<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 28, 1996
PRELIMINARY PROSPECTUS
$150,000,000
CONTINENTAL HOMES HOLDING CORP.
% SENIOR NOTES DUE 2006
--------
The % Senior Notes due 2006 (the "Senior Notes") are being offered hereby
(the "Offering") by Continental Homes Holding Corp. (the "Company"). Interest
on the Senior Notes is payable semi-annually on and of each year,
commencing , 1996. The Senior Notes mature on , 2006.
The Senior Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after , 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to , 1999, the Company may redeem up to
33% of the aggregate principal amount of the Senior Notes originally issued
with the net proceeds of one or more public offerings of its common stock at a
redemption price equal to % of the aggregate principal amount of each Senior
Note so redeemed, plus accrued and unpaid interest, if any, to the date of
redemption; provided, however, that immediately after giving effect to any such
redemption, not less than $100,000,000 principal amount of the Senior Notes
remains outstanding.
In the event of a Change of Control (as defined), the Company is required to
offer to repurchase all of the Senior Notes at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. In addition, the Company will be obligated to make
an offer to repurchase Senior Notes for cash at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase with the net cash proceeds of certain asset sales and if the
Company's Net Worth (as defined) falls below a specified level for two
consecutive fiscal quarters.
The Senior Notes will be general unsecured obligations of the Company,
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu in right of payment with all
existing and future senior indebtedness of the Company; however, the Senior
Notes will be effectively subordinated to all secured indebtedness of the
Company to the extent of the value of the assets securing such indebtedness. As
of February 28, 1996, after giving effect to the Offering and the application
of the proceeds therefrom, the Company would have had no secured indebtedness
outstanding. The Senior Notes will be guaranteed (the "Guarantees"), on a joint
and several basis, by all of the Restricted Subsidiaries (as defined) of the
Company existing on the closing date of this Offering (collectively, the
"Guarantors"). The Guarantees will be general unsecured obligations of the
Guarantors, ranking senior in right of payment to all existing and future
subordinated indebtedness of the Guarantors and pari passu in right of payment
with all existing and future senior indebtedness of the Guarantors; however,
the Guarantees will be effectively subordinated to all secured indebtedness of
the Guarantors to the extent of the value of the assets securing such
indebtedness. As of February 28, 1996, after giving effect to the Offering and
the application of the proceeds therefrom, the Guarantors would have had
approximately $9,972,000 of secured indebtedness outstanding.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE
SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note........................... % % %
- --------------------------------------------------------------------------------
Total..................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Company estimated
at $500,000.
--------
The Senior Notes are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to certain
conditions. It is expected that delivery of the Senior Notes will be made at
the offices of Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, on or about April , 1996.
--------
SMITH BARNEY INC. SALOMON BROTHERS INC
April , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy and information
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the Public Reference Section maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following Regional Offices maintained by the Commission: New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
statements and other information concerning the Company (symbol "CON") can be
inspected and copied at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Senior Notes offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is made to the Registration Statement
and to the exhibits relating thereto for further information with respect to
the Company and the Senior Notes offered hereby.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1995;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1995;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1995; and
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1996.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this Offering shall be deemed to be incorporated by reference in this
Prospectus and shall be part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, upon
the written or oral request of any such person, a copy of any document
described above (other than exhibits). Requests for such copies should be
directed to Continental Homes Holding Corp., 7001 N. Scottsdale Road, Suite
2050, Scottsdale, Arizona 85253, Attention: Secretary, telephone number (602)
483-0006.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere or incorporated by reference in this Prospectus.
THE COMPANY
Continental Homes Holding Corp. (the "Company") designs, constructs and sells
high quality single-family homes targeted primarily to entry-level and first-
time move-up homebuyers. As of February 28, 1996, the Company was offering
homes for sale in 64 communities in six markets. The Company is geographically
diversified, currently operating in Phoenix, Arizona; Austin and San Antonio,
Texas; Denver, Colorado; South Florida; and Southern California. The Company's
revenues from home sales have increased from approximately $130,611,000 in
fiscal 1991 to approximately $414,718,000 in fiscal 1995, while the Company's
EBITDA (as defined) has increased from approximately $14,134,000 to
approximately $43,531,000 over the same period. These increases are
attributable to internal growth as well as acquisitions of existing
homebuilders.
The Company is a leading homebuilder in the Phoenix and Austin markets. The
Phoenix metropolitan area is the Company's primary market and accounted for
approximately 49% of the Company's revenues from homebuilding operations for
the fiscal year ended May 31, 1995. In calendar 1995, the Company continued to
be the leading non-retirement homebuilder in Phoenix for the eleventh
consecutive year. The Phoenix market ranked second nationally for single-family
housing starts in calendar 1995. The Austin market contributed approximately
26% of the Company's revenues from homebuilding operations for the fiscal year
ended May 31, 1995. The Company retained its number one ranking in Austin in
calendar 1995 by delivering more single-family homes than any other
homebuilder. The Company also has expanding operations in Denver, San Antonio,
South Florida and Southern California. The Company complements its homebuilding
activities by providing mortgage banking services in Arizona to its homebuyers
and in Texas to its homebuyers and to third parties.
The Company markets its homes by emphasizing quality housing at affordable
prices. The Company's operating strategy is to (i) design efficient floorplans
to minimize construction costs, (ii) negotiate favorable pricing and terms from
certain of its subcontractors which perform a high volume of work for the
Company, (iii) closely monitor construction costs using the Company's custom-
designed management information systems and (iv) maintain a supply of land to
meet anticipated homebuilding requirements for approximately two to three
years.
The Company believes that it will continue to capitalize on the operating
strategy that it has successfully implemented in the different geographical
markets in which it operates. 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. The Company will
continue to review opportunities to enter new housing markets that have
demonstrated periods of strong population and employment growth. The Company
may enter such markets through either acquisitions or start-up operations.
The Company has continued to experience improved demand for its homes. The
aggregate sales value of new contracts signed increased 66% in the nine months
ended February 28, 1996 to approximately $473,351,000 representing 3,538 homes
(including approximately $24,326,000 in South Florida representing 173 homes)
as compared with approximately $284,793,000 representing 2,193 homes (including
$6,021,000 in South Florida representing 40 homes) for the nine months ended
February 28, 1995. Sales in South Florida were included from November 1, 1994.
At February 28, 1996, the Company had a backlog of signed contracts of 1,933
homes with an aggregate sales value of approximately $270,555,000, as compared
with 1,104 homes with an aggregate sales value of approximately $148,413,000 at
the same time last year. The Company expects that substantially all homes under
contract at February 28, 1996 will be delivered during the calendar year ending
December 31, 1996.
The Company was incorporated in Delaware in June 1986. The Company's
executive offices are located at 7001 N. Scottsdale Road, Suite 2050,
Scottsdale, Arizona 85253; its telephone number is (602) 483-0006.
3
<PAGE>
THE OFFERING
Securities Offered...... $150,000,000 aggregate principal amount of % Senior
Notes due 2006 (the "Senior Notes").
Maturity Date........... , 2006.
Interest Rate and The Senior Notes will bear interest at the rate of
Payment Dates.......... % per annum. Interest will accrue from the Issue
Date (as defined) and will be payable semi-annually
on and of each year, commencing ,
1996.
Optional Redemption..... The Senior Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after , 2001 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on
or prior to , 1999, the Company may redeem up to
33% of the aggregate principal amount of the Senior
Notes originally issued with the net proceeds of one
or more public offerings of its common stock at a re-
demption price equal to % of the aggregate princi-
pal of each Senior Note so redeemed, plus accrued and
unpaid interest, if any, to the date of redemption;
provided, however, that immediately after giving ef-
fect to any such redemption, not less than
$100,000,000 principal amount of the Senior Notes re-
mains outstanding. See "Description of the Senior
Notes--Optional Redemption."
Offers to Purchase...... In the event of a Change of Control (as defined), the
Company is required to offer to repurchase all of the
Senior Notes at a price equal to 101% of the aggre-
gate principal amount thereof, plus accrued and un-
paid interest, if any, to the date of repurchase. See
"Description of the Senior Notes--Certain Covenants--
Change of Control." In addition, the Company will be
obligated to make an offer to repurchase Senior Notes
for cash at a price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase with the net cash pro-
ceeds of certain asset sales and if the Company's Net
Worth (as defined) falls below a specified level for
two consecutive fiscal quarters. See "Description of
the Senior Notes--Certain Covenants--Limitation on
Asset Sales and--Maintenance of Net Worth."
Ranking................. The Senior Notes will be general unsecured obliga-
tions of the Company, ranking senior in right of pay-
ment to all existing and future subordinated indebt-
edness of the Company and pari passu in right of pay-
ment with all existing and future senior indebtedness
of the Company; however, the Senior Notes will be ef-
fectively subordinated to all secured indebtedness of
the Company to the extent of the value of the assets
securing such indebtedness. As of February 28, 1996,
after giving effect to the Offering and the applica-
tion of the proceeds therefrom, the Company would
have had no secured indebtedness outstanding.
Guarantees.............. The Senior Notes will be guaranteed (the "Guaran-
tees"), on a joint and several basis, by all of the
Restricted Subsidiaries (as defined) of the
4
<PAGE>
Company existing on the closing date of this Offering
(collectively, the "Guarantors"). The Guarantees will
be general unsecured obligations of the Guarantors,
ranking senior in right of payment to all existing
and future subordinated indebtedness of the Guaran-
tors and pari passu in right of payment with all ex-
isting and future senior indebtedness of the Guaran-
tors; however, the Guarantees will be effectively
subordinated to all secured indebtedness of the Guar-
antors to the extent of the value of the assets se-
curing such Indebtedness. As of February 28, 1996,
after giving effect to the Offering and the applica-
tion of the proceeds therefrom, the Guarantors would
have had approximately $9,972,000 of secured
indebtedness outstanding. See "Description of the Se-
nior Notes--The Guarantees."
Certain Covenants.......
The Indenture (as defined) will impose certain limi-
tations on the ability of the Company and its Re-
stricted Subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make cer-
tain other restricted payments and investments, con-
summate certain asset sales, enter into certain
transactions with affiliates, redesignate an Unre-
stricted Subsidiary (as defined) to be a Restricted
Subsidiary, designate a Restricted Subsidiary as an
Unrestricted Subsidiary, incur liens, merge or con-
solidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all
or substantially all of its assets. The Indenture
will also impose limitations on the Company's ability
to restrict the ability of its Restricted Subsidiar-
ies to pay dividends or make certain payments to the
Company or any of its Restricted Subsidiaries and on
the ability of the Company's subsidiaries to issue
preferred stock. See "Description of the Senior
Notes--Certain Covenants."
Use of Proceeds......... The net proceeds of this Offering are estimated to be
approximately $145,750,000. Such net proceeds will be
used to repurchase the Company's 12% Senior Notes due
1999 (the "Old Senior Notes"); to reduce certain
other indebtedness. See "Use of Proceeds."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary financial information regarding the
results of operations and financial position of the Company. The summary
financial information of the Company as of and for the five years ended May 31,
1995 has been derived from financial statements of the Company audited by
Arthur Andersen LLP. The summary financial information of the Company as of
February 28, 1996 and for the nine months ended February 28, 1995 and 1996 have
been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of such information for the
unaudited interim periods. The operating results for the nine months ended
February 28, 1996 are not necessarily indicative of results for the full fiscal
year. 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 Notes thereto incorporated
by reference in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Home sales............. $130,611 $164,815 $200,012 $340,031 $414,718 $305,753 $405,510
Land sales............. 4,977 3,114 4,113 1,095 10,658 7,958 11,420
Mortgage banking and
title operations...... 2,930 1,905 2,426 6,967 6,707 4,945 8,357
Other income, net...... 97 590 482 527 369 380 358
-------- -------- -------- -------- -------- -------- --------
Total revenues.......... 138,615 170,424 207,033 348,620 432,452 319,036 425,645
-------- -------- -------- -------- -------- -------- --------
Costs and expenses
Homebuilding
Cost of home sales..... 106,463 135,141 161,960 277,878 339,288 250,195 330,767
Cost of land sales..... 4,994 3,156 4,766 1,499 10,958 8,183 11,485
Selling, general and
administrative
expenses.............. 15,514 18,648 20,836 37,065 46,308 33,549 45,080
Interest, net.......... 2,239 1,341 5,498 4,456 4,993 3,886 4,026
Minority interest in
age-restricted
community............. -- -- -- -- -- -- (164)
Inventory writedown.... 5,000 7,500 -- -- -- -- --
Mortgage banking and
title operations
Selling, general and
administrative
expenses.............. 2,637 1,713 1,544 4,818 5,639 4,173 5,017
Interest, net.......... (51) (178) 14 (233) (199) (352) (123)
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses............... 136,796 167,321 194,618 325,483 406,987 299,634 396,088
-------- -------- -------- -------- -------- -------- --------
Equity in loss of
unconsolidated joint
ventures............... (1,342) (948) (332) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before taxes and
extraordinary items.... 477 2,155 12,083 23,137 25,465 19,402 29,557
Income taxes............ 361 863 4,983 10,054 11,644 8,721 12,858
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 116 1,292 7,100 13,083 13,821 10,681 16,699
Extraordinary gain
(loss) from
extinguishment of
debt(1)................ -- 5,299 -- -- -- -- (859)
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 116 $ 6,591 $ 7,100 $ 13,083 $ 13,821 $ 10,681 $ 15,840
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges,
including mortgage
banking operations(2).. (3) 1.44x 1.91x 2.36x 1.99x 2.05x 2.52x
Ratio of earnings to
fixed charges,
excluding mortgage
banking
operations(2)(4)....... (3) 1.51x 2.01x 2.62x 2.11x 2.17x 2.68x
HOUSING DATA(5)
Deliveries.............. 1,249 1,470 1,769 2,831 3,202 2,357 3,098
New contracts, net...... 1,317 1,627 2,000 2,844 3,427 2,193 3,538
Backlog at end of period
(units)................ 486 669 900 1,136 1,493 1,104 1,933
Backlog at end of period
($ value).............. $ 53,180 $ 76,215 $107,499 $147,242 $198,126 $148,413 $270,555
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS ENDED
---------------------------------------------------------
MAY 31,
------------------------------------------- FEBRUARY 28,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA(6)
EBITDA(7)............... $14,134 $17,599 $24,846 $36,923 $43,531 $58,407
Consolidated Interest
Incurred............... 10,233 9,366 12,040 13,378 19,693 22,107
Coverage Ratio.......... 1.38x 1.88x 2.06x 2.76x 2.21x 2.64x
Consolidated Interest
Incurred, as adjust-
ed(8).................. -- -- -- -- $19,254 $20,829
Coverage Ratio, as ad-
justed(8).............. -- -- -- -- 2.26x 2.80x
</TABLE>
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28, 1996
-------------------------------------------- -----------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED(8)
-------- -------- -------- -------- -------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets
Homes, lots and
improvements in
production............ $ 93,739 $116,450 $142,589 $205,369 $291,331 $332,833 $332,833
======== ======== ======== ======== ======== ======== ========
Total homebuilding as-
sets.................. $118,411 $140,598 $172,798 $266,384 $350,659 $400,175 $401,830
Mortgage banking as-
sets.................. 24,301 22,176 14,727 39,106 36,174 21,282 21,282
-------- -------- -------- -------- -------- -------- --------
Total assets........... $142,712 $162,774 $187,525 $305,490 $386,833 $421,457 $423,112
======== ======== ======== ======== ======== ======== ========
Debt
Homebuilding........... $ 82,235 $ 81,293 $106,183 $144,048 $198,814 $233,061 $246,222
Mortgage banking....... 22,146 20,448 8,604 24,271 34,011 10,980 10,980
-------- -------- -------- -------- -------- -------- --------
Total debt............. $104,381 $101,741 $114,787 $168,319 $232,825 $244,041 $257,202
======== ======== ======== ======== ======== ======== ========
Stockholders' equity.... $ 28,562 $ 44,428 $ 51,550 $ 98,560 $110,479 $125,787 $118,998
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Fiscal 1992 reflects the retirement of a note payable at an amount less
than par. Nine months ended February 28, 1996 reflects the write-off of
unamortized discount and debt issuance costs related to the redemption of
the Company's 6 7/8% Convertible Subordinated Notes due March 15, 2002 in
December 1995.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income from operations before income taxes plus fixed
charges (net of capitalized interest). Fixed charges include interest
expense plus capitalized interest and a portion of operating lease rental
expense deemed to be representative of interest.
(3) Fiscal 1991 includes a pre-tax writedown of $5,000,000. After giving effect
to such writedown, earnings for the fiscal year ended May 31, 1991 were
inadequate to cover fixed charges and resulted in a coverage deficiency of
$3,009,000.
(4) The Company believes that the ratio of earnings to fixed charges excluding
interest expense attributable to the Company's mortgage banking operations
may be helpful to investors in understanding the Company's ability to cover
fixed charges for its homebuilding operations. See "Business--Mortgage
Banking."
(5) Data for fiscal 1991 excludes the Company's proportionate share of homes
sold and closed in unconsolidated joint ventures.
(6) Calculated in accordance with the definitions of such terms contained in
the Indenture and set forth herein under "Description of the Senior Notes--
Certain Definitions."
(7) EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of the Company's operating performance or as
a measure of liquidity.
(8) As adjusted to give effect to the issuance and sale by the Company of the
Senior Notes, the application of the estimated net proceeds therefrom as
described under "Use of Proceeds" (assuming an interest rate of 9.50% for
the Senior Notes and that all Old Senior Notes are acquired at a tender
price of $1,091.80 for each Old Senior Note, and the extraordinary loss,
net of taxes, related to the tender offer premium pursuant to the Offer to
Purchase (as defined) and the writeoff of debt issuance costs and the net
premium relating to the repurchase of the Old Senior Notes).
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Senior Notes should consider carefully the
factors set forth below as well as the other information set forth or
incorporated by reference in this Prospectus prior to investing in the Senior
Notes.
THE HOUSING INDUSTRY
Homebuilders, including the Company, are subject to various risks, such as
economic recession, competitive overbuilding, changes in governmental
regulation, increases in real estate taxes, energy costs or costs of materials
and labor, the availability of suitable land, and the availability of
construction funds or mortgage loans at rates acceptable to builders and
homebuyers. In addition, increases in interest rates or a reduction in the
deductibility of mortgage interest for federal tax purposes may have an
adverse effect upon the Company's sales and could affect the availability of
home financing to present and potential customers of the Company.
LEVERAGE; POTENTIAL ADVERSE EFFECT OF INDEBTEDNESS ON FUTURE OPERATIONS
As of February 28, 1996, after giving effect to the Offering and the
application of the proceeds therefrom, the outstanding consolidated
indebtedness of the Company would have been $246,222,000 (excluding mortgage
banking related indebtedness) and the Company would have had stockholders'
equity of $118,998,000. In addition, subject to the restrictions in the
Indenture, the Company may incur additional indebtedness in the future, some
of which may be secured. The Company's ability to make required debt service
payments in the future will be dependent upon the Company's operating results,
which are subject to financial, economic and other factors affecting the
Company that are beyond its control. No assurance can be given that the
Company will be able to make required debt service payments.
The degree to which the Company is leveraged could have an adverse impact on
the Company, including (i) increased vulnerability to adverse general economic
and market conditions, (ii) impaired ability to expand and to respond to
increased competition, (iii) impaired ability to obtain additional financing
for future working capital, capital expenditures, general corporate or other
purposes and (iv) requiring that a significant portion of cash provided by
operating activities be used for the payment of debt obligations, thereby
reducing funds available for operations and future business opportunities.
COMPETITION
The single-family residential housing industry is highly competitive and the
Company competes in each of its markets with numerous other national, regional
and local homebuilders, some of which have greater resources than the Company.
The Company's homes compete on the basis of quality, price, design, mortgage
financing terms and location. See "Business--Operating Strategy." The Company
also competes with developers of rental housing units and, to a lesser extent,
condominiums.
GROWTH THROUGH ACQUISITIONS
During the past three years, the Company has expanded its operations into
new housing markets primarily by means of acquisitions of existing
homebuilders. 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. The Company will continue to review
opportunities to enter new housing markets that have demonstrated periods of
strong population and employment growth. However, there can be no assurance
that the Company will be able to locate or acquire other suitable acquisition
candidates on acceptable terms, or that it will be successful in managing the
operations of the entities acquired and effectively and profitably integrating
such operations into the Company. Additionally, there can be no assurance that
any future acquisitions will not have a material adverse effect on the
Company's operating results, particularly during the period immediately
following such acquisitions.
8
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of executive officers.
The loss of the services of one or more of these executive officers could have
a material adverse effect on the business and operations of the Company.
FRAUDULENT CONVEYANCE
The Company is a holding company which derives all of its operating income
from its subsidiaries. The Company must rely on dividends and other
distributions from its subsidiaries to generate the funds necessary to meet
its obligations, including the payment of principal and interest on the Senior
Notes. The ability of the Company's subsidiaries to pay such dividends or make
such distributions will be subject to, among other things, applicable state
laws and, under certain circumstances, restrictions contained in agreements or
debt instruments that the Company or its subsidiaries may enter into after the
date of the Indenture. All of the subsidiaries of the Company have jointly and
severally guaranteed the Senior Notes.
The Guarantees may be subject to review under federal or state fraudulent
conveyance law. To the extent that a court were to find that (x) a Guarantee
was incurred by a Guarantor with intent to hinder, delay, or defraud any
present or future creditor, or the Guarantor contemplated insolvency with a
design to prefer one or more creditors to the exclusion in whole or in part of
others, or (y) such Guarantor did not receive fair consideration or reasonable
equivalent value for issuing its Guarantee and such Guarantor (i) was
insolvent, (ii) was rendered insolvent by reason of the issuance of such
Guarantee, (iii) was engaged or about to engage in a business or transaction
for which the remaining assets of such Guarantor constituted unreasonably
small capital to carry on its business, or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they
matured, a court could avoid or subordinate such Guarantee in favor of the
Guarantor's creditors. Among other things, a legal challenge of a Guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by
each Guarantor as a result of the issuance by the Company of the Senior Notes.
The measure of insolvency for purposes of the foregoing will vary depending on
the law of the jurisdiction being applied. Generally, however, an entity would
be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all its property at a fair valuation or if
the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured. Pursuant to the terms of the Guarantees, the
liability of each Guarantor is limited to the maximum amount of indebtedness
permitted, at the time of the grant of such Guarantee, to be incurred in
compliance with fraudulent conveyance or similar laws.
To the extent any Guarantee was avoided or subordinated as a fraudulent
conveyance, limited as described above, or held unenforceable for any other
reason, holders of the Senior Notes would, to such extent, cease to have a
claim in respect of such Guarantee and, to such extent, would be creditors
solely of the Company and any Guarantor whose Guarantee was not avoided,
subordinated, limited, or held unenforceable. In such event, the claims of the
holders of the Senior Notes against the issuer of an avoided, subordinated,
limited or unenforceable Guarantee would be subject to the prior payment of
all liabilities of such Guarantor. There can be no assurance that, after
providing for all prior claims, there would be sufficient assets to satisfy
the claims of the holders of the Senior Notes.
REPURCHASE OF SENIOR NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to offer
to repurchase all of the outstanding Senior Notes at a purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the repurchase date. There can be no assurance that the
Company will have sufficient funds available or will be permitted by its other
indebtedness agreements to repurchase the Senior Notes upon the occurrence of
a Change of Control. The Change of Control purchase feature of the Senior
Notes may in certain circumstances make more difficult or discourage a
takeover of the Company and, thus, the removal of incumbent management. The
Change of Control purchase feature, however, is not the result of
9
<PAGE>
management's knowledge of any specific effort to obtain control of the Company
by means of a merger, tender offer, solicitation or otherwise, or part of a
plan by management to adopt a series of anti-takeover provisions. See
"Description of the Senior Notes--Certain Covenants--Change of Control."
ABSENCE OF PUBLIC MARKET
The Senior Notes are a new issue of securities which have no established
trading market. It is expected that the Senior Notes will be sold to a limited
number of investors. The Company has been advised by the Underwriters that
they intend to make a market in the Senior Notes after the consummation of
this Offering; however, the Underwriters are not obligated to do so, and any
such market-making, if commenced, may be terminated at any time without
notice. No assurance can be given as to the liquidity of the trading market,
if any, for the Senior Notes.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Senior Notes are
estimated to be $145,750,000. The Company intends to use approximately
$120,098,000 of the net proceeds to repurchase all of the Old Senior Notes
(excluding accrued interest) and approximately $25,652,000 of the net proceeds
to reduce temporarily outstanding amounts under certain of the Company's
revolving lines of credit (bearing interest at rates varying from prime plus
1/4% to prime plus 1/2% at February 28, 1996) which were incurred for working
capital purposes. The Company continually evaluates acquisition opportunities;
however, the Company currently has no agreements or understandings with
respect to the acquisition of any homebuilding operations.
The Company has made an offer to purchase (the "Offer to Purchase") for cash
all of the outstanding Old Senior Notes at a price equal to 109.18% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date. If all of the Old Senior Notes are not tendered to the
Company pursuant to the Offer to Purchase, the Company may seek to acquire the
remaining Old Senior Notes by means of open market purchases or privately
negotiated acquisitions. Although it has no obligation to do so, the Company
currently intends to redeem on August 1, 1997 (the first day on which the Old
Senior Notes are redeemable) any Old Senior Notes not tendered pursuant to the
Offer to Purchase or otherwise repurchased by the Company at a redemption
price equal to 104% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date. The Old Senior Notes bear interest
at a rate of 12% per annum and mature on August 1, 1999.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at February
28, 1996, and as adjusted to give effect to the issuance and sale by the
Company of the Senior Notes and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
FEBRUARY 28, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $ 19,894 $ 17,694
======== ========
Debt(1)
Homebuilding
Notes payable (including current maturities of ap-
proximately $20,624,000)(2)......................... $ 35,624 $ 9,972
% Senior Notes due 2006............................. -- 150,000
12% Senior Notes due 1999(3)......................... 111,187 --
6 7/8% Convertible Subordinated Notes due November 1,
2002................................................ 86,250 86,250
-------- --------
Total.............................................. 233,061 246,222
-------- --------
Mortgage banking
Notes payable due within one year.................... 10,268 10,268
Bonds payable........................................ 712 712
-------- --------
Total.............................................. 10,980 10,980
-------- --------
Total debt....................................... 244,041 257,202
-------- --------
Stockholders' equity
Common Stock, $.01 par value; 20,000,000 shares
authorized; 7,080,900 shares issued(4)................ 71 71
Treasury stock, at cost, 93,740 shares................. (81) (81)
Capital in excess of par value......................... 59,610 59,610
Retained earnings(5)................................... 66,187 59,398
-------- --------
Total stockholders' equity....................... 125,787 118,998
-------- --------
Total capitalization..................................... $369,828 $376,200
======== ========
</TABLE>
- --------
(1) See Note E of "Notes to Consolidated Financial Statements" incorporated
herein by reference for further information regarding the terms of the
Company's indebtedness.
(2) The Company is currently in discussions with a group of banks to obtain an
unsecured revolving credit facility to be used for working capital and
general corporate purposes. The new facility will replace all of the
Company's existing lines of credit (other than warehouse lines) which had
aggregate commitments of $90 million at February 28, 1996.
(3) Assumes all $110 million principal amount of the Old Senior Notes is
repurchased by the Company pursuant to the Offer to Purchase.
(4) Excludes 3,631,556 shares reserved for issuance upon conversion of the 6
7/8% Convertible Subordinated Notes due November 1, 2002 and 372,240
shares reserved for issuance pursuant to options granted under the
Company's stock option plans.
(5) Adjusted to reflect the extraordinary loss, net of taxes, related to the
tender offer premium pursuant to the Offer to Purchase and the write-off
of debt issuance costs and the net premium relating to the repurchase of
the Old Senior Notes.
11
<PAGE>
BUSINESS
The Company designs, constructs and sells high quality single-family homes
targeted to primarily entry-level and first-time move-up homebuyers. As of
February 28, 1996, the Company was offering homes for sale in 64 communities
in six markets. The Company is geographically diversified, currently operating
in Phoenix, Arizona; Austin and San Antonio, Texas; Denver, Colorado; South
Florida; and Southern California. The Company also offers mortgage banking
services in Arizona to its homebuyers and in Texas to its homebuyers and to
third parties.
OPERATING STRATEGY
The following are the major elements of the Company's operating strategy:
Geographic Diversification. The Phoenix metropolitan area is the Company's
primary market and accounted for approximately 49% of the Company's revenues
from homebuilding operations for the fiscal year ended May 31, 1995. The
Company began diversifying its operations by expanding into Denver in 1987 and
Southern California in 1988. Over the last three years, the Company entered
the Austin, San Antonio and South Florida markets through the acquisition of
homebuilders with established operations. The Company will continue to review
opportunities to enter new housing markets that have demonstrated periods of
strong population and employment growth. The Company may enter such markets
through either acquisitions or start-up operations.
Product. The Company sells single-family homes targeted primarily to entry-
level and first-time move-up buyers. The Company emphasizes quality homes with
distinctive design features offered at affordable prices within each of its
markets. The Company believes that today's homebuyers are particularly value-
oriented and that the entry-level and first-time move-up markets represent the
largest segments of the homebuilding market. During fiscal 1995, the average
sales price of the Company's homes was approximately $129,500. Additionally,
the Company has entered into a joint venture to begin constructing retirement
homes in Phoenix. This represents the Company's first project in the
retirement market and may represent an area of future growth.
Cost Control. The Company controls the costs of construction through the
efficient design of its homes and the favorable pricing it receives from
certain subcontractors which perform a high volume of work for the Company.
The Company's custom-designed management information systems also assist in
controlling construction costs by making information available which allows
the Company to monitor subcontractor performance and expenditures for each
house built. As part of management's control of general and administrative
expense, internal operations are continually monitored to reduce overhead and
improve efficiency.
Inventory Management. The Company's objective is to maintain a supply of
land to meet anticipated homebuilding requirements for approximately two to
three years. At February 28, 1996, the Company had approximately 38 months of
inventory based on actual deliveries in fiscal 1995. To further control
inventory, the Company builds speculative units only to maintain a limited
inventory of homes available for quick delivery or to continue the
construction sequence in a particular subdivision.
Mortgage Banking. The Company's mortgage banking operations offer
competitive financing alternatives to many of its homebuyers in Arizona and
Texas (and to third parties in Texas), assisting customers through the loan
application and approval process. These operations augment the Company's
earnings and assist in home sales by enabling the Company to monitor the
progress of mortgage applications.
12
<PAGE>
LAND ACQUISITION AND DEVELOPMENT
As of February 28, 1996, the Company operated 19 subdivisions in Phoenix, 19
subdivisions in Austin, ten subdivisions in Denver, eight subdivisions in San
Antonio, four subdivisions in South Florida and four subdivisions in Southern
California. The following table summarizes the Company's available lot
inventory at February 28, 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....................... 3,938 827 186 50 2,798 77
Texas(2)...................... 5,574 475 178 41 4,800 80
Denver........................ 1,341 153 72 21 1,029 66
South Florida................. 1,451 111 55 18 1,239 28
Southern California........... 360 78 58 9 177 38
------ ----- --- --- ------- ----
Total......................... 12,664 1,644 549 139 10,043 289
====== ===== === === ======= ====
</TABLE>
- --------
(1) Speculative units are unsold homes under construction.
(2) 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 February
28, 1995 and 1996, the Company had an aggregate of 9,864 and 10,043 unsold
lots, respectively, which represents approximately 42 and 38 months of
inventory, respectively, based on actual deliveries in each of fiscal 1994 and
1995. The Company believes that an adequate supply of undeveloped land is
available in its markets to maintain current levels of homebuilding.
As of February 28, 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 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.
13
<PAGE>
PRODUCT LINES
<TABLE>
<CAPTION>
LIVING AREA BASE PRICE RANGE
(SQUARE FEET) AT FEBRUARY 28, 1996
------------- --------------------
<S> <C> <C>
Phoenix
Move-up single-family................... 1,391-3,761 $105,800-$217,600
Entry-level single-family............... 1,287-2,484 $ 86,300-$162,200
Texas(1)
Move-up single-family................... 1,799-3,230 $123,300-$166,400
Entry-level single-family............... 924-2,807 $ 58,950-$153,250
Denver
Move-up single-family................... 1,820-3,096 $151,800-$235,600
Entry-level single family............... 1,358-1,822 $134,900-$145,900
South Florida
Move-up single-family................... 1,615-2,511 $134,900-$171,900
Entry-level single-family............... 1,314-2,012 $ 89,900-$140,900
Southern California
Move-up single-family................... 2,980-4,093 $389,000-$439,000
Entry-level single-family............... 1,803-3,165 $149,900-$206,900
</TABLE>
- --------
(1) Includes operations in Austin and San Antonio.
HOMES DELIVERED
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED MAY 31, ENDED FEBRUARY 28,
--------------------------- -------------------
1993 1994 1995 1995 1996
-------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Move-up single-family
Revenues (000's).......... $ 56,293 $ 128,494 $208,026 $ 155,719 $ 164,646
Units..................... 350 811 1,281 969 974
Average sales price....... $160,800 $ 158,400 $162,400 $ 160,700 $ 169,000
Entry-level single-family
Revenues (000's).......... $143,719 $ 206,615 $206,692 $ 150,034 $ 240,864
Units..................... 1,419 1,976 1,921 1,388 2,124
Average sales price....... $101,300 $ 104,600 $107,600 $ 108,100 $ 113,400
Townhomes and duplex homes
Revenues (000's).......... $ -- $ 4,922 $ -- $ -- $ --
Units..................... -- 44 -- -- --
Average sales price....... $ -- $ 111,900 $ -- $ -- $ --
Total
Revenues (000's).......... $200,012 $ 340,031 $414,718 $ 305,753 $ 405,510
Units..................... 1,769 2,831 3,202 2,357 3,098
Average sales price....... $113,100 $ 120,100 $129,500 $ 129,700 $ 130,900
</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
cancellable 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 "--Construction and Customer Service."
14
<PAGE>
The following table summarizes information related to the Company's backlog
at the dates indicated:
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------------
1995 1996
-------------- --------------
UNITS DOLLARS UNITS DOLLARS
----- -------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Phoenix...................................... 590 $ 76,355 904 $117,143
Texas........................................ 297 31,400 555 59,930
South Florida................................ 74 10,256 139 19,873
Denver....................................... 94 17,086 219 45,123
Southern California.......................... 49 13,316 116 28,486
----- -------- ----- --------
Total backlog.............................. 1,104 $148,413 1,933 $270,555
===== ======== ===== ========
</TABLE>
The Company anticipates that substantially all of the homes in backlog at
February 28, 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 utilizes the services of independent brokers, approximately 43% of the
Company's homes sold in the nine months ended February 28, 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% to 2%
(depending on the market) and 3%, respectively, of the sales price of the
home. The Company uses radio, newspapers, magazines, billboard displays,
special promotional events and, occasionally, television in its marketing
program.
The Company builds its homes under the guidelines and specifications of the
Federal Housing Administration ("FHA") and the Veterans Administration ("VA"),
thereby providing prospective buyers the added benefits of FHA-insured and VA-
guaranteed mortgages.
CONSTRUCTION AND CUSTOMER SERVICE
The Company designs and supervises the development and building of its
projects. The construction period for the Company's homes during fiscal 1995
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 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 each of fiscal 1995 and for the nine
months ended February 28, 1996, approximately 16% of such contracts have been
cancelled, a
15
<PAGE>
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 February 28, 1995
and 1996 the Company had respectively 571 and 549 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., 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").
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 originations of first mortgage loans utilizing
programs established by the FHA, VA, GNMA and FNMA. Interest rates are
generally established by prevailing market rates, although lower rates may be
offered from time to time to remain competitive in certain markets.
Each mortgage originated by 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 1995, the Company sold
significantly all of the servicing rights that were originated during such
year, and during the third quarter of 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. See "--Operating Strategy." The Company
also competes with developers of rental housing units and, to a lesser extent,
condominiums.
REGULATION
The housing and mortgage banking industries are subject to extensive and
complex regulations. The Company and its subcontractors must comply with
various federal, state and local laws and regulations including zoning and
density requirements, building, environmental, advertising and consumer credit
rules and regulations as well as other rules and regulations in connection
with its homebuilding and sales activities. These include
16
<PAGE>
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 February 28, 1996, the Company and its subsidiaries employed
approximately 508 persons, including corporate staff, sales personnel,
construction personnel and mortgage and title staff. None of the Company's
employees is covered by a collective bargaining agreement. The Company
believes that its relations with its employees are good.
DESCRIPTION OF THE SENIOR NOTES
The Senior Notes offered hereby are to be issued under an Indenture, dated
as of April , 1996 (the "Indenture"), among the Company, the Guarantors and
First Union National Bank, as Trustee (the "Trustee"), a copy of which is an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries of certain provisions of the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms. Wherever particular defined terms of the
Indenture are referred to, such defined terms are incorporated herein by
reference. For purposes of this section and the Indenture, references to the
"Company" include only the Company and not its subsidiaries.
GENERAL
The Senior Notes will be limited to $150,000,000 aggregate principal amount.
The Senior Notes will mature on , 2006. The Senior Notes will bear
interest from the date of issuance, or from the most recent date to which
interest has been paid or provided for, at the rate stated on the cover page
hereof, payable in arrears on and of each year, commencing ,
1996 to the persons in whose names the Senior Notes are registered at the
close of business on the fifteenth day of the month preceding the month in
which the interest payment date occurs. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Senior Notes will be general unsecured obligations of the Company,
ranking senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu in right of payment with all
existing and future senior indebtedness of the Company; however, the Senior
Notes will be effectively subordinated to all secured indebtedness of the
Company to the extent of the value of the assets securing such indebtedness.
As of February 28, 1996, after giving effect to the Offering and the
application of the proceeds therefrom, the Company would have had no secured
indebtedness outstanding.
17
<PAGE>
Principal and premium, if any, and interest on the Senior Notes are to be
payable, and the Senior Notes offered hereby will be exchangeable and
transfers thereof will be registrable, at the offices of the Company or its
agent maintained for such purposes in The City of New York; provided that
payment of interest may, at the option of the Company, be made by check mailed
to a holder at his registered address.
The Senior Notes offered hereby will be issued only in fully registered form
without coupons, in denominations of $1,000 and any integral multiple thereof.
The Senior Notes are exchangeable and transfers thereof will be registered
without charge therefor, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
THE GUARANTEES
Each of the Guarantors will (so long as they remain Subsidiaries of the
Company) unconditionally guarantee on a joint and several basis all of the
Company's obligations under the Senior Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Senior Notes. The
Guarantees will be general unsecured obligations of the Guarantors, ranking
senior in right of payment to all existing and future subordinated
indebtedness of the Guarantors and pari passu in right of payment with all
existing and future senior indebtedness of the Guarantors; however, the
Guarantees will be effectively subordinated to all secured indebtedness of the
Guarantors to the extent of the value of the assets securing such
indebtedness. As of February 28, 1996, after giving effect to the Offering and
the application of the proceeds therefrom, the Guarantors would have had
approximately $9,972,000 of secured indebtedness outstanding. Except as
provided in "Certain Covenants" below, the Company is not restricted from
selling or otherwise disposing of any of the Guarantors.
The Indenture will provide that each Restricted Subsidiary (other than, in
the Company's discretion, any Restricted Subsidiary the assets of which have a
book value of not more than $1,000,000) will be a Guarantor.
The Indenture provides that if all or substantially all of the assets of any
Guarantor or all of the capital stock of any Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Subsidiaries in a
transaction constituting an Asset Sale, and if the Net Proceeds from such
Asset Sale are used in accordance with the covenant, "Limitation on Asset
Sales," then such Guarantor (in the event of a sale or other disposition of
all of the capital stock of such Guarantor) or the corporation acquiring such
assets (in the event of a sale or other disposition of all or substantially
all of the assets of such Guarantor) shall be released and discharged of its
Guarantee obligations.
OPTIONAL REDEMPTION
The Senior Notes are redeemable at the option of the Company, in whole or in
part (in any integral multiple of $1,000), at any time on or after ,
2001, on not less than 30 days nor more than 60 days notice mailed to the
registered holders thereof at their last registered addresses, at the
following redemption prices (expressed as percentages of the principal amount
thereof), plus accrued and unpaid interest, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................. %
2002.............................. %
2003 and thereafter............... 100%
</TABLE>
In addition, if the Company consummates one or more public offerings of its
Common Stock subsequent to the date of this Prospectus and on or prior to
, 1999, the Company may, at its option, redeem up to 33% of the original
principal amount of the Senior Notes with the net proceeds of such offerings
at % of the principal amount thereof, plus accrued and unpaid interest, if
any, to the redemption date; provided, however, that immediately after giving
effect to any such redemption not less than $100,000,000 principal amount of
the Senior Notes remains outstanding.
18
<PAGE>
If less than all of the Senior Notes are to be redeemed, the Trustee will
select the particular Senior Notes (or the portions thereof) to be redeemed
either by lot, pro rata or by such other method as the Trustee shall deem fair
and appropriate, but in any such event, in such manner as complies with
applicable legal and stock exchange requirements. On or after the redemption
date, interest will cease to accrue on the Senior Notes or portions thereof
called for redemption.
CERTAIN COVENANTS
Change of Control.
In the event of a Change of Control (as defined below), each holder of
Senior Notes shall have the right upon receipt of a Change of Control Notice
(as defined below), at such holder's option, to require the Company to
repurchase all of such holder's Senior Notes, or a portion 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 at a price equal to 101% of the principal amount thereof, plus accrued
interest to the Change of Control Repurchase Date.
Within 30 days after the occurrence of a Change of Control, the Company or,
at the request of the Company, the Trustee, shall deliver to all holders of
record of the Senior Notes a notice (the "Change of Control Notice") of the
occurrence of such Change of Control and of the repurchase right arising as a
result thereof. The Company shall deliver a copy of the Change of Control
Notice to the Trustee. To exercise the repurchase right, on or before the 30th
day after the date of the Change of Control Notice, holders of Senior Notes
must deliver written notice to the Company (or an agent designated by the
Company for such purposes) of the holder's exercise of such right, together
with the Senior Notes with respect to which the right is being exercised, duly
endorsed for transfer. Such written notice shall be irrevocable.
The right to require the repurchase of Senior Notes shall not continue after
a discharge of the Company from its obligations under the Senior Notes and the
Indenture with respect to the Senior Notes in accordance with Article 8 of the
Indenture.
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
Senior Note to be repurchased must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount to be repurchased (unless such Senior Note shall have been called for
redemption, in which case no such payment shall be required), and the interest
on the principal amount of the Senior Note being repurchased will be paid on
such next succeeding interest payment date to the registered holder of such
Senior Note on the immediately preceding record date. A Senior Note
repurchased on an interest payment date need not be accompanied by any
payment, and the interest on the principal amount of the Senior Note being
repurchased will be paid on such interest payment date to the registered
holder of such Senior Note on the immediately preceding record date.
As used herein, a "Change of Control" of the Company means 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 (as defined below), 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
(as defined below) 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
19
<PAGE>
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 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. The
"Management Group" shall consist of the executive officers of the Company as
of the date of the Indenture, members of their immediate families, certain
trusts for their benefit, and legal representatives of, or heirs,
beneficiaries or legatees receiving Common Stock (or securities convertible or
exchangeable for Common Stock) under, any such person's estate. "Voting Stock"
shall mean, 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.
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable. The Company could, in the future, enter into
certain significant transactions that would not constitute a Change of Control
with respect to the Change of Control purchase feature of the Senior Notes.
The Change of Control purchase feature of the Senior Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change of Control purchase
feature, however, is not the result of management's knowledge of any specific
effort to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series
of anti-takeover provisions.
The meaning of the phrase "all or substantially all" as used in the
Indenture in the definition of "Change of Control" with respect to a sale of
assets varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under relevant law and is
subject to judicial interpretation. Accordingly, in certain circumstances,
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of the Company, and therefore it may be unclear whether a Change of
Control has occurred and whether the Senior Notes are subject to a Change of
Control Offer.
Maintenance of Net Worth.
In the event that the Company's Net Worth at the end of each of any two
consecutive fiscal quarters (the last day of such second fiscal quarter being
referred to as the "Trigger Date") is less than $20,000,000 (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), Senior Notes in an aggregate principal amount equal to 10% of the
initial outstanding principal amount of the Senior Notes (or if less than 10%
of the aggregate principal amount of the Senior Notes issued are then
outstanding, all the Senior Notes outstanding at the time) (the "Net Worth
Offer Amount") at a purchase price of 100% of the principal amount thereof,
plus accrued interest to the Net Worth Repurchase Date (the "Net Worth
Price"). The Company may credit against the Net Worth Offer Amount the
principal amount of Senior Notes acquired by the Company prior to the Trigger
Date through purchase, optional redemption or exchange. The Company, however,
may not credit a specific Note in more than one Net Worth Offer. In no event
shall the failure to meet the Minimum Net Worth at the end of any fiscal
quarter be counted toward the making of more than one Net Worth Offer. The
Company shall notify the Trustee promptly after the
20
<PAGE>
occurrence of any of the events specified in this provision and shall notify
the Trustee in writing if its Net Worth is equal to or less than the Minimum
Net Worth for any fiscal quarter.
Within 30 days after the Trigger Date, the Company, or, at the request of
the Company, the Trustee, shall give notice of the Net Worth Offer to each
holder (the "Net Worth Notice"). To accept a Net Worth Offer a holder shall
deliver to the Company (or to a Paying Agent designated by the Company for
such purpose), on or before the 30th day after the date of the Net Worth
Notice, a written notice of the holder's acceptance of such offer, together
with the Senior Notes with respect to which the offer is being accepted, duly
endorsed for transfer to the Company. Such written notice may be withdrawn
upon further written notice delivered to the Trustee on or prior to the third
day preceding the Net Worth Repurchase Date.
If the Net Worth Repurchase Date is between a regular record date for the
payment of interest and the next succeeding interest payment date, any Senior
Note to be repurchased must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount to be
repurchased (unless such Senior Note shall have been called for redemption, in
which case no such payment shall be required), and the interest on the
principal amount of the Senior Note being repurchased will be paid on such
next succeeding interest payment date to the registered holder of such Senior
Note on the immediately preceding record date. A Senior Note repurchased on an
interest payment date need not be accompanied by any payment, and the interest
on the principal amount of the Senior Note being repurchased will be paid on
such interest payment date to the registered holder of such Senior Note on the
immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
Limitation on Debt.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume, guarantee or otherwise
become liable for ("Incur"), any Debt, except Permitted Debt. "Permitted Debt"
means (a) Debt evidenced by the Senior Notes 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) may 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, (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 Senior Notes, (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 to exceed $5,000,000 at any time
outstanding, (i) Debt referred to in the definition of Interest Rate
Protection Agreements, and (j) Refinancing Debt.
Notwithstanding the foregoing, and subject to the immediately succeeding
paragraph, the Company and the Guarantors 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 shall not, and the Company 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 Senior Notes 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.
21
<PAGE>
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, or (b) the Company would be unable to
incur $1.00 of additional Debt under the second paragraph set forth under the
caption "Limitation on Debt," 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 the 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 , 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 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 the 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 the
Indenture (excluding any Investment described in clause (4) of the following
paragraph, but including upon the redesignation of an 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 paragraph will not prevent: (1) 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; (2) 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 cash proceeds that are utilized for any such
redemption, repurchase or other acquisition or retirement shall be excluded
from clause (ii) of the preceding paragraph; (3) 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 cash 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 ,
2006, (y) has a Weighted Average Life to Maturity equal to or greater than the
remaining Weighted Average Life to Maturity of the Senior Notes and (z) is
subordinated to the Senior Notes in the same manner and at least to the same
extent as the subordinated Debt so purchased, exchanged, redeemed, acquired or
retired; (4) Investments constituting Restricted Payments made as a result of
the receipt of non-cash consideration from any Asset Sale made pursuant to and
in compliance with the covenant described under "Limitation on Asset Sales";
(5) 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 (6) 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
22
<PAGE>
exceed $5,000,000, provided that amounts paid pursuant to clauses (5) and (6)
(but not clauses (1), (2), (3) or (4)) shall reduce amounts available for
future Restricted Payments.
Limitation on Dividend 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 provision: (i) those contained in the 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 Subsidiary of the Company; provided that such
encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary of the Company and do not
extend to any other property of the Company or another of its Subsidiaries;
(iii) restrictions contained in security agreements permitted by the Indenture
securing Debt permitted by the Indenture to the extent such restrictions
restrict the transfer of assets subject to such security agreements; (iv) any
encumbrance or restriction consisting of customary non-assignment provisions
in leases to the extent such provisions restrict the transfer of the leases;
(v) any encumbrance or restriction pursuant to an agreement in effect on the
date of the Indenture; or (vi) any restrictions with respect to a Subsidiary
of the Company imposed pursuant to an agreement which has been entered into
for the sale or disposition of all or substantially all the capital stock or
assets of such Subsidiary.
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
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 the Indenture and the Senior Notes 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. The Indenture will also provide that no Liens will be permitted to be
created or suffered to exist on any Debt from the Company in favor of any
Restricted Subsidiary and that such Debt will not be permitted to be sold,
disposed of or otherwise transferred.
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 fair and reasonable to the Company or such Restricted
Subsidiary, as the case may be, and are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, 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 date of the Indenture with an
Affiliate of the Company which involves in excess of $2,500,000 and is not
permitted under clause (i) 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 date of the Indenture with an
Affiliate of the Company which involves in excess of $10,000,000
23
<PAGE>
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.
Notwithstanding the foregoing, such provisions do not prohibit and will not
apply to (1) any Restricted Payment which is permitted by the "Limitation on
Restricted Payments" covenant 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.
Limitation on Asset Sales.
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 or the Restricted
Subsidiary, as the case may be) 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".
Within 12 months from the date that any Asset Sale is consummated, the Net
Proceeds thereof will be reinvested in Additional Assets or applied to the
redemption or repurchase of Debt of the Company which ranks pari passu with
the Senior Notes or Debt of a Restricted Subsidiary of the Company which is
not subordinated to other debt of such Restricted Subsidiary (which, in each
case, will 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, will, within 30 days from the expiration of
such 12-month period, use the remaining Net Proceeds (less any amounts used to
pay reasonable fees and expenses connected with a Net Proceeds Offer) to make
an offer to repurchase the Senior Notes at a price equal to 100% of the
principal amount thereof, plus accrued interest to the Net Proceeds Repurchase
Date ("a Net Proceeds Offer").
Notwithstanding the foregoing, the Net Proceeds of an Asset Sale are not
required to be applied in accordance with the preceding paragraph, unless and
until the aggregate Net Proceeds for all such Asset Sales in a 12-month period
exceeds $10,000,000.
To accept a Net Proceeds Offer a holder shall deliver to the Company (or to
a Paying Agent designated by the Company for such purpose) on or before the
30th day after the date of the Net Proceeds Offer, a written notice of the
holder's acceptance of the Net Proceeds Offer, together with the Senior Notes
with respect to which the offer is being accepted, duly endorsed for transfer
to the Company. Such written notice may be withdrawn upon further written
notice to the Trustee on or prior to the third day preceding the Net Proceeds
Repurchase Date.
If the Net Proceeds Repurchase Date is between a regular record date for the
payment of interest and the next succeeding interest payment date, any Note to
be repurchased must be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the principal amount to be
repurchased (unless such Senior Note shall have been called for redemption, in
which case no such payment shall be required), and the interest on the
principal amount of the Senior Note being repurchased will be paid on such
next succeeding interest payment date to the registered holder of such Senior
Note on the immediately preceding record date. A Senior Note repurchased on an
interest payment date need not be accompanied by any payment, and the interest
on the principal amount of the Senior Note being repurchased will be paid on
such interest payment date to the registered holder of such Senior Note on the
immediately preceding record date.
If any repurchase pursuant to the foregoing provisions constitutes a tender
offer as defined under the Exchange Act, the Company will comply with the
requirements of Rule 14e-1 and any other tender offer rules under the Exchange
Act which then may be applicable.
24
<PAGE>
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.
CERTAIN DEFINITIONS
In addition to the terms defined above, the Indenture contains, among other
things, the following 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.
"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 the 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 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 shall 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 set forth under
the "Limitation on Debt" covenant, or (iv) otherwise altering the terms and
conditions thereof in a manner not prohibited by the terms of the Indenture.
"Carlsbad Property" means the 417 acres owned by the Carlsbad Subsidiary in
Carlsbad, California, located in San Diego County.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
25
<PAGE>
"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 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 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 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 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 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 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
26
<PAGE>
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.
"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.
"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 connecting 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 of the Company.
"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 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 to the
amount paid by the Company for such property less an amount equal to the value
of such option.
"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.
27
<PAGE>
"Existing Debt" means all of the Debt of the Company and its Restricted
Subsidiaries that was outstanding on , 1996.
"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 keepwell 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.
"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 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, any agreement to grant
to any Person any such Lien and any sale and leaseback of any asset.
"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.
"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
28
<PAGE>
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 attributable to Affiliates other than
Restricted Subsidiaries of such Person.
"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.
"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 the
Indenture, (2) Investments in any Guarantor, (3) Investments in the Senior
Notes or Debt pari passu with the Senior Notes, (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 the 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 the
"Limitation on Debt" covenant, provided that the aggregate amount of Debt
secured by Liens (excluding Non-Recourse Debt of the Company and Restricted
Subsidiaries and Debt outstanding under the 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 Restricted
Subsidiary of the Company, 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
29
<PAGE>
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 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;
(xii) 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 of the Indenture; (xvii) any
contract to sell an asset provided such sale is otherwise permitted under the
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 the Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"Purchase Money Obligations" means Debt of any Person secured by Liens (i)
on property purchased, acquired, or constructed by such Person or its
Subsidiaries after the date of the Indenture and used in the ordinary course
of business by such Person and (ii) securing the payment of all or any part of
the purchase price or construction cost of such assets and limited to the
property so acquired and improvements thereof; provided that such Debt is
incurred no later than 90 days after the acquisition of such property or
completion of such construction or improvements.
"Redeemable Stock" means, with respect to any Person, any class or series of
Capital Stock of such Person that is redeemable at the option of the holder
(except pursuant to a change in control provision that does not (i) cause such
Capital Stock to become redeemable in circumstances which would not constitute
a Change 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 Senior Notes.
"Refinancing Debt" means Debt that refunds, refinances or extends any Senior
Notes, Existing Debt (other than Existing Debt to be repaid with the net
proceeds of the offering of the Senior Notes) or other Debt incurred
30
<PAGE>
by the Company or its Restricted Subsidiaries pursuant to the terms of the
Indenture, but only to the extent that (i) the Refinancing Debt is
subordinated to the Senior Notes to the same extent as the Debt being
refunded, refinanced or extended, if at all, (ii) the Refinancing Debt is
scheduled to mature either (a) no earlier than the Debt being refunded,
refinanced or extended, or (b) after the maturity date of the Senior Notes,
(iii) the portion, if any, of the Refinancing Debt that is scheduled to mature
on or prior to the maturity date of the Senior Notes has a Weighted Average
Life to Maturity at the time such Refinancing Debt is Incurred that is equal
to or greater than the Weighted Average Life to Maturity of the portion of the
Debt being refunded, refinanced or extended that is scheduled to mature on or
prior to the maturity date of the Senior Notes, and (iv) the gross proceeds of
such Refinancing Debt is an amount that is equal to or less than the aggregate
principal amount then outstanding under the Debt being refunded, refinanced or
extended (plus the premiums or other payments paid in connection therewith
(which shall not exceed the stated amount of any premium or other payment
required 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 ((x) except
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 Debt of the Company
or its Subsidiaries which is subordinated in right of payment to the Senior
Notes (other than Debt held by the Company or a Restricted Subsidiary).
"Restricted Subsidiary" means any Subsidiary which is not an Unrestricted
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 or more of
the other Subsidiaries of that Person, or a combination thereof or a successor
thereto.
"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 the "Limitation on Debt" covenant set forth in the Indenture
as of the date of such redesignation, (ii) any Debt of such Unrestricted
Subsidiary could then be Incurred in accordance with the "Limitation on Debt"
covenant set forth in the Indenture on the date of such redesignation and
(iii) the Liens of such Unrestricted Subsidiary could then be incurred in
accordance with the "Limitation on Liens" covenant set forth
31
<PAGE>
in the Indenture 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 Restricted Payments under the
"Limitations on Restricted Payments" covenant set forth in the Indenture,
(ii) the Company and its Restricted Subsidiaries could incur $1.00 of
additional Indebtedness under the Coverage Ratio test contained in the
"Limitations on Debt" covenant set forth in the Indenture 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.
"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.
EVENTS OF DEFAULT
The following shall constitute Events of Default with respect to the Senior
Notes: (i) failure to pay the principal of any Note when such principal
becomes due and payable at maturity, upon acceleration or otherwise, (ii)
failure to pay interest when due, and such failure continues for a 30-day
period; (iii) a default in the observance or performance of any other covenant
or agreement of the Company or the Guarantors in the Note, the Guarantee or
the Indenture that continues for the period and after the notice specified
below; (iv) 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 (1) 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 (2) results in the acceleration of such Debt which acceleration
shall be in effect; (v) any final judgment or judgments for payment of money
in excess of $5,000,000 in the aggregate shall be rendered against the Company
or any of its Restricted Subsidiaries and shall remain unstayed, unsatisfied
or undischarged for the period and after the notice specified below; (vi)
certain events of bankruptcy, insolvency or reorganization of the Company or
Material Subsidiaries and (vii) 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 the 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 Indenture and the Guarantee).
The Company is required to deliver to the Trustee within 120 days after the
end of each fiscal year of the Company, an officer's certificate stating
whether or not the signatories know of any default by the Company under the
Indenture and the Senior Notes and, if any default exists, describing such
default.
A default under clause (iii) or (v) above is not an Event of Default until
the Trustee or the holders of at least 25% in principal amount of the Senior
Notes then outstanding notify the Company of the default and the
32
<PAGE>
Company does not cure the default within 60 days. The notice must specify the
default, demand that it be remedied and state that the notice is a "Notice of
Default." If the holders of 25% in principal amount of Senior Notes then
outstanding request the Trustee to give such notice on their behalf, the
Trustee shall do so.
In case an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization of the Company)
shall have occurred and be continuing, the Trustee, by notice to the Company,
or the holders of 25% of the principal amount of the Senior Notes then
outstanding, by notice to the Company and the Trustee, may declare the
principal of the Senior Notes, plus accrued interest, to be immediately due
and payable. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization of the Company shall occur, such
amounts shall be due and payable without any declaration or any act on the
part of the Trustee or the holders of the Senior Notes. Any declaration of
acceleration may be rescinded and past defaults may be waived by the holders
of a majority of the principal amount of the Senior Notes then outstanding
upon conditions provided in the Indenture. Except to enforce the right to
receive payment of principal or interest when due, no holder of a Note may
institute any proceeding with respect to the Indenture or for any remedy
thereunder unless such holder has previously given to the Trustee written
notice of a continuing Event of Default and unless the holders of 25% of the
principal amount of the Senior Notes then outstanding have requested the
Trustee to institute proceedings in respect of such Event of Default and have
offered the Trustee reasonable indemnity against loss, liability and expense
to be thereby incurred, the Trustee has failed so to act for 60 days after
receipt of the same and during such 60-day period the holders of a majority of
the principal amount of the Senior Notes then outstanding have not given the
Trustee a direction inconsistent with the request. Subject to certain
restrictions, the holders of a majority in principal amount of the Senior
Notes then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture,
that is unduly prejudicial to the rights of any holder of a Note or that would
involve the Trustee in personal liability and the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
MERGERS AND CONSOLIDATIONS
Neither the Company nor any Guarantor will 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 Senior Notes, the
Guarantees or the Indenture (as an entirety or substantially as an entirety in
one transaction or 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: (i) the Person formed by or surviving 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 corporation or other legal entity
organized and existing under the laws of the United States or any state
thereof or the District of Columbia, and 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
Senior Notes or such Guarantor's Guarantee, as the case may be, and the
Indenture, (ii) immediately after giving effect to such transaction, no
Default or Event of Default has occurred and is continuing, (iii) 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 (iv) 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 in the "Limitation on Debt" covenant set
forth in the Indenture. 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
33
<PAGE>
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
"The Guarantees" above.
DEFEASANCE
Under the terms of the Indenture and the Senior Notes, the Company, at its
option, (a) will be Discharged from any and all obligations in respect of the
Senior Notes (except in each case for certain obligations to register the
transfer or exchange of Senior Notes, replace stolen, lost or mutilated Senior
Notes, maintain paying agencies and hold moneys for payment in trust) or (b)
need not comply with the covenants of the Indenture nor be subject to the
operation of the cross acceleration provisions described under "Events of
Default," in each case, if the Company irrevocably deposits with the Trustee,
in trust, money or U.S. Government Obligations (as defined in the Indenture)
which through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and interest on the Senior Notes on the dates such payments
are due in accordance with the terms of the Senior Notes.
To exercise either option above, the Company is required to deliver to the
Trustee an opinion of counsel that the holders of the Senior Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred.
In the event the Company exercises its options under clause (b) of the
second preceding paragraph and the Senior Notes are declared due and payable
because of the occurrence of any Event of Default (other than the cross
acceleration provisions described under "Events of Default" which will be
inapplicable), the amount of money and U.S. Government Obligations on deposit
with the Trustee will be sufficient to pay amounts due on the Senior Notes at
the time of their stated maturity but may not be sufficient to pay amounts due
on the Senior Notes at the time of the acceleration resulting from such Event
of Default. However, the Company shall remain liable for such payments.
REPORTS
As long as any of the Senior Notes are outstanding, the Company will deliver
to the Trustee and mail to each Holder within 15 days after the filing of the
same with the Commission copies of the quarterly and annual reports and of the
information, documents and other reports with respect to the Company and the
Guarantors, if any, which the Company and the Guarantors may be required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
The Indenture will provide that, 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 will
continue to file with the Commission 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 Commission 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. The Company
and each Guarantor will also comply with the other provisions of Section
314(a) of the Trust Indenture Act.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Senior Notes may be
amended or supplemented with the consent (which may include consents obtained
in connection with a tender offer or exchange offer for Senior Notes) of the
Holders of at least a majority in principal amount of Senior Notes then
outstanding, and any existing Default or Event of Default (other than any
continuing Default or Event of Default in the payment of interest on or the
principal of the Senior Notes) under, or compliance with any provision of, the
Indenture may be waived with the consent (which may include consents obtained
in connection with a tender offer or exchange
34
<PAGE>
offer for Senior Notes) of the Holders of a majority in principal amount of
the Senior Notes then outstanding. Without the consent of any Holder, the
Company, the Guarantors and the Trustee may amend the Indenture or the Senior
Notes or waive any provision of the Indenture to cure any ambiguity, defect or
inconsistency, to comply with the "Mergers and Consolidations" section set
forth in the Indenture, to provide for uncertificated Senior Notes in addition
to certificated Senior Notes, to make any change that does not adversely
affect the legal rights under the Indenture of any Holder, to comply with the
qualification of the Indenture under the Trust Indenture Act, or to reflect a
Guarantor ceasing to be liable on the Guarantees because it is no longer a
Subsidiary of the Company.
Without the consent of each Holder affected, the Company may not (i) reduce
the amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the rate of or change the time for payment
of interest, including default interest, on any Note, (iii) reduce the
principal of or change the fixed maturity of any Note or alter the provisions
with respect to redemption under the "Optional Redemption" section set forth
in the Indenture, (iv) make any Senior Notes payable in money other than that
stated in the Note, (v) make any change in certain other provisions set forth
in the Indenture, (vi) adversely modify the ranking or priority of the Senior
Notes or any Guarantee, (vii) release any Guarantor from any of its
obligations under its Guarantee or the Indenture otherwise than in accordance
with the terms of the Indenture, or (viii) waive a continuing Default or Event
of Default in the payment of principal of or interest on the Senior Notes.
NO PERSONAL LIABILITY OF SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES
The Indenture will provide that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Senior Notes, or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon
any obligation, covenant or agreement of the Company or any Guarantor in the
Indenture or in any of the Senior Notes or because of the creation of any Debt
represented thereby, shall be had against any shareholder, officer, director,
employee or controlling person of the Company, any Guarantor or any successor
Person thereof. Each Holder, by accepting such Senior Notes, will waive and
release all such liability.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest (as
defined in the Indenture), it must eliminate such conflict or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances
in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture, the Senior Notes and the Guarantees will be governed by the
internal laws of the State of New York.
35
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated the date hereof, each Underwriter named below has agreed to purchase,
and the Company has agreed to sell to such Underwriter, the principal amount
of Senior Notes set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NAME PRINCIPAL AMOUNT
---- ----------------
<S> <C>
Smith Barney Inc. .......................................... $
Salomon Brothers Inc........................................
------------
Total..................................................... $150,000,000
============
</TABLE>
The Underwriters are obligated to take and pay for all of the Senior Notes
offered hereby if any such Senior Notes are taken.
The Underwriters have advised the Company that they propose initially to
offer part of the Senior Notes directly to the public at the public offering
price set forth on the cover page hereof and part to certain dealers at a
price that represents a concession not in excess of % of the public offering
price of the Senior Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of % of the public offering price of the
Senior Notes to certain other dealers. After the public offering, the public
offering price and such concessions may be changed from time to time by the
Underwriters. The Underwriters have informed the Company that the Underwriters
do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Senior Notes are a new issue of securities which have no established
trading market. It is expected that the Senior Notes will be sold to a limited
number of investors. The Company has been advised by the Underwriters that
they intend to make a market in the Senior Notes after the consummation of
this Offering; however, the Underwriters are not obligated to do so, and any
such market-making, if commenced, may be terminated at any time without
notice. No assurance can be given as to the liquidity of the trading market,
if any, for the Senior Notes.
Smith Barney Inc. has been retained by the Company to act as dealer manager
in connection with the Offer to Purchase. In addition, Smith Barney Inc. has
from time to time performed investment banking and other financial advisory
services for the Company in the ordinary course of business and has received
customary compensation. Smith Barney Inc. was one of the underwriters of the
Company's public offering of $86,250,000 principal amount of 6 7/8%
Convertible Subordinated Notes due November 1, 2002 in 1995.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), when more than 10% of the proceeds of a public
offering of debt securities, not including underwriting compensation, is to be
paid to a member of the NASD or an affiliate of a member, the yield at which
the debt securities are distributed to the public must be no lower than that
recommended by a "qualified independent underwriter" meeting certain
standards. Smith Barney Inc. is a member of the NASD and will receive more
than 10% of the net proceeds from the Senior Notes Offering as a result of the
use of a portion of such proceeds to repurchase approximately $17.3 million of
Old Senior Notes held by Smith Barney Inc. Salomon Brothers Inc has agreed to
act as a qualified independent underwriter in connection with pricing the
Senior Notes offered hereby and conducting due diligence. The yield on the
Senior Notes, when sold to the public at the public offering price set forth
on the cover page of this Prospectus, will be no less than that recommended by
Salomon Brothers Inc. Salomon Brothers Inc will receive no additional
compensation for its services as qualified independent underwriter.
36
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the issuance and sale of the Notes offered
hereby are being passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The audited financial statements incorporated by reference in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in giving said report.
37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER
THAN THOSE TO WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Documents by Reference.................................... 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 8
Use of Proceeds............................................................ 10
Capitalization............................................................. 11
Business................................................................... 12
Description of the Senior Notes............................................ 17
Underwriting............................................................... 36
Legal Matters.............................................................. 37
Experts.................................................................... 37
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$150,000,000
CONTINENTAL HOMES HOLDING CORP.
% SENIOR NOTES
DUE 2006
-------
PROSPECTUS
APRIL , 1996
-------
SMITH BARNEY INC.
SALOMON BROTHERS INC
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
