursue any available
remedy by proceeding at law or in equity to collect the payment of principal of
or interest on the Securities or to enforce the performance of any provision of
the Securities or this Indenture.
<PAGE>
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The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative.
SECTION 6.04. Waiver of Past Defaults.
-----------------------
Subject to Sections 6.07 and 9.02, the Holders of a majority
in principal amount of the Securities then outstanding by notice to the Trustee
may waive an existing Default and its consequences. When a Default is waived, it
is cured and ceases; but no such waiver shall extend to any other default.
SECTION 6.05. Control by Majority.
-------------------
The Holders of a majority in principal amount of the
Securities then outstanding may 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 it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee determines
is unduly prejudicial to the rights of other Securityholders or 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.
SECTION 6.06. Limitation on Suits.
-------------------
Except as provided in Section 6.07, a Securityholder may
pursue a remedy with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the
Securities then outstanding make a written request to the Trustee to
institute proceedings in respect of such Event of Default;
(3) such Holder or Holders offer to the Trustee reasonable
indemnity against any loss, liability or expense (including reasonable
attorneys' fees);
<PAGE>
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(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the Securities then outstanding do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Security to receive payment of principal of and
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.01(1) or (2)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid.
SECTION 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee, any predecessor Trustee and the Securityholders allowed in any judicial
proceedings relative to the Company, its creditors or its property.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder of
the Securities any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of the
Securities in any such proceeding.
<PAGE>
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SECTION 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any
payment by it to Securityholders pursuant to this Section.
SECTION 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit other than the Trustee of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
ARTICLE 7.
TRUSTEE
SECTION 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
<PAGE>
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(b) Except during the continuance of an Event of
Default:
(1) The Trustee need perform only those duties that
are specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture but need not verify the accuracy of the content
thereof.
(c) The Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act or its own
willful misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.01.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section
7.01.
(e) The Trustee may refuse to perform any duty or
exercise any right or power unless it receives indemnity satisfactory to it
against any loss, liability or expense, including reasonable attorneys' fees.
(f) The Trustee shall not be liable for interest on
any money received by it except as the Trustee may agree with the Company. Money
held in trust by the Trustee need not be segregated from other funds except to
the extent required by law.
<PAGE>
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(g) The Trustee shall not be required to give any
bond or surety with respect to the execution of its rights and powers or with
respect to this Indenture.
(h) The Trustee shall not be bound to ascertain or
inquire as to the performance or observance of any covenants, conditions or
agreements on the part of the Company hereunder; but the Trustee may require of
the Company full information and advice as to the performance of the covenants,
conditions and agreements as aforesaid.
SECTION 7.02. Rights of Trustee.
-----------------
(a) The Trustee may rely on any document believed by
it to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate and/or an Opinion of Counsel. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Certificate or Opinion.
(c) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers.
(e) It shall not be the duty of the Trustee, except
as expressly provided herein, to ensure that any duties or obligations herein
imposed upon the Company or any other Person are performed, and, except as
expressly provided herein, the Trustee shall not be liable or responsible for
the failure of any other Person to perform any act required of it or them by
this Indenture.
(f) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder.
<PAGE>
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SECTION 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate thereof with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. The Trustee, however, must comply with
Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities; it shall not be accountable for
the Company's use of the proceeds from the Securities; and it shall not be
responsible for any statement in the Securities other than its certificate of
authentication.
SECTION 7.05. Notice of Defaults.
------------------
If a Default occurs and is continuing and if it is actually
known to the Trustee or the Trustee has received written notice thereof, the
Trustee shall mail to each Securityholder a notice of the Default within 90 days
after it occurs. Except in the case of a Default in payment of principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
it in good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
-----------------------------
If required by TIA ss. 313(a), within 60 days after each May
15 beginning with May 15, 1996, the Trustee shall mail to each Securityholder as
required by TIA ss. 313(c) a brief report dated as of such date that complies
with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
A copy of each report at the time of its mailing to
Securityholders shall be filed by the Trustee with the SEC and each stock
exchange, if any, on which the Securities are listed. The Company shall notify
the Trustee when the Securities are listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time such
compensation for its services as shall be agreed upon in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The
<PAGE>
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Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses shall include the
reasonable compensation and out-of-pocket expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee against any loss or
liability (including the fees and expenses of counsel) incurred by it in
connection with the administration of this trust and the performance of its
duties hereunder. The Company need not pay for any settlement made without its
consent. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnification. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Trustee through the
Trustee's negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(6) or (7) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The
Holders of a majority in principal amount of the Securities may remove the
Trustee by so notifying the Trustee and the Company and may appoint a successor
Trustee with the Company's consent. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
<PAGE>
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(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
Notwithstanding the replacement of the Trustee pursuant to
Section 7.08, the Company's obligation to compensate the retiring Trustee under
Section 7.07, for services rendered prior to its retirement shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
--------------------------------
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the successor corporation without any further act shall be the
successor Trustee.
<PAGE>
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SECTION 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b).
SECTION 7.11. Preferential Collection of Claims
Against Company.
---------------------------------
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8.
DEFEASANCE
SECTION 8.01. Defeasance upon Deposit of Moneys
or U.S. Government Obligations.
-------------------------------
This Indenture and the Guarantees shall cease to be of further
effect (except that the Company's obligations under Sections 7.07 and 8.05
hereof shall survive) when all outstanding Securities theretofore authenticated
and issued (other than Securities which have been destroyed, lost or stolen and
which have been replaced as provided in Section 2.07 hereof) have been delivered
to the Trustee for cancellation and the Company has paid all sums payable
hereunder.
Notwithstanding the first paragraph of this Section 8.01, at
the Company's option indicated by notice to the Trustee, either (a) the Company
shall be deemed to have been Discharged (as defined below) from its obligations
with respect to the Securities on the 91st day after the applicable conditions
set forth below have been satisfied or (b) the Company shall cease to be under
any obligation to comply with any term, provision or condition set forth in
Sections 4.06 through 4.15 and shall cease to be subject to the provisions of
Section 6.01(3) with respect to Sections 4.06 through 4.15 and Section 6.01(4)
with respect to the Securities at any time after the conditions set forth below
have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in
<PAGE>
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trust, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of the Securities (i) money in an amount, or
(ii) U.S. Government Obligations which through the payment of interest
and principal in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
money in an amount, or (iii) a combination of (i) and (ii), sufficient,
in the opinion with respect to (ii) and (iii) of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge each installment of principal of and interest on the
outstanding Securities on the dates such installments of interest or
principal are due;
(2) the Company shall have delivered to the Trustee an Opinion
of Counsel stating that the Holders of the outstanding Securities 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;
(3) such deposit will not result in a breach or violation of,
or constitute a Default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; and
(5) the Company shall have delivered to the Trustee an
Officers Certificate stating that the conditions set forth in this
Section 8.01 have been satisfied or complied with.
"Discharged" shall mean that the Company and each Guarantor
shall be deemed to have paid and discharged the entire indebtedness represented
by, and obligations under, the Securities and to have satisfied all the
obligations under this Indenture and the Guarantees relating to the Securities
(and the Trustee, upon the request of the Company and at the expense of the
Company, shall execute proper instruments acknowledging the same).
<PAGE>
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SECTION 8.02. Termination of the Obligations
Pursuant to Redemption.
------------------------------
The Company and each Guarantor may terminate its obligations
under the Securities, this Indenture and the Guarantees (except that the
Company's obligations under Sections 7.07 and 8.05 hereof shall survive) and the
Company and the Guarantors shall be deemed to have been Discharged from its
Obligations with respect to the Securities and the Guarantees if:
(a) either (i) pursuant to Article Three, the Company
shall have given notice to the Trustee and mailed a notice of
redemption to each Holder of the redemption of all of the Securities
under arrangements satisfactory to the Trustee for the giving of such
notice or (ii) all Securities have otherwise become due and payable
hereunder;
(b) the Company shall have irrevocably deposited or
caused to be deposited with the Trustee or a trustee reasonably
satisfactory to the Trustee, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee, as trust
funds in trust solely for the benefit of the Holders for that purpose,
money in such amount as is sufficient without consideration of
reinvestment of such interest, to pay principal of, premium, if any,
and interest on the outstanding Securities to maturity or redemption,
as certified in a certificate of a nationally recognized firm of
independent public accountants; provided that the Trustee shall have
been irrevocably instructed to apply such money to the payment of said
principal, premium, if any, and interest with respect to the
Securities;
(c) no Default of Event of Default with respect to
this Indenture or the Securities shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such deposit
and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company
is a party or by which it is bound; and
(d) the Company shall have paid all other sums
payable by it hereunder;
(e) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the conditions set forth in this
Section 8.02 have been complied with.
<PAGE>
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SECTION 8.03. Survival of Company's Obligations.
---------------------------------
Notwithstanding the satisfaction and discharge of the
Indenture under Section 8.01 or Section 8.02, the Company's obligations in
Sections 2.04, 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 4.05, 7.07, 7.08, 8.04, 8.05
and 8.06, however, shall survive until the Securities are no longer outstanding.
Thereafter, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall
survive.
SECTION 8.04. Application of Trust Money.
--------------------------
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01. It shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
SECTION 8.05. Repayment to Company.
--------------------
The Trustee and the Paying Agent shall promptly pay to the
Company upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any money
held by them for the payment of principal or interest that remains unclaimed for
two years, provided, however, that the Trustee or such Paying Agent, before
being required to make any such repayment, may at the expense of the Company
cause to be published once in a newspaper of general circulation in the City of
New York or mail to each such Holder notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication or mailing, any unclaimed balance of such
money then remaining will be repaid to the Company. After payment to the
Company, Securityholders entitled to the money must look to the Company for
payment as general creditors unless applicable abandoned property law designates
another person.
The Company shall indemnify Trustee to the fullest extent
permissible by law for the Trustee's failure to comply with any abandoned
property or escheat law by acting in accordance with this Section 8.05.
SECTION 8.06. Reinstatement.
-------------
If the Trustee is unable to apply any money or U.S. Government
Obligations in accordance with Section 8.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or
<PAGE>
-60-
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01 until such time as the Trustee is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Company has made any payment
of interest on or principal of any Securities because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee.
ARTICLE 9.
AMENDMENTS
SECTION 9.01. Without Consent of Holders.
--------------------------
The Company and the Guarantors, with the consent of the
Trustee, may amend or supplement this Indenture, the Securities or the
Guarantees without notice to or the consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or
inconsistency; provided that such amendment or supplement does not
adversely affect the rights of any Securityholder;
(2) to comply with Section 5.01;
(3) to provide for uncertificated Securities in
addition to certificated Securities;
(4) to make any change that does not materially
adversely affect the rights of any Securityholder hereunder, including,
without limitation, any amendments reasonably necessary to issue
additional Securities hereunder;
(5) to comply with the qualification of this
Indenture under the TIA; or
(6) to reflect a Guarantor ceasing to be liable on
the Guarantees because it is no longer a Subsidiary of the Company or
to reflect additional Guarantors.
For the purposes of Section 9.01, the Trustee may, in its
discretion, determine whether or not the Holder of any Securities would be
materially adversely affected by any
<PAGE>
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amendment or supplement to this Indenture and any such determination shall be
conclusive upon every Holder, whether theretofore or thereafter entered into.
The Trustee shall, subject to the express provisions of this Indenture, not be
liable for any such determination made in good faith and shall be entitled to,
and may rely upon, an Opinion of Counsel with respect thereto.
SECTION 9.02. With Consent of Holders.
-----------------------
The Company and the Guarantors, with the consent of the
Trustee, may amend or supplement this Indenture, the Securities or the
Guarantees without notice to any Securityholder but with the written consent of
the Holders of at least a majority in principal amount of the Securities then
outstanding. Subject to Section 6.07, the Holders of a majority in principal
amount of the Securities then outstanding may waive compliance by the Company or
any Guarantor with any provision of this Indenture, the Securities or the
Guarantees without notice to any Securityholder. However, without the consent of
each Securityholder affected, an amendment, supplement or waiver, including a
waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment
of interest on any Security;
(3) reduce the principal of or change the fixed
maturity of any Security (including, without limitation, the optional
redemption provisions, but excluding Sections 4.08, 4.09 and 4.15);
(4) waive a Default or Event of Default in the
payment of principal of or interest on any Security;
(5) make any Security payable in money other than
that stated in the Security;
(6) make any change in Section 6.04, Section 6.07 or
Section 9.02;
(7) adversely modify the terms and conditions of the
obligations of the Guarantors or ranking or priority of the Securities
or any Guarantee; or
<PAGE>
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(8) release any Guarantor from any of its obligations
under its Guarantee or this Indenture otherwise than in accordance with
the terms hereof.
Promptly after an amendment under this Section becomes
effective, the Company shall mail to Securityholders a notice briefly describing
the amendment.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment or
supplement, but it shall be sufficient if such consent approves the substance
thereof.
SECTION 9.03. Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to this Indenture, the Securities or the
Guarantees shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Security is a continuing consent by the Holder
and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent is not made on any Security. However, any such Holder or subsequent
Holder may revoke the consent as to his Security or portion of a Security if the
Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Securityholder.
After an amendment, supplement or waiver becomes effective
with respect to the Securities, it shall bind every Securityholder unless it
makes a change described in any of clauses (1) through (8) of Section 9.02. In
that case the amendment, supplement or waiver shall bind each Holder of a
Security who has consented to it and, provided that notice of such amendment,
supplement or waiver is reflected on a Security that evidences the same debt as
the consenting Holder's Security, every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security.
SECTION 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security
<PAGE>
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to deliver it to the Trustee. The Trustee may place an appropriate notation on
the Security about the changed terms and return it to the Holder. Alternatively,
if the Company or the Trustee so determines, the Company in exchange for the
Security shall issue and the Trustee shall authenticate a new Security that
reflects the changed terms.
SECTION 9.06. Trustee Protected.
-----------------
The Trustee need not sign any amendment, supplement or waiver
authorized pursuant to this Article that adversely affects the Trustee's rights.
The Trustee shall be entitled to receive and rely upon an Opinion of Counsel and
an Officers' Certificate that any supplemental indenture complies with the
Indenture.
ARTICLE 10.
GUARANTEE OF SECURITIES
SECTION 10.01. Guarantee.
---------
Subject to the provisions of this Article 10, each Guarantor
(which term includes any successor Person under this Indenture and any
additional Guarantor pursuant to Section 4.16 of this Indenture) for
consideration received hereby jointly and severally unconditionally and
irrevocably guarantees on a senior basis (each a "Guarantee", and collectively,
the "Guarantees") to each Holder of a Security authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of
the validity and enforceability of this Indenture, the Securities or the
obligations of the Company or any other Guarantor to the Holders or the Trustee
hereunder or thereunder, that: (a) the principal of, premium, if any, and
interest on the Securities will be duly and punctually paid in full when due,
whether at maturity, as a result of redemption, upon a Change of Control, as a
result of a Net Worth Offer, by acceleration or otherwise, and interest on the
overdue principal, premium, if any, and (to the extent permitted by law)
interest, if any, on the Securities and all other payment obligations of the
Company or the Guarantors to the Holders or the Trustee hereunder or thereunder
(including fees, expenses or other) will be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; (b) all other obligations
under this Indenture to the Holders or the Trustee will be duly and punctually
performed all in accordance with the terms of this Indenture and the Securities
and (c) in case of any extension of time of payment or renewal of any Securities
or any such other
<PAGE>
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obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, as a result of redemption, upon a Change of Control, as a result of a
Net Worth Offer, by acceleration or otherwise. Failing payment or performance
when due of any amount or obligations so guaranteed for whatever reason, each
Guarantor will be obligated to pay or perform the same immediately. An Event of
Default under this Indenture or the Securities shall constitute an event of
default under the Guarantees, and shall entitle the Holders of Securities to
accelerate the obligations of the Guarantors hereunder in the same manner and to
the same extent as the obligations of the Company.
Each of the Guarantors hereby agrees that its obligations
hereunder shall be absolute and unconditional, irrespective of, and shall be
unaffected by, the invalidity, irregularity or unenforceability of the
Securities or this Indenture, the absence of any action to enforce the same, any
waiver, modification or consent by any holder of the Securities with respect to
any provisions hereof or thereof, any release of any other Guarantor, the
recovery of any judgment against the Company, any action to enforce the same,
whether or not a Guarantee is affixed to any particular Security, or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each of the Guarantors hereby waives the benefit of
diligence, presentment, demand of payment, filing of claims with a court in the
event of merger insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that its Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture and
its Guarantee. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, its Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article 10, the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of its Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (b) in the event of any declaration of acceleration of
such obligations as provided in
<PAGE>
-65-
Article 6 hereof, such obligations (whether or not due and payable) shall
forthwith become due and payable by such Guarantor for the purpose of its
Guarantees.
[The Guarantees shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment of the Securities are, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee on the Securities, whether as a "voidable preference,"
"fraudulent transfer" or otherwise, all as though such payment had not been
made. In the event that any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Securities shall, to the fullest extent permitted by
law, be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.]
For purposes of this Article 10, each Guarantor's liability (a
Guarantor's "Base Guaranty Liability") shall be that amount from time to time
equal to the aggregate liability of a Guarantor hereunder, but shall be limited
to the lessor of (A) the aggregate amount of the obligation as stated in the
first sentence of this Section 10.01 with respect to the Securities or (B) the
amount, if any, which would not have (i) rendered such Guarantor "insolvent" (as
such term is defined in Section 101(29) of the Federal Bankruptcy Code and in
Section 271 of the Debtor and Creditor Law of the State of New York, as each is
in effect at the date of this Indenture) or (ii) left it with unreasonably small
capital at the time its Guarantee of the Securities was entered into, after
giving effect to the incurrence of existing Debt immediately prior to such time
provided, that, it shall be a presumption in any lawsuit or other proceeding in
which a Guarantor is a party that the amount guaranteed is the amount set forth
in (A) above unless a creditor, or representative of creditors of such Guarantor
or a trustee in bankruptcy of the Guarantor, as debtor in possession, otherwise
proves in such a lawsuit that the aggregate liability of the Guarantor is
limited to the amount set forth in (B). In making any determination as to the
solvency or sufficiency of capital of a Guarantor in accordance with the
previous sentence, the right of such Guarantor to contribution from other
Guarantors, to subrogation pursuant to the next paragraph and any other rights
such
<PAGE>
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Guarantor may have contractual or otherwise shall be taken into account.
Each Guarantor shall be subrogated to all rights of the Holder
of any Securities and the Trustee against the Company or any of ther other
Guarantors in respect of any amounts paid to the Holder and the Trustee by such
Guarantor pursuant to the provisions of this Guarantee; provided, however, that
such Guarantor shall not be entitled to enforce, or to receive any payments
arising out of or based upon, such right of subrogation until the principal of,
premium, if any, and interest on all the Securities have been paid in full.
Nothing contained in this Article 10 or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between the
Guarantors and the Holders and the Trustee, the obligation of each Guarantor,
which is absolute and unconditional, to pay the Holders and the Trustee the
principal of, premium, if any, and interest on the Securities as and when the
same shall become due and payable and to perform all other obligations in
accordance with the provisions of this Guarantee, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon Default under this Indenture.
The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under the Guarantees.
SECTION 10.02. Execution and Delivery of Guarantee.
-----------------------------------
To further evidence the Guarantee set forth in Section 10.01,
each Guarantor hereby agrees that a notation of such Guarantee, substantially in
the form included in Exhibit B hereto, shall be endorsed on each Security
authenticated and delivered by the Trustee after such Guarantee is executed and
executed by either manual or facsimile signature of an officer of each
Guarantor. The validity and enforceability of any Guarantee shall not be
affected by the fact that it is not affixed to any particular Security.
Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Guarantee.
<PAGE>
-67-
If an officer of a Guarantor whose signatures is on this
Indenture or a Security no longer holds that office at the time the Trustee
authenticates such Security or at any time thereafter, such Guarantor's
Guarantee of such Security shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of the Guarantor.
SECTION 10.03. Additional Guarantors.
---------------------
Any person may become a Guarantor by executing and delivering
to the Trustee (a) a supplemental indenture in form and substance satisfactory
to the Trustee, which subjects such person to the provisions of this Indenture
as a Guarantor, and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such person and
constitutes the legal, valid, binding and enforceable obligation of such person
(subject to such customary exceptions concerning fraudulent conveyance laws,
creditors' rights and equitable principles as may be acceptable to the Trustee
in its discretion).
SECTION 10.04. Release of a Guarantor.
----------------------
(a) Upon the sale or disposition of all of the assets or all
of the Capital Stock of a Guarantor by the Company or a Subsidiary of the
Company, or upon the consolidation or merger of a Guarantor with or into any
Person (in each case, other than to the Company or an Affiliate of the Company),
such Guarantor shall be deemed automatically and unconditionally released and
discharged from all obligations under this Article 10 without any further action
required on the part of the Trustee or any Holder, if all obligations of such
Guarantor, if any, in respect of any Indebtedness of the Company shall also
terminate upon such transaction; provided, however, that each such Guarantor is
sold or disposed of in accordance with Section 4.15 hereof; provided, further,
that the foregoing proviso shall not apply to the sale or disposition of a
Guarantor in a foreclosure to the extent that such proviso would be inconsistent
with the requirements of the Uniform Commercial Code.
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Guarantor upon receipt of a request of the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 10.04. Any
<PAGE>
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Guarantor not so released or the entity surviving such Guarantor, as applicable,
will remain or be liable under its Guarantee as provided in this Article 10.
The Trustee shall execute any documents reasonably requested
by the Company or a Guarantor in order to evidence the release of such Guarantor
from its obligations under its Guarantee endorsed on the Securities and under
this Article 10.
Except as set forth in Articles 4 and 5 and this Section
10.04, nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of a Guarantor with or into the Company or
another Guarantor or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety to the Company or
another Guarantor.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.
----------------------------
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
SECTION 11.02. Notices.
-------
Any notice or communication by the Company or the Trustee to
the other is duly given if in writing and delivered in person, mailed by
first-class mail or by express delivery to the other's address stated in this
Section 11.02. The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be
mailed by first-class mail to his address shown on the register kept by the
Registrar. Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
<PAGE>
-69-
If the Company mails a notice or communication to
Securityholders, it shall mail a copy to the Trustee and each Agent at the same
time.
All notices or communications shall be in writing.
The Company's address is:
Continental Homes Holding Corp.
7001 N. Scottsdale Road
Suite 2050
Scottsdale, Arizona 85252
Attention: Corporate Secretary
The Trustee's address is:
First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
Attention: Corporation Trust Department
SECTION 11.03. Communication by Holders with
Other Holders.
-----------------------------
Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and anyone else shall
have the protection of TIA ss. 312(c).
SECTION 11.04. Certificate and Opinion as
to Conditions Precedent.
--------------------------
Upon any request or application by the Company to the Trustee
to take any action under this Indenture the Company shall furnish to the
Trustee:
(1) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any, provided for
in this Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
Each signer of an Officers' Certificate or an Opinion of
Counsel may (if so stated) rely, effectively, upon an Opinion
<PAGE>
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of Counsel as to legal matters and an Officers' Certificate as to factual
matters if such signer reasonably and in good faith believes in the accuracy of
the document relied upon.
SECTION 11.05. Statements Required in Certificate
or Opinion.
----------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion
of such person, such condition or covenant has been complied with.
SECTION 11.06. Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for their respective functions.
SECTION 11.07. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions are not required to be open in The City of New York, in the
State of New York or in the city in which the Trustee administers its corporate
trust business. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue on that payment for the intervening
period.
A "business day" is a day other than a Legal Holiday.
<PAGE>
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SECTION 11.08. No Recourse Against Others.
--------------------------
No director, officer, employee or stockholder of the Company,
any Guarantor or any successor Person thereof shall have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and releases are part of the consideration for the
issue of the Securities.
SECTION 11.09. Duplicate Originals.
-------------------
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.10. Governing Law.
-------------
The laws of the State of New York, without regard to
principles of conflicts of law, shall govern this Indenture and the Securities.
SECTION 11.11. No Adverse Interpretation
of Other Agreements.
-------------------------
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 11.12. Successors.
----------
All agreements of the Company in this Indenture and the
Securities shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 11.13. Separability.
------------
In case any provision in this Indenture or in the Securities
shall be valid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and a Holder shall have no claim therefor against any party
hereto.
<PAGE>
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SECTION 11.14. Table of Contents, Headings, etc.
--------------------------------
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
<PAGE>
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
FIRST UNION NATIONAL BANK, as Trustee
By: /s/ Alan G. Finn
-------------------------------------
Name: Alan G. Finn
Title: Assistant Vice President
CONTINENTAL HOMES HOLDING CORP.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
ACHETER, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
CH MORTGAGE COMPANY
By: /s/ Randall C. Present
-------------------------------------
Name: Randall C. Present
Title:
CHI CONSTRUCTION COMPANY
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
<PAGE>
-74-
CHI FINANCE CORP.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
CONTINENTAL HOMES, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
CONTINENTAL HOMES OF FLORIDA, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
CONTINENTAL HOMES OF TEXAS, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
KDB HOMES, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
L&W INVESTMENTS INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
<PAGE>
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MILBURN INVESTMENTS, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
MILTEX FINANCIAL IV GENERAL
PARTNERSHIP
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
MILTEX MANAGEMENT, INC.
By: /s/ Randall C. Present
-------------------------------------
Name: Randall C. Present
Title: President
MILTEX MORTGAGE OF TEXAS
LIMITED PARTNERSHIP
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
RANCHO CARILLO, INC.
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
R.O.S. CORPORATION
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
<PAGE>
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SETTLEMENT CORPORATION
By: /s/ Kenda B. Gonzales
-------------------------------------
Name: Kenda B. Gonzales
Title:
TRAVIS COUNTY TITLE COMPANY
By: /s/ Burwell B. McClendon, III
-------------------------------------
Name: Burwell B. McClendon, III
Title: Assistant Secretary
CREDIT AGREEMENT
DATED AS OF JUNE 27, 1996
AMONG
CONTINENTAL HOMES HOLDING CORP.
as Borrower
AND
THE BANKS NAMED HEREIN
as Banks
AND
BANK ONE, ARIZONA, NA
as Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
ARTICLE II THE CREDITS................................................................................22
2.1 Commitment.................................................................................22
2.2 Required Payments..........................................................................23
2.3 Ratable Loans..............................................................................23
2.4 Types of Advances; Set Aside Amount........................................................23
2.5 Fees; Reduction in Commitment..............................................................24
2.6 Minimum Amount of Each Advance.............................................................26
2.7 Optional Principal Payments................................................................26
2.8 Method of Selecting Types and Interest Periods for New Advances............................26
2.9 Conversion and Continuation of Outstanding Advances........................................27
2.10 Changes in Interest Rate, etc..............................................................27
2.11 Determination of Applicable Margins and Applicable Unused Commitment
Rate.......................................................................................28
2.12 Rates Applicable After Event of Default....................................................29
2.13 Method of Payment..........................................................................29
2.14 Notes; Telephonic Notices..................................................................29
2.15 Interest Payment Dates; Interest Basis.....................................................30
2.16 Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions.................................................................................30
2.17 Lending Installations......................................................................30
2.18 Non-Receipt of Funds by Agent..............................................................30
2.19 Swing Line.................................................................................31
2.20 Withholding Tax Exemption..................................................................32
2.21 Extension of Facility Termination Date.....................................................33
2.22 Conversion Period..........................................................................35
2.23 Replacement of Certain Banks...............................................................39
ARTICLE III CHANGE IN CIRCUMSTANCES....................................................................40
3.1 Yield Protection...........................................................................40
3.2 Changes in Capital Adequacy Regulations....................................................41
3.3 Availability of Types of Advances..........................................................42
3.4 Funding Indemnification....................................................................42
3.5 Bank Statements; Survival of Indemnity.....................................................42
</TABLE>
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ARTICLE IV THE LETTER OF CREDIT FACILITY..............................................................43
4.1 Facility Letters of Credit.................................................................43
4.2 Limitations................................................................................43
4.3 Conditions.................................................................................44
4.4 Procedure for Issuance of Facility Letters of Credit.......................................45
4.5 Duties of Issuing Bank.....................................................................46
4.6 Participation..............................................................................47
4.7 Compensation for Facility Letters of Credit................................................49
4.8 Issuing Bank Reporting Requirements........................................................50
4.9 Indemnification; Nature of Issuing Bank's Duties...........................................51
4.10 No Obligation to Issue.....................................................................52
4.11 Obligations of Issuing Bank and Other Banks................................................52
ARTICLE V CONDITIONS PRECEDENT.......................................................................53
5.1 Initial Advance............................................................................53
5.2 Each Advance...............................................................................54
ARTICLE VI REPRESENTATIONS AND WARRANTIES.............................................................55
6.1 Existence and Standing.....................................................................55
6.2 Authorization and Validity.................................................................55
6.3 No Conflict; Government Consent............................................................56
6.4 Financial Statements.......................................................................56
6.5 Material Adverse Change....................................................................56
6.6 Taxes......................................................................................56
6.7 Litigation and Contingent Obligations......................................................57
6.8 Subsidiaries...............................................................................57
6.9 ERISA......................................................................................57
6.10 Accuracy of Information....................................................................57
6.11 Regulation U...............................................................................57
6.12 Material Agreements........................................................................57
6.13 Labor Disputes and Acts of God.............................................................58
6.14 Ownership..................................................................................58
6.15 Operation of Business......................................................................58
6.16 Laws; Environment..........................................................................58
6.17 Investment Company Act.....................................................................59
6.18 Public Utility Holding Company Act.........................................................59
6.19 Subordination Provisions...................................................................59
6.20 Indenture Provisions.......................................................................59
</TABLE>
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<S> <C> <C>
ARTICLE VII AFFIRMATIVE COVENANTS......................................................................59
7.1 Financial Reporting........................................................................60
7.2 Use of Proceeds............................................................................62
7.3 Notice of Certain Events...................................................................63
7.4 Conduct of Business........................................................................63
7.5 Taxes......................................................................................63
7.6 Insurance..................................................................................63
7.7 Compliance with Laws.......................................................................63
7.8 Maintenance of Properties..................................................................63
7.9 Inspection.................................................................................63
7.10 Environment................................................................................64
ARTICLE VIII NEGATIVE COVENANTS.........................................................................64
8.1 Dividends..................................................................................64
8.2 Indebtedness...............................................................................64
8.3 Merger.....................................................................................66
8.4 Sale of Assets.............................................................................66
8.5 Investments and Acquisitions...............................................................67
8.6 Liens......................................................................................68
8.7 Redemption.................................................................................70
8.8 Affiliates.................................................................................70
8.9 Modifications to Certain Indebtedness......................................................71
8.10 Subordinated Indebtedness..................................................................71
8.11 Amendments.................................................................................71
ARTICLE IX FINANCIAL COVENANTS........................................................................71
9.1 Minimum Consolidated Tangible Net Worth....................................................71
9.2 Leverage Test; Interest Coverage Test......................................................72
9.3 Spec Unit Inventory........................................................................73
9.4 Land Owned. ...............................................................................73
ARTICLE X EVENTS OF DEFAULT..........................................................................73
10.1 Representations and Warranties.............................................................73
10.2 Non-payment................................................................................74
10.3 Other Defaults.............................................................................74
10.4 Other Indebtedness.........................................................................74
10.5 Bankruptcy.................................................................................74
10.6 Receiver...................................................................................75
10.7 Judgment...................................................................................75
</TABLE>
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<S> <C> <C>
10.8 Unfunded Liabilities.......................................................................75
10.9 Withdrawal Liability.......................................................................75
10.10 Increased Contributions....................................................................76
10.11 Change in Control..........................................................................76
10.12 Dissolution................................................................................76
10.13 Guaranty...................................................................................76
10.14 Collateral.................................................................................76
10.15 Financial Covenants........................................................................76
10.16 No Defaults................................................................................76
ARTICLE XI ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.............................................77
11.1 Acceleration; Remedies.....................................................................77
11.2 Amendments.................................................................................78
11.3 Preservation of Rights.....................................................................79
11.4 New Guarantor..............................................................................79
ARTICLE XII GENERAL PROVISIONS.........................................................................80
12.1 Survival of Representations................................................................80
12.2 Governmental Regulation....................................................................80
12.3 Taxes......................................................................................80
12.4 Headings...................................................................................80
12.5 Entire Agreement...........................................................................80
12.6 Nature of Obligations; Benefits of this Agreement..........................................80
12.7 Expenses; Indemnification..................................................................80
12.8 Numbers of Documents.......................................................................81
12.9 Accounting.................................................................................81
12.10 Severability of Provisions.................................................................81
12.11 Nonliability of Banks and Issuing Bank.....................................................81
12.12 CHOICE OF LAW..............................................................................81
12.13 Arbitration................................................................................81
12.14 CONSENT TO JURISDICTION....................................................................83
12.15 WAIVER OF JURY TRIAL.......................................................................83
12.16 Confidentiality............................................................................84
ARTICLE XIII AGENT......................................................................................84
13.1 Appointment................................................................................84
13.2 Powers.....................................................................................84
13.3 General Immunity...........................................................................84
13.4 No Responsibility for Loans, Recitals, etc.................................................84
13.5 Action on Instructions of Banks............................................................85
</TABLE>
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13.6 Employment of Agents and Counsel...........................................................85
13.7 Reliance on Documents; Counsel.............................................................85
13.8 Agent's Reimbursement and Indemnification..................................................85
13.9 Rights as a Bank or Issuing Bank...........................................................86
13.10 Bank Credit Decision.......................................................................86
13.11 Successor Agent............................................................................86
13.12 Agent's Fee................................................................................87
ARTICLE XIV SETOFF; RATABLE PAYMENTS...................................................................87
14.1 Setoff.....................................................................................87
14.2 Ratable Payments...........................................................................87
ARTICLE XV BENEFIT OF AGREEMENT, ASSIGNMENTS; PARTICIPATIONS..........................................87
15.1 Successors and Assigns.....................................................................87
15.2 Participations.............................................................................88
15.2.1 Permitted Participants; Effect...................................................88
15.2.2 Voting Rights....................................................................88
15.2.3 Benefit of Setoff................................................................88
15.3 Assignments................................................................................89
15.3.1 Permitted Assignments............................................................89
15.3.2 Effect; Effective Date...........................................................89
15.4 Dissemination of Information...............................................................89
15.5 Tax Treatment..............................................................................90
ARTICLE XVI NOTICES....................................................................................90
16.1 Giving Notice..............................................................................90
16.2 Change of Address..........................................................................90
ARTICLE XVII COUNTERPARTS...............................................................................90
</TABLE>
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
EXHIBITS:
Exhibit A Form of Deed of Trust
Exhibit B Form of Mortgage
Exhibit C Form of Environmental Agreement
Exhibit D Form of Guaranty
Exhibit E Form of Note
Exhibit F Form of Opinion of Cahill, Gordon & Reindel
Exhibit G Form of Opinion of General Counsel
Exhibit H Form of Opinion of Local Counsel
Exhibit I Form of Borrowing Notice
Exhibit J Form of Compliance Certificate of Authorized Officer (Financial
Covenant Tests)
Exhibit K Form of Assignment (with Form of Notice of Assignment attached)
Exhibit L Form of Amended and Restated Set Aside Agreement
SCHEDULES:
Schedule "1" Refinanced Loans
Schedule "2.21" Terms Relating to Last 24 Months of Term/No Extension
Schedule "2.22" Terms Relating to Conversion Period
Schedule "6.3" Required Orders, Consents and Approvals
Schedule "8.2(ii)" Existing Indebtedness
Schedule "8.6(iv)" Existing Liens
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 27, 1996, among CONTINENTAL
HOMES HOLDING CORP., a Delaware corporation, the Banks listed on the signature
pages of this Agreement, and BANK ONE, ARIZONA, NA, a national banking
association, as Agent. The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
Borrower or any Guarantor (i) acquires any going concern or all or substantially
all of the assets of any firm, corporation or division thereof, whether through
purchase of assets, merger or otherwise or (ii) directly or indirectly acquires
(in one transaction or as the most recent transaction in a series of
transactions) at least a majority (in number of votes) of the securities of a
corporation which have ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) or a majority (by percentage or voting power) of the outstanding
partnership or other ownership interests of a partnership, joint venture,
limited liability company or other similar business organization.
"Adjusted Consolidated Tangible Net Worth" means Consolidated Tangible
Net Worth, plus (i) Indebtedness evidenced by the Convertible Notes, but only to
the extent that the maturity date of such Indebtedness will occur after the
Facility Termination Date, and (ii) any other Public Indebtedness constituting
convertible subordinated notes with convertible and subordination features
similar to the Convertible Notes, but only to the extent that the maturity date
of such Indebtedness will occur after the Facility Termination Date. Adjusted
Consolidated Tangible Net Worth shall specifically not include the Net Worth of
any Subsidiary (taken as a whole on a consolidated basis) engaged primarily or
substantially in the business of mortgage lending or providing title insurance.
As used in this definition, "Net Worth" means, as to each such Subsidiary (taken
as a whole on a consolidated basis), the sum of (A) all capital accounts
(including without limitation, any paid-in capital, capital surplus, and
retained earnings), less (B) all advances or other sums or consideration paid
and outstanding from such Subsidiary to Borrower, all as determined in
conformity with GAAP.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by Banks (or Swing Line Advances made by Bank
One) to Borrower of the same Type and, in the case of a LIBOR Advance, for the
same Interest Period.
"Affected Bank" is defined in Section 2.23.
<PAGE>
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person beneficially
owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended) 10% or more of any class of voting securities (or other ownership
interests) of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
"Agent" means Bank One, Arizona, NA, a national banking association, in
its capacity as agent for Banks pursuant to Article XIII, and not in its
individual capacity as a Bank, and any successor Agent appointed pursuant to
Article XIII.
"Aggregate Available Credit" means the aggregate of the Available
Credits of all of Banks.
"Aggregate Commitment" means the aggregate of the Commitments of all
Banks, as reduced from time to time pursuant to the terms hereof. As of the date
of this Agreement, the Aggregate Commitment is $110,000,000.00.
"Aggregate Senior Indebtedness" means the aggregate principal balance
outstanding with respect to (i) the Senior Notes, (ii) the Old Senior Notes,
(iii) any Refinancing Indebtedness of the Senior Notes and the Old Senior Notes,
and (iv) any other Public Indebtedness except (A) Indebtedness evidenced by the
Convertible Notes, but only to the extent that the maturity date of such
Indebtedness will occur after the Facility Termination Date, and (B) any other
Public Indebtedness constituting convertible subordinated notes with convertible
and subordination features similar to the Convertible Notes, but only to the
extent that the maturity date of such Indebtedness will occur after the Facility
Termination Date.
"Agreement" means this Credit Agreement, as it may be amended or
modified and in effect from time to time.
"Applicable Floating Rate Margin" means, as at any date of
determination, the margin indicated in Section 2.11 as then applicable in the
determination of the Floating Rate.
"Applicable Letter of Credit Rate" means, as at any date of
determination, the rate per annum indicated in Section 4.7(b) as then applicable
in the determination of the Facility Letter of Credit Fee under Section 4.7.
"Applicable LIBOR Rate Margin" means, as at any date of determination,
the margin indicated in Section 2.11 as then applicable in the determination of
LIBOR Rates.
"Applicable Margin(s)" means the Applicable LIBOR Rate Margin and/or
the Applicable Floating Rate Margin, as the case may be.
-2-
<PAGE>
"Applicable Unused Commitment Rate" means, as at any date of
determination, the rate per annum indicated in Section 2.11 as then applicable
in the determination of the Unused Commitment Fee under Section 2.5(b).
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any one or more of the Chairman, President,
Senior Vice President or any Vice President, Chief Financial Officer, or other
officer of Borrower or each Guarantor, as applicable, acting singly or together,
in accordance with the applicable resolutions and bylaws of Borrower or such
Guarantor.
"Available Credit" means, at any date with respect to any Bank, the
amount (if any) by which such Bank's Commitment exceeds the sum of (i) the
outstanding principal balance of such Bank's Loans as of such date, plus (ii)
such Bank's ratable share (determined in accordance with Section 4.6) of the
Facility Letter of Credit Obligations as of such date, plus (iii) such Bank's
ratable share (ratable in proportion to the ratio that such Bank's Commitment
bears to the Aggregate Commitment) of (A) the Set Aside Amount less (B) any
portion of the Set Aside Amount that has been advanced by Banks pursuant to this
Agreement and repaid by Borrower.
"Bank One" means Bank One, Arizona, NA, in its individual capacity, and
its successors.
"Banks" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Borrower" means CONTINENTAL HOMES HOLDING CORP., a Delaware
corporation, and its successors and assigns.
"Borrowing Base" means, with respect to an Inventory Valuation Date for
which it is to be determined, an amount equal to the sum of the following assets
of all Guarantors (but only to the extent that such assets are not subject to
any Liens other than Permitted Liens):
(i) the Receivables, multiplied by ninety percent (90%), plus
(ii) the Housing Unit Costs, multiplied by ninety percent
(90%), plus
(iii) the book value of Finished Lots, multiplied by seventy
percent (70%), plus
(iv) the book value of Land Under Development, multiplied by
fifty percent (50%);
-3-
<PAGE>
provided, however, that the aggregate of the amounts calculated pursuant to
clauses (iii) and (iv) shall not exceed, on any Inventory Valuation Date, sixty
percent (60%) of the aggregate of the amounts calculated pursuant to clauses
(i), (ii), (iii) and (iv).
"Borrowing Base Certificate" means a written certificate in a form
acceptable to Agent setting forth the amount of the Borrowing Base with respect
to the calendar month most recently completed, certified as true and correct by
an Authorized Officer of Borrower.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of LIBOR Advances, a day (other than a Saturday or Sunday) on which
banks generally are open in Phoenix and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market, and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Phoenix for the conduct of substantially all of their
commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
"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 Borrower.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Cash Equivalents" means:
(a) direct obligations of the United States or any agency thereof
or obligations guaranteed by the United States or any agency thereof,
in each case maturing within 180 days after the date of acquisition
thereof;
(b) certificates of deposit maturing within 180 days after the
date of acquisition thereof issued by a bank, trust company or savings
and loan association which is organized under the laws of the United
States or any state thereof having capital, surplus and undivided
profits aggregating in excess of $250 million and a Keefe Bank Watch
Rating of C or better;
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(c) certificates of deposit maturing within 180 days after the
date of acquisition thereof issued by a bank, trust company or savings
and loan association organized under the laws of the United States or
any state thereof other than banks, trust companies or savings and loan
associations satisfying the criteria in (b) above; provided that the
aggregate amount of all certificates of deposit issued to Borrower or
any Subsidiary of Borrower at any one time by such bank, trust company
or savings and loan association will not exceed $100,000.00;
(d) commercial paper given the highest rating by two (2)
established national credit rating agencies and maturing not more than
180 days after the date of the acquisition thereof; and
(e) repurchase agreements or money market accounts which are fully
secured by direct obligations of the United States or any agency
thereof.
"Change in Control" means (a) as to Borrower, the acquisition by any
Person, or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 50% or more of the outstanding
shares of voting stock of Borrower, or (b) as to any Guarantor, the acquisition
by any Person (except Borrower or one or more of the Guarantors), or two or more
Persons acting in concert of any beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of any of the outstanding shares of voting stock of such
Guarantor.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means the Presold Units, Spec Units, Model Units, Finished
Lots, and Land Under Development owned by a Guarantor from time to time upon
which Banks hold a properly perfected first and prior Deed of Trust as security
for the Obligations.
"Collateral Documents" is defined in Paragraph C(5) of Schedule "2.22."
"Commitment" means, for each Bank, the obligation of such Bank to make
Loans, and to participate in the Facility Letters of Credit in accordance with
Section 4.6(a), not exceeding the amount set forth opposite its signature below
or as set forth in any Notice of Assignment relating to any assignment that has
become effective pursuant to Section 15.3.2, as such amount may be modified from
time to time pursuant to the terms hereof.
"Consolidated Indebtedness" means, at any date, the outstanding amount
of all Indebtedness of Borrower and Guarantors, without duplication, all
determined on a consolidated basis for Borrower in conformity with GAAP. For
purposes of this definition, "Consolidated Indebtedness" shall specifically not
include:
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(i) Indebtedness of any Subsidiary that is not engaged in either
the construction of Housing Units and/or land development for the
future construction of Housing Units and such Indebtedness is not
otherwise directly related to the construction of Housing Units and/or
land development for the future construction of Housing Units; and
(ii) Indebtedness evidenced by the Convertible Notes, and any
other Public Indebtedness constituting convertible subordinated notes
with convertible and subordination features similar to the Convertible
Notes, but only to the extent, in each case, that the maturity date of
such Indebtedness will occur after the Facility Termination Date; and
(iii) Indebtedness evidenced by that Loan Agreement dated February
- 7, 1996 between Surprise Village North L.L.C., an Arizona limited
liability company, Continental Traditions L.L.C., an Arizona limited
liability company (collectively the "Surprise Entities"), and Bank One,
as thereafter amended, or in any Promissory Note, Revolving Commitment
Note or other document or instrument relating to the loans (the
"Surprise Loans") evidenced by such loan agreement including without
limitation, (A) the Promissory Note dated February 7, 1996, in the
original principal amount of $1,500,000.00 executed by Borrower and
payable to Bank One, and (B) that Set Aside Agreement dated February 7,
1996 between Borrower and Bank One ("Set Aside Agreement"); and
(iv) Indebtedness reflected on a consolidated balance sheet of
Borrower with respect to options to acquire real property which was
purchased by Borrower and sold to a third party within 360 days of such
purchase for consideration at least equal to the amount paid by
Borrower for such property less an amount equal to the value of such
option.
"Consolidated Interest Expense" means for any period, without
duplication, the aggregate amount of interest which, in conformity with GAAP,
would be set opposite the caption "interest expense" or any like caption on a
consolidated income statement for Borrower (other than for Borrower's mortgage
lending and title insurance Subsidiaries), including, without limitation,
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 Rate Hedging
Obligations, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or
premiums, if any, and all other noncash interest expense, other than interest
and other charges amortized to cost of sales. Consolidated Interest Expense
includes, with respect to Borrower and Guarantors (other than for Borrower's
mortgage lending and title insurance Subsidiaries), without duplication, all
interest included as a component of cost of sales for such period.
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<PAGE>
"Consolidated Interest Incurred" means for any period, without
duplication, the aggregate amount of interest which, in conformity with GAAP,
would be set opposite the caption "interest expense" or any like caption on a
consolidated income statement for Borrower (other than for Borrower's mortgage
lending and title insurance Subsidiaries), including, without limitation,
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 Rate Hedging
Obligations, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or
premiums, if any, and all other noncash interest expense other than interest and
other charges amortized to cost of sales. Consolidated Interest Incurred
includes, with respect to Borrower and Guarantors, without duplication, all
capitalized interest for such period, all interest attributable to discontinued
operations for such period to the extent not set forth on the income statement
under the caption "interest expense" or any like caption, and all interest
actually paid by Borrower or Guarantors (other than for Borrower's mortgage
lending and title insurance Subsidiaries) under any contingent obligation during
such period.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Borrower on a consolidated basis for such period taken as a single
accounting period, determined in conformity with GAAP.
"Consolidated Tangible Net Worth" means, as to Borrower, at any date,
the sum of all capital accounts (including without limitation, any paid-in
capital, capital surplus, and retained earnings) determined on a consolidated
basis in conformity with GAAP, less (i) its consolidated Intangible Assets, and
(ii) loans and advances to directors, officers and employees of Borrower but
excluding any arms-length mortgage loans made by any Subsidiary in the ordinary
course of such Subsidiary's business. For purposes of this definition
"Intangible Assets" means the amount (to the extent reflected in determining
such consolidated stockholders' equity) of (I) all write-ups in the book value
of any asset owned by Borrower or any Subsidiary, (II) any amount, however
designated on the balance sheet, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of Borrower or any Subsidiary, (III) all unamortized debt and debt issuance
expense, deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, organization or developmental expenses and other intangible
items, and (IV) all items that would be considered intangible assets under GAAP.
"Consolidated Tangible Net Worth Test" is defined in Section 9.1.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, Guarantors or any Subsidiary, are
treated as a single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.9.
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<PAGE>
"Convertible Notes" means the 6 7/8% Convertible Subordinated Notes
due 2002 of Borrower issued in the principal amount of $86,250,000.00.
"Convertible Notes Indenture" means that certain Indenture, dated
November 1, 1995, between Borrower and Manufacturers and Traders Trust Company,
as trustee, with respect to the Convertible Notes.
"Conversion Date" means the first day of the Conversion Period,
determined pursuant to Section 2.22.
"Conversion Period" means the period of time commencing on the
Conversion Date and expiring on the earlier of (i) the Facility Termination
Date, or (ii) the expiration date determined pursuant to Section 2.22. The
Conversion Period shall be either (A) a Secured Conversion Period, (B) an
Unsecured Conversion Period, or (C) a Modified Secured Conversion Period.
"Deed of Trust" means each and all Deeds of Trust, Assignment of Rents,
Security Agreement and Fixture Filing, securing the Obligations, granted from
time to time by a Guarantor, as Trustor, for the benefit of Agent on behalf of
Banks, as Beneficiary, as the same may be amended or modified and in effect from
time to time, each being substantially in the form of Exhibit A attached hereto
(conformed as necessary with respect to the laws of the state where the
Collateral described therein is located), and each and all Mortgages, Assignment
of Rents, Security Agreement and Fixture Filing, securing the Obligations,
granted from time to time by a Guarantor, as Mortgagor, for the benefit of Agent
on behalf of Banks, as Mortgagee, as the same may be amended or modified and in
effect from time to time, each being substantially in the form of Exhibit B
attached hereto (conformed as necessary with respect to the laws of the state
where the Collateral described therein is located).
"Dividend" means (i) any dividend paid or declared by Borrower or any
Guarantor, as applicable; (ii) any purchase, redemption, retirement or other
acquisition by Borrower or any Guarantor, as applicable for value, or the
setting aside of any funds or issuance of any warrants for such purpose, of any
of the capital stock of Borrower or such Guarantor, as applicable now or
hereafter outstanding or any interest therein; and (iii) as to any Guarantor,
any distribution of assets, properties, cash, rights, obligations or other
consideration or securities of such Guarantor, directly or indirectly, to
Borrower.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Due Diligence Documents" is defined in Paragraph C(6) of Schedule
"2.22."
"EBITDA" means, for any period, without duplication, the following, all
as determined on a consolidated basis for Borrower in conformity with GAAP,
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(i) the sum of the amounts for such period of (a) Consolidated
Net Income, (b) Consolidated Interest Expense, (c) charges against income for
all federal, state and local taxes, (d) depreciation expense, (e) amortization
expense, (f) other non-cash charges and expenses (but specifically excluding
losses arising from the sale of a Subsidiary which were due in whole or in part
to amortization of good will), and (g) any losses arising outside of the
ordinary course of business which have been included in the determination of
Consolidated Net Income, less
(ii) any gains arising outside of the ordinary course of
business which have been included in the determination of Consolidated Net
Income.
"Environmental Agreement" means each and all Environmental Indemnity
Agreements executed by Borrower and Guarantors from time to time for the benefit
of Banks and Agent, and relating to the Collateral, as the same may be amended
or modified and in effect from time to time, each being substantially in the
form of Exhibit C.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Event of Default" means an event described in Article X after the
expiration of any applicable cure or notice period provided in Article X.
"Excluded Taxes" is defined in Section 3.1(i).
"Existing Letters of Credit" is defined in Section 4.4(f).
"Extension Request" is defined in Section 2.21(a).
"Facility Letter of Credit" means a Letter of Credit issued by the
Issuing Bank for the account of Borrower in accordance with Article IV.
"Facility Letter of Credit Fee" means a fee, payable with respect to
each Facility Letter of Credit issued by the Issuing Bank, in an amount per
annum equal to the product of (i) the Applicable Letter of Credit Rate
[determined as of the date on which the quarterly installment of such fee is
due, if the fee is payable in advance pursuant to Section 4.7(a), or determined
as of the Issuance Date of such Facility Letter of Credit, if the fee is payable
in arrears pursuant to Section 4.7(a)] and (ii) the face amount of such Facility
Letter of Credit.
"Facility Letter of Credit Obligations" means, at any date, the sum of
(i) the aggregate undrawn face amount of all outstanding Facility Letters of
Credit, plus (ii) the aggregate amount paid by an Issuing Bank on any Facility
Letters of Credit to the extent (if any) not reimbursed by Borrower or by Banks
under Section 4.4.
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"Facility Maturity Date" means November 30, 1999, as the same may be
extended as provided in Section 2.21.
"Facility Termination Date" means the earlier of (i) the Facility
Maturity Date, or (ii) the last day of the Conversion Period (if applicable)
then in effect.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m., Phoenix
time, on such day on such transactions received by Agent from three (3) Federal
funds brokers of recognized standing selected by Agent in its sole discretion.
"Financial Covenant Test" means each of the Consolidated Tangible Net
Worth Test, the Leverage Test, and the Interest Coverage Test.
"Finished Lots" means parcels of land owned by any Guarantor which are
duly recorded and platted for use as Housing Units and zoned for such use, with
respect to which all requisite governmental consents and approvals have been
obtained and on which (i) all development activity has been completed, and (ii)
water and sewer connections have been brought to the lot shown on the plat
covering such parcel and are available for hook-up to a Housing Unit. The term
"Finished Lot" shall also include any real property upon which the construction
of a Housing Unit has commenced or has been completed, but shall specifically
not include the Housing Unit (or any portion thereof).
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Prime Rate for such day, plus (ii) the Applicable Floating Rate Margin, in each
case changing when and as the Prime Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"GAAP" means generally accepted accounting principles in effect from
time to time, consistently applied.
"Guarantors" means ACHETER, INC., a Texas corporation, CH MORTGAGE
COMPANY, a Colorado corporation, CHI CONSTRUCTION COMPANY, an Arizona
corporation, CHI FINANCE CORP., an Arizona corporation, CONTINENTAL HOMES, INC.,
a Delaware corporation, CONTINENTAL HOMES OF FLORIDA, INC., a Florida
corporation, CONTINENTAL HOMES OF TEXAS, INC., a Texas corporation, KDB HOMES,
INC., a
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Delaware corporation, L & W INVESTMENTS INC., a California corporation, MILBURN
INVESTMENTS, INC., a Texas corporation, MILTEX MANAGEMENT, INC., a Texas
corporation, MILTEX MORTGAGE OF TEXAS LIMITED PARTNERSHIP, a Texas limited
partnership, RANCHO CARILLO, INC., a Delaware corporation, R.O.S. CORPORATION, a
Texas corporation, SETTLEMENT CORPORATION, a Texas corporation, TRAVIS COUNTY
TITLE COMPANY, a Texas corporation, and their successors and assigns, and any
Subsidiary that shall hereafter become a Guarantor in accordance with Section
11.4 hereof, and any successors and assigns of any of the foregoing. "Guarantor"
means any one of the Guarantors.
"Guaranty" means a Guaranty, in substantially the form of Exhibit D,
duly executed by Guarantors, as the same may be amended or modified and in
effect from time to time.
"Housing Unit" means a single-family dwelling (where construction has
commenced), whether detached or attached (including condominiums but excluding
mobile homes), and including the Finished Lot on which such dwelling is located,
that is or will be available for sale by a Guarantor. Each "Housing Unit" is
either a Presold Unit, a Spec Unit or a Model Unit.
"Housing Unit Closing" means a closing of the sale of a Housing Unit by
a Guarantor to a bona fide purchaser for value.
"Housing Unit Cost" means, with respect to each Housing Unit, the total
costs, expenses and fees necessary for or related to the construction of such
Unit (including without limitation, the onsite cost of labor and materials
related to construction of the Housing Unit, construction permits, building
permits, tap fees, improvement district fees, fees charged by governmental
authorities prior to the start of construction, and costs of upgrades and
options), calculated in accordance with GAAP. "Housing Unit Cost" shall
specifically exclude the acquisition cost and any other costs, expenses and fees
associated with the Finished Lot or parcel on which such Housing Unit is
located.
"Indebtedness" of a Person means, without duplication, such Person's
(i) obligations for borrowed money,
(ii) obligations representing the deferred purchase price of
Property or services (other than trade accounts payable and accrued expenses
arising or occurring in the ordinary course of such Person's business),
(iii) obligations, whether or not assumed, secured by Liens
on, or payable out of the proceeds or production from, Property now or hereafter
owned or acquired by such Person,
(iv) obligations which are evidenced by notes, bonds,
debentures, or other similar instruments,
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(v) Capitalized Lease Obligations,
(vi) net liabilities under Rate Hedging Obligations,
(vii) all liabilities and obligations of others of the kind
described in clauses (i) through (vi) and (viii) that such Person has guaranteed
or that is otherwise its legal liability, and
(viii) reimbursement obligations for which such Person is
obligated with respect to a Letter of Credit; Indebtedness shall specifically
not include contingent obligations with respect to a Letter of Credit.
Indebtedness includes, without limitation, (A) in the case of Borrower, the
Obligations and the obligations evidenced by the Senior Notes, the Old Senior
Notes and the Convertible Notes and the documents executed in connection
therewith, and (B) in the case of Guarantors, the obligations under the
Guaranty, and the obligations under the guaranties executed pursuant to the
Indenture.
"Indenture" means that certain Indenture, dated as of April 15, 1996,
between Borrower, guarantors party thereto, and First Union National Bank, as
trustee, pursuant to which the Senior Notes were issued.
"Interest Coverage Test" is defined in Section 9.2(b).
"Interest Period" means, for each LIBOR Advance, the period commencing
on the date of such LIBOR Advance and ending on the last day of the period
selected by Borrower pursuant to the provisions herein and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by Borrower
pursuant to the provisions of this Agreement. The duration of each Interest
Period shall be one (1), two (2), three (3), or six (6) months as selected by
Borrower (A), for a new Advance, in the Borrowing Notice, or (B), for an
outstanding Advance, in the Conversion/Continuation Notice; provided, however,
that:
(i) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day,
provided that if such extension would cause the last day of such Interest Period
to occur in the next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day; and
(ii) No Interest Period with respect to any LIBOR Advance
shall extend beyond the Facility Termination Date.
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"Inventory Valuation Date" means the last day of the most recent
calendar month with respect to which Borrower is required to have delivered a
Borrowing Base Certificate pursuant to Section 7.1(vi) hereof.
"Investment" of a Person means any loan, advance, extension of credit
(other than, as to Borrower and Guarantors, accounts receivable and extensions
of trade credit arising in the ordinary course of business in accordance with
normal trade practices of Borrower or such Guarantor, as the case may be), or
contribution of capital by such Person to any other Person or any investment in,
or purchase or other acquisition of, the stock, partnership, joint venture or
limited liability company interests, notes, debentures or other securities of
any other Person made by such Person.
"Issuance Date" means the date on which a Facility Letter of Credit is
issued, amended or extended.
"Issuing Bank" means Bank One or such other Bank as Borrower, Agent and
such other Bank may agree upon, that may from time to time issue Facility
Letters of Credit.
"Land Under Development" means parcels of land owned by any Guarantor
which are zoned for Housing Units with respect to which development activity has
commenced for the purpose of construction of Housing Units by such Guarantor;
provided, however, that the term "Land Under Development" shall not include (i)
any Finished Lots, (ii) any real property upon which the construction of a
Housing Unit has commenced, and (iii) vacant land held by a Guarantor for future
development or sale. For purposes of this definition, the construction of a
Housing Unit shall be deemed to have commenced upon commencement of the
trenching for the foundation of the Housing Unit.
"Lending Installation" means, with respect to a Bank or Agent, any
office, branch, banking subsidiary of the holding company of a Bank or Agent, or
banking Affiliate of such Bank or Agent.
"Letter of Credit" means a letter of credit or similar instrument which
is issued by a financial institution upon the application of a Person or upon
which such Person is an account party or for which such Person is in any way
liable.
"Leverage Multiplier" means, at the date hereof, 1.50, as such amount
may hereafter be adjusted from time to time as provided in Section 9.2(c).
"Leverage Test" is defined in Section 9.2(a).
"LIBOR Advance" means an Advance which bears interest at a LIBOR Rate.
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"LIBOR Base Rate" means, with respect to a LIBOR Advance for the
relevant Interest Period, the rate of interest determined by Agent, based on
Telerate System reports or other source as may be selected by Agent, to be the
"London Interbank Offered Rate" at which deposits in United States dollars are
offered by major banks in London, England, two (2) Business Days before the
first day of the respective Interest Period, in the approximate amount of the
relevant LIBOR Advance and having a maturity approximately equal to such LIBOR
Advance's Interest Period.
"LIBOR Loan" means a Loan which bears interest at a LIBOR Rate.
"LIBOR Rate" means, with respect to a LIBOR Advance for the relevant
Interest Period, the sum of (i) the quotient of (a) the LIBOR Base Rate
applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable LIBOR Rate Margin. The LIBOR Rate shall be rounded to the
next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment (the purpose of which is to grant a security
interest), deposit arrangement (the purpose of which is to grant a security
interest), encumbrance or other security agreement or arrangement of any kind or
nature whatsoever the purpose of which is to grant a security interest, whether
or not filed or recorded or otherwise perfected (including the interest of a
vendor or lessor under any conditional sale, any Capitalized Lease or any lease
deemed to constitute a security interest, or any other title retention
agreement).
"Loan" means, with respect to a Bank, such Bank's portion of any
Advance. For purposes of a Swing Line Advance, Bank One's portion of such
Advance is 100%.
"Loan Documents" means this Agreement, the Notes and any Reimbursement
Agreements, and if applicable, the Deeds of Trust and Environmental Agreements.
"Majority Banks" means at least three (3) Banks in the aggregate having
more than fifty percent (50%) of the Aggregate Commitment, or if the Aggregate
Commitment has been terminated, at least three (3) Banks in the aggregate
holding more than fifty percent (50%) of the aggregate unpaid principal amount
of the outstanding Advances; provided, however, if Agent and any Lending
Installation(s) of Agent have in the aggregate fifty percent (50%) or more of
the Aggregate Commitment or hold in the aggregate fifty percent (50%) or more of
the aggregate unpaid principal amount of the outstanding Advances, as
applicable, then "Majority Banks" shall mean all Banks other than Agent and its
Lending Installation(s).
"Material Adverse Effect" means a material adverse effect, based on
commercially reasonable standards, on (i) the business, Property, condition
(financial or otherwise), or results of operations of Borrower and Guarantors,
taken as a whole, (ii) the ability of Borrower or any Guarantor to perform its
obligations under any of the Loan Documents or the Guaranty, or (iii)
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the validity or enforceability under applicable law of any of the Loan Documents
or the Guaranty or the rights or remedies of Agent, Banks or any Issuing Bank
thereunder.
"Model Unit" means a Housing Unit constructed initially for inspection
by prospective purchasers that is not intended to be sold until all or
substantially all other Housing Units in the applicable subdivision are sold.
"Modified Secured Conversion Period" means the period commencing on the
first day of the first month following the second consecutive fiscal quarter (or
the first fiscal quarter, as applicable) in which Borrower has failed to satisfy
a Financial Covenant Test and expiring on the Facility Maturity Date, all as
more specifically described in Section 2.22, during the term of which, among
other things, (i) the Aggregate Commitment is reduced from time to time, and
(ii) Borrower shall cause Guarantors to provide to Banks Collateral for the
Obligations.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement as described in Section 3(37) of
ERISA to which Borrower, any Guarantor or any member of the Controlled Group is
a party to which more than one employer is obligated to make contributions.
"Non-Recourse Indebtedness" with respect to any Person means
Indebtedness of such Person (i) for which the sole legal recourse for collection
of principal and interest on such Indebtedness is against the specific property
identified in the instruments evidencing or securing such Indebtedness and such
property was acquired with the proceeds of such Indebtedness or such
Indebtedness was incurred within ninety (90) days after the acquisition of such
property and for which no other assets of such Person may be realized upon in
collection of principal or interest on such Indebtedness, or (ii) that
refinances Indebtedness described in clause (i) and for which the recourse is
limited to the same extent described in clause (i), or (iii) in respect of the
Carlsbad Property.
"Note" means a promissory note, in substantially the form of Exhibit E
hereto, duly executed by Borrower and payable to the order of a Bank in the
amount of its Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Notice of Assignment" is defined in Section 15.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, the Facility Letter of Credit Obligations, all accrued
and unpaid fees and all expenses, reimbursements, indemnities and other
obligations of Borrower to Banks or to any Bank, Agent, any Issuing Bank or any
indemnified party hereunder arising under the Loan Documents.
"Old Indenture" means that certain Indenture, dated as of April 1,
1992, between Borrower and First Union National Bank, formerly known as Fidelity
Bank, National Association, as trustee, pursuant to which the Old Senior Notes
were issued, as amended by that First
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Supplemental Indenture dated March 22, 1994, and that Second Supplemental
Indenture dated as of April 10, 1996.
"Old Senior Notes" means the 12% Senior Notes due 1999 of Borrower in
the maximum aggregate principal amount of $110,000,000.00 issued pursuant to the
Old Indenture.
"Participants" is defined in Section 15.2.1.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Liens" means, as to each Guarantor, any of the following:
(i) Liens for taxes, assessments or governmental charges or
levies on such Guarantor's Property if the same (A) shall not at the
time be delinquent or thereafter can be paid without penalty, or (B)
are being contested in good faith and by appropriate proceedings and
for which adequate reserves shall have been established on such
Guarantor's books in accordance with GAAP.
(ii) Liens imposed by law, such as carriers', warehousemen's,
mechanics' and materialmen's Liens and other similar Liens arising in
the ordinary course of business with respect to amounts that either (A)
are not yet delinquent, or (B) are delinquent but are being contested
in good faith by appropriate proceedings and for which adequate
reserves shall have been established on such Guarantor's books in
accordance with GAAP.
(iii) Utility easements, rights of way, zoning restrictions,
covenants, reservations, and such other burdens, encumbrances or
charges against real property, or other minor irregularities of title,
as are of a nature generally existing with respect to properties of a
similar character and which do not in any material way interfere with
the use thereof or the sale thereof in the ordinary course of business
of such Guarantor.
(iv) Easements, dedications, assessment district or similar
Liens in connection with municipal financing and other similar
encumbrances or charges, in each case reasonably necessary or
appropriate for the development of real property of such Guarantor, and
which are granted in the ordinary course of the business of such
Guarantor, and which in the aggregate do not materially burden or
impair the fair market value or use of such real property (or the
project to which it is related) for the purposes for which it is or may
reasonably be expected to be held.
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"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which Borrower, any Guarantor or any member of the Controlled Group
may have any liability.
"Presold Unit" means a Housing Unit owned by any Guarantor that is
subject to a bona fide written agreement between such Guarantor and a third
Person purchaser for sale in the ordinary course of such Guarantor's business of
such Housing Unit and the related lot, accompanied by a cash earnest money
deposit or down payment in an amount that is customary, and subject only to
ordinary and customary contingencies to the purchaser's obligation to buy the
Housing Unit and related Finished Lot.
"Prime Rate" means the rate per annum most recently publicly announced
by Bank One, or its successors, in Phoenix, Arizona, as its "prime rate," as in
effect from time to time. The Prime Rate will change on each day the "prime
rate" changes. The "prime rate" is not necessarily the best or lowest rate
offered by said bank, and said bank may lend to its customers at rates that are
at, above, or below its "prime rate."
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Public Indebtedness" means Indebtedness evidenced by notes,
debentures, or other similar instruments issued after the date of this Agreement
pursuant to either (i) a registered public offering or (ii) a private placement
of such instruments in accordance with an exemption from registration (other
than Indebtedness evidenced by the Senior Notes, the Old Senior Notes or the
Convertible Notes, or any Refinancing Indebtedness with respect to any of the
foregoing) under the Securities Act of 1933 and/or the Securities Exchange Act
of 1934 or similar law.
"Purchasers" is defined in Section 15.3.1.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, forward rate currency or interest rate options, puts and warrants,
(ii) any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate
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of interest on a stated notional amount in exchange for periodic payments made
by such Person calculated by applying a fixed or a floating rate of interest on
the same notional amount, including without limitation, interest rate swaps,
caps, floors, collars and similar arrangements, and (iii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Receivables" means the net proceeds payable to, but not yet received
by, any Guarantor following a Housing Unit Closing.
"Refinanced Loans" means, severally and collectively, the loans listed
on Schedule "1" hereto.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances
or extends any Indebtedness (or that refunds, refinances or extends any refund,
refinancing or extension of such Indebtedness), but only to the extent that
(i) the Refinancing Indebtedness is subordinated to or pari
passu with the Obligations (or Guarantors' obligations under the
Guaranty, as applicable) to the same extent as the Indebtedness being
refunded, refinanced or extended,
(ii) the Refinancing Indebtedness is scheduled to mature no
earlier than the earlier of (A) the then current maturity date of such
Indebtedness, or (B) the Facility Maturity Date,
(iii) such Refinancing Indebtedness is in an aggregate amount
that is equal to or less than the sum of the aggregate amount then
outstanding plus all amounts committed but undisbursed under the
Indebtedness being refunded, refinanced or extended,
(iv) the Person or Persons liable for the payment of such
Refinancing Indebtedness are the same Person or Persons (or
successor(s) thereto) that were liable for the Indebtedness being
refunded, refinanced or extended when such Indebtedness was initially
incurred, and
(v) such Refinancing Indebtedness is incurred within 120 days
after the Indebtedness being refunded, refinanced or extended is so
refunded, refinanced or extended.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
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"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing or
carrying margin stocks applicable to member banks of the Federal Reserve System.
"Related Business" means any line or lines of business or business
activity reasonably related to (i) the home building business, or (ii) a
substantial business segment of Borrower, Guarantors and their Subsidiaries on
the date hereof, all as reasonably determined by Agent.
"Rejecting Bank" is defined in Section 2.21(b).
"Reimbursement Agreement" means, with respect to a Facility Letter of
Credit, such form of application therefor and form of reimbursement agreement
therefor (whether in a single or several documents, taken together) as an
Issuing Bank may employ in the ordinary course of business for its own account,
with such modifications thereto as may be agreed upon by such Issuing Bank and
Borrower and as are not materially adverse (in the reasonable judgment of such
Issuing Bank and Agent) to the interests of Banks; provided, however, in the
event of any conflict between the terms of any Reimbursement Agreement and this
Agreement, the terms of this Agreement shall control.
"Replacement Bank" is defined in Section 2.23.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty (30)
days of the occurrence of such event; provided, however, that a failure to meet
the minimum funding standard of Section 412 of the Code and of Section 302 of
ERISA shall be a Reportable Event regardless of the issuance of any such waiver
of the notice requirement in accordance with either Section 4043(a) of ERISA or
waiver of the funding requirements under Section 412(d) of the Code.
"Required Banks" means (a) if one Bank has fifty percent (50%) or more
of the Aggregate Commitment, at least three (3) Banks in the aggregate having at
least 66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has
been terminated and one Bank holds fifty percent (50%) or more of the aggregate
unpaid principal amount of the outstanding Advances, at least three (3) Banks in
the aggregate holding at least 66-2/3% of the aggregate unpaid principal amount
of the outstanding Advances, or (b) in all other circumstances, Banks in the
aggregate having at least 66-2/3% of the Aggregate Commitment or, if the
Aggregate Commitment has been terminated, Banks in the aggregate holding at
least 66-2/3% of the aggregate unpaid principal amount of the outstanding
Advances. Solely for purposes of this definition, Agent and all of its Lending
Installations that are Banks shall be deemed to be a single Bank.
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"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities (as defined therein).
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Conversion Period" means the 24-month Conversion Period
described in Section 2.22 during the term of which, among other things, (i) the
Aggregate Commitment is reduced from time to time, and (ii) Borrower shall cause
Guarantors to provide to Banks Collateral for the Obligations.
"Senior Debt" means the Senior Notes or, if the Senior Notes are
refinanced, the Refinancing Indebtedness with respect thereto.
"Senior Debt Rating" means the publicly announced ratings by any two
(2) of the following nationally recognized rating agencies (provided, however,
that at least one (1) of the two (2) agencies shall be Moody's Investors
Service, Inc. or Standard & Poor's Corporation): Moody's Investors Service,
Inc., Standard & Poor's Corporation, Fitch's Investment Service, and Duff &
Phelps Credit Rating Co., as selected by Borrower, on Borrower's Senior Debt;
provided, however, (i) except as provided in clause (ii), if the two ratings are
not identical, the Senior Debt Rating shall be the lower of the two ratings,
(ii) if more than one rating gradation exists between the two ratings, the
Senior Debt Rating shall be the rating that is one gradation below the higher of
the two ratings, and (iii) if only one rating is announced, the Senior Debt
Rating shall be the rating that is one gradation below the announced rating. The
Senior Debt Rating shall change if and when such rating(s) change.
"Senior Notes" means the 10% Senior Notes due April 15, 2006 of
Borrower in the maximum aggregate principal amount of $150,000,000.00 issued
pursuant to the Indenture.
"Set Aside Agreement" is defined in clause (iii) of the definition of
"Consolidated Indebtedness."
"Set Aside Amount" is defined in Section 2.4.
"Significant Breach" is defined in Section 2.22(b).
"Single Employer Plan" means a Plan maintained by Borrower, any
Guarantor or any member of the Controlled Group for employees of Borrower, any
Guarantor or any member of the Controlled Group.
"Spec Unit" means any Housing Unit owned by any Guarantor that is not a
Presold Unit or a Model Unit.
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"Subordinated Indebtedness" means any Indebtedness of Borrower the
payment of which is subordinated to payment of the Obligations to the reasonable
satisfaction of Agent.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power for the election of the
board of directors of which shall at the time be beneficially owned (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended)
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries, or (ii) any partnership,
association, joint venture, limited liability company or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a direct
or indirect Subsidiary of Borrower.
"Substantial Portion" means, with respect to the Property of Borrower
and Guarantors, taken as a whole, Property which represents more than 10% of the
book value of the assets of Borrower and Guarantors, as shown in the
consolidated financial statements of Borrower as of the beginning of the fiscal
quarter in which such determination is made.
"Surprise Entities" is defined in clause (iii) of the definition of
"Consolidated Indebtedness."
"Surprise Loans" is defined in clause (iii) of the definition of
"Consolidated Indebtedness."
"Swing Line Advances" is defined in Section 2.19.
"Swing Line Advance Maturity Date" means that day that is the second
Business Day following the date in which a Swing Line Advance was funded by Bank
One.
"Transferee" is defined in Section 15.4.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or LIBOR Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of the assets of such Plans allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans, using the actuarial methods and assumptions utilized in the actuarial
report for each such Plan as of such date.
"Unmatured Event of Default" means an event which but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
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"Unsecured Conversion Period" means the 12-month Conversion Period
described in Section 2.22 during the term of which, among other things, (i) the
Aggregate Commitment shall be reduced from time to time, and (ii) Borrower shall
not be required to cause Guarantors to provide to Banks Collateral for the
Obligations.
"Unused Commitment" means, at any date with respect to any Bank, the
amount (if any) by which such Bank's Commitment exceeds the sum of (i) the
outstanding principal balance of such Bank's Loans as of such date, plus (ii)
such Bank's ratable share (determined in accordance with Section 4.6) of the
outstanding amount of the Facility Letters of Credit.
"Unused Commitment Fee" means a fee payable by Borrower to each Bank
with respect to such Bank's Unused Commitment, calculated in accordance with
Section 2.5(b).
"Warehouse Facility" means one or more commitments from one or more
banks or other lending institutions to lend funds for the purpose of financing
the making of mortgage loans originated by Borrower or any of its Subsidiaries.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities (or the election of the board of directors) of
which shall at the time be beneficially owned (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) directly or indirectly, by
such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such
Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any
partnership, association, joint venture, limited liability company or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
-----------
2.1 Commitment. From and including the date of this Agreement and prior
to the Facility Termination Date, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans and to issue Facility
Letters of Credit to Borrower from time to time in amounts not to exceed in the
aggregate at any one time outstanding the amount of its Commitment; provided,
however, that (i) a Bank shall not be required to make any Loan or Loans in
excess of the amount of such Bank's then Available Credit, and (ii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations plus the Aggregate Senior Indebtedness
outstanding at any time and from time to time shall not exceed the Borrowing
Base determined as of the most recent Inventory Valuation Date. Subject to the
terms of this Agreement, Borrower may borrow, repay and reborrow at any time
prior to the
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Facility Termination Date. The Commitments to lend hereunder shall expire on the
Facility Termination Date.
2.2 Required Payments. Any outstanding Advances and all other unpaid
Obligations shall be paid in full by Borrower on the Facility Termination Date.
Additionally, if for any reason at any time either (i) the principal amount of
all Advances plus the aggregate amount of the Facility Letter of Credit
Obligations outstanding plus the Set Aside Amount less any portion of the Set
Aside Amount that has been advanced by Banks and thereafter repaid by Borrower
exceeds the Aggregate Commitment, or (ii) the aggregate principal amount of all
Advances plus the aggregate amount of the Facility Letter of Credit Obligations
plus the Aggregate Senior Indebtedness outstanding exceeds the Borrowing Base
determined as of the most recent Inventory Valuation Date, then:
(a) Borrower shall, within five (5) days after notice from
Agent, make a payment to Agent for the benefit of Banks in an amount
equal to such excess principal amount; and
(b) Until Borrower shall have made the payment to Agent
described in subparagraph (a) above, Borrower shall not, directly or
indirectly, declare, make or pay, or incur any liability to make or
pay, or cause or permit to be declared, made or paid, any Dividend. The
foregoing paragraph will not prevent the payment of any Dividend by
Borrower within sixty (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.
2.3 Ratable Loans. Each Advance hereunder, including without
limitation, any Advance made by the Banks pursuant to Section 2.19(d), but
excluding Swing Line Advances, shall consist of Loans made by the several Banks
ratably in proportion to the ratio that their respective Commitments bear to the
Aggregate Commitment. Swing Line Advances shall consist of Loans made by Bank
One.
2.4 Types of Advances; Set Aside Amount.
(a) The Advances may be Floating Rate Advances or LIBOR
Advances, or a combination thereof, selected by Borrower in accordance
with Sections 2.8 and 2.9.
(b) Pursuant to the terms of the Set Aside Agreement, Borrower
agreed to "set aside" a portion of the commitment amount under a
$15,000,000.00 unsecured loan from Bank One to Borrower in the sum of
$1,500,000.00 (the "Set Aside Amount") for purposes of paying certain
release prices under the Surprise Loans, as more fully described in the
Set Aside Agreement. The Set Aside Agreement shall be amended and
restated contemporaneously with the execution
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of this Agreement to be in the form attached as Exhibit L and shall
continue to remain in full force and effect. Agent, within one (1)
Business Day after receipt of written request from Bank One acting in
its sole and absolute discretion and in its capacity as lender under
the Surprise Loans, and without notice or liability to Borrower or any
Guarantor, and regardless of whether the terms and conditions in this
Agreement for Advances are satisfied, shall make an Advance to Bank One
under this Agreement in the amount requested by Bank One under the Set
Aside Agreement. All such Advances shall be Floating Rate Advances,
subject to Borrower's rights under Article II hereof.
2.5 Fees; Reduction in Commitment.
(a) Commitment Fee. Borrower agrees to pay to Agent, for the account of
each Bank, a commitment fee, at a rate equal to the applicable rate set
forth below, determined with respect to the amount of such Bank's
initial Commitment notified to Agent during syndication and multiplied
by the amount of such Bank's actual Commitment:
Commitment Fee (as a percentage
Bank's Initial Commitment of Bank's Commitment)
------------------------- -------------------------------
$30,000,000.00 or more .35%
Less than $30,000,000.00 .30%
The commitment fee shall be paid by Borrower to Agent in advance,
contemporaneously with the execution of this Agreement, and shall be
non-refundable in any event.
(b) Unused Commitment Fee. Borrower agrees to pay to Agent for
the account of each Bank an Unused Commitment Fee, at a rate per annum
equal to the Applicable Unused Commitment Rate, calculated on the basis
of a 360-day year in accordance with this Section from the date hereof
and to and including the Facility Termination Date, and payable
quarterly in arrears as of the first day of each January, April, July
and October hereafter and on the Facility Termination Date. The Unused
Commitment Fee shall be due and payable within ten (10) days after
Borrower's receipt of a statement therefor from Agent. For each quarter
(or portion thereof), the Unused Commitment Fee shall be equal to (A)
such Bank's average daily Commitment during such quarter (or portion
thereof) minus (B) such Bank's "average daily outstandings" for the
quarter (or portion thereof) with respect to which the Unused
Commitment Fee is being computed, with the resulting number multiplied
by (C) the Applicable Unused Commitment Rate, and the final product
divided by (D) four (4).
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As used herein, "average daily outstandings" means the sum of
(i) the outstanding principal balance of such Bank's Loans (including,
with respect to Bank One only, the outstanding principal balance of
Swing Line Advances) plus (ii) such Bank's ratable share (determined in
accordance with Section 4.6) of the outstanding amount of the Facility
Letters of Credit, all calculated for each day during the quarter (or
portion thereof) for which the fee is being computed, divided by the
number of days in that quarter (or portion thereof). If the Unused
Commitment Fee is being computed for less than a full quarter, the
number used in clause (D) above shall be computed on a daily basis for
the number of days for which the fee is being computed. The Unused
Commitment Fee shall continue to be payable during the Conversion
Period.
All accrued Unused Commitment Fees shall be payable on the
effective date of any termination of the obligations of Banks to make
Loans hereunder.
(c) Extension Fee. If the Facility Maturity Date is extended
pursuant to the provisions of Section 2.21, then Borrower shall pay to
Agent, for the account of each Bank an extension fee for each such
extension, at a rate equal to the applicable rate set forth below
determined with respect to the amount of such Bank's Commitment:
Extension Fee (as a percentage
Bank's Commitment of Bank's Commitment)
----------------- ------------------------------
$30,000,000.00 or more .20%
Less than $30,000,000.00 .175%
The extension fee shall be paid by Borrower to Agent in advance, in the
manner provided in Section 2.21(d). The extension fee shall be
non-refundable in any event.
(d) Reductions in Aggregate Commitment. Borrower may
permanently reduce the Aggregate Commitment in whole, or in part
ratably among Banks (in proportion to the ratio that their respective
Commitment bear to the Aggregate Commitment) in integral multiples of
$5,000,000.00 at any time or from time to time, upon at least three (3)
Business Days' written notice to Agent, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
Aggregate Commitment may not be reduced below the sum of (i) the
aggregate principal amount of the outstanding Advances plus (ii) the
Facility Letter of Credit Obligations.
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2.6 Minimum Amount of Each Advance. Except with respect to Swing Line
Advances, each Advance shall be in the minimum amount of $2,000,000.00 (and in
multiples of $1,000,000.00 if in excess thereof).
2.7 Optional Principal Payments. Borrower may at any time or from time
to time pay, without penalty or premium, all Floating Rate Advances, or, in a
minimum aggregate amount of $1,000,000.00 or any integral multiple of
$500,000.00 in excess thereof (except with respect to Swing Line Advances), any
portion of the outstanding Floating Rate Advances upon one (1) Business Day's
prior notice to Agent. Borrower may, (i) upon one (1) Business Day's prior
notice to Agent, pay, without penalty or premium, any LIBOR Advance in full on
the last day of the Interest Period for such LIBOR Advance, and (ii) upon three
(3) Business Days' prior notice to Agent, prepay any LIBOR Advance in full prior
to the last day of the Interest Period for such LIBOR Advance, provided that
Borrower shall also pay at the time of such prepayment all amounts payable with
respect thereto pursuant to Section 3.4 hereof.
2.8 Method of Selecting Types and Interest Periods for New Advances.
Borrower, when requesting an Advance, shall select the Type of Advance and, in
the case of each LIBOR Advance, the Interest Period applicable to each Advance
from time to time. Borrower shall give Agent irrevocable notice (a "Borrowing
Notice") in the form of Exhibit I not later than (a) 10:00 a.m., Phoenix time,
one (1) Business Day before the Borrowing Date of each Floating Rate Advance
(except a Swing Line Advance), (b) 10:00 a.m., Phoenix time, three (3) Business
Days before the Borrowing Date of each LIBOR Advance, and (c) noon, Phoenix
time, on the Borrowing Date of each Swing Line Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) whether the Advance is a Swing Line Advance,
(iii) the aggregate amount of such Advance,
(iv) the Type of Advance selected; provided, however, that the
aggregate number of LIBOR Advances outstanding at any one time shall
not exceed five (5), and further provided that any Swing Line Advance
shall be a Floating Rate Advance, and
(v) in the case of each LIBOR Advance, the Interest Period
applicable thereto.
With respect to each Floating Rate Advance (except Swing Line Advances) and each
LIBOR Advance, Agent shall notify Banks by noon, Phoenix time, on the date Agent
receives the Borrowing Notice as described above. With respect to such Advances,
not later than 11:00 a.m., Phoenix time, on each Borrowing Date, each Bank shall
make available its Loan or Loans, in
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funds immediately available in Phoenix to Agent at its address specified
pursuant to Article XVI. Agent will make the funds so received from Banks
available to Borrower at Agent's aforesaid address. Disbursements of all
Advances (other than Swing Line Advances) to Borrower may be made not more
frequently than one time per Business Day. Disbursements of all Swing Line
Advances to Borrower may be made not more frequently than one time per Business
Day, or on a more frequent basis as Bank One may agree.
2.9 Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into LIBOR Advances. Each LIBOR Advance shall
continue as a LIBOR Advance until the end of the then applicable Interest Period
therefor, at which time such LIBOR Advance shall be automatically converted into
a Floating Rate Advance unless Borrower shall have given Agent a
Conversion/Continuation Notice requesting that, at the end of such Interest
Period, such LIBOR Advance either continues as a LIBOR Advance for the same or
another Interest Period or be repaid. Subject to the terms of Section 2.6,
Borrower may elect from time to time to convert all or any part of an Advance of
any Type into any other Type or Types of Advances; provided, however, that any
conversion of any LIBOR Advance may be made on, and only on, the last day of the
Interest Period applicable thereto, and further provided that the aggregate
number of LIBOR Advances outstanding at any one time shall not exceed five (5).
Borrower shall give Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of an Advance or
continuation of a LIBOR Advance not later than 10:00 a.m., Phoenix time, at
least one (1) Business Day, in the case of a conversion into a Floating Rate
Advance, or three (3) Business Days, in the case of a conversion into or
continuation of a LIBOR Advance, prior to the date of the requested conversion
or continuation, specifying:
(i) the requested date which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to
be converted or continued; and
(iii) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a
conversion into or continuation of a LIBOR Advance, the Interest Period
applicable thereto.
2.10 Changes in Interest Rate, etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a LIBOR Advance
into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date
it becomes due or is converted into a LIBOR Advance pursuant to Section 2.9
hereof, at a rate per annum equal to the Floating Rate for such day. Changes in
the rate of interest on any Advance maintained as a Floating Rate Advance will
take effect simultaneously with each change in the Floating Rate or in the
Applicable Floating Rate Margin.
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Each LIBOR Advance shall bear interest from and including the first day of the
Interest Period applicable thereto to (but not including) the last day of such
Interest Period at the interest rate determined as applicable to such LIBOR
Advance. No Interest Period may end after the Facility Termination Date.
2.11 Determination of Applicable Margins and Applicable Unused
Commitment Rate.able Unused Commitment Rate
(a) Senior Debt Rating. The Applicable Margins and the
Applicable Unused Commitment Rate shall be determined by reference to
the Senior Debt Rating, in accordance with the following table:
Applicable Applicable
Senior Debt LIBOR Rate Floating Rate Applicable Unused
Rating Margin (%) Margin (%) Commitment Rate (%)
- ----------- ---------- ------------- -------------------
BBB-/Baa3 or 1.00 0 0.25
higher
BB+/Ba1 1.25 0 0.25
BB/Ba2 1.50 0.125 0.30
BB-/Ba3 1.75 0.125 0.30
B+/B1 2.00 0.250 0.35
Lower or no 2.25 0.250 0.35
Rating
(b) Adjustment of Margins. The Applicable Floating Rate Margin
and the Applicable Unused Commitment Rate shall be adjusted, as
applicable from time to time, effective on the first Business Day after
any change in the Senior Debt Rating. The applicable LIBOR Rate Margin
in respect of any LIBOR Advance shall be adjusted, as applicable from
time to time, effective on the first day of the Interest Period for any
LIBOR Advance after any change in the Senior Debt Rating.
(c) Changes to Ratings. Notwithstanding the foregoing, (i) if
either of the two (2) rating agencies selected by Borrower for purposes
of calculating the foregoing amounts shall not have in effect a Senior
Debt Rating for a reason related to the creditworthiness of Borrower or
Guarantors or to any act or failure to act on the part of Borrower or
Guarantors, then the Applicable Margins and the Applicable Unused
Commitment Rate shall be determined by reference to the last category
listed above, and (ii) if the rating system used by either such rating
agency shall change, or if neither rating agency shall have in effect a
Senior Debt Rating and clause (i) above shall not be applicable, then
Borrower and Banks, acting through Agent, shall negotiate in good faith
to amend the references to
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specific ratings in this definition to reflect such changed rating
system or the non-availability of ratings from such rating agencies.
2.12 Rates Applicable After Event of Default. Notwithstanding anything
to the contrary contained in Section 2.8, 2.9 or 2.10, during the continuance of
an Event of Default the Required Banks may, at their option, by notice to
Borrower (which notice may be revoked at the option of the Required Banks
notwithstanding any provision of Section 11.2 requiring unanimous consent of
Banks to changes in interest rates), declare that no Advance may be made as,
converted into or continued as a LIBOR Advance after expiration of the
applicable Interest Period. Notwithstanding anything to the contrary contained
in Section 2.8, 2.9 or 2.10, during the continuance of an Unmatured Event of
Default the Required Banks may, at their option, by notice to Borrower (which
notice may be revoked at the option of the Required Banks notwithstanding any
provision of Section 11.2 requiring unanimous consent of Banks to changes in
interest rates), declare that no Advance may be made as or converted into a
LIBOR Advance. During the continuance of an Event of Default, the Required Banks
may, at their option, by notice to Borrower (which notice may be revoked at the
option of the Required Banks notwithstanding any provision of Section 11.2
requiring unanimous consent of Banks to changes in interest rates), declare that
(i) each LIBOR Advance shall bear interest for the remainder of the applicable
Interest Period at the rate otherwise applicable to such Interest Period plus 2%
per annum and (ii) each Floating Rate Advance shall bear interest at a rate per
annum equal to the Floating Rate otherwise applicable to the Floating Rate
Advance plus 2% per annum.
2.13 Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to Agent at Agent's address specified pursuant to Article XVI, or at any
other Lending Installation of Agent specified in writing by Agent to Borrower,
by noon (local time at the place of receipt) on the date when due (or with
respect to Swing Line Advances, in accordance with Section 2.19), and, except
for Swing Line Advances shall be applied ratably by Agent among Banks, in
proportion to the ratio that each Bank's Commitment bears to the Aggregate
Commitment. Each payment delivered to Agent for the account of any Bank shall be
delivered promptly by Agent to such Bank in the same type of funds that Agent
received at its address specified pursuant to Article XVI or at any Lending
Installation specified in a notice received by Agent from such Bank. If Agent
receives, for the account of a Bank, a payment from Borrower and fails to remit
such payment to the Bank on the Business Day such payment is received (if
received by noon, Phoenix time, by Agent) or on the next Business Day (if
received after noon, Phoenix time, by Agent), Agent shall pay to such Bank
interest on such payment at a rate per annum equal to the Federal Funds
Effective Rate for each day for which such payment is so delayed.
2.14 Notes; Telephonic Notices. Each Bank is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note; provided, however, that the failure to so record
shall not affect Borrower's obligations under such Note. Borrower hereby
authorizes Agent to extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or
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persons who Agent in good faith believes to be acting on behalf of Borrower.
Borrower agrees to deliver promptly to Agent a written confirmation, if such
confirmation is requested by Agent, of each telephonic notice signed by an
Authorized Officer of Borrower. If the written confirmation differs in any
material respect from the action taken by Agent, the records of Agent shall
govern absent manifest error.
2.15 Interest Payment Dates; Interest Basis. Interest on all Advances
shall be calculated on the basis of a 360 day year, based on the actual days
elapsed. Interest accrued on each Advance shall be calculated as of the first
day of each calendar month, commencing with the first such date to occur after
the date hereof, and shall be payable within ten (10) days after Borrower's
receipt of a statement therefor from Agent. Interest shall also be payable on
any date on which such Advance is prepaid, whether due to acceleration or
otherwise. Interest shall be payable for the day an Advance is made but not for
the day of any payment on the amount paid if payment is received prior to noon
(local time at the place of receipt). If any payment of principal of or interest
on an Advance shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall be included in computing interest in connection with such payment.
2.16 Notification of Advances, Interest Rates, Prepayments and
Commitment ReductionNotification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, Agent will notify each
Bank of the contents of each Aggregate Commitment reduction notice, Borrowing
Notice, Conversion/Continuation Notice, and repayment notice received by it
hereunder. Agent will notify each Bank of the interest rate applicable to each
LIBOR Advance promptly upon determination of such interest rate and will give
each Bank prompt notice of each change in the Floating Rate, the Applicable
Margin or the Applicable Unused Commitment Rate.
2.17 Lending Installations. Each Bank may book its Loans at any Lending
Installation selected by such Bank and may change its Lending Installation from
time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall be deemed held by each Bank for the benefit of
such Lending Installation. Each Bank may, by written or telex notice to Agent
and Borrower, designate a Lending Installation through which Loans will be made
by it and for whose account Loan payments are to be made.
2.18 Non-Receipt of Funds by Agent. Unless Borrower or a Bank, as the
case may be, notifies Agent prior to the date on which such payment is due to
Agent of (i) in the case of a Bank, the proceeds of a Loan or (ii) in the case
of Borrower, a payment of principal, interest, fees or other amounts due under
the Loan Documents to Agent for the account of Banks, that it does not intend to
make such payment, Agent may assume that such payment has been made. Agent may,
but shall not be obligated to, make the amount of such payment available to the
intended recipient in reliance upon such assumption. If Borrower or such Bank,
as the case may be, has not in fact made such payment to Agent, the recipient of
such payment shall, on demand by Agent, repay to Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by Agent
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until the date Agent recovers such amount at a rate per annum equal to (a) in
the case of payment by a Bank, the Federal Funds Effective Rate for such day or
(b) in the case of payment by Borrower, the interest rate applicable to the
relevant Advance.
2.19 Swing Line. Notwithstanding the minimum amount of an Advance that
may be requested and the minimum amount of an Advance repaid under this
Agreement, Banks desire to fund Advances for Borrower in amounts that may be
less than the minimum Advance amounts required under Section 2.6, and Banks
desire to permit Borrower to repay Advances in amounts that may be less than the
minimum repayment amounts required under Section 2.7. Such Advances made
pursuant to this Section 2.19 shall be deemed to be Advances for purposes of
this Agreement and are referred to herein as "Swing Line Advances." Swing Line
Advances shall be requested, advanced, and repaid in accordance with the
provisions and limitations of this Agreement relating to all Advances, subject
to the following:
(a) Aggregate Limit. The aggregate amount of all outstanding
Swing Line Advances shall not exceed at any one time $10,000,000.00.
(b) Floating Rate Advances. All Swing Line Advances shall be
Floating Rate Advances.
(c) Funding Swing Line Advances. Swing Line Advances shall be
funded by Bank One pursuant to the procedures set forth in Section 2.8
of this Agreement. The principal amount of each Swing Line Advance,
together with all accrued interest, shall be repaid by Borrower to Bank
One in same day funds by 5:00 p.m. (or such later time as may be
acceptable to Agent), Phoenix time, on the Swing Line Advance Maturity
Date. Additionally, if the aggregate principal amount of all
outstanding Swing Line Advances exceeds $10,000,000.00, Borrower shall
pay to Bank One the excess amount in same day funds by noon, Phoenix
time, on the first Business Day following the day that the excess
amount occurs.
(d) Repayment of Swing Line Advances. If Borrower fails to pay
any Swing Line Advances on the applicable Swing Line Advance Maturity
Date, then such Advances shall no longer be Swing Line Advances, but
shall continue to be Floating Rate Advances for purposes of this
Agreement. Each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from Agent an undivided interest
and participation (ratably in proportion to the ratio that such Bank's
Commitment bears to the Aggregate Commitment) in such Advances. In such
event, as of 11:59 p.m., Phoenix time, on the Swing Line Advance
Maturity Date, Agent shall notify each Bank of the total principal
amount of all matured Swing Line Advances and each Bank's ratable share
thereof. Upon receipt of such notice, each Bank shall promptly and
unconditionally pay to Agent for the account of Bank One the amount of
such Bank's share (ratably in
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proportion to the ratio that such Bank's Commitment bears to the
Aggregate Commitment) of such payment in same day funds, and Agent
shall pay such amount, and any other amounts received by Agent for Bank
One's account pursuant to this Section 2.19(d), to Bank One, in
accordance with the payment provisions of Section 2.13. If Agent so
notifies such Bank prior to 10:00 a.m., Phoenix time, on any Business
Day, such Bank shall make available to Agent for the account of Bank
One such Bank's share of the amount of such payment on such Business
Day in same day funds. If Agent notifies such Bank after 10:00 a.m.,
Phoenix time, on any Business Day, such Bank shall make available to
Agent for the account of Bank One such Bank's share of the amount of
such payment on the next succeeding Business Day in same day funds. If
and to the extent such Bank shall not have so made its share of the
amount of such payment available to Agent for the account of Bank One,
such Bank agrees to pay to Agent for the account of Bank One forthwith
on demand such amount, together with interest thereon, for each day
from the date such payment was first due until the date such amount is
paid to Agent for the account of Bank One, at the Federal Funds
Effective Rate. The failure of any Bank to make available to Agent for
the account of Bank One such Bank's share of any such payment shall not
relieve any other Bank of its obligation hereunder to make available to
Agent for the account of Bank One its share of any payment on the date
such payment is to be made.
(e) Advances. The payments made by Banks to Bank One in
reimbursement of Swing Line Advances shall constitute, and Borrower
hereby expressly acknowledges and agrees that such payments shall
constitute, Advances hereunder to Borrower and such payments shall for
all purposes be treated as Advances to Borrower (notwithstanding that
the amounts thereof may not comply with the provisions of Section 2.6
and 2.7). Such Advances shall be Floating Rate Advances, subject to
Borrower's rights under Article II hereof.
2.20 Withholding Tax Exemption. At least five (5) Business Days prior
to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank (if any) that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will deliver
to each of Borrower and Agent two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Bank is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal taxes and an Internal
Revenue Service Form W-8 or W-9 entitling such Bank to receive a complete
exemption from United States tax backup withholding. Each Bank which so delivers
a Form 1001 or 4224 further undertakes to deliver to each of Borrower and Agent
two (2) additional copies of such form (or a successor form) on or before the
date that such form expires (currently, three (3) successive calendar years for
Form 1001 and one (1) calendar year for Form 4224) or becomes obsolete or after
the occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by Borrower or Agent, in each case certifying
that such
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<PAGE>
Bank is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises Borrower and Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal tax.
If a Bank does not provide duly executed forms to Borrower and Agent
within the time periods set forth in the preceding paragraph, Borrower or Agent
shall withhold taxes from payments to such Bank at the applicable statutory
rates and Borrower shall not be required to pay any additional amounts as a
result of such withholding. Upon the reasonable request of Borrower or Agent,
each Bank that has not provided the forms or other documents, as provided above,
on the basis of being a "United States person," shall submit to Borrower and
Agent a certificate or other evidence to the effect that it is such a "United
States person."
2.21 Extension of Facility Termination Date
(a) Extension Requests. Borrower may request a two-year
extension of the Facility Maturity Date by submitting a request for an
extension to Agent (an "Extension Request") no more than 14 months nor
less than 12 months prior to the then scheduled Facility Maturity Date.
Promptly upon (but not later than five (5) Business Days after) receipt
of the Extension Request, Agent shall notify each Bank of the contents
thereof and shall request each Bank to approve the Extension Request.
Each Bank approving the Extension Request shall deliver its written
approval no later than sixty (60) days after the date of the Extension
Request. If the approval of each of Banks is received by Agent within
sixty (60) days after the date of the Extension Request (or as
otherwise provided in Section 2.21(b)), Agent shall promptly so notify
Borrower and each Bank, and the Facility Maturity Date shall be
extended by two (2) years, and in such event Borrower may thereafter
request further extension(s) of the then scheduled Facility Maturity
Date in accordance with this Section 2.21. If any of Banks does not
deliver to Agent such Bank's written approval to any Extension Request
within sixty (60) days after the date of such Extension Request, the
Facility Maturity Date shall not be extended, except as otherwise
provided in Section 2.21(b) or 2.21(c).
(b) Rejecting Banks/Full Assignment. If (i) any Banks
("Rejecting Banks") shall not approve an Extension Request, (ii) all
rights and obligations of such Rejecting Banks under this Agreement and
under the other Loan Documents (including, without limitation, their
Commitment and all Loans owing to them) shall have been assigned,
within ninety (90) days following such Extension Request, in accordance
with Section 2.23, to one or more Replacement Banks who shall have
approved in writing such Extension Request at the time of such
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assignment, and (iii) no other Bank shall have given written notice to
Agent of such Bank's withdrawal of its approval of the Extension
Request, Agent shall promptly so notify Borrower and each Bank and the
Facility Maturity Date shall be extended by two (2) years, and in such
event Borrower may thereafter request further extension(s) as provided
in Section 2.21(a).
(c) Rejecting Banks/No Full Assignment. If (A) the Rejecting
Banks shall not approve an Extension Request, (B) the provisions of
clause (b)(ii) above do not apply, and (iii) no other Bank shall have
given written notice to Agent of such Bank's withdrawal of its approval
of the Extension Request, Agent shall promptly notify Borrower and each
Bank and any Replacement Bank, and the Facility Maturity Date shall be
extended by two (2) years, and in such event Borrower may thereafter
request further extension(s) as provided in Section 2.21 (a); provided,
however, that the Aggregate Commitment shall be automatically reduced,
effective as of the first day of the extension period, and shall equal
the aggregate Commitments of the Banks who are not Rejecting Banks and
the Banks who are Replacement Banks. All rights and obligations of such
Rejecting Banks under this Agreement and under the other Loan Documents
(including, without limitation, their Commitment and all Loans owing to
them) shall either be (I) assigned to Replacement Banks pursuant to
Section 2.21(b), or (II) terminated, effective as of the then existing
Facility Maturity Date (or such earlier date as Borrower and Agent may
designate), in which case the terminated Bank shall have concurrently
received, in cash, all amounts due and owing to the terminated Bank
hereunder or under any other Loan Document, including without
limitation the aggregate outstanding principal amount of the Loans owed
to such Bank, together with accrued interest thereon through the date
of such termination, all amounts payable under Sections 3.1 and 3.2
with respect to such Bank and all fees payable to such Bank hereunder
(and payment of such amount may not be waived except with the consent
of each Bank, as more specifically provided in Section 11.2(i));
provided that, upon such Bank's termination, such Bank shall cease to
be a party hereto but shall continue to be entitled to the benefits of
Article III and Section 12.7, as well as to any fees accrued hereunder
and not yet paid, and shall continue to be obligated under Section 13.8
with respect to obligations and liabilities accruing prior to the
termination of such Bank.
(d) Approval of Extension. Within ten (10) days after Agent's
notice to Borrower that all (or some, as applicable) of Banks have
approved an Extension Request (whether pursuant to Section 2.21(a), (b)
or (c)), Borrower shall pay to Agent for the account of each Bank
approving the extension and each Replacement Bank an extension fee
calculated in the manner set forth in Section 2.5(c).
(e) No Extension. If the Extension Request is not approved
pursuant to Section 2.21(a), (b) or (c), or if Borrower does not
request an extension
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pursuant to this Section 2.21, then during the twelve (12) months
preceding the Facility Maturity Date, the terms and conditions set
forth on Schedule "2.21" shall be deemed to be incorporated into this
Agreement by this reference, and Borrower, Banks and Agent agree that
the terms and conditions set forth in Schedule "2.21" shall be
controlling to the extent the same are inconsistent with the terms and
conditions of this Agreement, and Borrower, Banks and Agent shall act
in accordance therewith.
2.22 Conversion Period
(a) Commencement of Conversion Period. If Borrower fails to
satisfy any Financial Covenant Test, and such failure in each case
continues for two (2) consecutive fiscal quarters, then unless the
Required Banks in their sole and absolute discretion agree otherwise,
the Conversion Period shall automatically commence. The Conversion Date
shall be first day of the first month after the second consecutive
fiscal quarter of such failure. Borrower shall have the right to elect,
by notice given to Agent on or before that day that is thirty (30) days
after the Conversion Date, that the Conversion Period be an Unsecured
Conversion Period or a Secured Conversion Period. If Borrower fails to
provide such notice within such 30-day period, then Borrower shall be
deemed to have elected that the Conversion Period be an Unsecured
Conversion Period.
(b) Significant Events. Notwithstanding the provisions of
Section 2.22(a), if during any fiscal quarter Borrower fails to satisfy
a Financial Covenant Test and either
(I) With respect to the Consolidated Tangible Net
Worth Test, Consolidated Tangible Net Worth is less than (i)
$91,000,000.00 plus (ii) fifty percent (50%) of the
Consolidated Net Income earned after March 1, 1996 plus (iii)
one hundred percent (100%) of the net proceeds of capital
stock issued by Borrower after March 1, 1996, or
(II) With respect to the Leverage Test, Consolidated
Indebtedness exceeds the product of 1.75 multiplied by
Adjusted Consolidated Tangible Net Worth during any fiscal
quarter, or
(III) With respect to the Interest Coverage Test,
the ratio of (A) EBITDA to (B) Consolidated Interest Incurred,
is less than 1.5 to 1.0 during any fiscal quarter,
then the Conversion Period shall be a Secured Conversion Period (or,
subject to the provisions of Section 2.22(f) hereof, a Modified Secured
Conversion Period,
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as applicable). The Conversion Date shall be the first day of the first
month after the fiscal quarter of such Significant Event. Each of the
events described in clauses (I), (II) and (III) is referred to herein
as a "Significant Event."
(c) Unsecured Conversion Period. If Borrower elects, or is
deemed to have elected pursuant to Section 2.22(a), that the Conversion
Period be an Unsecured Conversion Period, then:
(i) The Facility Termination Date shall be that date
that is the day preceding the first anniversary date of the
Conversion Date.
(ii) From and after three (3) calendar months after
the Conversion Date, the Aggregate Commitment (and each
Bank's Commitment) in effect as of the Conversion Date shall
be reduced on the first day after the end of each three-month
period by a percentage of such Aggregate Commitment amount
(or such Bank's Commitment amount) as follows:
Percentage Percentage
of Commitment of Commitment
Period Reduction Remaining
------ --------- ---------
3 calendar months after
Conversion Date 25% 75%
6 calendar months after
Conversion Date 25% 50%
9 calendar months after
Conversion Date 25% 25%
12 calendar months after
Conversion Date 25% 0%
(d) Secured Conversion Period. If Borrower elects pursuant to
Section 2.22(a), or is deemed to have elected pursuant to Section
2.22(b), that the Conversion Period be a Secured Conversion Period,
then:
(i) The Facility Termination Date shall be that
date that is the day preceding the second anniversary date of
the Conversion Date. -36-
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(ii) From and after three (3) calendar months after
the Conversion Date, the Aggregate Commitment (and each
Bank's Commitment) in effect as of the Conversion Date shall
be reduced on the first day after the end of each three-month
period by a percentage of such Aggregate Commitment amount
(or such Bank's Commitment amount) as follows:
Percentage Percentage
of Commitment of Commitment
Period Reduction Remaining
------ --------- ---------
3 calendar months after
Conversion Date 5% 95%
6 calendar months after
Conversion Date 10% 85%
9 calendar months after
Conversion Date 10% 75%
12 calendar months after
Conversion Date 15% 60%
15 calendar months after
Conversion Date 15% 45%
18 calendar months after
Conversion Date 15% 30%
21 calendar months after
Conversion Date 15% 15%
24 calendar months after
Conversion Date 15% 0%
(iii) Borrower shall cause Guarantors to provide,
and Agent and Banks shall accept, Collateral for the
Obligations in accordance with the terms of Schedule "2.22".
Within thirty (30) days after the Conversion Date, Borrower
shall cause Guarantors to provide to Agent all Collateral
Documents relating to the Collateral. Within ninety (90) days
after the Conversion Date, Borrower shall cause Guarantors to
provide to Agent all Due Diligence Documents relating to the
Collateral.
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(iv) During the Conversion Period, the terms and
conditions set forth on Schedule "2.22" shall be deemed to be
incorporated into this Agreement by this reference, and
Borrower, Banks and Agent agree that the terms and conditions
set forth in Schedule "2.22" shall be controlling to the
extent the same are inconsistent with the terms and conditions
of this Agreement, and Borrower, Banks and Agent shall act in
accordance therewith.
(e) Failure During Certain Periods. Notwithstanding the
provisions of Section 2.22(a) and 2.22(b) above, if Borrower fails to
satisfy any Financial Covenant Test for two (2) consecutive fiscal
quarters (or one fiscal quarter, if a Significant Event occurs) and the
second such fiscal quarter (or the fiscal quarter, if a Significant
Event occurs) occurs (i) during an Unsecured Conversion Period, or (ii)
during a Secured Conversion Period, or (iii) during a Modified Secured
Conversion Period, or (iv) during the twelve-month period immediately
preceding the Facility Maturity Date where no Conversion Period is in
effect, then the provisions of Section 2.22(a) and 2.22(b) shall not
apply, and such failure shall not be deemed to be an Event of Default
under this Agreement. If Borrower fails to satisfy any Financial
Covenant Test for three (3) consecutive fiscal quarters, then an Event
of Default shall have occurred.
(f) Failure During End of Term. Notwithstanding the
provisions of Section 2.22(a) above, if (A) Borrower fails to satisfy
any Financial Covenant Test for two (2) consecutive fiscal quarters and
the second such fiscal quarter occurs during the period that is
twenty-four (24) months to thirteen (13) months immediately preceding
the Facility Maturity Date (or, if a Significant Event occurs during
the foregoing 24 to 13-month period), and (B) no Conversion Period is
then in effect, then unless the Required Banks in their sole and
absolute discretion agree otherwise, the Conversion Period shall
automatically commence. The Conversion Date shall be first day of the
first month after the second consecutive fiscal quarter (or the fiscal
quarter, as applicable) of such failure. Borrower shall have the right
to elect, by notice given to Banks on or before that day that is thirty
(30) days after the Conversion Date, that the Conversion Period be an
Unsecured Conversion Period or a Modified Secured Conversion Period;
provided, however, that the Conversion Period shall be a Secured
Conversion Period if a Significant Event has occurred. If Borrower
fails to provide such notice within such 30-day period, then Borrower
shall be deemed to have elected that the Conversion Period be an
Unsecured Conversion Period. If Borrower elects (or is deemed to have
elected) that the Conversion Period be an Unsecured Conversion Period,
then the provisions of Section 2.22(c) shall apply. If Borrower elects
that the Conversion Period be a Modified Secured Conversion Period,
then:
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(i) the Aggregate Commitment (and each Bank's
Commitment) in effect as of end of the second fiscal quarter
(or the fiscal quarter, as applicable) to which such failure
or Significant Event relates shall be reduced on the first day
after the end of each three-month period thereafter in an
equal portion of such Aggregate Commitment amount (or such
Bank's Commitment amount), such that the Aggregate Commitment
amount (and each Bank's Commitment amount) shall be zero on
the Facility Maturity Date.
(ii) Borrower shall cause Guarantors to provide, and
Agent and Banks shall accept, Collateral for the Obligations
in accordance with the terms of Schedule "2.22". Within thirty
(30) days after the end of the second fiscal quarter (or the
fiscal quarter, as applicable) to which the failure or
Significant Event relates, Borrower shall cause Guarantors to
provide to Agent all Collateral Documents relating to the
Collateral. Within ninety (90) days after the end of the
second fiscal quarter (or the fiscal quarter, as applicable)
to which such failure or Significant Event relates, Borrower
shall cause Guarantors to provide to Agent all Due Diligence
Documents relating to the Collateral.
(iii) During the Conversion Period, the terms and
conditions set forth on Schedule "2.22" shall be deemed to be
incorporated into this Agreement by this reference, and
Borrower, Banks and Agent agree that the terms and conditions
set forth in Schedule "2.22" shall be controlling to the
extent the same are inconsistent with the terms and conditions
of this Agreement, and Borrower, Banks and Agent shall act in
accordance therewith.
2.23 Replacement of Certain Banks. In the event a Bank (the "Affected
Bank"):
(i) shall have requested compensation from Borrower under
Sections 3.1 or 3.2 to cover additional costs incurred by such Bank
that are not being incurred generally by the other Banks, or
(ii) shall have delivered a notice pursuant to Section 3.3
that such Affected Bank is unable to extend LIBOR Loans for reasons not
generally applicable to the other Banks, or
(iii) is a Rejecting Bank pursuant to Section 2.21,
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then, in any such case, and at any time after such event occurs,
Borrower or Agent may make written demands on such Affected Bank (with
a copy to Agent in the case of a demand by Borrower and a copy to
Borrower in the case of a demand by Agent) for the Affected Bank to
assign, and such Affected Bank shall assign, pursuant to one or more
duly executed assignment agreements in substantially the form provided
for in Section 15.3.1, within five (5) Business Days after the date of
such demand, to one or more financial institutions that comply with the
provisions of Section 15.3, and that are selected by Borrower and/or
Agent, that are reasonably acceptable to Agent or Borrower, as
applicable, that Borrower or Agent, as the case may be, shall have
engaged for such purpose (the "Replacement Bank"), all of such Affected
Bank's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment and all Loans
owing to it) in accordance with Section 15.3. If any Affected Bank
fails to execute and deliver such assignment agreements within thirty
(30) days after demand, then such Affected Bank shall have no further
right to receive any amounts payable under Sections 3.1 and 3.2 with
respect to such Affected Bank.
Agent agrees, upon the occurrence of such events with respect to an
Affected Bank and upon written request of Borrower, to use its reasonable
efforts to obtain the commitments from one or more financial institutions to act
as a Replacement Bank. Agent is authorized, but shall not be obligated to,
execute one or more of such assignment agreements as attorney-in-fact for any
Affected Bank failing to execute and deliver the same within five (5) Business
Days after the date of such demand. Further, with respect to such assignment,
the Affected Bank shall have concurrently received, in cash, all amounts due and
owing to the Affected Bank hereunder or under any other Loan Document, including
without limitation the aggregate outstanding principal amount of the Loans owed
to such Bank, together with accrued interest thereon through the date of such
assignment, amounts payable under Sections 3.1 and 3.2 with respect to such
Affected Bank and all fees payable to such Affected Bank hereunder; provided
that, upon such Affected Bank's replacement, such Affected Bank shall cease to
be a party hereto but shall continue to be entitled to the benefits of Article
III and Section 12.7, as well as to any fees accrued hereunder and not yet paid,
and shall continue to be obligated under Section 13.8 with respect to
obligations and liabilities accruing prior to the replacement of such Affected
Bank.
ARTICLE III
CHANGE IN CIRCUMSTANCES
-----------------------
3.1 Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Bank therewith,
(i) subjects any Bank or any applicable Lending Installation
to any tax, duty, charge or withholding on or from payments due from
Borrower (excluding any taxes imposed on, or based on, or determined by
reference to the net income of any Bank or applicable Lending
Installation, including, without limitation,
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franchise taxes, alternative minimum taxes and any branch profits tax
(collectively, "Excluded Taxes")), any taxes imposed on, or based on,
or determined by reference to or changes the basis of taxation of
payments to any Bank in respect of its Loans or other amounts due it
hereunder (except for Excluded Taxes),
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Bank or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to LIBOR Rates), or
(iii) imposes any other condition or requirement the result of
which is to increase the cost to any Bank or any applicable Lending
Installation of making, funding or maintaining loans or reduces any
amount receivable by any Bank or any applicable Lending Installation in
connection with loans, or requires any Bank or any applicable Lending
Installation to make any payment calculated by reference to the amount
of loans held or interest received by it, by an amount deemed material
by such Bank,
then, within fifteen (15) days after demand by such Bank, Borrower
shall pay such Bank that portion of such increased expense incurred or
reduction in an amount received which such Bank determines is
attributable to making, funding and maintaining its Loans and its
Commitment; provided, however, that Borrower shall not be required to
increase any such amounts payable to any Bank (1) if such Bank fails to
comply with the requirements of Section 2.20 hereof or (2) to the
extent that such Bank determines, in its sole reasonable discretion,
that it can, after notice from Borrower, through reasonable efforts,
eliminate or reduce the amount of tax liabilities payable (without
additional costs or expenses unless Borrower agrees to bear such costs
or expenses) or other disadvantages or risks (economic or otherwise) to
such Bank or Agent. If any Bank receives a refund in respect of any tax
for which such Bank has received payment from Borrower hereunder, such
Bank shall promptly notify Borrower of such refund and such Bank shall
repay the amount of such refund to Borrower, provided that Borrower,
upon the request of such Bank, agrees to return such refund (plus any
penalties, interest or other charges) to such Bank in the event such
Bank is required to repay such refund. The determination as to whether
any Bank has received a refund shall be made by such Bank and such
determination shall be conclusive absent manifest error.
3.2 Changes in Capital Adequacy Regulations. If a Bank or Issuing Bank
determines the amount of capital required or expected to be maintained by such
Bank, any Lending Installation of such Bank or Issuing Bank or any corporation
controlling such Bank or Issuing Bank is increased as a result of a Change,
then, within fifteen (15) days after demand by such Bank or Issuing Bank,
Borrower shall pay such Bank or Issuing Bank the amount necessary to
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compensate for any shortfall in the rate of return on the portion of such
increased capital which such Bank or Issuing Bank determines is attributable to
this Agreement, its Loans or its obligation to make Loans hereunder, or its
issuance or maintenance of or participation in, or commitment to issue, to
maintain or to participate in, the Facility Letters of Credit hereunder (after
taking into account such Bank's or Issuing Bank's policies as to capital
adequacy). "Change" means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines or (ii) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Bank, Issuing Bank, Lending Installation or any
corporation controlling any Bank or Issuing Bank. "Risk-Based Capital
Guidelines" means (A) the risk-based capital guidelines in effect in the United
States on the date of this Agreement, including transition rules, and (B) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States implementing the July 1988 report of the Basle Committee on
Banking Regulation and Supervisory Practices Entitled "International Convergence
of Capital Measurements and Capital Standards," including transition rules, and
any amendments to such regulations adopted prior to the date of this Agreement.
3.3 Availability of Types of Advances. If any Bank determines and
notifies Agent that maintenance of any of such Bank's LIBOR Loans at a suitable
Lending Installation would violate any applicable law, rule, regulation or
directive, whether or not having the force of law, Agent shall suspend the
availability of the affected Type of Advance and require any LIBOR Advances of
the affected Type to be repaid; or if the Required Banks determine and notify
Agent that (i) deposits of a type or maturity appropriate to match fund LIBOR
Advances are not available, Agent shall suspend the availability of the affected
Type of Advance with respect to any LIBOR Advances made after the date of any
such determination, or (ii) an interest rate applicable to a Type of Advance
does not accurately reflect the cost of making a LIBOR Advance of such Type,
then, if for any reason whatsoever the provisions of Section 3.1 are
inapplicable, Agent shall suspend the availability of the affected Type of
Advance with respect to any LIBOR Advance made after the date of any such
determination.
3.4 Funding Indemnification. If any payment of a LIBOR Advance occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a LIBOR Advance is not made
on the date specified by Borrower for any reason other than default by Banks,
Borrower will indemnify each Bank for any loss or cost or expense incurred by it
resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the LIBOR
Advance.
3.5 Bank Statements; Survival of Indemnity. To the extent reasonably
possible, each Bank shall designate an alternate Lending Installation with
respect to its LIBOR Advances to reduce any liability of Borrower to such Bank
under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance
under Section 3.3, so long as such designation is not disadvantageous to such
Bank. Each Bank or Issuing Bank shall deliver a written statement of
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such Bank or Issuing Bank as to the amount due, if any, under Sections 3.1, 3.2
or 3.4. Such written statement shall set forth in reasonable detail the
calculations upon which such Bank or Issuing Bank determined such amount and
shall be final, conclusive and binding on Borrower in the absence of manifest
error. Determination of amounts payable under such Sections in connection with a
LIBOR Advance shall be calculated as though each Bank funded its LIBOR Advance
through the purchase of a deposit of the type and maturity corresponding to the
deposit used as a reference in determining the LIBOR Advance applicable to such
Loan, whether in fact that is the case or not. Unless otherwise provided herein,
the amount specified in the written statement shall be payable within three (3)
days after receipt by Borrower of the written statement. The obligations of
Borrower under Sections 3.1, 3.2 and 3.4 shall survive payment of the
Obligations and termination of this Agreement.
ARTICLE IV
THE LETTER OF CREDIT FACILITY
-----------------------------
4.1 Facility Letters of Credit. The Issuing Bank agrees, on the terms
and conditions set forth in this Agreement, to issue from time to time for the
account of Borrower, through such offices or branches as it and Borrower may
jointly agree, one or more Facility Letters of Credit in accordance with this
Article IV, during the period commencing on the date hereof and ending on the
Business Day prior to the Facility Termination Date. Each Facility Letter of
Credit shall be either (i) a standby letter of credit to support obligations of
Borrower or a Guarantor, contingent or otherwise, arising in the ordinary course
of business, or (ii) a documentary letter of credit in respect of the purchase
of goods or services by Borrower or a Guarantor in the ordinary course of
business.
4.2 Limitations. No Issuing Bank shall issue, amend or extend, at any
time, any Facility Letter of Credit:
(i) if the aggregate maximum amount then available for drawing
under Letters of Credit issued by such Issuing Bank, after giving
effect to the Facility Letter of Credit or amendment or extension
thereof requested hereunder, shall exceed any limit imposed by law or
regulation upon such Issuing Bank;
(ii) if, after giving effect to the Facility Letter of Credit
or amendment or extension thereof requested hereunder, the aggregate
principal amount of the Facility Letter of Credit Obligations would
exceed $10,000,000.00;
(iii) that, in the case of the issuance of a Facility Letter
of Credit, is in, or in the case of an amendment of a Facility Letter
of Credit, increases the face amount thereof by, an amount in excess of
the then Aggregate Available Credit;
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(iv) if, after giving effect to the Facility Letter of Credit
or amendment or extension thereof requested hereunder, the aggregate
principal amount of the Facility Letter of Credit Obligations plus the
principal amount of all Advances outstanding plus the Aggregate Senior
Indebtedness would exceed the Borrowing Base as of the most recent
Inventory Valuation Date;
(v) if such Issuing Bank receives written notice from Agent at
or before noon, Phoenix time, on the proposed Issuance Date of such
Facility Letter of Credit that one or more of the conditions precedent
contained in Sections 5.1 or 5.2, as applicable, would not on such
Issuance Date be satisfied, unless such conditions are thereafter
satisfied and written notice of such satisfaction is given to such
Issuing Bank by Agent;
(vi) that has an expiration date (taking into account any
automatic renewal provisions thereof) that is later than one (1) year
after the Issuance Date, or such later time as the Issuing Bank may
agree; provided, however in no event shall the expiration date be later
than the Business Day next preceding the scheduled Facility Termination
Date; or
(vii) that is in a currency other than Dollars, or that is not
consistent with the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be updated.
4.3 Conditions. In addition to being subject to the satisfaction of the
conditions contained in Sections 5.1 and 5.2, as applicable, the issuance of any
Facility Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) Borrower shall have delivered to the Issuing Bank at such
times and in such manner as the Issuing Bank may reasonably prescribe a
Reimbursement Agreement and such other documents and materials as may
be reasonably required pursuant to the terms thereof, and the proposed
Facility Letter of Credit shall be reasonably satisfactory to such
Issuing Bank in form and content; and
(ii) as of the Issuance Date no order, judgment or decree of
any court, arbitrator or governmental authority shall enjoin or
restrain such Issuing Bank from issuing the Facility Letter of Credit
and no law, rule or regulation applicable to such Issuing Bank and no
directive from any governmental authority with jurisdiction over the
Issuing Bank shall prohibit such Issuing Bank from issuing Letters of
Credit generally or from issuing that Facility Letter or Credit.
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4.4 Procedure for Issuance of Facility Letters of Credit.
(a) Request for Facility Letter of Credit. Borrower shall give
the Issuing Bank and Agent not less than five (5) Business Days' prior
written notice of any requested issuance of a Facility Letter of Credit
under this Agreement. Such notice shall specify (i) the stated amount
of the Facility Letter of Credit requested, (ii) the requested Issuance
Date, which shall be a Business Day, (iii) the date on which such
requested Facility Letter of Credit is to expire, which date shall be
in compliance with the requirements of Section 4.2(vi), (iv) the
purpose for which such Facility Letter of Credit is to be issued (which
shall be a purpose permitted pursuant to Section 7.2), and (v) the
Person for whose benefit the requested Facility Letter of Credit is to
be issued. At the time such request is made, Borrower shall also
provide Agent and the Issuing Bank with a copy of the form of the
Facility Letter of Credit it is requesting be issued.
(b) Issuing Bank. Within two (2) Business Days after receipt
of a request for issuance of a Facility Letter of Credit in accordance
with Section 4.4(a), the Issuing Bank shall approve or disapprove, in
its reasonable discretion, the form of such requested Facility Letter
of Credit, but the issuance of such approved Facility Letter of Credit
shall continue to be subject to the provisions of this Article IV. The
Issuing Bank shall use reasonable efforts to notify Borrower of any
changes in the Issuing Bank's policies or procedures that could
reasonably be expected to affect adversely the Issuing Bank's approval
of the form of any requested Facility Letters of Credit.
(c) Confirmation of Issuance. Upon receipt of a request for
issuance of a Facility Letter of Credit in accordance with Section
4.4(a), Agent shall determine, as of the close of business on the day
it receives such request, whether the issuance of such Facility Letter
of Credit would be permitted under the provisions of Sections 4.2(ii),
(iii), (iv) and (v) and, prior to the close of business on the second
Business Day after Agent received such request, Agent shall notify the
Issuing Bank and Borrower (in writing or by telephonic notice confirmed
promptly thereafter in writing) whether issuance of the requested
Facility Letter of Credit would be permitted under the provisions of
Sections 4.2(ii), (iii), (iv) and (v). If Agent notifies the Issuing
Bank and Borrower that such issuance would be so permitted, then,
subject to the terms and conditions of this Article IV and provided
that the applicable conditions set forth in Sections 5.1 and 5.2 have
been satisfied, the Issuing Bank shall, on the requested Issuance Date,
issue the requested Facility Letter of Credit in accordance with the
Issuing Bank's usual and customary business practices. The Issuing Bank
shall give Agent written notice, or telephonic notice confirmed
promptly thereafter in writing, of the issuance of a Facility Letter of
Credit.
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(d) Extension and Amendment. An Issuing Bank shall not extend
or amend any Facility Letter of Credit unless the requirements of this
Section 4.4 are met as though a new Facility Letter of Credit were
being requested and issued; provided, however, that if the Facility
Letter of Credit, as originally issued, sets forth such extension or
amendment, then the Issuing Bank shall so extend or amend the Facility
Letter of Credit upon the request of Borrower given in the manner set
forth in Section 4.4(a) and upon satisfaction of the terms and
conditions of Section 4.4(c).
(e) Other Letters of Credit. Any Bank may, but shall not be
obligated to, issue to Borrower Letters of Credit (that are not
Facility Letters of Credit) for its own account, and at its own risk.
None of the provisions of this Article IV shall apply to any Letter of
Credit that is not a Facility Letter of Credit.
(f) Existing Letters of Credit. As of the date of this
Agreement, certain of the Banks have previously issued, and there are
currently outstanding, Letters of Credit for the benefit of Borrower
and/or a Guarantor (the "Existing Letters of Credit"), all pursuant to
the Refinanced Loans. Such Existing Letters of Credit shall remain
outstanding after the date of this Agreement. Borrower and/or the
applicable Guarantor remain obligated with respect to the Existing
Letters of Credit, and the Refinanced Loans shall remain outstanding
obligations of Borrower to the extent of such Existing Letters of
Credit. At the request of Borrower from time to time pursuant to, and
subject to the limitations and procedures of, Section 4.4(a), the
Existing Letters of Credit shall be converted to Facility Letters of
Credit. The date of such conversion shall be deemed to be the date of
issuance of such Facility Letter of Credit for purposes of this
Agreement, including without limitation, for purposes of calculating
the fees payable under Section 4.7. Immediately upon such conversion,
the Issuing Bank, through Agent, shall be deemed to have sold and
transferred, and each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from Agent, without recourse or
warranty, in each case without further action on the part of any
Person, an undivided interest and participation, (ratably in proportion
to the ratio that such Bank's Commitment bears to the Aggregate
Commitment) in such Facility Letter of Credit. Each Bank severally
agrees to fund any disbursements by the Issuing Bank pursuant to
Existing Letters of Credit by funding in accordance with Section 4.6.
The Existing Letters of Credit converted to Facility Letters of Credit
pursuant to this Section 4.4(f) shall be deemed to be Facility Letters
of Credit for all purposes under this Agreement, and shall be subject
to all terms and conditions hereof.
4.5 Duties of Issuing Bank. Any action taken or omitted to be taken by
an Issuing Bank under or in connection with any Facility Letter of Credit, if
taken or omitted in the absence of willful misconduct or gross negligence, shall
not put such Issuing Bank under any resulting
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liability to any Bank or, assuming that such Issuing Bank has complied with the
procedures specified in Section 4.4, relieve any Bank of its obligations
hereunder to such Issuing Bank. In determining whether to pay under any Facility
Letter of Credit, the Issuing Bank shall have no obligation relative to Banks
other than to confirm that any documents required to be delivered under such
Facility Letter of Credit appear to have been delivered in compliance and that
they appear to comply on their face with the requirements of such Facility
Letter of Credit.
4.6 Participation
(a) Proportionate Share of Banks. Immediately upon issuance by
an Issuing Bank of any Facility Letter of Credit in accordance with
Section 4.4, each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from such Issuing Bank, without
recourse or warranty, an undivided interest and participation (ratably
in proportion to the ratio that such Bank's Commitment bears to the
Aggregate Commitment) in such Facility Letter of Credit.
(b) Payment by Issuing Bank. In the event that an Issuing Bank
makes any payment under any Facility Letter of Credit and Borrower
shall not have repaid such amount to such Issuing Bank on or before the
date of such payment by such Issuing Bank, such Issuing Bank shall
promptly so notify Agent, which shall promptly so notify each Bank.
Upon receipt of such notice, each Bank shall promptly and
unconditionally pay to Agent for the account of such Issuing Bank the
amount of such Bank's share (ratably in proportion to the ratio that
such Bank's Commitment bears to the Aggregate Commitment) of such
payment in same day funds, and Agent shall promptly pay such amount,
and any other amounts received by Agent for such Issuing Bank's account
pursuant to this Section 4.6(b), to such Issuing Bank. If Agent so
notifies such Bank prior to 10:00 a.m., Phoenix time, on any Business
Day, such Bank shall make available to Agent for the account of such
Issuing Bank such Bank's share of the amount of such payment on such
Business Day in same day funds. If and to the extent such Bank shall
not have so made its share of the amount of such payment available to
Agent for the account of such Issuing Bank, such Bank agrees to pay to
Agent for the account of such Issuing Bank forthwith on demand such
amount, together with interest thereon, for each day from the date such
payment was first due until the date such amount is paid to Agent for
the account of such Issuing Bank, at the Federal Funds Effective Rate.
The failure of any Bank to make available to Agent for the account of
such Issuing Bank such Bank's share of any such payment shall not
relieve any other Bank of its obligation hereunder to make available to
Agent for the account of such Issuing Bank its share of any payment on
the date such payment is to be made.
(c) Advances. The payments made by Banks to an Issuing Bank in
reimbursement of amounts paid by it under a Facility Letter of Credit
shall
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constitute, and Borrower hereby expressly acknowledges and agrees that
such payments shall constitute, Advances hereunder to Borrower and such
payments shall for all purposes be treated as Advances to Borrower
(notwithstanding that the amounts thereof may not comply with the
provisions of Section 2.6). Such Advances shall be Floating Rate
Advances, subject to Borrower's rights under Article II hereof.
(d) Copies of Documents. Upon the request of Agent or any
Bank, an Issuing Bank shall furnish to the requesting Agent or Bank
copies of any Facility Letter of Credit or Reimbursement Agreement to
which such Issuing Bank is party and such other documentation as may
reasonably be requested by Agent or the Bank.
(e) Obligations of Banks. The obligations of Banks to make
payments to Agent for the account of an Issuing Bank with respect to a
Facility Letter of Credit shall be irrevocable, not subject to any
qualification or exception whatsoever and shall be made in accordance
with, but not subject to, the terms and conditions of this Agreement
under all circumstances notwithstanding:
(i) any lack of validity or enforceability of this
Agreement, any Facility Letter of Credit (except
where due to the gross negligence or willful
misconduct of the Issuing Bank), or any of the other
Loan Documents;
(ii) the existence of any claim, setoff, defense or other
right which Borrower or any Guarantor may have at
any time against a beneficiary named in a Facility
Letter of Credit or any transferee of any Facility
Letter of Credit (or any Person for whom any such
transferee may be acting), such Issuing Bank, Agent,
any Bank, or any other Person, whether in connection
with this Agreement, any Facility Letter of Credit,
the transactions contemplated herein or any
unrelated transactions (including any underlying
transactions between Borrower or any Subsidiary and
the beneficiary named in any Facility Letter of
Credit) other than the defense of payment in
accordance with this Agreement or a defense based on
the gross negligence or willful misconduct of the
Issuing Bank;
(iii) any draft, certificate or any other document
presented under the Facility Letter of Credit
proving to be forged, fraudulent, invalid or
insufficient in any respect of any statement therein
being untrue or inaccurate in any respect so long as
the payment by the Issuing Bank under such Facility
Letter of Credit against
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presentation of such draft, certificate or other
document shall not have constituted gross negligence
or willful misconduct;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of
any of the Loan Documents;
(v) any failure by Agent or the Issuing Bank to make
any reports required pursuant to Section 4.8; or
(vi) the occurrence of any Event of Default or Unmatured
Event of Default.
4.7 Compensation for Facility Letters of Credit
(a) Payment of Facility Letter of Credit Fee. Borrower agrees
to pay to Agent, in the case of each outstanding Facility Letter of
Credit, the Facility Letter of Credit Fee therefor, payable in
quarterly installments in advance on the Issuance Date and on the first
day of each January, April, July and October after the Issuance Date
(which installment shall be a pro rata portion of the annual Facility
Letter of Credit Fee for the 3-month period in which such payment date
occurs). If the Issuance Date is a date other than the first day of
January, April, July or October, then the first quarterly installment
of the Facility Letter of Credit Fee shall be payable in arrears, on
the first day of January, April, July, or October, as applicable, next
following the Issuance Date. Such initial installment shall be a pro
rata portion of the annual Facility Letter of Credit Fee for the period
commencing on the Issuance Date and ending on the day preceding such
payment date. Facility Letter of Credit Fees shall be calculated, on a
pro rata basis for the period to which such payment applies, for actual
days that will elapse during such period, on the basis of a 360 day
year. Agent shall promptly remit such Facility Letter of Credit Fees,
when paid, to Banks (ratably in the proportion that each Bank's
Commitment bears to the Aggregate Commitment).
(b) Calculation of Fee. The Facility Letter of Credit Fee
shall be determined by reference to the Senior Debt Rating, in
accordance with the following table:
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Applicable
Senior Debt Letter of Credit
Rating Rate (%)
----------- ----------------
BBB-/Baa3 or higher 1.125
BB+/Ba1 1.125
BB/Ba2 1.250
BB-/Ba3 1.250
B+/B1 1.375
Lower or no 1.375
Rating
(c) Adjustment of Fee. The Applicable Letter of Credit Rate
shall be adjusted, as applicable from time to time, effective on the
first January 1, April 1, June 1, or October 1 to occur after any
change in the Senior Debt Rating.
(d) Changes to Ratings. Notwithstanding the foregoing, (i) if
either of the two (2) rating agencies selected by Borrower for purposes
of calculating the Applicable Letter of Credit Rate shall not have in
effect a Senior Debt Rating for a reason related to the
creditworthiness of Borrower or Guarantors or to any act or failure to
act on the part of Borrower or Guarantors, then the Applicable Letter
of Credit Rate shall be determined by reference to the last category
listed above, and (ii) if the rating system used by either such rating
agency shall change, or if neither rating agency shall have in effect a
Senior Debt Rating and clause (i) above shall not be applicable, then
Borrower and Banks, acting through Agent, shall negotiate in good faith
to amend the references to specific ratings in this definition to
reflect such changed rating system or the non-availability of ratings
from such rating agencies.
(e) Amounts Owed to Issuing Bank. An Issuing Bank shall have
the right to receive solely for its own account such amounts as
Borrower may agree, in writing, to pay to such Issuing Bank with
respect to issuance fees and for such Issuing Bank's out-of-pocket
costs of issuing and servicing Facility Letters of Credit.
4.8 Issuing Bank Reporting Requirements. Each Issuing Bank shall, no
later than the tenth day following the last day of each month, provide to Agent
a schedule of the Facility Letters of Credit issued by it, in form and substance
reasonably satisfactory to Agent, showing the Issuance Date, account party,
original face amount, amount (if any) paid thereunder, expiration date and the
reference number of each Facility Letter of Credit outstanding at any time
during such month and the aggregate amount (if any) payable by Borrower to such
Issuing Bank during the month pursuant to Section 3.2. Copies of such reports
shall be provided promptly to each Bank and Borrower by Agent.
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4.9 Indemnification; Nature of Issuing Bank's Duties
(a) Indemnity. In addition to amounts payable as elsewhere
provided in this Article IV, Borrower hereby agrees to protect,
indemnify, pay and hold harmless Agent and each Bank and Issuing Bank
from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys'
fees) arising from the claims of third parties against Agent, Issuing
Bank or Bank as a consequence, direct or indirect, of (i) the issuance
of any Facility Letter of Credit other than, in the case of an Issuing
Bank, as a result of its willful misconduct or gross negligence, or
(ii) the failure of an Issuing Bank issuing a Facility Letter of Credit
to honor a drawing under such Facility Letter of Credit as a result of
any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority.
(b) Assumption of Risk. As among Borrower, Banks, Agent and
the Issuing Bank, Borrower assumes all risks of the acts and omissions
of, or misuse of Facility Letters of Credit by, the respective
beneficiaries of such Facility Letters of Credit. In furtherance and
not in limitation of the foregoing, neither the Issuing Bank nor Agent
nor any Bank shall be responsible:
(i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
party in connection with the application for and issuance of
the Facility Letters of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged;
(ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer
or assign a Facility Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) for failure of the beneficiary of a Facility
Letter of Credit to comply fully with conditions required in
order to draw upon such Facility Letter of Credit;
(iv) for errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in
cipher;
(v) for errors in interpretation of technical terms;
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(vi) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Facility Letter of Credit or of the proceeds
thereof;
(vii) for the misapplication by the beneficiary of a
Facility Letter of Credit of the proceeds of any drawing under
such Facility Letter of Credit; and
(viii) for any consequences arising from causes
beyond the control of Agent, the Issuing Bank and Banks
including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de
facto government or governmental authority. None of the above
shall affect, impair, or prevent the vesting of any of the
Issuing Bank's rights or powers under this Section 4.9.
(c) Good Faith. In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth, any action
taken or omitted by an Issuing Bank under or in connection with the
Facility Letters of Credit or any related certificates, if taken or
omitted in good faith under commercially reasonable standards, shall
not put such Issuing Bank, Agent or any Bank under any resulting
liability to Borrower or relieve Borrower of any of its obligations
hereunder to any such Person.
(d) Certain Acts of Issuing Bank. Notwithstanding anything to
the contrary contained in this Section 4.9, Borrower shall have no
obligation to indemnify an Issuing Bank under this Section 4.9 in
respect of any liability incurred by such Issuing Bank arising
primarily out of the willful misconduct or gross negligence of such
Issuing Bank, as determined by a court of competent jurisdiction, or
out of the wrongful dishonor by such Issuing Bank of a proper demand
for payment made under the Facility Letters of Credit issued by such
Issuing Bank, unless such dishonor was made at the request of Borrower.
4.10 No Obligation to Issue. The Issuing Bank shall not at any time be
obligated to issue any Facility Letter of Credit if such issuance would conflict
with, or cause the Issuing Bank or any other Bank, to exceed any limits imposed
by any applicable law, rule or regulation.
4.11 Obligations of Issuing Bank and Other Banks. Except to the extent
that a Bank shall have agreed to be designated as an Issuing Bank, no Bank shall
have any obligation to accept or approve any request for, or to issue, amend or
extend, any Letter of Credit, and the obligations of the Issuing Bank to issue,
amend or extend any Facility Letter of Credit are expressly limited by and
subject to the provisions of this Article IV.
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ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.1 Initial Advance. Banks shall not be required to make the initial
Advance hereunder, and the Issuing Bank shall not be required to issue the
initial Facility Letter of Credit hereunder, unless Borrower has paid to Agent
the fees set forth in the letter agreement of even date herewith between Agent
and Borrower, and Borrower has furnished to Agent with sufficient copies for
Banks:
(i) Copies of the certificate of incorporation of
Borrower and each Guarantor, together with all amendments,
and a certificate of good standing, all certified by the
appropriate governmental officer in the jurisdiction of
incorporation.
(ii) Copies, certified by the Secretary or Assistant
Secretary of Borrower and each Guarantor, of each such
corporation's by-laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are
deemed necessary by counsel for any Bank) authorizing the
execution of the Loan Documents and the Guaranty.
(iii) Incumbency certificates, executed by the
Secretary or Assistant Secretary of Borrower and each
Guarantor, which shall identify by name and title and bear
the signature of the officers of the such corporation
authorized to sign the Loan Documents and the Guaranty (as
applicable) and (if applicable) to make borrowings hereunder
and to request, apply for and execute Facility Letter of
Credit Reimbursement Agreements with respect to Facility
Letters of Credit hereunder, upon which certificates Agent,
Banks and the Issuing Bank shall be entitled to rely until
informed of any change in writing by Borrower or the
applicable Guarantor.
(iv) A written opinion of Cahill, Gordon & Reindel,
counsel to Borrower and Guarantors, addressed to Agent and
Banks in substantially the form of Exhibit F hereto.
(v) A written opinion of General Counsel of
Borrower, addressed to Agent and Banks in substantially the
form of Exhibit G hereto.
(vi) A written opinion of local counsel to Borrower
and Guarantors, addressed to Agent and Banks in substantially
the form of Exhibit H hereto.
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(vii) Evidence acceptable to Agent indicating that
no material accounting adjustments have occurred with respect
to Borrower's consolidated financial statements in connection
with the adoption of FASB 121.
(viii) Notes payable to the order of each of Banks.
(ix) Written money transfer instructions, in form
acceptable to Agent, addressed to Agent and signed by an
Authorized Officer, together with such other related money
transfer authorizations as Agent may have reasonably
requested.
(x) The Guaranty duly executed by Guarantors.
(xi) Evidence satisfactory to Agent (A) of payment
in full (which payment may be made from the proceeds of the
initial Advance hereunder) of all obligations of Borrower and
Guarantors to, and termination of the financing arrangements
evidenced by, the Refinanced Loans, and (B) that all Liens
securing the obligations and financing arrangements related
to the Refinanced Loans shall be discharged promptly, but in
no event later than ninety (90) days, following the payment
of such obligations.
(xii) An accurate list of all of the Subsidiaries of
Borrower and each Guarantor, setting forth their respective
jurisdictions of incorporation or formation and the
percentage of their respective capital stock or partnership
interests owned by Borrower or any Guarantor or their
Subsidiaries.
(xiii) Such other documents as any Bank or Issuing
Bank or their respective counsel may have reasonably
requested.
5.2 Each Advance. Banks shall not be required to make any Advance
(other than the conversion of an Advance of one Type to an Advance of another
Type that does not increase the aggregate amount of outstanding Advances),
unless on the applicable Borrowing Date, and an Issuing Bank shall not be
required to issue, amend or extend a Facility Letter of Credit unless on the
applicable Issuance Date:
(i) There exists no Event of Default or Unmatured Event of
Default.
(ii) The representations and warranties contained in Article
VI are true and correct in all material respects as of such Borrowing
Date or Issuance Date except to the extent any such representation or
warranty is stated to relate solely to an earlier date, in which case
such representation or warranty shall be true and correct in all
material respects on and as of such earlier date and except for changes
permitted by this Agreement.
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(iii) After the making of such Advance or issuance of such
Facility Letter of Credit, (A) the principal amount of all Advances
plus the aggregate amount of the Facility Letter of Credit Obligations
outstanding shall not exceed the Aggregate Commitment, and (B) the
aggregate principal amount of all Advances plus the aggregate amount of
the Facility Letter of Credit Obligations plus the Aggregate Senior
Indebtedness outstanding shall not exceed the Borrowing Base
(determined as of the most recent Inventory Valuation Date).
(iv) Borrower shall have delivered to Agent, within the time
period specified in Section 2.8, a duly completed Borrowing Notice in
substantially the form of Exhibit I hereto.
(v) All legal matters incident to (A) the making of such
Advance shall be reasonably satisfactory to Agent and its counsel and
(B) the issuance of such Facility Letter of Credit shall be reasonably
satisfactory to Agent, such Issuing Bank and their respective counsel.
Each Borrowing Notice with respect to each such Advance and each
request for a Facility Letter of Credit shall constitute a representation and
warranty by Borrower that the conditions contained in Sections 5.2(i) and (ii)
have been satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Banks and Agent that:
6.1 Existence and Standing. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite authority to conduct its
business in each jurisdiction in which its business is conducted (except to the
extent that a failure to maintain such existence, good standing or authority
would not reasonably be expected to have and does not have a Material Adverse
Effect). Each Guarantor is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted (except to the extent that a failure to maintain such
existence, good standing or authority would not reasonably be expected to have
and does not have a Material Adverse Effect).
6.2 Authorization and Validity. Borrower has the corporate power and
authority to execute and deliver the Loan Documents and to perform its
obligations hereunder and thereunder. The execution and delivery by Borrower of
the Loan Documents and the performance of its obligations thereunder have been
duly authorized and the Loan Documents constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
terms,
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subject to bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and general principles of equity. Guarantors have
the corporate power and authority to execute and deliver the Guaranty and the
Loan Documents and to perform its obligations thereunder. The execution and
delivery by Guarantors of the Guaranty and the Loan Documents and the
performance of its obligations thereunder have been duly authorized, and the
Guaranty and the Loan Documents constitute the legal, valid and binding
obligations of Guarantors enforceable against Guarantors in accordance with
their terms, subject to bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally and general principles of equity.
6.3 No Conflict; Government Consent. Neither the execution and delivery
by Borrower of the Loan Documents or by each Guarantor of the Guaranty and the
Loan Documents, nor the consummation of the transactions herein contemplated,
nor compliance with the provisions hereof or thereof will violate in any
material respect any law, rule, regulation, order, writ, judgment, injunction,
decree or award binding on Borrower or each Guarantor or Borrower's or such
Guarantor's certificate of incorporation or bylaws or the provisions of any
indenture (including without limitation the Indenture), instrument or agreement
to which Borrower or any Guarantor is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
Borrower or each Guarantor pursuant to the terms of any such indenture,
instrument or agreement. Except as set forth on Schedule "6.3" hereto, no order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any governmental or public body
or authority, or any subdivision thereof, is required to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, any of the Loan
Documents or the Guaranty.
6.4 Financial Statements. The May 31, 1995 audited consolidated
financial statements of Borrower and the February 28, 1996 unaudited financial
statements of Borrower and the Subsidiaries delivered to Banks were prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Such statements fairly present, in all material respects, the consolidated
financial condition and operations of Borrower and its Subsidiaries at such date
and the consolidated results of their operations for the period then ended.
6.5 Material Adverse Change. Since the date of the financial statements
(whether quarterly or annual) of Borrower and Guarantors described in Section
6.4, there has been no change in the business, Property, condition (financial or
otherwise) or results of operations of Borrower and Guarantors (taken as a
whole) that has had or would reasonably be expected to have a Material Adverse
Effect.
6.6 Taxes. Borrower and each Guarantor have filed all United States
federal income tax returns and all other material tax returns which are required
to be filed and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by Borrower or any Guarantor, except such taxes, if any,
as are being contested in good faith and as to which adequate
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reserves have been provided. No tax Liens (except Permitted Liens) have been
filed and no claims are being asserted with respect to any such taxes. The
charges, accruals and reserves on the books of Borrower and each Guarantor in
respect of any taxes or other governmental charges are adequate in accordance
with GAAP.
6.7 Litigation and Contingent Obligations. Except as set forth in
Borrower's form 10-K report for the period ending May 31, 1995, there is no
litigation, arbitration, governmental investigation, proceeding or inquiry
pending or, to the knowledge of any Authorized Officer, threatened against or
affecting Borrower or any Guarantor that has had or would reasonably be expected
to have a Material Adverse Effect. Other than any liability incident to such
litigation, arbitration or proceedings, Borrower and each Guarantor have no
material contingent obligations not provided for or disclosed in the financial
statements (whether quarterly or annual) of Borrower and Guarantors that have
been most recently delivered by Guarantors and Borrower to Agent that has had or
would reasonably be expected to have a Material Adverse Effect.
6.8 Subsidiaries. All of the issued and outstanding shares of capital
stock of Borrower and each Guarantor have been duly authorized and validly
issued and are fully paid and non-assessable.
6.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not
in the aggregate exceed $5,000,000.00. The withdrawal liabilities to
Multiemployer Plans of the Borrower, any Guarantor and any other member of the
Controlled Group do not, and are not reasonably expected to, exceed
$5,000,000.00 in the aggregate. Each Plan complies in all material respects with
all applicable requirements of law and regulations, no Reportable Event has
occurred with respect to any Plan, neither Borrower, nor any Guarantor nor any
other member of the Controlled Group has withdrawn from any Multiemployer Plan
or initiated steps to do so, and no steps have been taken to terminate any Plan.
6.10 Accuracy of Information. All factual information heretofore or
contemporaneously furnished in writing by or on behalf of Borrower or any
Guarantor to Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all other such factual
information hereafter furnished in writing by or on behalf of Borrower or any
Guarantor to Agent or any Bank will be, true and accurate (taken as a whole), in
all material respects, on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information (taken as a whole) not misleading at such time.
6.11 Regulation U. Neither Borrower, nor any Guarantor nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying Margin
Stock (as defined in Regulation U).
6.12 Material Agreements. Neither Borrower nor any Guarantor is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions
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contained in (i) any agreement to which it is a party, (ii) the Indenture, the
Old Indenture or the Convertible Notes Indenture, or (iii) any agreement or
instrument evidencing or governing any other Indebtedness, which default (as to
clauses (i) and (iii) only) has had or would reasonably be expected to have a
Material Adverse Effect.
6.13 Labor Disputes and Acts of God. Neither the business nor the
Property of Borrower or of any Guarantor is affected by any fire, explosion,
accident, strike, lockout, or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance), which has had or would reasonably be
expected to have a Material Adverse Effect.
6.14 Ownership. Borrower and each Guarantor have title to, or valid
leasehold interests in, all of their respective properties and assets, real and
personal, including the properties and assets and leasehold interests reflected
in the financial statements referred to in Section 6.4 (except to the extent
that (i) such properties or assets have been disposed of in the ordinary course
of business or (ii) the failure to have such title has not had and would not
reasonably be expected to have a Material Adverse Effect).
6.15 Operation of Business. Borrower and each Guarantor possess all
licenses, permits, franchises, patents, copyrights, trademarks, and trade names,
or rights thereto, to conduct their respective businesses substantially as now
conducted, and as presently proposed to be conducted, with such exceptions as
have not had and would not reasonably be expected to have a Material Adverse
Effect.
6.16 Laws; Environment. Except as set forth in Borrower's form 10-K
report for the period ending May 31, 1995, Borrower and each Guarantor have duly
complied, and their businesses, operations and Property are in compliance, in
all material respects, with the provisions of all federal, state, and local
statutes, laws, codes, and ordinances and all rules and regulations promulgated
thereunder (including without limitation those relating to the environment,
health and safety). Except as set forth in the form 10-K described herein,
Borrower and each Guarantor have been issued all required federal, state, and
local permits, licenses, certificates, and approvals relating to (1) air
emissions; (2) discharges to surface water or groundwater; (3) solid or liquid
waste disposal; (4) the use, generation, storage, transportation, or disposal of
toxic or hazardous substances or hazardous wastes (intended hereby and hereafter
to include any and all such materials listed in any federal, state, or local
law, code, or ordinance and all rules and regulations promulgated thereunder as
hazardous); or (5) other environmental, health or safety matters. Except in
accordance with a valid governmental permit, license, certificate or approval or
as set forth in the form 10-K described herein, to the best knowledge of
Borrower, there has been no material emission, spill, release, or discharge into
or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface
water or groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing any Property of Borrower or a Guarantor, of
any toxic or hazardous substances or hazardous wastes at or from such Property.
Neither Borrower nor any Guarantor has received notice of any written complaint,
order, directive, claim,
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citation, or notice from any governmental authority or any person or entity with
respect to violations of law or damage by reason of Borrower's or any
Guarantor's (1) air emissions; (2) spills, releases, or discharges to soils or
improvements located thereon, surface water, groundwater or the sewer, septic
system or waste treatment, storage or disposal systems servicing any Property;
(3) solid or liquid waste disposal; (4) use, generation, storage,
transportation, or disposal of toxic or hazardous substances or hazardous waste;
or (5) other environmental, health or safety matters affecting Borrower or any
Guarantor or its business, operation or Property. Except as set forth in the
form 10-K described herein, neither Borrower nor any Guarantor has any material
Indebtedness, obligation, or liability, absolute or contingent, matured or not
matured, with respect to the storage, treatment, cleanup, or disposal of any
solid wastes, hazardous wastes, or other toxic or hazardous substances
(including without limitation any such indebtedness, obligation, or liability
with respect to any current regulation, law or statute regarding such storage,
treatment, cleanup, or disposal). A matter will not constitute a breach of this
Section 6.16 unless it is reasonably likely to result in costs or liabilities to
Borrower or a Guarantor in excess of $2,500,000.00 in the aggregate.
6.17 Investment Company Act. Neither Borrower nor any Guarantor is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
6.18 Public Utility Holding Company Act. Neither Borrower nor any
Guarantor nor any Subsidiary is a "holding company" or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.19 Subordination Provisions. The Obligations to the Banks constitute
Senior Indebtedness, as defined in the Convertible Notes Indenture, which is
entitled to the benefits of the subordination provisions of the Convertible
Notes.
6.20 Indenture Provisions. Each Guarantor is a Wholly-Owned Restricted
Subsidiary, as that term is defined in the Indenture. Each Guarantor hereunder
is a Guarantor, as that term is defined in the Indenture. The Commitments
constitute a Bank Facility, as that term is defined in the Indenture.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
During the term of this Agreement, unless the Required Banks shall
otherwise consent in writing:
<PAGE>
7.1 Financial Reporting. Borrower will maintain, and will cause each
Guarantor to maintain, a system of accounting established and administered in
accordance with GAAP, and furnish to Banks:
(i) Within 90 days after the close of each fiscal
year, (A) an unqualified (or qualified as reasonably acceptable to
Agent) audited financial statements of Borrower certified by one of the
"Big Six" accounting firms or other nationally recognized independent
certified public accountants, reasonably acceptable to Banks, prepared
in accordance with GAAP on a consolidated basis, including balance
sheets as of the end of such fiscal year and statements of income and
retained earnings and a statement of cash flows, in each case setting
forth in comparative form the figures for the preceding fiscal year,
and (B) unaudited financial statements, prepared in accordance with
GAAP (excluding footnotes) on a consolidating basis for Borrower and
its respective Subsidiaries, including balance sheets as of the end of
such fiscal year and statements of income.
(ii) Within forty-five (45) days after the close of
the first three (3) quarterly periods of each fiscal year, for Borrower
and each Guarantor and their respective Subsidiaries, on a consolidated
and a consolidating basis, unaudited financial statements, including
balance sheets as of the end of such period, statements of income and,
with respect to the consolidated financial statements only, retained
earnings and a statement of cash flows, in each case for the portion of
the fiscal year ending with such fiscal period, all certified by an
Authorized Officer. All consolidated balance sheets shall set forth in
comparative form figures for the preceding year end. All such income
statements shall reflect current period and year-to-date figures.
(iii) Annually, together with the financial
statements described in clause (i) above, a copy of the business plan
of Borrower and each Guarantor for the upcoming two (2) fiscal years,
including, as to Borrower, a consolidated balance sheet, statement of
income and projection of cash flows.
(iv) Within forty-five (45) days of the end of each
of the first three quarterly periods of each fiscal year, a quarterly
variance analysis comparing actual quarterly results versus projected
quarterly results for the fiscal quarter most recently ended, including
an analysis of revenues, Housing Unit Closings and operating profits
(by operating division) for such period, and such other items as are
reasonably requested by Agent, together with a written explanation of
material variances.
(v) Within 90 days after the end of each fiscal
year, a variance analysis comparing actual annual results versus the
business plan for the fiscal year most recently ended, including an
analysis of revenues, Housing Unit Closings and
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operating profits (by operating division) for such period, and such
other items as are reasonably requested by Agent, together with a
written explanation of material variances.
(vi) By the twentieth day of each calendar month, a
Borrowing Base Certificate of an Authorized Officer for Borrower, with
respect to the Inventory Valuation Date occurring on the last day of
the immediately preceding calendar month.
(vii) Within forty-five (45) days after the end of
each quarterly period of each fiscal year, a report identifying as to
Borrower and its Subsidiaries the inventory of real estate operations,
including land and housing units as of such date; such summary shall
include a delineation of sold or unsold items in each category.
(viii) Within forty-five (45) days after the end of
each of the first three quarterly periods, and within ninety (90) days
after the end, of each fiscal year, a certificate of an Authorized
Officer as to Borrower's compliance with the Financial Covenant Tests
in the form of Exhibit J hereto.
(ix) Within 270 days after the close of each fiscal
year, a statement of the Unfunded Liabilities of each Single Employer
Plan, certified as correct by an actuary enrolled under ERISA (which
requirement may be satisfied by the delivery of the most recent
actuarial valuation of each such Single Employer Plan).
(x) As soon as possible and in any event within ten
(10) days after Borrower knows that any Reportable Event has occurred
with respect to any Plan, a statement, signed by an Authorized Officer
of Borrower, describing said Reportable Event and the action which
Borrower (or any Guarantor) proposes to take with respect thereto.
(xi) As soon as possible, and in any event within
thirty (30) days after Borrower knows or has reason to know that any
circumstances exist that constitute grounds entitling the PBGC to
institute proceedings to terminate a Plan subject to ERISA with respect
to Borrower or any member of the Controlled Group and promptly but in
any event within two (2) Business Days of receipt by Borrower, any
Guarantor or any member of the Controlled Group of notice that the PBGC
intends to terminate a Plan or appoint a trustee to administer the
same, and promptly but in any event within five (5) Business Days of
the receipt of notice concerning the imposition of withdrawal liability
in excess of $500,000.00 with respect to Borrower, any Guarantor or any
member of the Controlled Group, a certificate of an Authorized Officer
setting forth all relevant details of such event
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and the action which Borrower (or any Guarantor) proposes to take with
respect thereto.
(xii) Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements (including form
10-K and 10-Q, exclusive of exhibits unless otherwise requested by
Agent), and reports which Borrower sends to its stockholders, and
copies of all regular (except form S-8), periodic, and special reports,
and all registration statements (exclusive of exhibits unless otherwise
requested by Agent) which Borrower is required to file with the
Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or with any national securities exchange.
(xiii) Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting Borrower or any
Guarantor (a) which, if determined adversely to Borrower or any
Guarantor, could reasonably be expected to have a Material Adverse
Effect or (b) in which liability in excess of $2,500,000.00 (in the
aggregate with respect to any action, suit or proceeding) is claimed
and alleged against Borrower or any Guarantor.
(xiv) As soon as possible and in any event within
ten (10) days after receipt by Borrower or any Guarantor, a copy of (a)
any written notice or claim to the effect that Borrower or any
Guarantor is or may be liable to any Person as a result of the release
of any toxic or hazardous waste or substance into the environment, and
(b) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by Borrower or any
Guarantor which, in the case of either (a) or (b), could reasonably be
expected to have a Material Adverse Effect or could result in liability
to Borrower or any Guarantor in excess of $2,500,000.00 (in the
aggregate with respect to any notice or claim).
(xv) Such other information (including non-financial
information) as Agent may from time to time reasonably request.
7.2 Use of Proceeds. Subject to the limitations contained in this
Agreement, Borrower will use the proceeds of Advances for working capital and
general corporate purposes (including payment of reimbursement obligations with
respect to Facility Letters of Credit and payment of the Set Aside Amount) and
to repay outstanding Advances. Borrower will not, and will not permit any
Guarantor or Subsidiary to, use any of the proceeds of the Advances to purchase
or carry any "margin stock" (as defined in Regulation U) or, except as otherwise
permitted by this Agreement, to purchase any securities in any transaction that
is subject to Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended.
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7.3 Notice of Certain Events. Borrower will, and will cause each
Guarantor to, give prompt notice in writing to Agent of the occurrence of (i)
any Event of Default or Unmatured Event of Default, (ii) Borrower's failure to
satisfy any Financial Covenant Test, and (iii) any other development, financial
or otherwise, that has had or would be reasonably expected to have a Material
Adverse Effect.
7.4 Conduct of Business. Except as otherwise permitted under this
Agreement, Borrower will, and will cause each Guarantor to, carry on and conduct
business in the same general manner and in substantially the same fields of
enterprise as presently conducted and to do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
their respective jurisdictions of incorporation and maintain all requisite
authority to conduct business in each jurisdiction in which business is
conducted; provided, however, that nothing contained herein shall prohibit the
dissolution of a Guarantor as long as another Guarantor or Borrower succeeds to
the assets, liabilities and business of the dissolved Guarantor.
7.5 Taxes. Borrower will, and will cause each Guarantor to, pay prior
to delinquency all taxes, assessments and governmental charges and levies upon
them or their income, profits or Property, except (i) those that solely encumber
property abandoned or in the process of being abandoned and with respect to
which there is no recourse to Borrower or any Subsidiary; (ii) those that are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been established in accordance with GAAP, and (iii)
to the extent that the failure to do so would not reasonably be expected to have
and does not have a Material Adverse Effect.
7.6 Insurance. Borrower will, and will cause each Guarantor to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and Borrower will furnish to Agent upon request full
information as to the insurance carried.
7.7 Compliance with Laws. Borrower will, and will cause each Guarantor
to, comply with all laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject, except to the extent
that the failure to do so would not reasonably be expected to have and does not
have a Material Adverse Effect.
7.8 Maintenance of Properties. Borrower will, and will cause each
Guarantor to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, except to the extent
that the failure to do so would not reasonably be expected to have and does not
have a Material Adverse Effect.
7.9 Inspection. Borrower will, and will cause each Guarantor to, permit
Agent and Banks, by their respective representatives and agents, to inspect any
of the Property, corporate (or partnership) books and financial records of
Borrower and Guarantors to examine and make
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copies of the books of accounts and other financial records of Borrower and
Guarantors, and to discuss the affairs, finances and accounts of Borrower and
Guarantors with, and to be advised as to the same by, their respective officers
at such reasonable times and intervals as Agent may designate.
7.10 Environment. Borrower will, and will cause Guarantor to, (i)
comply, in all material respects, with the provisions of all federal, state, and
local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations issued thereunder; (ii) promptly contain and remove or
otherwise remediate any hazardous discharge from or affecting the Property of
Borrower or any Guarantor, to the extent required by and in compliance with all
applicable laws; (iii) promptly pay any fine or penalty assessed in connection
therewith or contest the same in good faith; and (iv) permit Agent to inspect
such Property, to conduct tests thereon, and to inspect all books,
correspondence, and records pertaining thereto at reasonable hours and places;
and (v) at the request of the Required Banks, and at Borrower's expense, provide
a report of a qualified environmental engineer, satisfactory in scope, form, and
content to the Required Banks, and such other and further assurances reasonably
satisfactory to the Required Banks that any new condition or occurrence
hereafter identified in any updated form 10-K or 10-Q has been corrected;
provided that a failure to comply with the provisions of clauses (i) through (v)
of this Section 7.10 shall not constitute an Event of Default or an Unmatured
Event of Default unless such noncompliance has resulted in or is reasonably
likely to result in costs or liabilities to Borrower or a Guarantor in excess of
$2,500,000.00.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
During the term of the Agreement, unless the Required Banks shall
otherwise consent in writing:
8.1 Dividends. Borrower will not, and will not permit any Guarantor to,
directly or indirectly, declare, make or pay, or incur any liability to make or
pay, or cause or permit to be declared, made or paid, any Dividend if, prior to
or after giving effect to the declaration and payment of any Dividend, there
shall exist any Event of Default under this Agreement. The foregoing paragraph
will not prevent the payment of any Dividend by Borrower within sixty (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.
8.2 Indebtedness. Borrower will not, and will not permit any Guarantor
to, create, incur or suffer to exist any Indebtedness, except, without
duplication and without duplication as to Borrower and Guarantors:
(i) The Loans and the Guaranty.
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(ii) Indebtedness existing on the date hereof (and
not otherwise permitted under this Section 8.2) and described in
Schedule "8.2(ii)" hereto and Refinancing Indebtedness with respect
thereto.
(iii) Indebtedness under a Warehouse Facility;
provided that the amount of such Indebtedness (including funding drafts
issued thereunder) outstanding at any time pursuant to this clause
(iii) guaranteed by Borrower or any Guarantor may not exceed
$30,000,000.00 and the amount of such Indebtedness (excluding funding
drafts issued thereunder) shall not exceed 98% of the value of the
mortgages pledged to secure Indebtedness thereunder.
(iv) Rate Hedging Obligations.
(v) Intercompany Indebtedness between Borrower, any
Guarantor and/or any Subsidiary, provided that, as to Indebtedness of
Borrower to Guarantors, such Indebtedness is subordinated by Guarantors
under the Guaranty to the reasonable satisfaction of Agent.
(vi) Trade accounts payable and accrued expenses
arising or occurring in the ordinary course of business.
(vii) Indebtedness constituting Capitalized Lease
Obligations.
(viii) Indebtedness with respect to Letters of Credit
(including Facility Letters of Credit) in an aggregate face amount
outstanding at any time not to exceed $20,000,000.00.
(ix) Non-Recourse Indebtedness incurred in the
ordinary course of business in an aggregate amount outstanding at any
time not to exceed $25,000,000.00.
(x) Indebtedness in respect of performance bonds,
completion bonds, surety and similar bonds and guarantees of
performance or banker's acceptances entered into in the ordinary cause
of business.
(xi) Indebtedness evidenced by the Senior Notes
(including any related guaranties in effect that are required by the
terms of the Indenture), the Old Senior Notes and the Convertible Notes
and Refinancing Indebtedness with respect thereto.
(xii) Indebtedness not otherwise permitted by this
Section 8.2 in an aggregate amount outstanding at any time not to
exceed $35,000,000.00.
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8.3 Merger. Borrower will not, nor will it permit any Guarantor to,
merge or consolidate with or into any other Person, unless:
(i) the Guarantor is merging with any other Guarantor
or Borrower, and Borrower, if applicable, is the continuing
corporation; or
(ii) a Subsidiary (other than a Guarantor) is merging
with Borrower or any Guarantor or another Subsidiary, and Borrower or
the Guarantor, if applicable, is the continuing corporation; and
(iii) no Event of Default shall exist or shall occur
after giving effect to such transaction; and
(iv) after giving effect to such transaction,
Borrower shall be in compliance with the Financial Covenant Tests; and
(v) (a) the other Person to the transaction is in a
Related Business or, (b) if not in a Related Business, the aggregate
net worth of the acquired non-related entities of all such transactions
during any 24-month period shall not exceed $10,000,000.00, and
Borrower or the Guarantor, if involved in the merger, is the continuing
corporation; and
(vi) the transaction is not otherwise prohibited
under this Agreement; and
(vii) if required by Agent, the continuing
corporation ratifies and confirms by supplemental document in a form
reasonably satisfactory to Agent all of the obligations of Borrower or
such Guarantor, as the case may be, under the Loan Documents and/or the
Guaranty.
8.4 Sale of Assets. Borrower will not, and will not permit any
Guarantor to, lease, sell or otherwise dispose of its Property, in a single
transaction or a series of transactions, to any other Person except (i) for
sales or leases in the ordinary course of business, and (ii) for leases, sales
or other dispositions of its Property that, together with all other Property of
Borrower or such Guarantor previously leased, sold or disposed of (other than in
the ordinary course of business) as permitted by this Section during the month
in which any such lease, sale or other disposition occurs, do not constitute a
Material Portion of the Property of Borrower or such Guarantor.
For purposes of this Section 8.4, "Material Portion" means, with
respect to the Property of Borrower or any Guarantor, Property which represents
more than 25% of the book value of all assets of Borrower or such Guarantor. If
a Material Portion of the Property of Borrower or any Guarantor is leased, sold
or disposed of in violation of this Section 8.4, Borrower shall pay
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to Agent for the benefit of Banks at the time of such lease, sale or disposal,
all amounts owed by Borrower pursuant to Section 2.2, taking into account the
effect of lease, sale or disposal.
8.5 Investments and Acquisitions. Borrower will not, and will not
permit any Guarantor to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
(i) Investments in Cash Equivalents.
(ii) Loans or advances made to officers, directors or
employees of Borrower or any Guarantor or any Subsidiary.
(iii) Investments in interests in issuances of
collateralized mortgage obligations, mortgages (including funding by
Borrower of mortgages originated by a Guarantor in the ordinary course
of business), mortgage loan servicing or other mortgage related assets.
(iv) Investments of Borrower in a Guarantor or of a
Guarantor in Borrower or another Guarantor; provided, however, that the
aggregate amount of such Investments of Borrower and all Guarantors in
all mortgage lending and title insurance Subsidiaries (other than those
described in clause (iii) above) shall not at any time exceed
$15,000,000.00 in the aggregate.
(v) Investments in existence on the date hereof,
including without limitation, Investments in the Surprise Entities, but
only to the extent of the Investments made prior to the date hereof and
future Investments that may be required pursuant to the operating
agreements of the Surprise Entities in an aggregate amount (calculated
from the date hereof) not to exceed $6,000,000.00.
(vi) Investments in joint ventures, partnerships,
limited liability companies or other similar business organizations in
which any Person other than Borrower or a Wholly-Owned Subsidiary has
an interest (including without limitation Investments in the Surprise
Entities not otherwise described in clause (v) above), provided that
the outstanding amount of such Investments of Borrower and its
Subsidiaries do not at any time exceed $15,000,000.00 in the aggregate.
(vii) Investments in Subsidiaries or other Persons
whose primary business is not a Related Business in an aggregate amount
outstanding at any one time not to exceed $10,000,000.00.
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(viii) The Acquisition of or Investment in a business
or entity engaged primarily in a Related Business, provided that (a)
immediately upon the consummation of any such Acquisition or Investment
Borrower and each Guarantor is in compliance with the terms, covenants
and conditions of this Agreement (including without limitation the
Financial Covenant Tests), and (b) Borrower shall deliver to Agent a
certificate, signed by an Authorized Officer, certifying to the best
knowledge of Borrower that, on the date of, and taking into account,
the consummation of such Acquisition, and based on the reasonable
assumptions set forth in such Certificate, no Event of Default has
occurred and is continuing, and Borrower is in compliance with the
Financial Covenant Tests.
(ix) The creation of new Subsidiaries engaged
primarily in a Related Business (or the purpose of which is principally
to preserve the use of a name in which such business is conducted).
(x) Stock, obligations or securities received in
satisfaction of debts owing to Borrower or any Guarantor in the
ordinary course of business.
(xi) Pledges or deposits in cash by Borrower or any
Guarantor to support surety bonds, performance bonds or guarantees of
completion in the ordinary course of business.
(xii) Investments pursuant to Borrower's or any
Guarantor's employment compensation plans or agreements.
(xiii) Investments in Rate Hedging Obligations.
(xiv) Investments, in addition to those enumerated in
this Section 8.5, in an aggregate amount outstanding at any time not to
exceed $5,000,000.00.
8.6 Liens. Borrower will not, and will not permit any Guarantor to,
create, incur, or suffer to exist any Lien in, of or on the Property of Borrower
or any Guarantor, except:
(i) Permitted Liens.
(ii) Purchase-money Liens on any Property hereafter
acquired or the assumption of any Lien on Property existing at the time
of such acquisition (and not created in contemplation of such
acquisition), or a Lien incurred in connection with any conditional
sale or other title retention or a Capitalized Lease; provided that
(a) Any Property subject to any of the
foregoing is acquired by Borrower or any Guarantor in the
ordinary course of
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its respective business and the Lien on any such Property
attaches to such asset concurrently or within ninety (90) days
after the acquisition thereof;
(b) The obligation secured by any Lien so
created, assumed, or existing shall not exceed ninety percent
(90%) of the cost the Property covered thereby by Borrower or
any Guarantor acquiring the same; and
(c) Each Lien shall attach only to the
Property so acquired.
(iii) Liens existing on the date hereof (and not
otherwise permitted under this Section 8.6) and described in Schedule
"8.6(iv)" hereto and Liens securing Refinancing Indebtedness with
respect thereto, but only to the extent such Liens encumber the same
collateral in whole or in part as the previous Liens securing the
Indebtedness being refunded, refinanced or extended.
(iv) Liens incurred in the ordinary course of
business not otherwise permitted by this covenant, provided that the
aggregate amount of Indebtedness secured by such Liens outstanding at
any time shall not exceed $25,000,000.00.
(v) Judgments and similar Liens arising in connection
with court proceedings; provided the execution or enforcement thereof
is stayed and the claim is being contested in good faith, and the same
do not give rise to an Event of Default or Unmatured Event of Default.
(vi) Liens securing Non-Recourse Indebtedness of
Borrower or any Guarantor, provided that (A) the amount of such
Indebtedness is greater than fifty percent (50%) of the fair market
value of the Property encumbered by the Liens, (B) such Liens apply
only to the property financed out of the net proceeds of such
Non-Recourse Indebtedness within ninety (90) days of the creation,
incurrence or sufferance of such Non-Recourse Indebtedness (except that
such 90-day limitation shall not apply with respect to the Carlsbad
Property).
(vii) 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 Borrower or any Guarantor.
(viii) Liens securing Indebtedness of a Person
existing at the time that such Person is merged into or consolidated
with Borrower or a Guarantor, provided that such liens were not created
in contemplation of such merger or
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consolidation and do not extend to any assets or property of Borrower
or any Guarantor, other than the surviving Person and its subsidiaries.
(ix) Liens in respect of Rate Hedging Obligations.
(x) Liens (other than any lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security.
(xi) 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.
(xii) Leases or subleases granted to others not
materially interfering with the ordinary conduct of the business of
Borrower or any Guarantor.
(xiii) Liens granted by Guarantors pursuant to the
provisions of Section 2.22(d).
Notwithstanding anything herein to the contrary, Borrower will not, and will not
permit any Guarantor to, create, incur, or suffer to exist any Lien in, of or on
the capital stock of any Guarantor.
8.7 Redemption. Borrower will not purchase or redeem any of its capital
stock heretofore or hereafter issued, except that Borrower may purchase or
redeem its capital stock (i) to the extent that the consideration for such
redemption or purchase is limited to capital stock of Borrower, or (ii) if the
consideration for such purchaser or redemption is other than capital stock of
Borrower and does not exceed, in the aggregate for all such purchases and
redemptions from and after the date hereof, $5,000,000.00.
8.8 Affiliates. Borrower will not, and will not permit any Guarantor
to, enter into any transaction (including, without limitation, the purchase or
sale of any Property or service) with, or make any payment or transfer to, any
Affiliate (other than a Subsidiary) except (i) in the ordinary course of
business and/or pursuant to the reasonable requirements of Borrower's or such
Guarantor's business and, in either event, upon fair and reasonable terms no
less favorable to Borrower or such Guarantor than Borrower or such Guarantor
would obtain in a comparable arms-length transaction, (ii) Investments permitted
under Section 8.5, (iii) pursuant to employment compensation plans and
agreements, and (iv) with officers, directors and employees of Borrower or any
Subsidiary so long as the same are duly authorized pursuant to the articles of
incorporation or bylaws (or procedures conducted in accordance therewith) of
Borrower or such Subsidiary.
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8.9 Modifications to Certain Indebtedness. Borrower will not, and will
not permit any Guarantor to, make any amendment or modification to the
subordination provisions of any indenture, note or other agreement evidencing or
governing (i) as to Borrower, any Subordinated Indebtedness, and (ii) as to any
Guarantor, Indebtedness that has been subordinated to Guarantor's obligations
under the Guaranty.
8.10 Subordinated Indebtedness. Borrower will not, nor will it permit
any Guarantor to, make any amendment or modification to the subordination
provisions of any indenture, note or other agreement evidencing or governing any
Subordinated Indebtedness, or directly or indirectly voluntarily prepay,
defease, or in substance defease, purchase, redeem, retire or otherwise acquire,
any Subordinated Indebtedness; provided, however, that the foregoing shall not
prohibit (i) the conversion of the Convertible Notes in accordance with the
Convertible Notes Indenture, or (ii) the repayment or prepayment of Subordinated
Indebtedness solely from the net proceeds of other Subordinated Indebtedness or
from capital stock.
8.11 Amendments. Borrower will not, nor will it permit any Guarantor
to, amend or modify the Indenture, the Old Indenture, or the Senior Notes or the
Old Senior Notes, except for amendments or modifications that do not (i) impose
upon Borrower or any Guarantor obligations more onerous than those contained
therein as of the date of this Agreement, or (ii) otherwise adversely affect
Borrower or any Guarantor.
ARTICLE IX
FINANCIAL COVENANTS
-------------------
During the term of this Agreement, unless the Required Banks shall
otherwise consent in writing:
9.1 Minimum Consolidated Tangible Net Worth. Borrower's Consolidated
Tangible Net Worth shall not be less than (i) $96,000,000.00 plus (ii) fifty
percent (50%) of the Consolidated Net Income earned after March 1, 1996
(excluding any quarter in which there is a loss) plus (iii) one hundred percent
(100%) of the net proceeds of capital stock issued by Borrower after March 1,
1996 (the "Consolidated Tangible Net Worth Test"). Borrower's compliance with
the foregoing covenant shall be measured on a quarterly basis, based on the
financial statements delivered to Agent pursuant to Section 7.1. If Borrower
fails to maintain Consolidated Tangible Net Worth in the amount required herein
for two (2) consecutive fiscal quarters, an Event of Default shall not occur;
however, the Conversion Period shall commence in accordance with, but subject to
the limitations of, Section 2.22. If Borrower fails to maintain Consolidated
Tangible Net Worth in the amount required herein for three (3) consecutive
fiscal quarters, then an Event of Default shall have occurred.
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9.2 Leverage Test; Interest Coverage Test.
(a) Leverage Test. Borrower's Consolidated Indebtedness shall
not exceed the product of (i) the then applicable Leverage Multiplier
multiplied by (ii) Adjusted Consolidated Tangible Net Worth (the
"Leverage Test").
(b) Interest Coverage Test. If at any time Borrower shall fail
to maintain, for two (2) consecutive fiscal quarters, a ratio,
determined as of the last day of each fiscal quarter for the
four-quarter period ending on such day, of (i) EBITDA to (ii)
Consolidated Interest Incurred, of at least 2.0 to 1.0 (the "Interest
Coverage Test"), then the Leverage Multiplier, effective as of the
first day of the fiscal quarter immediately following the second
quarter of such failure with respect to which Borrower shall have so
failed the Interest Coverage Test, shall be decreased to the extent
herein provided. Upon any failure to satisfy the Interest Coverage Test
(i.e., a failure for two (2) consecutive fiscal quarters) that occurs
on a date on which the Leverage Multiplier is 1.50, the Leverage
Multiplier shall be decreased by 0.10 to 1.40. Upon any failure (i.e.,
a failure for two (2) consecutive fiscal quarters) to satisfy the
Interest Coverage Test that occurs on a date on which the Leverage
Multiplier is less than 1.50, the Leverage Multiplier shall be
decreased by 0.10.
(c) Adjustment of Leverage Multiplier. If at any time at which
the Leverage Multiplier is less than 1.50, Borrower shall satisfy the
Interest Coverage Test (which for purposes of this Section 9.2(c) shall
be deemed satisfied only if, on the same day on which Borrower
maintains the Interest Coverage Test, Borrower is also in compliance
with the Leverage Test), then the Leverage Multiplier, effective as of
the first day of the fiscal quarter immediately following the fiscal
quarter with respect to which Borrower shall have so satisfied the
Interest Coverage Test, shall be increased to the extent herein
provided. Upon satisfaction of the Interest Coverage Test on a date on
which the Leverage Multiplier is 1.40, the Leverage Multiplier shall be
increased to 1.50. Upon satisfaction of the Interest Coverage Test on a
date on which the Leverage Multiplier is less than 1.40, the Leverage
Multiplier shall be increased by 0.10. In no event shall the Leverage
Multiplier exceed 1.50.
(d) Effectiveness of Change in Leverage Multiplier. Any
increase or decrease of the Leverage Multiplier provided for in this
Section 9.2 shall be effective as of the first day of a fiscal quarter
as provided in Section 9.2(b) or (c) (as applicable), and the Leverage
Multiplier (as adjusted) shall remain in effect for the entire fiscal
quarter and thereafter unless and until adjusted as of the first day of
any subsequent fiscal quarter as provided in this Section 9.2(b) or (c)
(as applicable).
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(e) Measure of Compliance. Borrower's compliance with
covenants in this Section 9.2 shall be measured on a quarterly basis,
based on the financial statements delivered to Agent pursuant to
Section 7.1. If Borrower fails to satisfy the Leverage Test or the
Interest Coverage Test for two (2) consecutive fiscal quarters (or one
(1) fiscal quarter, if a Significant Event occurs), an Event of Default
shall not occur; however, the Conversion Period shall commence in
accordance with, but subject to the limitations of, Section 2.22. If
Borrower fails to satisfy the Leverage Test or the Interest Coverage
Test for three (3) consecutive fiscal quarters, then an Event of
Default shall have occurred.
9.3 Spec Unit Inventory. Borrower will not at any time permit the
aggregate number of all Spec Units owned by Guarantors to exceed the greater of
(i) fifty percent (50%) of the number of Housing Unit Closings during the
preceding twelve (12) months, or (ii) one hundred ten percent (110%) of the
number of Housing Unit Closings during the preceding six (6) months. Borrower
will not at any time permit any Guarantor to own any Spec Units except those
Spec Units where the certificate of occupancy was issued during the preceding
six (6) months. A failure to satisfy the requirements of this Section 9.4 shall
not constitute an Event of Default or an Unmatured Event of Default, but the
Housing Unit Costs of any Spec Units owned by Guarantors in excess of the
foregoing requirements shall not be included in the Borrowing Base.
9.4 Land Owned. Borrower will not at any time permit the sum of (a) the
book value of Finished Lots, plus (b) the book value of Land Under Development,
plus (c) the book value of any vacant land (other than Finished Lots or Land
Under Development), to exceed 150% of the sum of (i) Consolidated Tangible Net
Worth, plus (ii) Indebtedness evidenced by the Convertible Notes, but only to
the extent that the maturity date of such Indebtedness will occur after the
Facility Termination Date, plus (iii) any other Public Indebtedness constituting
convertible subordinated notes with convertible and subordination features
similar to the Convertible Notes, but only to the extent that the maturity date
of such Indebtedness will occur after the Facility Termination Date.
ARTICLE X
EVENTS OF DEFAULT
-----------------
The occurrence of any one or more of the following events shall
constitute an Event of Default:
10.1 Representations and Warranties. Any representation or warranty
(except the representations and warranties in Section 6.7, but only to the
extent the same are made, or deemed made, after the date hereof) made or deemed
made by or on behalf of Borrower or any Guarantor to Banks, the Issuing Bank or
Agent under or in connection with this Agreement, any Loan Document, or any
certificate or information delivered in connection with this Agreement or any
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other Loan Document shall not be true and correct in any material respect on the
date as of which made.
10.2 Non-payment. Nonpayment of principal of any Note when due, or
nonpayment of interest upon any Note or of any fees or other obligations under
any of the Loan Documents within five (5) days after the same becomes due.
10.3 Other Defaults. The breach by Borrower of any of the terms or
provisions of this Agreement (other than any term or provision covered by
another Section of this Article X) which is not remedied within thirty (30) days
after the occurrence of such breach.
10.4 Other Indebtedness.
(a) Failure of Borrower or any Guarantor to pay when due
(after any applicable grace period and after notice from the holder
thereof) any Indebtedness (other than Non-Recourse Indebtedness) equal
to or exceeding $5,000,000.00 (in the aggregate); or
(b) The default (after any applicable grace period and after
notice from the holder thereof) by Borrower or any Guarantor in the
performance of any term, provision or condition contained in any
agreement under which any Indebtedness (other than Non-Recourse
Indebtedness) equal to or exceeding $5,000,000.00 (in the aggregate)
was created or is governed; or
(c) Any other event shall occur or condition exist (after any
applicable grace period and after notice from the holder thereof), the
effect of which is to cause, or to permit the holder or holders of any
Indebtedness (other than Non-Recourse Indebtedness) of Borrower or any
Guarantor equal to or exceeding $5,000,000.00 to cause such
Indebtedness to become due prior to its stated maturity; or
(d) Any Indebtedness (other than Non-Recourse Indebtedness) of
Borrower or any Guarantor equal to or exceeding $5,000,000.00 (in the
aggregate) shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the
stated maturity thereof (after any applicable grace period and after
notice from the holder thereof); or
(e) Borrower or any Guarantor shall not pay, or shall admit in
writing its inability to pay, its debts generally as they become due.
10.5 Bankruptcy. Borrower or any Guarantor shall:
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(i) have an order for relief entered with respect to
it under the Federal bankruptcy laws as now or hereafter in effect;
(ii) make an assignment for the benefit of creditors;
(iii) apply for, seek, consent to, or acquiesce in,
the appointment of a receiver, custodian, trustee, examiner, liquidator
or similar official for it or any Substantial Portion of its Property;
(iv) institute any proceeding seeking an order for
relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail
to file, within the applicable time period for the filing thereof, an
answer or other pleading denying the material allegations of any such
proceeding filed against it; or
(v) fail to contest in good faith any appointment or
proceeding described in Section 10.6.
10.6 Receiver. A receiver, trustee, examiner, liquidator or similar
official shall be appointed for Borrower or any Guarantor or any Substantial
Portion of its Property without the application, approval or consent of Borrower
or Guarantors, or a proceeding described in Section 10.5(iv) shall be instituted
against Borrower or any Guarantor and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of sixty (60)
consecutive days.
10.7 Judgment. Borrower or any Guarantor shall fail within thirty (30)
days to pay, bond or otherwise discharge any judgment or order for the payment
of money in excess of $5,000,000.00 which has not been stayed on appeal or is
not otherwise being appropriately contested in good faith.
10.8 Unfunded Liabilities. The Unfunded Liabilities of all Single
Employer Plans shall exceed in the aggregate $5,000,000.00 or any Reportable
Event shall occur in connection with any Plan, which Reportable Event has had or
would reasonably be expected to have a Material Adverse Effect.
10.9 Withdrawal Liability. Borrower, or any Guarantor or any member of
the Controlled Group shall have been notified by the sponsor of a Multiemployer
Plan that it has incurred withdrawal liability to such Multiemployer Plan in an
amount which, when aggregated with all other amounts required to be paid to
Multiemployer Plans by Borrower or such Guarantor or any other member of the
Controlled Group as withdrawal liability (determined as of the date of such
notification), exceeds $5,000,000.00 or requires payments exceeding
$2,000,000.00 per
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annum; provided, however, that such event shall not constitute an Event of
Default as long as Borrower, such Guarantor or the Controlled Group member, as
applicable, is contesting in good faith the imposition of withdrawal liability.
10.10 Increased Contributions. Borrower, or any Guarantor, or any other
member of the Controlled Group shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization, if as a
result of such reorganization the aggregate annual contributions of Borrower,
Guarantors and the other members of the Controlled Group (taken as a whole) to
all Multiemployer Plans which are then in reorganization have been or will be
increased over the amounts contributed to such Multiemployer Plans for the
respective plan years of each such Multiemployer Plan immediately preceding the
plan year in which the reorganization occurs by an amount exceeding
$5,000,000.00.
10.11 Change in Control. Any Change in Control shall occur.
10.12 Dissolution. The dissolution or liquidation of Borrower or any
Guarantor shall occur, except as permitted under Section 8.3.
10.13 Guaranty. The Guaranty shall fail to remain in full force or
effect with respect to any Guarantor or any action shall be taken by any
Guarantor to discontinue or to assert the invalidity or unenforceability of the
Guaranty, or any Guarantor shall fail to comply with any of the terms or
provisions of the Guaranty, or any Guarantor denies that it has any further
liability under the Guaranty or gives notice to such effect.
10.14 Collateral. Borrower shall fail to provide (i) Collateral for the
Obligations in accordance with Section 2.22(d), or (ii) all Collateral Documents
relating to the Collateral in accordance with Section 2.22(d).
10.15 Financial Covenants. Borrower shall fail to (i) maintain
Consolidated Tangible Net Worth in the amount required in Section 9.1(a), (ii)
satisfy the Interest Coverage Test, or (iii) satisfy the Leverage Test and, in
each case, such failure continues for three (3) consecutive fiscal quarters.
10.16 No Defaults. The occurrence of any of the following events shall
specifically not be a breach, a default, an Event of Default or an Unmatured
Event of Default under this Agreement:
(a) The failure to satisfy any Financial Covenant Test during
one (1) fiscal quarter or two (2) consecutive fiscal quarters.
(b) Borrower's failure to provide all Due Diligence Documents
relating to the Collateral in accordance with Section 2.22(c);
provided, however, that the affected Collateral shall be automatically
excluded from the Borrowing Base.
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ARTICLE XI
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
11.1 Acceleration; Remedies.
(a) If any Event of Default described in Section 10.5 or 10.6
occurs with respect to Borrower or any Guarantor, the obligations of
Banks to make Loans and of the Issuing Bank to issue Facility Letters
of Credit hereunder shall automatically terminate and the Obligations
shall immediately become due and payable without any election or action
on the part of Agent, the Issuing Bank or any Bank. If any other Event
of Default occurs, the Required Banks may terminate or suspend the
obligations of Banks to make Loans and of the Issuing Bank to issue
Facility Letters of Credit hereunder, or declare the Obligations to be
due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which Borrower hereby expressly waives. If,
within five (5) days after acceleration of the maturity of the
Obligations or termination of the obligations of Banks to make Loans
hereunder as a result of any Event of Default (other than any Event of
Default as described in Section 10.5 or 10.6 with respect to Borrower
or a Guarantor) and before any judgment or decree for the payment of
the Obligations due shall have been obtained or entered, the Required
Banks (in their sole discretion) shall so direct, Agent shall, by
notice to Borrower, rescind and annul such acceleration and/or
termination.
(b) Upon the occurrence of any Event of Default and upon the
directive of the Required Banks, Agent or (but only upon directive of
the Required Banks) any Bank shall proceed to protect, exercise and
enforce the rights and remedies of Agent and Banks under the Loan
Documents and the Guaranty against Borrower, any Guarantor and any
other party and such other rights and remedies as are provided by law
or equity.
(c) The order and manner in which Banks' rights and remedies
are to be exercised shall be determined by the Required Banks in their
sole discretion, and all payments received by Agent and Banks, or any
of them, shall be applied first to the costs and expenses (including
attorneys' fees and disbursements) of Agent and of Banks, and
thereafter paid pro rata to each Bank in the same proportions that each
Bank's Commitment bears to the Aggregate Commitment, without priority
or preference among Banks. Regardless of how each Bank may treat
payments for the purpose of its own accounting, for the purpose of
computing Borrower's obligations hereunder and under the Notes,
payments shall be applied first, to the costs and expenses of Agent and
Banks, as set forth above, second, to the payment of accrued and unpaid
interest due under any Loan Documents to
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and including the date of such application (ratably, and without
duplication, according to the accrued and unpaid interest due under
each of the Loan Documents), and third, to the payment of all other
amounts (including principal and fees) then owing to Agent or Banks
under the Loan Documents. No application of payments will cure any
Event of Default, or prevent acceleration, or continued acceleration,
of amounts payable under the Loan Documents, or prevent the exercise,
or continued exercise, of rights or remedies of Banks hereunder or
thereunder or at law or in equity.
11.2 Amendments. Subject to the provisions of this Article XI, the
Required Banks (or Agent with the consent in writing of the Required Banks) and
Borrower may enter into agreements supplemental hereto for the purpose of adding
or modifying any provisions to the Loan Documents or changing in any manner the
rights of Banks or Borrower hereunder or waiving any Event of Default hereunder;
provided, however, that no such supplemental agreement shall, without the
consent of each Bank and Issuing Bank affected thereby:
(i) Extend the maturity of any Loan or Note or
forgive all or any portion of the principal amount thereof, or reduce
the rate of, or extend the time of payment of, interest or fees
thereon;
(ii) Release any or all Guarantors from any of their
obligations under the Guaranty or the Environmental Agreements;
(iii) Change the percentage specified in the
definition of Required Banks or Majority Banks;
(iv) Increase the amount of the Commitment of any
Bank hereunder, or permit Borrower to assign its rights under this
Agreement except by operation of law pursuant to a merger permitted
under Section 8.3;
(v) Amend any provisions of this Agreement relating
to Facility Letters of Credit;
(vi) Amend any provisions of this Agreement relating
to Swing Line Advances without the consent of Bank One; or
(vii) Amend this Section 11.2, Section 11.4, Section
12.7, Section 14.1, Section 14.2 or Section 15.2.3.
No amendment of any provision of this Agreement relating to Agent shall be
effective without the written consent of Agent. Agent may waive payment or
reduce the amount of the fees referred to in Section 13.12 or the fee required
under Section 15.3.2 without obtaining the consent of any other party to this
Agreement.
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11.3 Preservation of Rights. No delay or omission of any Bank or
Issuing Bank or Agent to exercise any right under the Loan Documents shall
impair such right or be construed to be a waiver of any Event of Default or an
acquiescence therein, and the making of a Loan or the issuance, amendment or
extension of a Facility Letter of Credit notwithstanding the existence of an
Event of Default or the inability of Borrower to satisfy the conditions
precedent to such Loan or Facility Letter of Credit shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by Banks (and, if applicable, Agent) required pursuant to Section 11.2,
and then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to Agent, the Issuing Bank and Banks until the Obligations
have been paid in full.
11.4 New Guarantor. Unless otherwise agreed to by all of the Banks,
additional Persons shall be added as a Guarantor under this Agreement upon
satisfaction of the following terms and conditions:
(i) such Person is (a) a Wholly-Owned Subsidiary of
Borrower, (b) a Restricted Subsidiary, as defined in the Indenture, and
(c) a "Guarantor" (as defined therein) under the Indenture, and
(ii) the addition of such Person as a Guarantor shall
not cause an Event of Default or an Unmatured Event of Default to
occur, and
(iii) Borrower shall cause such Subsidiary to execute
and deliver to Agent such documents and instruments whereby such
Subsidiary assumes the obligations of a Guarantor under the Guaranty
and the other Loan Documents, and
(iv) Borrower shall deliver or cause to be delivered,
by and with respect to such Subsidiary, certificates, opinions and
other documents substantially similar to those required to be delivered
under the provisions of Sections 5.1(i), (ii), (iii), (iv), (v) and
(vi) and such other documents as Agent or any Issuing Bank or their
respective counsel may reasonably request; all of the foregoing shall
be in form and substance satisfactory to Agent or such Issuing Bank, as
the case may be.
Any Person added as a Guarantor (as defined therein) under the Indenture shall
be added as a Guarantor under this Agreement and Borrower shall comply with the
provisions of clauses (iii) and (iv) with respect thereto. Any Person released
from its obligations as a Guarantor under the Indenture shall be released from
its obligations under the Guaranty so long as no Event of Default has occurred
and is continuing, and Borrower pays all amounts due under Section 2.2 of this
Agreement.
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ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 Survival of Representations. All representations and warranties of
Borrower contained in this Agreement shall survive delivery of the Notes and the
making of the Loans and the issuance, amendment or extension of any Facility
Letter of Credit herein contemplated.
12.2 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Bank or Issuing Bank shall be obligated to
extend credit to Borrower in violation of any limitation or prohibition provided
by any applicable statute or regulation effective after the date of this
Agreement.
12.3 Taxes. Any recording, intangible, filing or stamp fees or taxes or
other similar assessments or charges made by any governmental or revenue
authority in respect of the Loan Documents shall be paid by Borrower, together
with interest and penalties, if any.
12.4 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
12.5 Entire Agreement. The Loan Documents and the letter agreement(s)
referred to in this Agreement embody the entire agreement and understanding
among Borrower, Agent and Banks and supersede all prior agreements and
understandings among Borrower, Agent, and Banks relating to the subject matter
thereof.
12.6 Nature of Obligations; Benefits of this Agreement.
(a) The respective obligations of Banks hereunder are several
and not joint and no Bank shall be the partner or agent of any other
(except to the extent to which Agent is authorized to act as such). The
failure of any Bank to perform any of its obligations hereunder shall
not relieve any other Bank from any of its obligations hereunder.
(b) This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
12.7 Expenses; Indemnification. Borrower shall reimburse Agent for any
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' fees and costs) paid or incurred by Agent in connection
with the preparation, negotiation, execution, delivery, review, amendment,
modification, and administration of the Loan Documents. Borrower also agrees to
reimburse Agent, Banks and each Issuing Bank for any reasonable costs, internal
charges
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and out-of-pocket expenses (including reasonable attorneys' fees and time
charges of attorneys for Agent, Banks and such Issuing Bank) paid or incurred by
Agent, any Bank or such Issuing Bank in connection with the collection and
enforcement of the Loan Documents. Borrower further agrees to indemnify and hold
harmless Agent and each Bank or Issuing Bank, its directors, officers and
employees against all losses, claims, damages, penalties, judgments, liabilities
and expenses (including, without limitation, all expenses of litigation or
preparation therefor whether or not Agent or any Bank or Issuing Bank is a party
thereto) which any of them may pay or incur arising out of or relating to this
Agreement, the other Loan Documents, the transactions contemplated hereby or the
direct or indirect application or proposed application of the proceeds of any
Loan hereunder (except to the extent arising due to the gross negligence or
willful misconduct of the indemnified Person). The obligations of Borrower under
this Section shall survive the termination of this Agreement.
12.8 Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to Agent with sufficient counterparts
so that Agent may furnish one to each of Banks.
12.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP.
12.10 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
12.11 Nonliability of Banks and Issuing Bank. The relationship between
Borrower and Banks and Agent shall be solely that of borrower and lender.
Neither Agent nor any Bank or Issuing Bank shall have any fiduciary
responsibilities to Borrower. Neither Agent nor any Bank or Issuing Bank
undertakes any responsibility to Borrower to review or inform Borrower of any
matter in connection with any phase of Borrower's business or operations.
12.12 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ARIZONA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
12.13 Arbitration. Subject to the provisions of this Section 12.13,
Borrower, Banks and Agent agree to submit to binding arbitration any and all
claims, disputes and controversies between or among them (and their respective
employees, officers, directors, attorneys, and other agents if permitted by law
or a contract between them and such persons) relating to this
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Agreement and the Loan Documents and the negotiation, execution,
collateralization, administration, repayment, modification, extension or
collection thereof or arising thereunder. Such arbitration shall proceed in
Phoenix, Arizona, shall be governed by Arizona law and shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"), as modified in this Section 12.13. Judgment upon the
award rendered by each arbitrator(s) may be entered in any court having
jurisdiction.
(a) Nothing in the preceding paragraph, nor the exercise of
any right to arbitrate thereunder, shall limit the right of any party
hereto (1) to foreclose against any real or personal property
collateral encumbered by a Deed of Trust or other Loan Document, or
otherwise permitted under applicable law; (2) subject to provisions of
applicable law, to exercise self-help remedies such as setoff or
repossession or other self-help remedies provided in this Agreement or
any other Loan Document; or (3) to obtain provisional or ancillary
remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before,
during or after the pendency of any arbitration proceeding, or (4) to
defend or obtain injunctive or other equitable relief from a court of
competent jurisdiction against the foregoing or assert mandatory
counterclaims, if any, prior to and during the pendency of a
determination in arbitration of issues of performance, default, damages
and other such claims and disputes.
(b) Arbitration hereunder shall be before a three-person panel
of neutral arbitrators, consisting of one person from each of the
following categories: (1) an attorney who has practiced in the area of
commercial real estate law for at least ten (10) years; (2) a person
with at least ten (10) years' experience in real estate lending; and
(3) a person with at least ten (10) years' experience in the
homebuilding industry. The AAA shall submit a list of persons meeting
the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner
established by the AAA.
(c) In any dispute between the parties that is arbitratable
hereunder, where the aggregate of all claims and the aggregate of all
counterclaims is an amount less than Fifty Thousand And No/100ths
Dollars ($50,000.00), the arbitration shall be before a single neutral
arbitrator to be selected in accordance with the Commercial Rules of
the American Arbitration Association and shall proceed under the
Expedited Procedures of said Rules.
(d) In any arbitration hereunder, the arbitrators shall decide
(by documents only or with a hearing, at the arbitrators' discretion)
any pre-hearing motions which are substantially similar to pre-hearing
motions to dismiss for failure to state a claim or motions for summary
adjudication.
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(e) In any arbitration hereunder, discovery shall be permitted
in accordance with the Arizona Rules of Civil Procedure. Scheduling of
such discovery may be determined by the arbitrators, and any discovery
disputes shall be finally determined by the arbitrators.
(f) The Arizona Rules of Evidence shall control the admission
of evidence at the hearing in any arbitration conducted hereunder;
provided, however, no error by the arbitrators in application of the
Rules of Evidence shall be grounds, as such, for vacating the
arbitrators' award.
(g) Notwithstanding any AAA rule to the contrary, the
arbitration award shall be in writing and shall specify the factual and
legal basis for the award, including findings of fact and conclusions
of law.
(h) Each party shall each bear its own costs and expenses and
an equal share of the arbitrators' costs and administrative fees of
arbitration.
12.14 CONSENT TO JURISDICTION. BORROWER AND EACH BANK HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ARIZONA STATE COURT SITTING IN PHOENIX, ARIZONA IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND BORROWER AND
EACH BANK HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING IN THIS SECTION 12.14 SHALL LIMIT THE RIGHT OF AGENT
OR ANY BANK OR ISSUING BANK TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS
OF ANY OTHER JURISDICTION. SUBJECT TO THE PROVISIONS OF SECTION 12.13, UNLESS
PROHIBITED BY LAW, ANY JUDICIAL PROCEEDING BY BORROWER AGAINST AGENT OR ANY BANK
OR ISSUING BANK OR ANY AFFILIATE OF AGENT OR ANY BANK OR ISSUING BANK INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT IN A COURT IN PHOENIX,
ARIZONA.
12.15 WAIVER OF JURY TRIAL. SUBJECT TO THE PROVISIONS OF SECTION 12.13,
BORROWER, AGENT AND EACH BANK AND ISSUING BANK HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
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12.16 Confidentiality. Bank and Agent agree to use commercially
reasonable efforts to keep confidential any financial reports and other
information from time to time supplied to them by Borrower hereunder to the
extent that such information is not and does not become publicly available
through or with the consent or acquiescence of Borrower, except for disclosure
(i) to Agent and the other Banks or to a Transferee, (ii) to legal counsel,
accountants, and other professional advisors to a Bank, Agent or a Transferee,
(iii) to regulatory officials, (iv) to any Person as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which that Bank is a party, and (vi) permitted by Section 15.4.
Any Bank or Agent disclosing such information shall use commercially reasonable
efforts to advise the Person to whom such information is disclosed of the
foregoing confidentiality agreement and to direct such Person to comply
therewith.
ARTICLE XIII
AGENT
-----
13.1 Appointment. Bank One is hereby appointed Agent hereunder and
under each other Loan Document, and each of Banks irrevocably authorizes Agent
to act as the agent of such Bank. Agent agrees to act as such upon the express
conditions contained in this Article XIII. Agent shall not have a fiduciary
relationship in respect of Borrower, any Bank or the Issuing Bank by reason of
this Agreement.
13.2 Powers. Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. Agent
shall have no implied duties to Banks, or any obligation to Banks to take any
action thereunder except any action specifically provided by the Loan Documents
to be taken by Agent. Agent shall have the sole and exclusive right to take any
actions or to give any notices relating to this Agreement pursuant to the
Indenture.
13.3 General Immunity. Neither Agent (in its capacity as Agent and not
in its capacity as a Bank) nor any of its directors, officers, agents or
employees shall be liable to Borrower or any Bank for action taken or omitted to
be taken by it or them hereunder or under any other Loan Document or in
connection herewith or therewith except for its or their own gross negligence or
willful misconduct.
13.4 No Responsibility for Loans, Recitals, etc. Neither Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with any Loan Document or any borrowing or any
request for the issuance, amendment or extension of any Facility Letter of
Credit hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document or Reimbursement Agreement,
including, without limitation, any agreement by an obligor to furnish
information directly to each Bank; (iii) the satisfaction of any condition
specified in Article IV or V, except receipt of items required to
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be delivered to Agent; or (iv) the validity, effectiveness or genuineness of any
Loan Document (including without limitation any Reimbursement Agreement) or any
other instrument or writing furnished in connection with any of the foregoing.
Agent shall have no duty to disclose to Banks information that is not required
to be furnished by Borrower to Agent at such time, but is voluntarily furnished
by Borrower to Agent (either in its capacity as Agent or in its individual
capacity).
13.5 Action on Instructions of Banks. Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and under any other
Loan Document in accordance with written instructions signed by the Required
Banks (except as otherwise provided in Section 11.2), and such instructions and
any action taken or failure to act pursuant thereto shall be binding on all of
Banks and on all holders of Notes. Agent shall be fully justified in failing or
refusing to take any action hereunder and under any other Loan Document unless
it shall first be indemnified to its satisfaction by Banks pro rata against any
and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
13.6 Employment of Agents and Counsel. Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to Banks,
except as to money or securities or other Property received by it or its
authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Agent shall be entitled
to advice of counsel concerning all matters pertaining to the agency hereby
created and its duties hereunder and under any other Loan Document.
13.7 Reliance on Documents; Counsel. Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by Agent, which counsel may
be employees of Agent.
13.8 Agent's Reimbursement and Indemnification. Banks agree to
reimburse and indemnify Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by Borrower for which Agent is
entitled to reimbursement by Borrower under the Loan Documents, (ii) for any
other expenses incurred by Agent on behalf of Banks, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents, and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against Agent in any way relating to or arising out of the Loan Documents or any
other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents, provided that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of Agent. The obligations of Banks under this Section 13.8 shall
survive payment of the Obligations and termination of this Agreement.
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13.9 Rights as a Bank or Issuing Bank. In the event Agent is a Bank,
Agent shall have the same rights and powers hereunder and under any other Loan
Document as any Bank and may exercise the same as though it were not Agent, and
the term "Bank" or "Banks" shall, at any time when Agent is a Bank, unless the
context otherwise indicates, include Agent in its individual capacity. In the
event Agent is an Issuing Bank, Agent shall have the rights and powers of the
Issuing Bank hereunder and may exercise the same as though it were not Agent,
and the term "Issuing Bank" shall, at any time when Agent is the Issuing Bank,
unless the context otherwise indicates, include and mean Agent in its capacity
as the Issuing Bank. Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with Borrower or any of its Subsidiaries in which Borrower or such Subsidiary is
not restricted hereby from engaging with any other Person.
13.10 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon Agent or any other Bank and based on the
financial statements prepared by Borrower and Guarantors and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents.
Each Bank also acknowledges that it will, independently and without reliance
upon Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
13.11 Successor Agent. Agent may resign at any time by giving written
notice thereof to Banks and Borrower, such resignation to be effective upon the
appointment of a successor Agent or, if no successor Agent has been appointed,
sixty (60) days after the retiring Agent gives notice of its intention to
resign. Agent may be removed at any time with or without cause by written notice
received by Agent from the Majority Banks, such removal to be effective on the
date specified by such Banks. The consent of Borrower shall be required prior to
any removal of Agent becoming effective; provided, however, that if an Event of
Default has occurred and is continuing, the consent of Borrower shall not be
required. Upon any such resignation or removal, the Majority Banks shall have
the right to appoint, on behalf of Borrower and Banks, a successor Agent. Any
Bank can be a successor Agent upon the approval of the Majority Banks. Any other
successor Agent shall be appointed only with the prior reasonable consent of
Borrower. If no successor Agent shall have been so appointed by the Majority
Banks within forty-five (45) days after the resigning Agent's giving notice of
its intention to resign, then the resigning Agent may appoint, on behalf of
Borrower and Banks, a successor Agent.
If Agent has resigned or been removed and no successor Agent has been
appointed, Banks may perform all the duties of Agent hereunder and Borrower
shall make all payments in respect of the Obligations to the applicable Bank and
for all other purposes shall deal directly with Banks. No successor Agent shall
be deemed to be appointed hereunder until such successor Agent has accepted the
appointment. Any such successor Agent shall be a commercial bank having capital
and retained earnings of at least $50,000,000.00. Upon the acceptance of any
appointment as
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Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning or removed Agent. Upon the effectiveness of the resignation or
the Loan Documents, all amounts payable by Borrower under this Agreement shall
be determined as if such Bank had not sold such participating interests, and
Borrower, Agent and the Issuing Bank shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under the
Loan Documents.
13.12 Agent's Fee. Borrower agrees to pay to Agent, for its own
account, the fees agreed to by Borrower and Agent pursuant to that certain
letter agreement of even date herewith, or as otherwise agreed from time to
time.
ARTICLE XIV
SETOFF; RATABLE PAYMENTS
------------------------
14.1 Setoff. In addition to, and without limitation of, any rights of
any Bank or any Issuing Bank under applicable law, if Borrower becomes
insolvent, however evidenced, or any Event of Default occurs, any and all
deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other Indebtedness at any time
held or owing by any Bank or Issuing Bank to or for the credit or account of
Borrower may be offset and applied toward the payment of the Obligations owing
to such Bank or Issuing Bank, whether or not the Obligations, or any part
thereof, shall then be due.
14.2 Ratable Payments. If any Bank (whether by setoff or otherwise) has
payment made to it upon its Loans (other than payments received pursuant to
Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any
other Bank, such Bank agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Banks so that after such purchase each Bank will hold
its ratable proportion of Loans. If any Bank, whether in connection with setoff
or amounts which might be subject to setoff or otherwise, receives collateral or
other protection for its Obligations or such amounts which may be subject to
setoff, such Bank agrees, promptly upon demand, to take such action necessary
such that all Banks share in the benefits of such collateral ratably in
proportion to their Loans. In case any such payment is prevented, restricted or
otherwise impeded by legal process, or otherwise, appropriate further
adjustments shall be made.
ARTICLE XV
BENEFIT OF AGREEMENT, ASSIGNMENTS; PARTICIPATIONS
-------------------------------------------------
15.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of Borrower, Agent,
Banks and the Issuing Bank and their respective successors and assigns, except
that (i) no Borrower shall have the right to assign
-87-
<PAGE>
its rights or obligations under the Loan Documents (except as otherwise
permitted under Section 8.3), and (ii) any assignment by any Bank must be made
in compliance with Section 15.3. Notwithstanding clause (ii) of this Section,
any Bank may at any time, without the consent of Borrower or Agent, assign all
or any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; provided, however, that no such assignment shall release the
transferor Bank from its obligations hereunder. Agent may treat the payee of any
Note as the owner thereof for all purposes hereof unless and until such payee
complies with Section 15.3 in the case of an assignment thereof or, in the case
of any other transfer, a written notice of the transfer is filed with Agent. Any
assignee or transferee of a Note agrees by acceptance thereof to be bound by all
the terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the holder of any Note, shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Note or of any Note or
Notes issued in exchange therefor.
15.2 Participations.
15.2.1Permitted Participants; Effect. Any Bank may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other Persons that are not, and that are not
Affiliates of a Person, in the home building business ("Participants")
participating interests in any Loan owing to such Bank, any Note held by such
Bank, any Commitment of such Bank or any other interest of such Bank under the
Loan Documents in an amount of not less than $5,000,000.00, so long as
immediately following such sale the selling Bank shall retain at least one-half
(1/2) of its Commitment. In the event of any such sale by a Bank of
participating interests to a Participant, such Bank's obligations under the Loan
Documents shall remain unchanged, such Bank shall remain solely responsible to
the other parties hereto for the performance of such obligations, such Bank
shall remain the holder of any such Note for all purposes under the Loan
Documents, all amounts payable by Borrower under this Agreement shall be
determined as if such Bank has not sold such participating interests, and
Borrower, Agent and the Issuing Bank shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under the
Loan Documents.
15.2.2Voting Rights. Each Bank shall retain the sole right to
approve, and/or grant its consent to, without the consent of any Participant,
any amendment, modification or waiver or other matter relating to any provision
of the Loan Documents.
15.2.3Benefit of Setoff. Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 14.1 in respect
of its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Bank under the Loan Documents, provided that each Bank shall retain
the right of setoff provided in Section 14.1 with respect to the amount of
participating interests sold to each Participant. Banks agree to share with each
Participant, and each Participant, by exercising the right of setoff provided in
Section 14.1, agrees to share with each
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<PAGE>
Bank, any amount received pursuant to the exercise of its right of setoff, such
amounts to be shared in accordance with Section 14.2 as if each Participant were
a Lender.
15.3 Assignments
15.3.1 Permitted Assignments. Any Bank may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other financial institutions that are not, and that are
not Affiliates of a Person, in the home building business ("Purchasers") all or
any part of its rights and obligations under the Loan Documents in the amount of
not less than $10,000,000.00, provided that each such assignment shall be of a
constant, and not a varying, percentage of the assigning Bank's rights and
obligations under the Loan Documents; and provided further, that immediately
following such assignment, the assigning Bank either (i) shall retain a
Commitment of not less than $10,000,000.00 or, if the assigning Bank is Agent,
not less than $40,000,000.00, or (ii) shall have assigned all of its Commitment
and have no remaining interest in the Obligations. Such assignment shall be
substantially in the form of Exhibit K hereto or in such other form as may be
agreed to by the parties thereto. The consent of Borrower and Agent shall be
required prior to an assignment becoming effective, such consent not to be
unreasonably withheld or delayed; provided, however, that if an Event of Default
has occurred and is continuing, the consent of Borrower shall not be required.
15.3.2 Effect; Effective Date. Upon (i) delivery to Agent of a
notice of assignment, substantially in the form attached as Exhibit "1" to
Exhibit K hereto (a "Notice of Assignment"), together with any consents required
by Section 15.3.1, and (ii) payment by the Bank of a $5,000.00 fee to Agent for
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The Notice of Assignment
shall contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment and Loans under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA.
On and after the effective date of such assignment, such Purchaser
shall for all purposes be a Bank party to this Agreement and any other Loan
Document executed by Banks and shall have all the rights and obligations of a
Bank under the Loan Documents, to the same extent as if it were an original
party hereto, and no further consent or action by Borrower, Banks or Agent shall
be required to release the transferor Bank with respect to the percentage of the
Aggregate Commitment and Loans assigned to such Purchaser. Upon the consummation
of any assignment to a Purchaser pursuant to this Section 15.3.2, the transferor
Bank, Agent and Borrower shall make appropriate arrangements so that replacement
Notes are issued to such transferor Bank and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in principal
amounts reflecting their Commitment, as adjusted pursuant to such assignment.
15.4 Dissemination of Information. Borrower authorizes each Bank to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by
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<PAGE>
operation of law (each a "Transferee") and any prospective Transferee any and
all public information in such Bank's possession concerning the creditworthiness
of Borrower, Guarantors and their Subsidiaries; provided that each Transferee
and prospective Transferee agrees to be bound by Section 12.16 of this
Agreement.
15.5 Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Bank shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 2.20.
ARTICLE XVI
NOTICES
-------
16.1 Giving Notice. Except as otherwise permitted by Section 2.14 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing and sent by a nationally recognized overnight courier, or by personal
delivery, or by registered or certified U.S. mail, postage prepaid and return
receipt requested, addressed or delivered to such party at its address set forth
below its signature hereto or at such other address as may be designated by such
party in a notice to the other parties. Any notice given in the manner set forth
herein shall be deemed given on the earlier of (i) one (1) Business Day after
sent by such overnight courier, (ii) the day of delivery, if sent by personal
delivery, or (iii) two (2) Business Days after deposit in the U.S. Mail in the
manner described above.
16.2 Change of Address. Borrower, Agent, any Bank and the Issuing Bank
may each change the address for service of notice upon it by a notice in writing
to the other parties hereto.
ARTICLE XVII
COUNTERPARTS
------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed
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<PAGE>
by Borrower, Agent, and Banks and each party has notified Agent by telex or
telephone, that it has taken such action.
IN WITNESS WHEREOF, Borrower, Banks, and Agent have executed this
Agreement as of the date first above written.
BORROWER:
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By:/s/ Donald R. Loback
--------------------------------------
Name: Donald R. Loback
Title: Chairman of the Board and Chief
Executive Officer
7001 North Scottsdale Road
Suite 2050
Scottsdale, Arizona 85253
Attention: Julie E. Collins
Phone: (602) 483-0006
Facsimile: (602) 483-8237
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<PAGE>
Commitments BANKS:
-----------
$65,000,000.00 BANK ONE, ARIZONA, NA, a national banking
association, Individually and as Agent
By:/s/ Rhonda R. Williams
-----------------------------------
Name: Rhonda R. Williams
Vice President
Western Region Real Estate
Department A-383
241 North Central Avenue
Phoenix, Arizona 85004
Attention: Rhonda R. Williams
Phone: (602) 221-1783
Facsimile: (602) 221-1372
$25,000,000.00 THE FIRST NATIONAL BANK OF BOSTON
By:/s/ Kevin C. Hake
-----------------------------------
Name: Kevin C. Hake
Vice President
115 Perimeter Center Place N.E.
Suite 1500
Atlanta, Georgia 30346
Attention: Kevin C. Hake
Phone: (770) 390-6584
Facsimile: (770) 390-8434
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<PAGE>
$20,000,000.00 NORWEST BANK ARIZONA, N.A., a national
banking association
By:/s/ Vicki Slade
-----------------------------------
Name: Vicki Slade
Vice President
3300 North Central Avenue
MS-9008
Phoenix, Arizona 85012-2501
Attention: Vicki Slade
Phone: (602) 248-1240
Facsimile: (602) 248-3661
-93-
Exhibit 10.6
PROMISSORY NOTE
---------------
$65,000,000.00 June 27, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation ("Maker"), hereby promises and agrees to pay to the order
of BANK ONE, ARIZONA, NA, a national banking association ("Payee"), the
principal sum of SIXTY-FIVE MILLION AND NO/100 DOLLARS ($65,000,000.00) in
lawful money of the United States of America, or, if less than such principal
amount, the aggregate unpaid principal amount of all Advances made to Maker by
the Payee pursuant to the Credit Agreement hereinafter referenced. Such payment
shall be made on the Facility Termination Date, as defined in the Credit
Agreement.
Maker shall pay interest from the date hereof on the unpaid
principal amount of this Note from time to time outstanding during the period
from the date hereof until such principal amount is paid in full at the rates,
determined in the manner, and on the dates or occurrences specified in the
Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the
Credit Agreement dated as of June 27, 1996, among Maker, Bank One, Arizona, NA,
as Agent, and the Banks named therein (as the same may be amended, modified,
replaced, or renewed from time to time, the "Credit Agreement") and is entitled
to the benefits of the Credit Agreement and the Loan Documents. Capitalized
terms used in this Note without definition shall have the same meanings as are
ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to the Agent for the
account of Payee pursuant to the terms of the Credit Agreement. All Advances
made by Payee pursuant to the Credit Agreement and all payments of the principal
amount of such Advances, shall be endorsed by the holder of this Note on the
schedule attached hereto. Failure to record such Advances or payment shall not
diminish any rights of Payee or relieve Maker of any liability hereunder or
under the Credit Agreement. This Note is subject to prepayment and its maturity
is subject to acceleration, in each case upon the terms provided in the Credit
Agreement.
This Note may not be modified or discharged orally, by course
of dealing or otherwise, but only by a writing duly executed by the holder
hereof.
In the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note, Maker agrees to pay and shall be liable
for all costs and expenses of collection, including without limitation,
reasonable attorneys' fees and disbursements.
Maker and all sureties, Guarantors and/or endorsers hereof (or of any
obligation hereunder) and accommodation parties hereon (all of which, including
Maker, are severally each hereinafter called a "Surety") each: (a) agree that
the liability under this Note
<PAGE>
of all parties hereto is joint and several; (b) severally waive any homestead or
exemption laws and right thereunder affecting the full collection of this Note;
(c) severally waive any and all formalities in connection with this Note to the
maximum extent allowed by law, including (but not limited to) demand, diligence,
presentment for payment, protest and demand, and notice of extension, dishonor,
protest, demand and nonpayment of this Note; and (d) consent that Holder may
extend the time of payment or otherwise modify the terms of payment of any part
or the whole of the debt evidenced by this Note, at the request of any other
person liable hereon, and such consent shall not alter nor diminish the
liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right
to require the holder hereof to proceed against any other Surety, to proceed
against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshaling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of Maker to the holder hereof; (e)
the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of Sections 12-1641, et seq., of the
Arizona Revised Statutes; (f) any defense arising by reason of any disability or
other defense of any Maker or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of Maker for payment of
this Note; and (g) the benefits of any statutory provision limiting the right of
the holder hereof to recover a deficiency judgment, or to otherwise proceed
against any person or entity obligated for payment of this Note, after any
foreclosure or trustee's sale of any security for this Note, including without
limitation the benefits, if any, to a Surety of Arizona Revised Statutes Section
33-814. Until payment in full of this Note and the holder hereof has no
obligation to make any further advances of the proceeds hereof, no Surety shall
have any right of subrogation and each hereby waives any right to enforce any
remedy which the holder hereof now has, or may hereafter have, against Maker or
any other Surety, and waives any benefit of, and any right to participate in,
any security now or hereafter held by the holder hereof.
Maker agrees that to the extent any Surety makes any payment to the
holder hereof in connection with the indebtedness evidenced by this Note, and
all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by Holder or paid
over to a trustee, receiver or any other entity, whether under any bankruptcy
act or otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by the holder hereof, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
This Note has been delivered in the City of Phoenix and State
of Arizona, and shall be enforced under and governed by the laws of the State of
Arizona applicable to contracts made and to be performed entirely within said
state, without references to any choice or conflicts of law principles.
<PAGE>
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By: /s/ Donald R. Loback
7 --------------------------------
Name: Donald R. Loback
Title: Chairman of the Board and
Chief Executive Officer
Exhibit 10.7
PROMISSORY NOTE
---------------
$25,000,000.00 June 27, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation ("Maker"), hereby promises and agrees to pay to the order
of THE FIRST NATIONAL BANK OF BOSTON ("Payee"), the principal sum of TWENTY-FIVE
MILLION AND NO/100 DOLLARS ($25,000,000.00) in lawful money of the United States
of America, or, if less than such principal amount, the aggregate unpaid
principal amount of all Advances made to Maker by the Payee pursuant to the
Credit Agreement hereinafter referenced. Such payment shall be made on the
Facility Termination Date, as defined in the Credit Agreement.
Maker shall pay interest from the date hereof on the unpaid
principal amount of this Note from time to time outstanding during the period
from the date hereof until such principal amount is paid in full at the rates,
determined in the manner, and on the dates or occurrences specified in the
Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the
Credit Agreement dated as of June 27, 1996, among Maker, Bank One, Arizona, NA,
as Agent, and the Banks named therein (as the same may be amended, modified,
replaced, or renewed from time to time, the "Credit Agreement") and is entitled
to the benefits of the Credit Agreement and the Loan Documents. Capitalized
terms used in this Note without definition shall have the same meanings as are
ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to the Agent for the
account of Payee pursuant to the terms of the Credit Agreement. All Advances
made by Payee pursuant to the Credit Agreement and all payments of the principal
amount of such Advances, shall be endorsed by the holder of this Note on the
schedule attached hereto. Failure to record such Advances or payment shall not
diminish any rights of Payee or relieve Maker of any liability hereunder or
under the Credit Agreement. This Note is subject to prepayment and its maturity
is subject to acceleration, in each case upon the terms provided in the Credit
Agreement.
This Note may not be modified or discharged orally, by course
of dealing or otherwise, but only by a writing duly executed by the holder
hereof.
In the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note, Maker agrees to pay and shall be liable
for all costs and expenses of collection, including without limitation,
reasonable attorneys' fees and disbursements.
Maker and all sureties, Guarantors and/or endorsers hereof (or of any
obligation hereunder) and accommodation parties hereon (all of which, including
Maker, are severally each hereinafter called a "Surety") each: (a) agree that
the liability under this Note
<PAGE>
of all parties hereto is joint and several; (b) severally waive any homestead or
exemption laws and right thereunder affecting the full collection of this Note;
(c) severally waive any and all formalities in connection with this Note to the
maximum extent allowed by law, including (but not limited to) demand, diligence,
presentment for payment, protest and demand, and notice of extension, dishonor,
protest, demand and nonpayment of this Note; and (d) consent that Holder may
extend the time of payment or otherwise modify the terms of payment of any part
or the whole of the debt evidenced by this Note, at the request of any other
person liable hereon, and such consent shall not alter nor diminish the
liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right
to require the holder hereof to proceed against any other Surety, to proceed
against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshaling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of Maker to the holder hereof; (e)
the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of Sections 12-1641, et seq., of the
Arizona Revised Statutes; (f) any defense arising by reason of any disability or
other defense of any Maker or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of Maker for payment of
this Note; and (g) the benefits of any statutory provision limiting the right of
the holder hereof to recover a deficiency judgment, or to otherwise proceed
against any person or entity obligated for payment of this Note, after any
foreclosure or trustee's sale of any security for this Note, including without
limitation the benefits, if any, to a Surety of Arizona Revised Statutes Section
33-814. Until payment in full of this Note and the holder hereof has no
obligation to make any further advances of the proceeds hereof, no Surety shall
have any right of subrogation and each hereby waives any right to enforce any
remedy which the holder hereof now has, or may hereafter have, against Maker or
any other Surety, and waives any benefit of, and any right to participate in,
any security now or hereafter held by the holder hereof.
Maker agrees that to the extent any Surety makes any payment to the
holder hereof in connection with the indebtedness evidenced by this Note, and
all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by Holder or paid
over to a trustee, receiver or any other entity, whether under any bankruptcy
act or otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by the holder hereof, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
This Note has been delivered in the City of Phoenix and State
of Arizona, and shall be enforced under and governed by the laws of the State of
Arizona applicable to contracts made and to be performed entirely within said
state, without references to any choice or conflicts of law principles.
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By: /s/ Donald R. Loback
------------------------------------
Name: Donald R. Loback
Title: Chairman of the Board and
Chief Executive Officer
Exhibit 10.8
PROMISSORY NOTE
---------------
$20,000,000.00 June 27, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation ("Maker"), hereby promises and agrees to pay to the order
of NORWEST BANK ARIZONA, NA, a national banking association ("Payee"), the
principal sum of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) in lawful
money of the United States of America, or, if less than such principal amount,
the aggregate unpaid principal amount of all Advances made to Maker by the Payee
pursuant to the Credit Agreement hereinafter referenced. Such payment shall be
made on the Facility Termination Date, as defined in the Credit Agreement.
Maker shall pay interest from the date hereof on the unpaid
principal amount of this Note from time to time outstanding during the period
from the date hereof until such principal amount is paid in full at the rates,
determined in the manner, and on the dates or occurrences specified in the
Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the
Credit Agreement dated as of June 27, 1996, among Maker, Bank One, Arizona, NA,
as Agent, and the Banks named therein (as the same may be amended, modified,
replaced, or renewed from time to time, the "Credit Agreement") and is entitled
to the benefits of the Credit Agreement and the Loan Documents. Capitalized
terms used in this Note without definition shall have the same meanings as are
ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to the Agent for the
account of Payee pursuant to the terms of the Credit Agreement. All Advances
made by Payee pursuant to the Credit Agreement and all payments of the principal
amount of such Advances, shall be endorsed by the holder of this Note on the
schedule attached hereto. Failure to record such Advances or payment shall not
diminish any rights of Payee or relieve Maker of any liability hereunder or
under the Credit Agreement. This Note is subject to prepayment and its maturity
is subject to acceleration, in each case upon the terms provided in the Credit
Agreement.
This Note may not be modified or discharged orally, by course
of dealing or otherwise, but only by a writing duly executed by the holder
hereof.
In the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note, Maker agrees to pay and shall be liable
for all costs and expenses of collection, including without limitation,
reasonable attorneys' fees and disbursements.
Maker and all sureties, Guarantors and/or endorsers hereof (or of any
obligation hereunder) and accommodation parties hereon (all of which, including
Maker, are severally each hereinafter called a "Surety") each: (a) agree that
the liability under this Note
<PAGE>
of all parties hereto is joint and several; (b) severally waive any homestead or
exemption laws and right thereunder affecting the full collection of this Note;
(c) severally waive any and all formalities in connection with this Note to the
maximum extent allowed by law, including (but not limited to) demand, diligence,
presentment for payment, protest and demand, and notice of extension, dishonor,
protest, demand and nonpayment of this Note; and (d) consent that Holder may
extend the time of payment or otherwise modify the terms of payment of any part
or the whole of the debt evidenced by this Note, at the request of any other
person liable hereon, and such consent shall not alter nor diminish the
liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right
to require the holder hereof to proceed against any other Surety, to proceed
against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshaling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of Maker to the holder hereof; (e)
the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of Sections 12-1641, et seq., of the
Arizona Revised Statutes; (f) any defense arising by reason of any disability or
other defense of any Maker or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of Maker for payment of
this Note; and (g) the benefits of any statutory provision limiting the right of
the holder hereof to recover a deficiency judgment, or to otherwise proceed
against any person or entity obligated for payment of this Note, after any
foreclosure or trustee's sale of any security for this Note, including without
limitation the benefits, if any, to a Surety of Arizona Revised Statutes Section
33-814. Until payment in full of this Note and the holder hereof has no
obligation to make any further advances of the proceeds hereof, no Surety shall
have any right of subrogation and each hereby waives any right to enforce any
remedy which the holder hereof now has, or may hereafter have, against Maker or
any other Surety, and waives any benefit of, and any right to participate in,
any security now or hereafter held by the holder hereof.
Maker agrees that to the extent any Surety makes any payment to the
holder hereof in connection with the indebtedness evidenced by this Note, and
all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by Holder or paid
over to a trustee, receiver or any other entity, whether under any bankruptcy
act or otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by the holder hereof, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
This Note has been delivered in the City of Phoenix and State
of Arizona, and shall be enforced under and governed by the laws of the State of
Arizona applicable to contracts made and to be performed entirely within said
state, without references to any choice or conflicts of law principles.
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By: /s/ Donald R. Loback
----------------------------------
Name: Donald R. Loback
Title: Chairman of the Board and
Chief Executive Officer
Exhibit 11
CONTINENTAL HOMES HOLDING CORP.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended May 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Fully diluted:
Income from Operations $ 25,787 $ 13,821
Interest expense on convertible subordinated
notes, net of income taxes 2,778 1,604
-------- --------
$ 28,565 $ 15,425
======== ========
Net income $ 18,869 $ 13,821
Interest expense on convertible subordinated
notes, net of income taxes 2,778 1,604
-------- --------
$ 21,647 $ 15,425
======== ========
Weighted average number of shares outstanding 6,960 6,948
Conversion of convertible subordinated notes (42.105 shares
per $1,000 principal amount of notes) 2,490 1,489
Incremental shares relating to stock options exercisable 85 46
-------- --------
Weighted average number of shares outstanding
assuming full dilution 9,535 8,483
======== ========
Fully diluted income from operations per share $ 3.00 $ 1.82
======== ========
Fully diluted net income per share $ 2.27 $ 1.82
======== ========
</TABLE>
FINANCIAL HIGHLIGHTS
(In thousands, except per share and
unit backlog data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $600,608 $432,452 $348,620 $207,033 $170,424
Gross profit from home sales 107,975 75,430 62,153 38,052 29,674
Net Income 18,869 13,821 13,083 7,100 6,591
Earnings per common share 2.71 1.99 2.11 1.38 1.39
Cash dividends per common share .20 .20 .20 .20 .20
Total assets 438,434 386,833 305,490 187,525 162,774
Total debt 250,526 232,825 168,319 114,787 101,741
Stockholders' equity 128,949 110,479 98,560 51,550 44,428
Stockholders' equity per common share 18.21 15.95 14.15 9.93 8.71
Units in backlog at end of period 2,070 1,493 1,136 900 669
Aggregate sales value of backlog 295,484 198,126 147,242 107,499 76,215
</TABLE>
PRICE RANGE OF COMMON SHARES
The Company's Common Stock is traded on the NYSE (Symbol: CON).
The following table sets forth the high and low closing sales prices of the
Company's Common Stock for the periods indicated:
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 $15.13-$21.00 $18.13-$22.50 $18.88-$24.63 $20.00-$25.25
1995 $13.38-$15.75 $13.50-$17.25 $11.63-$14.13 $11.00-$15.88
Since the first fiscal quarter of 1991, the Company has paid a quarterly cash
dividend of $.05 per share. See Note E to the consolidated financial statements
for restrictions related to the payment of dividends.
<PAGE>
Management's Discussion and Analysis of Results of Operations
and Financial Condition
RESULTS OF OPERATIONS
HOMEBUILDING
The following table sets forth, for the periods indicated, unit activity,
average sales price and revenue from home sales for the Company:
Years ended May 31,
----------------------------------
1996 1995 1994
----------------------------------
Units delivered 4,367 3,202 2,831
Average sales price $ 132,144 $ 129,518 $ 120,110
Revenue from home sales (000's) $ 577,073 $ 414,718 $ 340,031
Percentage increase from prior year 39.2% 22.0%
Change due to volume 36.4% 13.1%
Change due to average sales price 2.8% 8.9%
The increase in volume in fiscal 1996 compared to fiscal 1995 resulted from
improved sales in each market during the fiscal year. The Company believes that
relatively low interest rates and the economic strength in certain of its
markets contributed to improved sales. The volume increase in fiscal 1995 was
attributable to the addition of the Texas operations during fiscal 1994 and the
South Florida operations during fiscal 1995. Without Texas and South Florida,
the Company's unit volume was 8% less during fiscal 1995 compared to fiscal
1994. Significant volume increases in early fiscal 1994 resulted in the Company
selling out of several subdivisions in Phoenix faster than anticipated. This
resulted in fewer homes available for sale in Phoenix in the third and fourth
fiscal quarters of fiscal 1994 compared to the same periods in fiscal 1993. As a
result of the inventory shortage, deliveries in the early quarters of fiscal
1995 in Phoenix were less than in the prior year. The increase in average sales
price in fiscal 1995 was primarily due to deliveries in Phoenix and Denver,
where sales prices have increased as a result of rising costs.
Revenues from land sales were $11,844,000 in fiscal 1996, $10,658,000 in
fiscal 1995 and $1,095,000 in fiscal 1994.
The following table summarizes information related to the Company's backlog
at the dates indicated:
<TABLE>
<CAPTION>
May 31,
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
(Dollars in thousands)
Units Dollars Units Dollars Units Dollars
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phoenix 832 $ 110,530 821 $ 102,503 659 $ 84,818
Texas 652 71,791 396 43,140 348 38,403
Denver 292 57,746 98 18,185 100 18,178
Florida 189 24,597 86 12,228 -- --
California 105 30,820 92 22,070 29 5,843
----- ------------ ----- ------------ ----- -----------
2,070 $ 295,484 1,493 $ 198,126 1,136 $ 147,242
===== ============ ===== ============ ===== ===========
</TABLE>
12
<PAGE>
The increase in backlog at May 31, 1996 resulted from improved sales in each
market during the six months ended May 31, 1996. The increase in backlog in
fiscal 1995 resulted from improved sales in Phoenix, Texas and Southern
California during the fourth fiscal quarter and the Company's expansion into the
Florida market. The aggregate sales value of consolidated new contracts signed
increased 52% for fiscal 1996 to $669,205,000 representing 4,944 homes
(including $39,935,000 in South Florida representing 303 homes) as compared with
$441,309,000 representing 3,427 homes (including $12,603,000 in South Florida
representing 87 homes) for fiscal 1995. Sales in South Florida were included
from November 1, 1994.
The following table summarizes information related to the cost of home sales
and selling, general and administrative ("SG&A") expenses and interest, net for
homebuilding:
<TABLE>
<CAPTION>
Years ended May 31,
--------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
Dollars % Dollars % Dollars %
--------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue from home sales $ 577,073 100.0% $ 414,718 100.0% $ 340,031 100.0%
Cost of home sales 469,098 81.3 339,288 81.8 277,878 81.7
---------- --- --------- --- ---------- ---
Gross profit 107,975 18.7 75,430 18.2 62,153 18.3
SG&A expenses 62,247 10.8 46,308 11.2 37,065 10.9
---------- --- --------- --- ---------- ---
Operating income from
homebuilding 45,728 7.9 29,122 7.0 25,088 7.4
Interest, net 5,510 .9 4,993 1.2 4,456 1.3
---------- --- --------- --- ---------- ---
Pre-tax profit from
homebuilding $ 40,218 7.0% $ 24,129 5.8% $ 20,632 6.1%
========== === ========= === ========== ===
</TABLE>
Gross profit from home sales was 18.7% in fiscal 1996 compared to 18.2% and
18.3% in fiscal 1995 and 1994, respectively. In connection with acquisitions in
Texas and South Florida, the Company capitalized a portion of the purchase price
and includes such capitalized purchase price in the cost of home sales when the
related units are delivered (purchase accounting adjustments). Gross profit from
home sales, exclusive of the purchase accounting adjustments was 18.8% in fiscal
1996 compared to 18.6% and 18.9% in fiscal 1995 and 1994, respectively. The
decrease in gross profit during fiscal 1995 was primarily the result of sales
incentives and discounts that were offered for a time during the year in the
Austin market.
The increase in total SG&A expenses for fiscal 1996 was due primarily to
higher variable marketing costs (sales commissions, advertising and model
furniture amortization) due to the increase in the number of homes delivered,
higher salaries and higher customer service costs. Additionally, fiscal 1996
included $3,249,000 of SG&A expenses from South Florida compared with $2,227,000
during the period from November 1, 1994 (acquisition) through May 31, 1995. The
increase in total SG&A expenses for fiscal 1995 was primarily due to the
addition of the Texas operations during fiscal 1994 and the South Florida
operations during fiscal 1995. The 1995 fiscal year included $15,805,000 of SG&A
expenses from Texas for the full fiscal year compared to $11,794,000 for a
partial year during fiscal 1994. Additionally, the Company experienced higher
adver-
13
<PAGE>
tising and selling expenses associated with the opening of new subdivisions,
which occurred at a faster rate in fiscal 1995. SG&A expenses for each home
delivered were $14,254, $14,462 and $13,092 in fiscal 1996, 1995 and 1994,
respectively. The Company capitalizes certain SG&A expenses for homebuilding and
includes such capitalized SG&A in cost of home sales when the related units are
delivered. Accordingly, total SG&A expenses incurred for homebuilding were
$70,117,000, $53,109,000 and $42,040,000 in fiscal 1996, 1995 and 1994,
respectively.
The Company capitalizes certain interest costs for its homebuilding
operations and includes such capitalized interest in cost of home sales when the
related units are delivered. Accordingly, total interest incurred by the
Company's homebuilding operations was $22,422,000, $19,528,000 and $13,378,000
in fiscal 1996, 1995 and 1994, respectively. Interest, net for homebuilding was
$5,510,000, $4,993,000 and $4,456,000 in fiscal 1996, 1995 and 1994,
respectively. The increase in interest during each of fiscal 1996 and 1995, both
incurred and expensed, was due to higher debt levels which resulted primarily
from the South Florida acquisition.
The increase in pre-tax profit in fiscal 1996 was due primarily to improved
results in Texas, Southern California and Phoenix partially offset by the
negative impact from the inclusion of South Florida results. South Florida's
pre-tax loss was primarily caused by weather related delays in the opening of a
new subdivision and delays in the municipalities issuing permits. These delays
resulted in fewer deliveries from South Florida through October 1995. The
Company's pre-tax profit from homebuilding for fiscal 1996 was $40,218,000
compared to $24,129,000 for the year ended May 31, 1995 and $20,632,000 for the
year ended May 31, 1994. Pre-tax profit increased in fiscal 1995 due primarily
to improved results from Denver and Southern California and the inclusion of
Texas results for the full fiscal year, which collectively contributed an
additional $3,411,000 of pre-tax profit in fiscal 1995 compared to fiscal 1994.
MORTGAGE BANKING
The Company's mortgage banking operations are conducted through its
wholly-owned subsidiary CH Mortgage Company ("CHMC"). The following table
summarizes operating information for the Company's mortgage banking operations:
Years ended May 31,
-----------------------------
1996 1995 1994
-----------------------------
(Dollars in thousands)
Number of loans originated 2,916 1,949 2,451
Loan origination fees $ 2,758 $ 1,845 $ 2,186
Sale of servicing and marketing gains 6,177 2,744 3,046
Other revenues 1,013 628 459
------- ------- -------
Total revenues 9,948 5,217 5,691
General and administrative expenses 6,041 4,724 3,930
------- ------- -------
Operating income from mortgage banking 3,907 493 1,761
Interest, net (316) (199) (233)
------- ------- -------
Pre-tax profit from mortgage banking $ 4,223 $ 692 $ 1,994
======= ======= =======
14
<PAGE>
Revenues and general and administrative expenses from mortgage banking
increased in fiscal 1996 primarily as a result of an increase in the percentage
of Phoenix and Texas homebuyers utilizing the Company's mortgage banking
operations. Additionally, revenues increased due to higher servicing release
premiums received on the sale of servicing and the sale of approximately
$47,705,000 in servicing rights from the servicing portfolio resulting in
approximately $932,000 of income. Revenues from mortgage banking operations
decreased in fiscal 1995 compared to fiscal 1994 primarily as a result of a
decrease in third party originations in Texas. General and administrative
expenses increased in fiscal 1995 compared to fiscal 1994 primarily as a result
of the inclusion of the Texas operations for the full fiscal year.
CONSOLIDATED OPERATIONS
Net income was $18,869,000 ($2.71 per share, $2.27 fully diluted) in fiscal
1996 compared to $13,821,000 ($1.99 per share, $1.82 fully diluted) and
$13,083,000 ($2.11 per share, $1.88 fully diluted) in fiscal 1995 and 1994,
respectively. The decrease in per share earnings in fiscal 1995 compared to
fiscal 1994 was the result of the Company issuing an additional 1,704,400 shares
in November, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisitions and inventory balances. The Company has financed,
and expects to continue to finance, its working capital needs through funds
generated by operations and borrowings. Funds for future land acquisitions and
construction costs are expected to be provided primarily by cash flows from
operations and future borrowings as permitted under the Company's loan
agreements. On June 27, 1996 the Company entered into a credit agreement
("Credit Agreement") with a group of banks which provides for a $110 million
unsecured revolving line of credit. Borrowings under the Credit Agreement bear
interest at LIBOR plus 1.75% or prime plus .125% at the Company's election and
subject to the rating on its senior debt. Available borrowings under the Credit
Agreement are limited to certain percentages of housing unit costs, finished
lots, land under development and receivables as defined in the Credit Agreement.
The Credit Agreement replaced the credit facilities (other than the warehouse
line) the Company had in place at May 31, 1996. At May 31, 1996, the Company had
unsecured lines of credit from two lenders for aggregate borrowings (excluding
the mortgage warehouse line) of up to $30,000,000. Additionally, the Company
assumed $55 million of credit facilities ($15 million of which were unsecured)
in connection with the Texas and Florida acquisitions. At May 31, 1996, there
was $19,108,000 outstanding in the aggregate under these credit lines. The
Company believes that amounts generated from operations and such additional
borrowings will provide funds adequate to finance its homebuilding activities
and meet its debt service requirements. The Company does not have any current
commitments for capital expenditures.
CHMC has a warehouse line of credit for $25,000,000 which is guaranteed by
the Company. Pursuant to the warehouse line of credit, the Company issues drafts
to fund its mortgage loans. The amount represented by a draft is drawn on the
warehouse line of credit when the draft is presented for payment. At May 31,
1996, the amount outstanding under the warehouse line of credit and the amount
of funding drafts that had not been presented for payment was $5,359,000. The
Company believes that this line is sufficient for its mortgage banking
operations.
15
<PAGE>
On November 10, 1995, the Company completed the sale of $75,000,000 principal
amount of its 6-7/8% Convertible Subordinated Notes due November 2002. On
December 5, 1995, the Company sold an additional $11,250,000 of such notes. The
net proceeds were used to redeem the Company's 6-7/8% Convertible Subordinated
Notes due March 2002 and to reduce temporarily outstanding amounts under certain
of the Company's revolving lines of credit (including the warehouse line of
credit). In connection with the redemption of the notes, the Company recorded,
in the third quarter of fiscal 1996, an extraordinary loss, net of taxes, of
approximately $859,000 due to the write-off of unamortized discount and debt
issuance costs. The Convertible Notes are immediately convertible into shares of
the Company's common stock at a rate of 42.105 shares for each $1,000 principal
amount of Convertible Notes.
On April 18, 1996 the Company completed the sale of $130,000,000 principal
amount of its 10% Senior Notes due April 2006. The Company used approximately
$107,542,000 of the net proceeds to repurchase $98,500,000 aggregate principal
amount of its 12% Senior Notes due 1999. The remaining proceeds were used to
reduce temporarily outstanding amounts under certain of the Company's revolving
lines of credit. In connection with the repurchase of the 12% Senior Notes, the
Company recorded, in the fourth quarter of fiscal 1996, an extraordinary loss,
net of taxes, of approximately $6,059,000 related primarily to a tender offer
premium.
INFLATION AND EFFECTS OF CHANGING PRICES
Real estate and residential housing prices are affected by inflation, which
can cause increases in the prices of land, raw materials and subcontracted
labor. In the past three years, the Company has not experienced any significant
inflationary pressure on land, raw materials or labor. Unless costs are
recovered through higher sales prices, gross profit margins will decrease. As
interest rates increase, construction and financing costs as well as the cost of
borrowing funds also increase, which can result in lower gross profits.
Relatively low interest rates during fiscal 1996 have made the Company's homes
more affordable in each of its markets. High mortgage interest rates make it
more difficult for the Company's customers to qualify for home mortgage loans.
These factors have a much more significant effect on the Company's operations
than does seasonality, in part because homes can be constructed year-round.
16
<PAGE>
Report of Independent Public Accountants
Arthur Andersen LLP
To Continental Homes Holding Corp.
We have audited the accompanying consolidated balance sheets of CONTINENTAL
HOMES HOLDING CORP. (a Delaware corporation) and subsidiaries as of May 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended May 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Continental Homes Holding Corp.
and subsidiaries as of May 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Phoenix, Arizona,
June 19, 1996.
17
<PAGE>
CONTINENTAL HOMES HOLDINGS CORP.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31,
-------
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
ASSETS
HOMEBUILDING
Cash and cash equivalents (Notes A and E) $ 25,236 $ 12,848
Receivables (Note B) 16,693 10,108
Homes, lots and improvements in production (Notes A, C and E) 344,880 291,331
Property and equipment, net (Note A) 2,271 2,456
Prepaid expenses and other assets 16,797 20,516
Excess of cost over related net assets acquired (Note A) 11,715 13,400
--------- ---------
417,592 350,659
--------- ---------
MORTGAGE BANKING
Mortgage loans held for sale (Notes A and D) 20,350 17,593
Mortgage loans held for long-term investment, net (Notes A and D) 86 17,783
Other assets 406 798
--------- ---------
20,842 36,174
--------- ---------
Total assets $ 438,434 $ 386,833
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
HOMEBUILDING
Accounts payable and other liabilities $ 52,240 $ 39,405
Notes payable, senior and convertible subordinated debt (Notes A and E) 244,999 198,814
Deferred income taxes (Notes A and F) 1,236 2,048
--------- ---------
298,475 240,267
--------- ---------
MORTGAGE BANKING
Notes payable (Notes A and E) 5,359 16,072
Bonds payable (Notes D and E) 168 17,939
Other 686 2,076
--------- ---------
6,213 36,087
--------- ---------
Total liabilities 304,688 276,354
--------- ---------
Minority interest (Note A) 4,797 --
--------- ---------
Commitments and contingencies (Notes E, H and I)
Stockholders' equity (Notes E and G):
Preferred stock, $.01 par value:
Authorized - 2,000,000 shares - Issued - none -- --
Common stock, $.01 par value:
Authorized - 20,000,000 shares - Issued - 7,080,900 shares 71 71
Treasury stock, at cost - 88,265 and 156,130 shares (384) (591)
Capital in excess of par value 60,396 59,610
Retained earnings 68,866 51,389
--------- ----------
Total stockholders' equity 128,949 110,479
--------- ----------
Total liabilities and stockholders' equity $ 438,434 $ 386,833
========= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
18
<PAGE>
CONTINENTAL HOMES HOLDINGS CORP.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended May 31,
-------------------
1996 1995 1994
----------- ----------- ----------
(in thousands, except share data)
<S> <C> <C> <C>
REVENUES
Home sales $ 577,073 $ 414,718 $ 340,031
Land sales 11,844 10,658 1,095
Mortgage banking and title operations (Note D) 11,481 6,707 6,967
Other income, net 210 369 527
----------- ----------- -----------
Total revenues 600,608 432,452 348,620
----------- ----------- -----------
COSTS AND EXPENSES
HOMEBUILDING
Cost of home sales 469,098 339,288 277,878
Cost of land sales 11,907 10,958 1,499
Selling, general and administrative expenses 62,247 46,308 37,065
Interest, net (Notes A and C) 5,510 4,993 4,456
Minority interest (Note A) (248) -- --
MORTGAGE BANKING AND TITLE OPERATIONS
Selling, general and administrative expenses 7,028 5,639 4,818
Interest, net (Note A) (316) (199) (233)
----------- ----------- -----------
Total costs and expenses 555,226 406,987 325,483
----------- ----------- -----------
Income before income taxes and extraordinary loss 45,382 25,465 23,137
Income taxes (Note F) 19,595 11,644 10,054
----------- ----------- -----------
Income from operations 25,787 13,821 13,083
Extraordinary loss:
Loss on extinguishment of debt; net of income taxes
of $4,807 in 1996 (Note E) (6,918) -- --
----------- ----------- -----------
Net income $ 18,869 $ 13,821 $ 13,083
=========== =========== ===========
Earnings per common share (Note A)
Income from operations $ 3.71 $ 1.99 $ 2.11
Net income 2.71 1.99 2.11
Earnings per common share assuming full dilution (Note A)
Income from operations $ 3.00 $ 1.82 $ 1.88
Net income 2.27 1.82 1.88
Cash dividends per share $ .20 $ .20 $ .20
=========== =========== ===========
Weighted average number of shares outstanding 6,959,736 6,947,719 6,202,964
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
19
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
Consolidated Statements of Stockholders' Equity
Years ended May 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Capital in
--------------------- Treasury Excess of Retained
Shares Amount Stock Par Value Earnings Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 5,376,500 $ 54 $ (631) $ 25,033 $ 27,094 $ 51,550
Net income -- -- -- -- 13,083 13,083
Sale of common stock 1,704,400 17 -- 34,211 -- 34,228
Cash dividends -- -- -- -- (1,215) (1,215)
Exercise of employee stock options -- -- 548 366 -- 914
--------- --------- --------- --------- --------- ---------
Balance, May 31, 1994 7,080,900 71 (83) 59,610 38,962 98,560
Net income -- -- -- -- 13,821 13,821
Repurchase of common stock -- -- (556) -- -- (556)
Cash dividends -- -- -- -- (1,394) (1,394)
Exercise of employee stock options -- -- 48 -- -- 48
--------- --------- --------- --------- --------- ---------
Balance, May 31, 1995 7,080,900 71 (591) 59,610 51,389 110,479
Net income -- -- -- -- 18,869 18,869
Cash dividends -- -- -- -- (1,392) (1,392)
Exercise of employee stock options -- -- 207 786 -- 993
--------- --------- --------- --------- --------- ---------
Balance, May 31, 1996 7,080,900 $ 71 $ (384) $ 60,396 $ 68,866 $ 128,949
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
20
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended May 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities: (in thousands)
Net income $ 18,869 $ 13,821 $ 13,083
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 3,190 3,050 2,410
Minority interest (248) -- --
Increase (decrease) in deferred income taxes 95 (1,209) (580)
Tax benefit of employee stock options exercised 404 -- 366
Extraordinary loss on extinguishment of debt 11,725 -- --
Decrease (increase) in assets:
Homes, lots and improvements in production (48,504) (52,973) (28,573)
Receivables 8,458 2,304 16,748
Prepaid expenses and other assets 4,826 (6,987) (2,144)
Increase in liabilities:
Accounts payable and other liabilities 11,445 1,022 5,415
--------- --------- ---------
Net cash provided (used) by operating activities 10,260 (40,972) 6,725
--------- --------- ---------
Cash flows from investing activities:
Net additions to property and equipment (581) (1,038) (513)
Cash paid for acquisitions, net of cash acquired (705) (18,874) (14,024)
--------- --------- ---------
Net cash used by investing activities (1,286) (19,912) (14,537)
--------- --------- ---------
Cash flows from financing activities:
Decrease (increase) in notes payable to financial institutions (46,424) 49,852 (29,602)
Retirement of Convertible Subordinated Notes (33,250) -- --
Retirement of 12% Senior Notes (107,542) -- --
Retirement of bonds payable (17,771) (3,027) (10,140)
Sale of common stock -- -- 34,228
Redemption of Series A Preferred Stock -- -- (6,200)
Issuance of 12% Senior Notes -- -- 37,450
Issuance of Convertible Subordinated Notes 83,279 -- --
Issuance of 10% Senior Notes 125,925 -- --
Treasury stock acquired -- (556) --
Stock options exercised 589 48 548
Dividends paid (1,392) (1,394) (1,215)
--------- --------- ---------
Net cash provided by financing activities 3,414 44,923 25,069
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 12,388 (15,961) 17,257
Cash and cash equivalents at beginning of year 12,848 28,809 11,552
--------- --------- ---------
Cash and cash equivalents at end of year $ 25,236 $ 12,848 $ 28,809
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 7,767 $ 7,780 $ 7,431
Income taxes $ 16,430 $ 16,539 $ 13,080
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
21
<PAGE>
Notes to Consolidated Financial Statements
A. ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company designs, constructs and sells high quality single-family homes
targeted primarily to entry-level and first-time move-up homebuyers. The Company
is geographically diversified, currently operating in Phoenix, Arizona; Austin,
San Antonio and Dallas, Texas; Denver, Colorado; South Florida; and Southern
California.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly-owned subsidiaries after elimination of all significant intercompany
balances and transactions.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). Among other things,
FAS 109 requires the liability method and that current and deferred tax balances
be determined based on tax rates and laws enacted as of the balance sheet date
rather than the historical tax rates. See Note F.
CASH AND CASH EQUIVALENTS
Cash equivalents include amounts with initial maturities of less than 90
days. In the normal course of business, the Company receives deposits from its
customers, maintains certain escrow funds and, in connection with its lines of
credit, maintains certain compensating balances (see Note E). Such amounts,
which totaled approximately $2,200,000 and $2,500,000 at May 31, 1996 and 1995,
respectively, are included in cash and cash equivalents.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of non-cash investing and financing activities:
On July 29, 1993, the Company acquired Milburn Investments, Inc. and
Subsidiaries. Non-cash consideration paid included the issuance of $6.2 million
of Series A Preferred Stock. As a result of the acquisition, the Company
recorded additional assets of $92,660,000 (primarily homes, lots and
improvements in production and mortgage related assets) and liabilities of
$66,590,000 (primarily notes payable to financial institutions and mortgage
related debt). See Note J.
On November 18, 1994, the Company acquired Heftler Realty Co. As a result of
the acquisition, the Company recorded additional assets of $51,116,000
(primarily homes, lots and improvements in production) and liabilities of
$22,616,000 (primarily notes payable to financial institutions). See Note J.
During fiscal 1996, the Company entered into a joint venture whereby the
Company contributed cash and the joint venture partners contributed assets
(primarily land) valued at $5,045,000.
22
<PAGE>
HOMES, LOTS AND IMPROVEMENTS IN PRODUCTION
Homes, lots, and improvements in production are stated at the lower of
accumulated cost or estimated net realizable value. Interest costs incurred
during construction or development activities related to homes, lots and
improvements in production and certain indirect project costs (employee related
costs) are capitalized and subsequently charged to cost of home sales as the
units associated with such costs are sold. See Note C.
The components of homes, lots and improvements in production are as follows:
May 31,
-------
1996 1995
----------- ---------
(In thousands)
Homes and lots in production $ 169,615 $ 124,140
Land and developed lots held for housing 137,676 130,823
Unimproved land held for development or sale 30,839 29,825
Capitalized interest 6,750 6,543
----------- ---------
$ 344,880 $ 291,331
=========== =========
MINORITY INTEREST
During fiscal 1996, the Company entered into a joint venture to develop an
age restricted community. The Company contributed cash and the joint venture
partners contributed assets (primarily land). The Company is entitled to 55% of
the profits and/or losses and is the managing partner of the joint venture. Due
to the control that the Company exercises, it has consolidated the financial
position and results of operation of the joint venture. The partners' equity
position is disclosed as a minority interest on the consolidated balance sheet.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists primarily of office
furniture and equipment. Depreciation expense is provided using the
straight-line method over the estimated useful lives (three to five years).
Depreciation expense was $773,000, $535,000 and $472,000 in 1996, 1995 and 1994,
respectively. The costs of maintenance and repairs are charged to expense as
incurred.
EXCESS OF COST OVER RELATED NET ASSETS ACQUIRED
The excess of cost over related net assets acquired of $18,048,000 is being
amortized over periods ranging from three to twenty years using the
straight-line method. Amortization expense was $1,401,000, $1,459,000 and
$856,000 in 1996, 1995 and 1994, respectively. See Note J.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported periods. Actual results
could differ from those estimates.
23
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables and trade
payables approximate fair value because of the short maturity of these financial
instruments. The homebuilding notes payable bear interest at a rate indexed to
LIBOR or the prime rate, therefore, the carrying amounts of the outstanding
borrowings at May 31, 1996 approximate fair value. The fair value of the
Company's senior and subordinated debt is estimated based on quoted market
prices. At May 31, 1996 and 1995, the estimated fair value of the Company's
senior and subordinated debt was $233,157,000 and $140,750,000, respectively.
Mortgage loans held for sale are stated at the lower of cost or market which
approximates the fair value. The mortgage banking notes payable bear interest at
a rate indexed to the prime rate, therefore, the carrying amounts of the
outstanding borrowings at May 31, 1996 and 1995 approximate fair value.
The mortgage loans held for long-term investment are considered
held-to-maturity securities and mature through August 2017. The carrying amounts
of mortgage loans held for long-term investment and mortgage-backed bonds
approximate fair value. Fair value estimates are made at a specific point in
time, based on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect estimates.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
During the fourth quarter of 1996, the Company elected to adopt early
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
("FAS 121") retroactive to June 1, 1995. The adoption of FAS 121 did not impact
the Company's results of operations or financial position and did not result in
a restatement of any of the financial results for the prior three quarters of
fiscal 1996. The Company believes the adoption of FAS 121 would not have had a
material effect in fiscal 1995 and 1994 had FAS 121 been applied to those years.
Under FAS 121 real estate assets are to be reviewed for possible impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable. If indications are that the carrying amount of the assets
may not be recoverable, FAS 121 requires an estimate of the future undiscounted
cash flows expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss must be recognized to write down the asset to its estimated
fair value less costs to sell. The fair value calculation under FAS 121 would
result in a lower valuation of the asset than under the net realizable value
method previously required.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("FAS 123"), issued in October 1995, establishes
financial accounting and reporting standards for stock-based employee
compensation plans. FAS 123 requires either the recognition of compensation cost
in the financial statements for those companies that adopt the new fair value
based method or expanded disclosure of pro forma net income and earnings per
share information for those companies that retain the current method set forth
in APB Opinion 25, "Accounting for Stock Issued to Employees."
24
<PAGE>
FAS 123 will be effective for the Company's fiscal year ending May 31, 1997.
The Company plans to retain the current method set forth in APB Opinion 25 and
will present the expanded disclosure in the fiscal 1997 financial statements.
SALES RECOGNITION
The Company recognizes income from home and land sales in accordance with
Statement of Financial Accounting Standards No. 66. The Company includes the
discounts incurred in obtaining permanent financing for its customers in cost of
home sales.
MORTGAGE BANKING FEE RECOGNITION
Loan origination fees are recognized as income in accordance with Statements
of Financial Accounting Standards Nos. 65 and 91.
INTEREST, NET
The summary of the components of interest, net is as follows:
Years ended May 31,
-------------------
1996 1995 1994
----------- ----------- -----------
(In thousands)
Interest expense, homebuilding $ 5,982 $ 5,420 $ 4,724
Interest income, homebuilding (472) (427) (268)
----------- ----------- -----------
$ 5,510 $ 4,993 $ 4,456
=========== =========== ===========
Interest expense, mortgage banking $ 1,785 $ 2,360 $ 2,707
Interest income, mortgage banking (2,101) (2,559) (2,940)
----------- ----------- -----------
$ (316) $ (199) $ (233)
=========== ========== ===========
EARNINGS PER COMMON SHARE
Earnings per common share has been computed using the weighted average number
of common shares outstanding during the period. Earnings per common share
assuming full dilution has been computed assuming the conversion of the
Convertible Subordinated Notes due November 2002.
B. RECEIVABLES
Notes and accounts receivable are as follows:
May 31,
-------
1996 1995
----------- -----------
(In thousands)
Proceeds receivable arising from home sales $ 10,361 $ 4,135
Municipal Utility District receivables 2,788 3,457
Other notes and accounts receivable 3,544 2,516
----------- -----------
$ 16,693 $ 10,108
=========== ===========
C. INTEREST CAPITALIZATION
The Company follows the practice of capitalizing for its homebuilding
operations certain interest costs incurred on land under development and homes
under construction. Such capitalized interest is included in cost of home sales
when the units are delivered. The Company capitalized interest in the amount of
$16,440,000, $14,108,000 and $8,654,000 and expensed as a component of cost of
home sales $16,233,000, $10,687,000 and $7,734,000 in fiscal 1996, 1995 and
1994, respectively.
25
<PAGE>
D. CONSOLIDATED MORTGAGE SUBSIDIARIES
The Company's consolidated financial statements include its wholly-owned
mortgage banking and finance subsidiaries. Financial data of the mortgage
banking and finance subsidiaries is summarized as follows:
May 31,
-------
1996 1995
------- -------
(In thousands)
Current assets, principally mortgage loans
held for sale $14,035 $28,451
Total assets, principally mortgage loans and
mortgage-backed securities 14,420 46,792
Current liabilities, principally notes payable 6,032 18,613
Total liabilities, principally notes and bonds payable 7,684 36,552
Stockholder's equity 6,736 10,240
Years ended May 31,
------------------------
1996 1995 1994
------ ------ ------
(In thousands)
Total revenues $9,948 $5,217 $5,691
Net interest income 316 199 233
Net income 2,596 396 1,176
Mortgage loans held for sale are stated at the lower of cost or market
determined in the aggregate. Mortgage loans held for sale consist of:
May 31,
-------
1996 1995
-------- --------
(In thousands)
Single-family first mortgage loans $ 20,877 $ 17,765
Market discount (527) (172)
-------- --------
$ 20,350 $ 17,593
======== ========
E. NOTES, BONDS AND SENIOR AND CONVERTIBLE SUBORDINATED DEBT HOMEBUILDING
Notes payable, senior and convertible subordinated debt consist of:
May 31,
-------
1996 1995
--------- ---------
(In thousands)
Notes payable $ 19,108 $ 54,729
10% senior notes, due 2006, net of discount of $1,972 128,028 --
12% senior notes due 1999, net of premium of $113
and $1,430 11,613 111,430
6-7/8% convertible subordinated notes, due 2002 86,250 32,655
--------- ---------
$ 244,999 $ 198,814
========= =========
26
<PAGE>
At May 31, 1996, the Company had available unsecured bank lines of credit for
borrowings (excluding mortgage warehouse lines) of up to $30,000,000 and,
subject to available collateral, a $5,000,000 revolving purchase money line.
Additionally, the Company assumed $55 million of credit facilities ($15 million
of which are unsecured) in connection with the acquisitions described in Note J.
Interest rates range from LIBOR plus 2-1/4% to prime plus 1/2%. These lines of
credit mature through November 1997. During fiscal 1996, the weighted average
interest rate on the average month end balance was 9.0% and the year end
weighted average rate was 8.7%. The average month end outstanding balance during
the year was $36,998,000 and the maximum amount outstanding at any month end was
$53,681,000. The Company is required to maintain $750,000 of compensating
balance deposits with lenders, minimum levels of liquidity and tangible net
worth and maximum levels of debt to net worth in conjunction with the unsecured
lines of credit.
In April 1996, the Company issued $130,000,000 principal amount of 10% Senior
Notes due April 15, 2006. The Company used approximately $107,542,000 of the net
proceeds to repurchase $98,500,000 aggregate principal amount of its 12% Senior
Notes due 1999. The remaining proceeds were used to reduce temporarily
outstanding amounts under certain of the Company's revolving lines of credit. In
connection with the repurchase of the 12% Senior Notes, the Company recorded, in
the fourth quarter of fiscal 1996, an extraordinary loss, net of taxes, of
approximately $6,059,000 related primarily to a tender offer premium. The Senior
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after April 15, 2001 at redemption prices decreasing from 105%.
The Senior Notes are senior unsecured obligations of the Company and are
guaranteed, on a joint and several basis, by all of the Restricted Subsidiaries
(as defined in the indenture).
The indentures relating to the Company's 10% and 12% Senior Notes contain
certain covenants which impose certain limitations on the ability of the Company
to, among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments and investments, consummate certain asset
sales, enter into certain transactions with affiliates, incur liens, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets. In addition, the
indentures provide that in the event of defined changes in control or if the
consolidated tangible net worth of the Company falls below a specified level or,
in certain circumstances, upon sales of assets, the Company is required to make
an offer to repurchase certain specified amounts of outstanding Senior Notes.
In November 1995, the Company issued $86,250,000 principal amount of 6- 7/8%
Convertible Subordinated Notes due November 1, 2002. The Notes are convertible
at a rate of 42.105 shares of Common Stock per $1,000 principal amount of Notes
at any time prior to maturity. The Notes are redeemable in whole or in part at
the option of the Company at any time on or after November 1, 1998, at
redemption prices decreasing from 103.438%. The Notes are subordinated to all
senior indebtedness of the Company. The net proceeds were used to redeem the
Company's 6-7/8% Convertible Subordinated Notes due March 2002 and to reduce
temporarily outstanding amounts under certain of the Company's revolving lines
of credit (including the warehouse line of credit). In connection with the
redemption of the notes, the Company recorded an extraordinary loss, net of
taxes, of approximately $859,000 due to the write-off of unamortized discount
and debt issuance costs.
27
<PAGE>
Subsequent to year end, the Company entered into a credit agreement ("Credit
Agreement") with a group of banks which provides for a $110 million unsecured
revolving line of credit. Borrowings under the Credit Agreement bear interest at
LIBOR plus 1.75% or prime plus .125% at the Company's election and subject to
the rating on its senior debt. Available borrowings under the Credit Agreement
are limited to certain percentages of housing unit costs, finished lots, land
under development and receivables as defined in the Credit Agreement. The Credit
Agreement replaced the credit facilities (other than the warehouse line) the
Company had in place at May 31, 1996.
MORTGAGE BANKING
Mortgage warehousing notes payable enable CH Mortgage Company ("CHMC") to
perform its loan origination and warehousing functions. At May 31, 1996, CHMC
had a warehouse line of credit of $25,000,000 which is guaranteed by the
Company. Borrowings are secured by the mortgage loans held for sale, mature on
December 1, 1996 and bear interest at Libor plus 1.75%. At May 31, 1996, no
amounts were outstanding under this line of credit and $5,359,000 of funding
drafts were issued thereunder. At May 31, 1995, $14,438,000 was outstanding
under this line of credit and $1,634,000 of funding drafts were issued
thereunder.
F. INCOME TAXES
The Company will file a consolidated Federal income tax return which will
include all subsidiaries. Components of current and deferred income taxes
follow:
Current Deferred Total
-------- -------- --------
(In thousands)
Year ended May 31, 1996
Federal $ 17,484 $ 81 $ 17,565
State and other 2,016 14 2,030
-------- -------- --------
$ 19,500 $ 95 $ 19,595
======== ======== ========
Year ended May 31, 1995
Federal $ 10,126 $ (952) $ 9,174
State and other 2,727 (257) 2,470
-------- -------- --------
$ 12,853 $ (1,209) $ 11,644
======== ======== ========
Year ended May 31, 1994
Federal $ 8,344 $ (455) $ 7,889
State and other 2,290 (125) 2,165
-------- -------- --------
$ 10,634 $ (580) $ 10,054
======== ======== ========
The effective income tax rate differs from the Federal statutory tax rate for
the following reasons:
Years ended May 31,
----------------------
1996 1995 1994
---- ---- ----
U.S. statutory tax rate 35% 35% 35%
State income taxes, net of Federal tax benefit 6 6 6
Amortization and other, net 2 5 2
---- ---- ----
43% 46% 43%
==== ==== ====
28
<PAGE>
The components of the net deferred tax liability are as follows:
May 31,
-------
1996 1995
------ ------
Deferred tax assets: (In thousands)
Inventory basis differences $ 441 $ 345
Other, net 1,269 1,424
------ ------
1,710 1,769
------ ------
Deferred tax liabilities:
Capitalized interest 1,903 2,108
Receivable basis differences 1,043 1,709
------ ------
2,946 3,817
------ ------
Net deferred tax liability $1,236 $2,048
====== ======
G. STOCK OPTIONS
The Company has two stock incentive plans (the "Plans"). The 1988 Stock
Incentive Plan was approved by the Board of Directors on July 29, 1988 and the
stockholders on August 26, 1988 and amended by the Board of Directors on July
23, 1992 and the stockholders on August 26, 1992. The 1986 Stock Incentive Plan
was approved by the Board of Directors and the stockholders of the Company on
July 26, 1986. The Plans are intended to provide an incentive to officers and
key employees of the Company and its subsidiaries to remain with the Company.
The Board of Directors has authorized the reservation of 700,000 shares of the
Company's common stock for issuance under the Plans. Options may be granted at a
price equal to the market value on the date of the grant (or 85% of market value
in the case of non-qualified options) and may not be exercised for one year (six
months in the case of non-qualified options) from the date of the grant. Under
the Plans, options must be exercised within 10 years (5 years for a 10% holder)
from the date the options were granted.
The following summarizes the stock option transactions for the two years
ended May 31, 1996:
Number Option
of shares Price
--------- -----
Outstanding at May 31, 1994 205,635 $4.00 - $21.375
Granted 46,000 12.125 - $14.875
Exercised (7,000) $4.00 - $12.50
-------
Outstanding at May 31, 1995 244,635 $4.00 - $21.375
Granted 35,000 $ 18.25
Canceled (8,000) $12.50 - $21.375
Exercised (67,865) $4.00 - $21.375
-------
Outstanding at May 31, 1996 203,770 $6.50 - $21.375
=======
Exerciseable at May 31, 1996 101,095 $6.50 - $21.375
=======
At May 31, 1996, there were 162,995 shares reserved for future grants.
H. CONTINGENCIES
In management's opinion, the Company is not involved in any legal proceedings
which will have a material effect on the Company's financial position or
operating results.
29
<PAGE>
I. COMMITMENTS
Rental expense for the Company was $1,454,000, $1,233,000 and $914,000 in
1996, 1995 and 1994, respectively. The following is a schedule by year of future
minimum rental payments required under operating leases as of May 31, 1996:
Fiscal year ending May 31, (In thousands)
1997 $ 903
1998 785
1999 711
2000 685
2001 508
Thereafter 615
---------
Total minimum lease payments $ 4,207
=========
J. ACQUISITION OF MILBURN INVESTMENTS, INC. AND HEFTLER REALTY CO.
On July 29, 1993, the Company completed the acquisition of 100% of the Common
Stock of Milburn Investments, Inc. ("Milburn"), an Austin, Texas homebuilder,
for approximately $26.2 million. The consideration consisted of approximately
$20 million in cash and $6.2 million in Series A Preferred Stock issued by the
Company. On November 4, 1993, the Company redeemed the Series A Preferred Stock.
The acquisition was accounted for by the purchase method with the results of
operations of Milburn included for the ten month period beginning August 1,
1993. The excess of cost over related net assets acquired is being amortized
over periods ranging from five to ten years using the straight-line method.
Milburn was the subject of an Internal Revenue Service ("IRS") audit for
periods prior to its acquisition by the Company. In December, 1994, the IRS
completed their examination and the Company paid the resulting tax liability
(including interest) of approximately $4,900,000. Such payment exceeded the tax
liability recorded by the Company at the time Milburn was acquired. The Company
recorded this excess payment of approximately $3,400,000 (including interest) as
an adjustment to the purchase price of Milburn. The Company believes that it may
recover all or a portion of the excess payment from the seller (under the terms
of the acquisition agreement) or other parties.
On November 18, 1994, the Company completed the acquisition of 100% of the
Common Stock of Heftler Realty Co. ("Heftler"), a South Florida homebuilder, for
$29.2 million in cash. The acquisition was accounted for by the purchase method
with the results of operations of Heftler included for the seven month period
beginning November 1, 1994. The excess of cost over related net assets acquired
is being amortized over periods ranging from five to ten years using the
straight-line method.
The following unaudited pro forma combined financial data give effect to the
Heftler acquisition as if it had occurred on the first day of the period. This
pro forma information has been prepared utilizing the historical consolidated
financial statements of the Company and Heftler. The pro forma financial data
are provided for comparative purposes only and do not purport to be indicative
of the results which would have been obtained if the acquisition had been
effected during the period presented. The pro forma financial information is
based on the purchase method of accounting and reflects adjustments to record
the profit of acquired inventories, amortize the non-compete agreement and
30
<PAGE>
the excess purchase price over the underlying value of net assets acquired,
reflect the additional interest on acquisition indebtedness assumed and adjust
income taxes for the pro forma adjustments.
Year ended May 31,
------------------
1995
----
(In thousands)
Total revenues $ 446,730
Net income 13,897
Earnings per common share 2.00
Earnings per common share assuming
full dilution 1.83
K. SELECTED UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
Unaudited quarterly consolidated financial information for the years ended
May 31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
Three months ended
------------------
August 31 November 30 February 28 May 31
--------- ----------- ----------- ------
(In thousands, except share data)
<S> <C> <C> <C> <C>
1996
Revenues $ 146,405 $ 138,365 $ 140,996 $ 174,842
Gross profit from home sales 24,520 24,953 25,270 33,232
Net income 5,224 5,315 5,301 3,029
Earnings per share:
Primary:
Income from operations $ .75 $ .77 $ .88 $ 1.30
Net income .75 .77 .76 .43
Fully diluted:
Income from operations .66 .64 .65 .93
Net income .66 .64 .57 .36
Weighted average shares
outstanding 6,927,672 6,946,666 6,974,427 6,990,196
1995
Revenues $ 107,043 $ 97,942 $ 114,051 $ 113,416
Gross profit from home sales 19,483 17,143 18,932 19,872
Net income 4,516 3,092 3,073 3,140
Earnings per share:
Primary:
Net income $ .65 $ .44 $ .44 $ .45
Fully diluted:
Net income .58 .41 .41 .42
Weighted average shares
outstanding 6,962,770 6,963,341 6,939,998 6,924,770
</TABLE>
31
LIST OF SUBSIDIARIES Exhibit 21
--------------------
<TABLE>
<S> <C>
1. The Company holds 100% of the outstanding capital stock of:
Continental Homes, Inc. ("CHI") (Delaware)
KDB Homes, Inc. (Delaware)
L&W Investments, Inc. (California)
Continental Ranch, Inc. (Delaware)
Continental Homes of Texas, Inc. (Texas)
Miltex Management, Inc. ("MMI") (Texas)
Milburn Investments, Inc. ("MII") (Texas)
Heftler Realty Co. (Florida)
CH Texas of Dallas, Inc. (Delaware)
2. CHI holds 100% of the outstanding capital stock of:
CH Mortgage Company ("CHMC") (Colorado)
CHI Construction Company (Arizona)
3. CHI is a 55% joint venture partner of:
Surprise Village North L.L.C.
Continental Traditions L.L.C.
4. CHMC holds 100% of the outstanding capital stock of:
CHI Finance Corp. (Arizona)
5. MMI holds 1% of the partnership interest of:
Miltex Mortgage of Texas Limited Partnership
6. MII holds 99% of the partnership interest of:
Miltex Mortgage of Texas Limited Partnership
7. MII holds 100% of the outstanding capital stock of:
Travis County Title Company (Texas)
Acheter, Inc. ("Acheter") (Texas)
R.O.S. Corporation (Texas)
CHTEX of Austin, Inc. ("CHTEX/Austin") (Delaware)
CH Investments of Texas II, Inc. ("CH Investments II") (Delaware)
8. Acheter holds 100% of the outstanding capital stock of:
Settlement Corporation (Texas)
9. Continental Homes of Texas, Inc. holds 100% of the outstanding capital stock of:
CHTEX of San Antonio, Inc. ("CHTEX/SA") (Delaware)
CH Investments of Texas III, Inc. ("CH Investments III") (Delaware)
10. CH Texas of Dallas, Inc. holds 100% of the outstanding capital stock of:
CHTEX of Dallas, Inc. ("CHTEX/Dallas") (Delaware)
CH Investments of Texas, Inc. ("CH Investments") (Delaware)
11. Continental Homes of Dallas, L.P. (Texas) is a limited partnership comprised of:
CHTEX/Dallas (1% g.p.) and
CH Investments (99% l.p.)
12. Continental Homes of Austin, L.P. (Texas) is a limited partnership comprised of:
CHTEX/Austin (1% g.p.) and
CH Investments II (99% l.p.)
13. Continental Homes of San Antonio, L.P. (Texas) is a limited partnership comprised of:
CHTEX/SA (1% g.p.) and
CH Investments III (99% l.p.)
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Forms S-8 (File Numbers 33-65912 and 33-33550) and
Forms S-3 (File Numbers 33-69974, 33-52463, 33-63539 and 333-1669).
/s/ Arthur Anderson LLP
Phoenix, Arizona,
August 16, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1
<CASH> 25,236
<SECURITIES> 0
<RECEIVABLES> 37,129
<ALLOWANCES> 0
<INVENTORY> 344,880
<CURRENT-ASSETS> 0
<PP&E> 2,271
<DEPRECIATION> 0
<TOTAL-ASSETS> 438,434
<CURRENT-LIABILITIES> 0
<BONDS> 250,526
71
0
<COMMON> 0
<OTHER-SE> 128,878
<TOTAL-LIABILITY-AND-EQUITY> 438,434
<SALES> 577,073
<TOTAL-REVENUES> 600,608
<CGS> 469,098
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,194
<INCOME-PRETAX> 45,382
<INCOME-TAX> 19,595
<INCOME-CONTINUING> 25,787
<DISCONTINUED> 0
<EXTRAORDINARY> (6,918)
<CHANGES> 0
<NET-INCOME> 18,869
<EPS-PRIMARY> 2.71
<EPS-DILUTED> 2.27
</TABLE>
