-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EKu6j4xJcsmedUGpjb0YlqNrqAaevXgddA8vQVRFD7BFCEEdGECQJgUCXRLjDSFB //MU729E0sCJEtr05z5h8w== 0000950129-96-000142.txt : 19960410 0000950129-96-000142.hdr.sgml : 19960410 ACCESSION NUMBER: 0000950129-96-000142 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960209 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S HOME CORP /DE/ CENTRAL INDEX KEY: 0000101640 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 210718930 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05899 FILM NUMBER: 96514468 BUSINESS ADDRESS: STREET 1: 1800 WEST LOOP SOUTH CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138772311 MAIL ADDRESS: STREET 1: PO BOX 2863 CITY: HOUSTON STATE: TX ZIP: 77252 FORMER COMPANY: FORMER CONFORMED NAME: UNITED STATES HOME & DEVELOPMENT CORP DATE OF NAME CHANGE: 19710713 10-K 1 U.S. HOME CORPORATION - FORM 10-K DATED 12/31/95 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO __________ . COMMISSION FILE NUMBER 1-5899 U.S. HOME CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 21-0718930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
1800 WEST LOOP SOUTH, HOUSTON, TEXAS 77027 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 877-2311 Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED ------------------------------------------------------- ---------------------------- Common Stock, $.01 par value per share New York Stock Exchange Convertible Redeemable Preferred Stock, New York Stock Exchange $.10 par value per share Class B Warrants to acquire Common Stock New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES /X/ NO / / As of January 31, 1996, the number of shares outstanding of Registrant's voting stock was 11,562,402 and the aggregate market value of the Registrant's voting stock held by non-affiliates was $317,235,081. DOCUMENTS INCORPORATED BY REFERENCE
PART OF 10-K WHERE INCORPORATED ------------------ Proxy Statement dated March 20, 1996 for the Annual Meeting of III Stockholders to be held on April 24, 1996.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL U.S. Home Corporation ("U.S. Home" or the "Company"), organized in 1954 and incorporated in the State of Delaware in 1959, is one of the largest single-family home builders in the United States based on homes delivered. The Company currently builds and sells homes in more than 200 new home communities in 32 market areas in 12 states. Since its formation, the Company has delivered more than 259,000 homes. In 1994, the Company was the fifth largest single-family on-site home builder in the United States based on homes completed and delivered and has been among the ten largest single-family on-site home builders in the United States for more than 20 years. The Company conducts substantially all of its home building business through U.S. Home, the parent company. The Company offers a wide variety of moderately-priced homes that are designed to appeal to the affordable, move-up and retirement and active-adult/second home buyers. In each of its markets, the Company's primary strategy is to build quality homes, utilizing its Zero Defect Program, which the Company believes offers prospective home buyers a high level of new home value. The Company believes that many home purchasers compare homes on the basis of location, perceived quality and dollars of purchase price per square foot of living area. As a result, the Company attempts to purchase land and lots in popular growth corridors, maintain high quality standards and design homes to maximize living space. In addition to building and selling single-family homes, the Company provides mortgage banking services to its customers. The Company originates, processes and sells mortgages to third-party investors. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. OPERATIONS The Company is engaged in two related industry segments: home building and financial services. The revenues, operating profits or losses and identifiable assets attributable to the Company's industry segments are separately disclosed in the Consolidated Financial Statements. HOME BUILDING OPERATIONS The Company's primary industry segment is the on-site development of single-family residential communities. During 1995, the Company's product mix consisted of deliveries of approximately 28% affordable homes, 50% move-up homes and 22% retirement and active-adult/second homes. The Company has set a goal to increase its retirement and active-adult/second home deliveries to approximately 30% of the Company's volume. However, there can be no assurance such efforts will be successful. The Company presently has 14 retirement and active-adult/second home communities in Florida, Maryland, Nevada, New Jersey and Texas. The Company expects to begin taking new orders in three new retirement communities in Tucson, Arizona, Palm Springs, California and Naples, Florida in the second quarter of 1996. 2 3 MARKETS U.S. Home's building operations are currently conducted in the following market areas:
STATES MARKET AREAS - ---------------------------------------- ------------------------------------------- Arizona................................. Phoenix and Tucson California.............................. Bakersfield, Palmdale/Lancaster, Palm Springs and Sacramento Colorado................................ Colorado Springs, Denver and Fort Collins/Greeley/ Loveland Florida................................. Bonita Springs, Clearwater/Palm Harbor/Tarpon Springs, Fort Myers, Key Largo, Naples, Orlando, Sarasota/Bradenton, Spring Hill/New Port Richey and Tampa Indiana/Ohio............................ Indianapolis, Cleveland and Columbus Maryland/Virginia....................... Annapolis/Baltimore and Washington, D.C. area Minnesota............................... Minneapolis/St. Paul Nevada.................................. Las Vegas New Jersey.............................. Dover/Jackson/Monroe/Princeton and Washington/Lumberton Texas................................... Austin, Dallas/Fort Worth, Houston, McAllen/Harlingen/Brownsville and San Antonio
The Company seeks to maintain geographic diversity and thus reduce the potential risk of economic volatility in any given market. The Company's home building and marketing activities are conducted under the name of U.S. Home in each of its markets except in Minneapolis/St. Paul where the Company markets its homes under the name of Orrin Thompson Homes and in Florida where homes are marketed under the name of Rutenberg Homes as well as U.S. Home. Set forth below are revenues for the Company from the sale of single-family homes by state for each of the last three fiscal years:
YEARS ENDED DECEMBER 31, ----------------------------------- STATES 1995 1994 1993 ------------------------------------------------ --------- -------- -------- (DOLLARS IN THOUSANDS) Arizona......................................... $ 125,103 $128,343 $ 85,784 California...................................... 89,662 107,625 104,416 Colorado........................................ 171,733 138,409 103,769 Florida......................................... 349,526 293,278 243,130 Indiana/Ohio.................................... 13,923 -- -- Maryland/Virginia............................... 69,944 67,689 49,913 Minnesota....................................... 55,746 67,496 64,645 Nevada.......................................... 48,030 43,540 28,946 New Jersey...................................... 63,160 39,198 31,810 Texas........................................... 88,379 79,173 77,061 ---------- -------- -------- $1,075,206 $964,751 $789,474 ========== ======== ========
3 4 Set forth below are tables providing information (expressed in number of housing units) with respect to new orders taken, deliveries to purchasers and backlog of single-family homes by state for each of the last three fiscal years: NEW ORDERS TAKEN
YEARS ENDED DECEMBER 31, ------------------------- STATES 1995 1994 1993 ---------------------------------------------------------- ----- ----- ----- Arizona................................................... 1,015 845 931 California................................................ 533 592 722 Colorado.................................................. 1,172 812 841 Florida................................................... 2,081 2,127 1,979 Indiana/Ohio.............................................. 118 10 -- Maryland/Virginia......................................... 400 333 334 Minnesota................................................. 322 339 493 Nevada.................................................... 335 308 249 New Jersey................................................ 321 283 210 Texas..................................................... 662 585 659 ----- ----- ----- 6,959 6,234 6,418 ===== ===== =====
DELIVERIES
YEARS ENDED DECEMBER 31, ------------------------- STATES 1995 1994 1993 ------------------------------------------------------------ ----- ----- ----- Arizona..................................................... 893 970 729 California.................................................. 508 643 692 Colorado.................................................... 1,100 898 674 Florida..................................................... 2,241 1,948 1,705 Indiana/Ohio................................................ 66 -- -- Maryland/Virginia........................................... 369 382 301 Minnesota................................................... 290 396 457 Nevada...................................................... 306 299 206 New Jersey.................................................. 307 203 175 Texas....................................................... 699 648 647 ----- ----- ----- 6,779 6,387 5,586 ===== ===== =====
BACKLOG(1)
AS OF DECEMBER 31, ------------------------- STATES 1995 1994 1993 ------------------------------------------------------------ ----- ----- ----- Arizona..................................................... 385 263 388 California.................................................. 111 86 137 Colorado.................................................... 462 390 476 Florida..................................................... 986 1,146 967 Indiana/Ohio................................................ 62 10 -- Maryland/Virginia........................................... 113 82 131 Minnesota................................................... 119 87 144 Nevada...................................................... 119 90 81 New Jersey.................................................. 183 169 89 Texas....................................................... 191 228 291 ----- ----- ----- 2,731 2,551 2,704 ===== ===== =====
- --------------- (1) Homes under contract for sale but not delivered at end of year. 4 5 The Company anticipates that substantially all of its backlog units, net of cancellations, as of December 31, 1995 will be completed and delivered during 1996. While operations in certain market areas are affected by seasonal factors which limit on-site building and sales activities, the Company's ability to build and deliver its backlog is not considered to be seriously affected by such factors. SALES AND MARKETING The Company employs sales consultants for the sale of single-family homes, although sales by independent real estate brokers are also encouraged. Specific sales training programs are provided which inform sales consultants about sales techniques and methods as well as information about their local market, realtors and products. The sales programs focus on the Company's Zero Defect Program as a marketing tool because the sales force is the first contact with the customer. The Zero Defect Program is a quality assurance program with major emphasis on construction (see Construction below). The Company advertises primarily in magazines and local newspapers. Additionally, homes are marketed by means of model homes, pictorial brochures and on-site displays. The Company's general marketing strategy seeks to generate one-third of housing sales through advertisements, one-third through customer referrals and one-third through realtor contacts. The Company markets homes in "model home parks" featuring one or more model homes, attractively furnished and decorated and staffed by the Company's sales consultants who provide information regarding floor plans, the various elevations available, decorating options, as well as assisting with mortgage financing information. The model may include a variety of options and upgrades which the customer may request at an additional cost. Such upgrades may include items such as pools, fireplaces and decks. The Company constantly studies both aesthetic design and architectural trends, as well as quality construction and engineering trends, in order to provide customers with high quality, design and value. The Company has received numerous awards in various markets for outstanding housing design. Selling prices are set in each area based on local market conditions and competitive factors. The Company's gross margins vary from area to area based on competitive factors in each market. The Company's product lines include both single-family detached and attached homes. During 1995, 1994 and 1993, approximately 85% of the homes delivered were single-family detached. The number of units and average sales prices of single-family homes delivered in 1995, 1994 and 1993 were as follows:
SINGLE-FAMILY SINGLE-FAMILY DETACHED ATTACHED ----------------------- ----------------------- NUMBER AVERAGE NUMBER AVERAGE OF UNITS SALES PRICE OF UNITS SALES PRICE -------- ----------- -------- ----------- 1995................................. 5,708 $ 162,800 1,071 $ 136,400 1994................................. 5,411 155,200 976 127,900 1993................................. 4,773 145,000 813 119,500
The increases in the average sales prices of single-family detached and attached homes in 1995 and 1994 were primarily due to price increases. In 1995, the national average sales prices of new single-family homes (both detached and attached) as reported on a preliminary basis by the U.S. Census Bureau was $156,500 compared with an average sales price of $158,600 for the Company. 5 6 Variations in the general product and customer mix may exist from year to year based on shifts in local market demand or product availability. The table below sets forth the mix of the Company's deliveries for the affordable, move-up and retirement and active-adult/second home products during the last three years:
1995 1994 1993 ---- ---- ---- Affordable..................................................... 28% 34% 31% Move-up........................................................ 50% 47% 54% Retirement and active-adult/second home........................ 22% 19% 15%
Many purchasers finance a large portion of the purchase price of a home through conventional or government insured/guaranteed mortgages from lending institutions. The Company generally assists purchasers in obtaining mortgages. Approximately 82% of the homes delivered in 1995, and 85% delivered in 1994 and 86% delivered in 1993, were purchased using mortgage financing. The Company takes steps to qualify certain of its homes under Veterans Administration ("VA") and Federal Housing Administration ("FHA") mortgage financing programs, which provide mortgage financing sources. During 1995, 1994 and 1993, approximately 17%, 19% and 25% of the Company's homes delivered were financed under VA and FHA mortgage programs. CONSTRUCTION The Company's investment in direct employee labor costs, equipment and facilities is kept to a minimum because all construction of single-family homes is performed by independent subcontractors. At all stages of construction, however, on-site Company managers supervise and coordinate the activities of these subcontractors and subject their work to quality and cost control standards. The Company's Director of National Purchasing and Quality Control provides centralized management of quality standards, both with respect to the construction of homes and the purchase of certain major components used in the construction of homes. Company employees are rated and compensation incentives are affected by a measure of quality standards. The Company's commitment to quality and its use in the Company's sales efforts are best illustrated by its Zero Defect Program. Under the Zero Defect Program, the home buyer meets with the construction supervisor prior to the commencement of, and during, construction in order to ensure that the home buyer (i) is aware of all quality features of the house, including those which are not readily apparent in the finished house, (ii) agrees that the design features, including appliances, match those ordered and (iii) is satisfied with the finished product. The Company considers a completed house to have "zero defects" if, upon final inspection by the home buyer, only a few minor cosmetic items remain to be corrected. Construction subcontractors are selected on the basis of competitive bids and written agreements govern their relationship with the Company. All bids are based on detailed specifications and complete blueprints to ensure commitment to the Company's expectation for high quality workmanship. The Company purchases the majority of its construction material on a decentralized basis with a "just in time" delivery schedule to each individual job site. Materials are regularly purchased on a competitive bid basis to ensure both competitive pricing and high quality. In addition to local purchasing, the Company has entered into a number of national purchasing agreements in order to maximize purchasing power. Agreements with each vendor are negotiated on an annual basis by the Company's Director of National Purchasing and Quality Control. In order to minimize the risk associated with completed but unsold inventory, the Company generally does not commence construction of a single-family detached home prior to receipt of an executed purchase contract, a deposit from the customer and preliminary mortgage approval based on the purchaser's mortgage application. For single-family attached homes, construction does not generally commence until 50% of the units in a building have been sold. 6 7 REGULATION The Company and its subcontractors must comply with various federal, state and local zoning, building, pollution, environmental, health, advertising and consumer credit statutes, ordinances, rules and regulations, as well as other activities, including regulations relating to specific building materials to be used, building design and minimum elevations of properties. All of these regulations have increased the time and cost required to market the Company's products by extending the time between the initial acquisition of land and the commencement of construction. The Company's operations, like those of other home builders, have been periodically subject to moratoriums on development activities caused by insufficient water, sewage and energy-related facilities. Moratoriums in local areas have not had a material adverse effect on the Company's overall activities because of the geographic diversification of the Company's operations. COMPETITION The single-family residential housing industry is highly competitive. U.S. Home competes in each of its markets, with respect to the location, design and price of its products, with numerous firms engaged in the on-site development of single-family residential housing, ranging from regional and national firms to small local companies. The Company is one of the largest on-site builders of single-family homes in the United States, ranking among the ten largest single-family on-site home builders in the United States for more than 20 years. However, because there are so many firms engaged in the single-family home building industry, the Company accounts for less than 1% of all new on-site single-family housing sales in the United States. RAW MATERIALS AND SUBCONTRACTORS The Company uses numerous suppliers of raw materials and services in its business and such materials and services have been and continue to be available. Where appropriate, the Company has adopted national programs for products to maximize price discounts through volume purchases. The Company also utilizes numerous independent subcontractors representing all building trades in connection with the construction of its homes. COMMUNITY DEVELOPMENT A significant portion of the Company's finished lot needs are currently satisfied through rolling lot options, which enable the Company to initially pay a small fraction of total lot cost and then purchase the lots on a scheduled basis. For example, during 1995, 56% of the Company's unit deliveries were from lots owned by the Company and 44% were from lots acquired by the exercise of rolling lot options. The Company's policy is that land cannot be purchased or sold without prior approval of the Company's Asset Management Committee. Asset Management Committee approval requires submission of data relating to sales forecasts, a timing schedule (e.g., estimated dates for the commencement of land development, housing construction, model opening and sales) and a projection of income and internal rate of return. All development expenditures are reviewed by the respective President of Operations prior to the commencement of development. In addition, the Company's by-laws require approval by the Company's Board of Directors of any acquisition of unimproved real property or acreage by the Company which is material to the Company in any single transaction involving an expenditure in excess of $5 million and any other material capital expenditures, borrowings (subject to certain exceptions) and other commitments by the Company in excess of $5 million per transaction (excluding transactions involving housing inventory). The Presidents of Operations and the Division Presidents are responsible for maintaining continuity of housing sales through awareness of trends in housing demand in each market area. Feasibility studies and market research studies are generally required before approval of the purchase of land. These studies examine the demographics of an area, including population trends, income trends, employment trends, housing stock and housing demand. Products are matched to customer profile, determined in part by the market studies and the experience of the local manager in each market. 7 8 Housing communities are generally built in or near major metropolitan areas and are normally located in growing markets for such areas. At December 31, 1995, the Company's land and finished lot inventories totaled $330.1 million, excluding option deposits. See Note 1 of Notes to Consolidated Financial Statements. Substantially all housing communities are zoned for their intended use and serviced by utilities. As of December 31, 1995, the Company had deposits totaling $63.4 million for options to purchase undeveloped land and finished lots for home building operations for a total purchase price on exercise of approximately $296.2 million. The following table sets forth as of December 31, 1995, by state, the cost of certain of the Company's land inventories and the estimated number of lots controlled through direct ownership and under option which are being used or that are anticipated to be used in the Company's home building operations (dollars in thousands):
ESTIMATED NUMBER OF HOUSING UNITS THAT COULD BE CONSTRUCTED ON LAND CONTROLLED AS OF DECEMBER BOOK 31, 1995(1) COST OF -------------------------- LAND UNDER STATES OWNED OWNED OPTION TOTAL ------------------------------------------------- -------- ------ ------ ------ Arizona.......................................... $ 13,217 661 2,573 3,234 California....................................... 23,922 795 1,937 2,732 Colorado......................................... 66,937 5,372 3,083 8,455 Florida.......................................... 84,814 6,947 5,579 12,526 Indiana/Ohio..................................... 4,799 113 1,010 1,123 Maryland/Virginia................................ 21,105 572 1,214 1,786 Minnesota........................................ 15,082 816 634 1,450 Nevada........................................... 19,053 446 608 1,054 New Jersey....................................... 27,540 1,450 368 1,818 Texas............................................ 25,957 2,174 568 2,742 -------- ------ ------ ------ $302,426 19,346 17,574 36,920 ======== ====== ====== ======
- --------------- (1) The estimates set forth above have been prepared based on numerous assumptions made at the date hereof, many of which are beyond the control of the Company. Many of these assumptions, and hence the estimates, are subject to change. This table does not include commercial property and other properties which the Company has no current plans to use, with an aggregate cost of $27.7 million (including $9.7 million relating to land under contract for sale). In view of the various stages of development of the land owned by the Company as of December 31, 1995 (i.e., finished, under development and development not started), any per lot cost derived by dividing the book cost by the estimated number of units would not be meaningful. Inventory risk is substantial for all home building companies. The market value of housing inventories, finished lots and raw land can change significantly over the life of a community, reflecting dynamic market conditions. In addition, inventory carrying costs are significant which can result in losses when trying to exit a poorly performing community or market. The Company seeks to reduce its risks associated with housing inventories, finished lots and raw land through (i) maintaining its geographic diversity and (ii) acquiring lots and land under option where possible, thereby enabling the Company to control land and lots with a smaller capital investment. In 1995, the Company's revenues from the sale of developed and undeveloped land amounted to $16.1 million, as compared to revenues of $16.2 million in 1994 and $8.5 million in 1993. REORGANIZATION The Company and certain of its affiliates commenced proceedings (the "Cases") under Chapter 11 of Title 11 of the United States Code on April 15, 1991, in order to restructure their indebtedness and other liabilities. The Company's plan of reorganization (the "Plan") was confirmed in May 1993 by the United States Bankruptcy Court for the Southern District of New York and became effective in June 1993 (the 8 9 "Effective Date"). On the Effective Date, the Company also completed a public offering of $200 million principal amount of 9.75% senior notes due 2003, the net proceeds from which were utilized to pay a portion of the claims of certain unsecured creditors of the Company under the Plan and to repay outstanding amounts under the Company's debtor-in-possession financing facility. The Plan effected a recapitalization of the Company and did not result in a reduction in the scope or other major restructuring of the Company's operations. During the pendency of the Cases, the Company continued its home building operations in the ordinary course in its housing markets and improved its market share in a majority of such markets. The Company was able to retain its senior management and believes that it maintained customer, subcontractor and supplier goodwill and the confidence of its employees. For additional information, see Notes 4 and 8 of Notes to Consolidated Financial Statements. FINANCIAL SERVICES OPERATIONS The Company's second industry segment consists primarily of its mortgage banking activities. U.S. Home Mortgage Corporation ("Mortgage"), a wholly-owned subsidiary of the Company, commenced operations in 1971 and serves an important role in the Company's sale of its homes by arranging financing for customers. Mortgage is a Federal National Mortgage Association/Government National Mortgage Association/Federal Home Loan Mortgage Corporation approved seller-servicer, headquartered in Clearwater, Florida with branch offices in the metropolitan areas of Phoenix and Tucson, Arizona; Sacramento, California; Denver, Colorado; metropolitan Washington, D.C.; Clearwater, Fort Myers and Orlando, Florida; Minneapolis, Minnesota; Las Vegas, Nevada; and Dallas, Texas. The Company offers a wide variety of conventional, FHA and VA financing programs through Mortgage, thereby providing prospective buyers the benefits of both conventional and government-assisted loan programs. As a mortgage banker, Mortgage originates and funds mortgage loans and sells the loans and the related servicing rights directly to investors. Loans and servicing rights are generally sold by Mortgage and funded by the investors within 30 days after home delivery. To limit its risk of interest rate fluctuations, Mortgage regularly enters into fixed price mandatory forward delivery contracts to sell mortgage-backed securities to securities dealers or fixed price forward delivery commitments to sell specific whole loans to investors on a mandatory or best efforts basis. Mortgage has a secured revolving line of credit to fund the mortgage loans on an interim basis until purchased by investors. See Note 2 of Notes to Consolidated Financial Statements. The following table summarizes certain mortgage banking operating information (dollars in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- Residential mortgage loans Number of loans originated......................... 3,367 2,987 3,050 Average amount of loan originated.................. $ 128 $ 122 $ 114 Total amount of loans originated: Funded by Mortgage.............................. $376,000 $308,000 $317,000 Brokered by Mortgage............................ 57,000 58,000 30,000 -------- -------- -------- Total...................................... $433,000 $366,000 $347,000 ======== ======== ======== Company's homes delivered financed by Mortgage as a percentage of Company's homes delivered which were financed........................................... 57% 50% 51% Company's homes delivered financed by Mortgage as a percentage of Mortgage's total originations........ 95% 92% 83%
While the Company continues to focus its attention primarily upon the expansion of Mortgage's operations within the Company's own customer base, Mortgage also offers its services to realtors, unaffiliated builders and refinance customers. 9 10 Among the factors affecting Mortgage's operations are general economic conditions, federal, state and local regulatory constraints, consumer confidence and interest rate volatility. These factors, together with the number of homes delivered by the Company, affect the volume of loan originations which in turn impact the resulting volume of mortgage loans and mortgage servicing rights available for sale. ADDITIONAL INFORMATION EMPLOYEES At December 31, 1995, the Company had 1,379 employees, of whom 1,236 were employed in home building operations and 143 were employed in financial services operations. None of the Company's employees are represented by a union. The Company considers its relations with its employees to be good. The Company's single-family housing and community development operations are conducted primarily through independent subcontractors, thereby limiting the number of direct employees required. ITEM 2. PROPERTIES The Company leases its executive offices, located at 1800 West Loop South, Houston, Texas 77027, pursuant to a lease scheduled to expire on February 28, 1999. The Company does not believe that its executive offices or its other facilities, consisting of sales and administrative offices located in or near each of the Company's areas of operations and generally held under leases with terms not exceeding five years, are material to its operations. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising from the normal course of business, none of which, in the opinion of the Company, is expected to have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE COMPANY The Company's executive officers during 1995 and their respective ages and positions are set forth below:
NAME AGE POSITION AND OFFICE - --------------------------------- --- --------------------------------------------- Robert J. Strudler............... 53 Chairman and Co-Chief Executive Officer Isaac Heimbinder................. 52 President, Co-Chief Executive Officer and Chief Operating Officer Craig M. Johnson................. 42 Senior Vice President -- Community Development Gary L. Frueh.................... 55 Vice President -- Tax and Audit Thomas A. Napoli................. 54 Vice President -- Finance and Chief Financial Officer Chester P. Sadowski.............. 49 Vice President -- Controller and Chief Accounting Officer Richard G. Slaughter............. 51 Vice President -- Planning and Secretary Kelly F. Somoza.................. 42 Vice President
No family relationship exists among any of the executive officers of the Company. Each of the foregoing officers has been elected to serve in the office indicated until the first meeting of the Board of Directors following the next annual meeting of stockholders of U.S. Home and until his or her successor is elected and qualified. 10 11 Mr. Strudler has served as Chairman and Co-Chief Executive Officer since April 26, 1995; prior thereto, he had been Chairman and Chief Executive Officer of the Company since May 12, 1986. Mr. Heimbinder has served as President, Co-Chief Executive Officer and Chief Operating Officer since April 26, 1995; prior thereto, he had been President and Chief Operating Officer of the Company since May 12, 1986. Mr. Johnson has served as Senior Vice President -- Community Development since April 26, 1995; prior thereto, he had been Vice President -- Community Development since June 11, 1992, and Executive Vice President, Community Development since October 14, 1988. Mr. Frueh has served as Vice President -- Tax and Audit since February 5, 1992; prior thereto, he had been Vice President -- Tax since December 18, 1986. Mr. Napoli has served as Vice President -- Finance and Chief Financial Officer since April 21, 1989. Mr. Sadowski has served as Vice President -- Controller and Chief Accounting Officer since December 17, 1987. Mr. Slaughter has served as Vice President -- Planning since December 18, 1986; prior thereto, he had been Secretary since June 26, 1986. Ms. Somoza has served as Vice President since June 11, 1992; prior thereto, she had been Director, Investor Relations since December 31, 1981. Ms. Somoza is responsible for the Company's public and investor relations, and is the administrator of the Company's profit sharing and employees' savings programs. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of February 2, 1996, there were 3,694 holders of record of the Company's common stock, $.01 par value per share. The principal market on which the common stock is traded is the New York Stock Exchange. Information concerning the high and low sales prices for the Company's common stock for each calender quarter during 1995 and 1994 is set forth below:
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 CALENDAR ----------------- ----------------- QUARTER HIGH LOW HIGH LOW -------- ------ ------ ------ ------ First........................................... $18.25 $14.75 $29.38 $20.75 Second.......................................... 25.38 16.13 22.25 14.00 Third........................................... 25.88 20.25 18.50 14.63 Fourth.......................................... 29.25 23.25 16.38 14.38
No dividends were paid by the Company during 1995 or 1994. The Company's credit agreement (the most restrictive of the Company's borrowing agreements) prohibits the Company from paying dividends on its capital stock, other than stock dividends. 11 12 ITEM 6. SELECTED FINANCIAL DATA U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Operating Revenues......................... $1,107,945 $995,311 $812,077 $689,900 $495,117 Operating Income (Loss).................... 59,072 52,526 44,640 29,349 (4,832) Reorganization Items....................... -- -- 6,915 50,703 3,978 Income Taxes............................... 22,152 19,697 (33,966) -- -- ---------- -------- -------- -------- -------- Net Income (Loss)................... $ 36,920 $ 32,829 $ 71,691 $(21,354) $ (8,810) ========== ======== ======== ======== ======== Net Income (Loss) Per Common And Common Equivalent Share(1): Primary.................................. $ 3.14 $ 2.89 $ 6.16(2) $ (1.89) $ (.78) Fully Diluted............................ $ 2.68 $ 2.50 $ 5.93(2) $ (1.89) $ (.78) Dividends Per Common Share................. $ -- $ -- $ -- $ -- $ -- BALANCE SHEET DATA (at year end): Total Assets............................... $ 842,084 $753,203 $682,637 $545,110 $612,859 ========== ======== ======== ======== ======== Revolving Credit Facilities -- Housing(3)............................... $ 24,000 $ 7,553 $ -- $172,373 $183,271 Financial Services....................... 35,371 10,014 20,566 14,079 -- ---------- -------- -------- -------- -------- $ 59,371 $ 17,567 $ 20,566 $186,452 $183,271 ========== ======== ======== ======== ======== Senior And Convertible Subordinated Debt And Notes Payable -- Housing(3)............................. $ 300,599 $304,327 $311,937 $161,736 $212,846 Financial Services..................... -- 1,034 1,102 1,797 9,934 ---------- -------- -------- -------- -------- $ 300,599 $305,361 $313,039 $163,533 $222,780 ========== ======== ======== ======== ========
- --------------- (1) Income (loss) per common and common equivalent share has been computed using the weighted average number of common and common equivalent shares outstanding, assuming the Company's current capital structure had been effective as of the beginning of all periods presented. This differs from historical primary and fully diluted income (loss) per common and common equivalent share previously reported (based on the Company's former capital structure) for the years ended December 31, 1992 and 1991, of $(.47) and $(.20), respectively. The Company believes that earnings per common share information for 1992 and 1991 is of limited use and relevance in view of the significant changes in ownership of the Company's capital stock and the Company's capital structure which occurred in 1993 under the Plan. (2) Primary and fully diluted income per share in 1993 were $2.29 per share and $2.21 per share, respectively, excluding $3.87 primary income per share and $3.72 fully diluted income per share, respectively, due to the decrease in the deferred tax asset valuation allowance. See Note 3 of Notes to Consolidated Financial Statements. (3) Includes unsecured debt of $266,635 at December 31, 1992 which was exchanged for a combination of cash and equity securities, and secured debt of $5,213 at December 31, 1992 which was either reinstated or the property securing the debt was deeded to the lenders in full satisfaction of the debt. 12 13 ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Housing The following table sets forth certain financial information for the Company's housing segment for the periods indicated (dollars in thousands, except average sales price):
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 ---------- -------- -------- Revenues -- Single-family homes............................. $1,075,206 $964,751 $789,474 Land and other.................................. 17,077 17,627 9,476 ---------- -------- -------- Total................................... $1,092,283 $982,378 $798,950 ========== ======== ======== Single-family homes -- Gross margin amount............................. $ 173,558 $156,982 $127,901 Gross margin percentage......................... 16.1% 16.3% 16.2% Units delivered................................. 6,779 6,387 5,586 Average sales price............................. $ 158,600 $151,000 $141,300 New orders taken................................ 6,959 6,234 6,418 Backlog at end of year.......................... 2,731 2,551 2,704 Selling, general and administrative expenses as a percentage of housing revenues.................. 10.8% 11.0% 11.0% Interest expense -- Paid or accrued................................. $ 31,995 $ 30,820 $ 22,105 Capitalized..................................... $ 31,995 $ 30,820 $ 21,920 Percentage capitalized.......................... 100.0% 100.0% 99.2% Capitalized interest included in cost of sales.... $ 27,555 $ 28,871 $ 22,342
Revenues and Gross Margin Revenues from sales of single-family homes for 1995 increased 11% from 1994. The increase resulted from a 6% increase in the number of housing units delivered and a 5% increase in the average sales price. Revenues from sales of single-family homes for 1994 increased 22% from 1993, resulting primarily from a 14% increase in the number of housing units delivered and a 7% increase in the average sales price. The increases in the average sales prices in 1995 and 1994 were primarily due to price increases. The gross margin percentage was essentially unchanged over the three-year period as increases in sales prices in the three year period were offset by cost increases. New orders taken in 1995 increased 12% from 1994. The increase in new orders in 1995 reflects the demand for new single-family homes which the Company believes was brought about by the decrease in mortgage interest rates starting in the second quarter of 1995. New orders taken in 1994 decreased 3% from 1993. The decline in new orders in 1994 occurred in the second half of the year which the Company believes was attributable to the increases in mortgage interest rates. Selling, General and Administrative Expenses As a percentage of housing revenues, selling, general and administrative expenses declined in 1995 as compared to both 1994 and 1993. Actual selling, general and administrative expense for 1995 increased $10.2 million compared to 1994. This increase was attributable to increases in volume-related expenses ($4.7 million) resulting from the increase in deliveries in 1995 when compared to 1994 and increases in other selling, general and administrative expenses resulting from increased activities and earnings. Similarly, selling, general and administrative expenses increased by $19.5 million in 1994 compared to 1993, due to increases in 13 14 volume-related expenses ($6.5 million) resulting from increases in deliveries in 1994 when compared to 1993 and increases in other selling, general and administrative expenses resulting from increased activities and earnings. Interest Expense Interest paid and accrued for 1995 increased approximately 4% compared to 1994 and increased approximately 39% in 1994 compared to 1993. The increase in 1994 over 1993 was primarily due to interest on a majority of the Company's debt in the first six months of 1993 being stayed during the pendency of the Cases. Reorganization Items, Net Reorganization items in 1993 represent expenses (primarily professional and other fees) incurred by the Company resulting from the Cases and are specific to the reorganization process. Pursuant to the Plan, the Company issued 140,000 shares of common stock on June 21, 1993 to corporate officers and certain other key employees for services rendered in connection with the reorganization of the Company. The Company has reflected the issuance as an increase in stockholders' equity and an offsetting charge to earnings of $2.9 million based upon the market price of the common stock on June 21, 1993. Financial Services Revenues Revenues for the financial services segment for the periods indicated were as follows (dollars in thousands):
YEARS ENDED DECEMBER 31, ----------------------------- 1995 1994 1993 ------- ------- ------- U.S. Home Mortgage Corporation and Subsidiaries......... $12,477 $ 9,885 $10,303 Other financial services subsidiaries................... 3,185 3,048 2,824 ------- ------- ------- $15,662 $12,933 $13,127 ======= ======= =======
Mortgage provides financing primarily to purchasers of homes sold by the Company's housing operations through origination of residential mortgage loans and engages in the sale of such mortgages and related servicing rights to unaffiliated investors. Mortgage's operations are affected, among other things, by general economic conditions, consumer confidence and interest rate volatility. These factors, together with the number of homes delivered by the Company, affect the volume of loan originations which in turn impact the resulting volume of mortgages and servicing rights for sale. The increase in Mortgage's revenues in 1995 from 1994 was primarily due to an increase in mortgage loan originations and income from the sales of mortgage loans and servicing rights while the decrease in its revenues for 1994 from 1993 was primarily due to decreased marketing income as a result of increased pricing competition and volatility in the secondary mortgage markets. FINANCIAL CONDITION AND LIQUIDITY Housing The Company's most significant needs for capital resources are land and finished lot purchases, land development and housing construction. The Company's ability to generate cash adequate to meet these needs is principally achieved from the sale of homes and the margins thereon, the utilization of Company-owned lots and borrowings under its financing facilities, including the Credit Agreement (see below). Access to quality land and lot locations is an integral part of the Company's success. Typically, in order to secure the rights to quality locations and provide sufficient lead time for development, the Company must acquire land rights well in advance of when orders for housing units are expected to occur. The Company 14 15 attempts to minimize its exposure to the cyclical nature of the housing market and its use of working capital by employing rolling lot options, which enable the Company to initially pay a small portion of the total lot cost and then purchase the lots on a scheduled basis. Over the last three years, approximately 44% of the units delivered have been on lots acquired under rolling lot option agreements. The increase in land inventories in 1995 from 1994 and 1994 from 1993 was primarily the result of increased activities, including the increase in the Company's retirement and active-adult/second home communities activities. The Company has financed, and expects to continue to finance, its working capital needs from operations and borrowings, including those made under the Company's $130 million unsecured revolving credit agreement ("Credit Agreement") entered into in September 1995 (which replaced the Company's secured working capital facility). The Credit Agreement (and previous credit facilities) have enabled the Company to meet peak operating needs and, more currently, to finance the Company's recent increase in land inventories. See Note 2 of Notes to Consolidated Financial Statements. Also, certain of the properties owned or under option by the Company may be located within community development districts ("Districts") formed by municipalities to construct and finance certain infrastructure/improvements on property in the Districts' area. The Districts utilize assessment revenue bonds to fund improvements and repay the bonds by annual assessments on District property based on the property's relative value to other District property. The Company provides no credit support for and is not liable for the debt of the Districts, except to the extent of actual assessments made by the Districts. The Company may utilize Districts to a greater extent in the future. On January 31, 1996, the Company filed a Registration Statement with the Securities and Exchange Commission relating to the continuous offering pursuant to Rule 415 under the Securities Act of 1933, as amended, of up to $100 million principal amount of debt securities. The debt securities registered thereunder may be sold in one or more series from time to time. The offering of the debt securities will be made only by means of a prospectus. The net cash provided or used by the operating, investing and financing activities of the housing operations for the years ended December 31, 1995, 1994 and 1993 is summarized below (dollars in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- Net cash provided (used by): Operating activities............................... $(13,752) $(17,887) $(61,613) Investing activities............................... (2,041) (1,676) 1,520 Financing activities............................... 5,216 (3,445) 70,262 -------- -------- -------- Net increase (decrease) in cash...................... $(10,577) $(23,008) $ 10,169 ======== ======== ========
Housing operations are, at any time, affected by a number of factors, including the number of housing units under construction and housing units delivered. Housing construction and land asset activities increased in 1995 over 1994 and in 1994 over 1993. However, housing operating activities for 1995 used less cash than in 1994 primarily due to increased profitability and the timing of payments related to these activities. Housing operating activities used less cash in 1994 than in 1993 primarily due to an increase in the number of housing units delivered offset in part by an increase in construction and land asset activities. Cash flow from housing financing activities increased in 1995 from 1994 primarily due to increased net borrowings under the Company's revolving credit facilities to finance increases in housing and land assets necessary to meet increased sales activities. Cash flow from housing financing activities for 1994 was used for the repayment of notes and mortgages payable, offset by net borrowings under the Company's revolving credit facilities. The Company believes that cash flow from operations and amounts available under the Credit Agreement will be sufficient to meet its current working capital obligations and other needs. However, should the Company require capital in excess of that which is currently available, there can be no assurance that it will be available. 15 16 Financial Services Mortgage's activities represent a substantial portion of the financial services segment's activities. As loan originations by Mortgage are primarily from homes sold by the Company's home building operations, Mortgage's financial condition and liquidity are to a significant extent dependent upon the financial condition of the Company. Financial services operating activities are affected primarily by Mortgage's loan originations which result in the sale of mortgage loans and related servicing rights to third party investors. Cash flows from financial services operating activities are also affected by the timing of the sale of loans and servicing rights which generally are sold to investors within 30 days after homes are delivered. In this regard, cash flows from financial services operating activities for 1995 used more cash compared to 1994 primarily due to an increase in residential mortgage loan receivables while financial services operating activities in 1994 used less cash compared to 1993 primarily due to a decrease in residential mortgage loan receivables. The Company finances its financial services operations primarily from internally generated funds, such as from the origination and sale of residential mortgage loans and related servicing rights, and short-term debt. As more fully discussed in Note 2 of Notes to Consolidated Financial Statements, the short-term debt consists of a $45 million secured revolving line of credit (the "Mortgage Credit Facility") which matures on August 31, 1996. While the Mortgage Credit Facility contains numerous covenants, including a debt to tangible net worth ratio and a minimum tangible net worth requirement, these covenants are not anticipated to significantly limit Mortgage's operations. The Company has no obligation to provide funding to its financial services operations, nor does it guarantee any of its financial services subsidiaries' debt. The Company believes that internally generated funds and the Mortgage Credit Facility will be sufficient to provide for Mortgage's working capital needs. OTHER Impact of Inflation Inflation not only affects interest rates on funds borrowed by the Company, but also affects the affordability of permanent mortgage financing available to prospective customers. Increased construction costs associated with rising interest rates, as well as increased material costs, compress gross margins in the short-term, but may be recovered in the long-term through increases in sales prices, although such increases may reduce sales volume. In recent years, inflation has not had a significant adverse effect on the Company. Future Accounting Requirement In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). For the Company, SFAS No. 123 will be effective for the year beginning January 1, 1996. SFAS No. 123 recommends all stock-based employee compensation plans, such as the Company's incentive stock option plans, be accounted for using the fair value method but allows for the continued application of the intrinsic value concept under existing accounting rules prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"). In general, use of the fair value method would require the Company to estimate the fair value of its stock options as of the grant date using an option-pricing model (such as Black-Scholes) and charge this estimate to expense over the vesting period. The accounting prescribed by APB 25 requires no expense recognition because the options are granted at the prevailing market prices at dates of grant. SFAS No. 123 requires proforma net income and earnings per share disclosures for those companies which continue to follow APB 25 rather than adopt the fair value method of accounting. The Company currently plans to continue to value its stock options using the guidance of APB 25 and to implement SFAS No. 123 by including the proforma disclosures in the notes to its consolidated financial statements for the year ended December 31, 1996. 16 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA U.S. HOME CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets -- December 31, 1995 and 1994 Consolidated Statements of Operations -- For the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows -- For the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity -- For the Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements 17 18 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To U.S. Home Corporation: We have audited the accompanying consolidated balance sheets of U.S. Home Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Home Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas February 1, 1996 18 19 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS
1995 1994 -------- -------- HOUSING: Cash (including restricted funds of $334 and $614).................... $ 5,110 $ 1,148 Receivables, net...................................................... 33,454 27,471 Single-Family Housing Inventories..................................... 632,035 576,779 Option Deposits on Real Estate........................................ 63,375 53,621 Deferred Tax Asset.................................................... -- 13,727 Other Assets.......................................................... 43,437 41,869 -------- -------- 777,411 714,615 -------- -------- FINANCIAL SERVICES: Cash (including restricted funds of $4,004 and $4,051)................ 5,456 5,567 Residential Mortgage Loans............................................ 43,292 24,672 Other Assets.......................................................... 15,925 8,349 -------- -------- 64,673 38,588 -------- -------- $842,084 $753,203 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY HOUSING: Accounts Payable...................................................... $ 88,234 $ 85,581 Accrued Expenses and Other Current Liabilities........................ 46,070 40,497 Revolving Credit Facilities........................................... 24,000 7,553 Senior and Convertible Subordinated Debt and Notes Payable............ 300,599 304,327 -------- -------- 458,903 437,958 -------- -------- FINANCIAL SERVICES: Accrued Expenses and Other Current Liabilities........................ 18,818 12,733 Notes Payable......................................................... 35,371 11,048 -------- -------- 54,189 23,781 -------- -------- Total Liabilities............................................. 513,092 461,739 -------- -------- STOCKHOLDERS' EQUITY: Convertible Preferred Stock, $25 per share redemption value, 319,254 and 518,772 shares outstanding at December 31, 1995 and 1994....... 7,981 12,969 Common Stock, 11,243,147 and 10,909,860 shares outstanding at December 31, 1995 and 1994.................................................. 112 109 Capital in Excess of Par Value........................................ 348,577 340,673 Retained Earnings (Deficit)........................................... (25,367) (62,287) Unearned Compensation on Restricted Stock............................. (2,311) -- -------- -------- Total Stockholders' Equity......................................... 328,992 291,464 -------- -------- $842,084 $753,203 ======== ========
The accompanying notes are an integral part of these balance sheets. 19 20 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 ---------- -------- -------- HOUSING: Operating Revenues........................................ $1,092,283 $982,378 $798,950 ---------- -------- -------- Operating Costs and Expenses -- Cost of products sold.................................. 918,648 823,597 668,706 Selling, general and administrative.................... 117,896 107,736 88,229 Interest, net.......................................... -- -- 185 ---------- -------- -------- 1,036,544 931,333 757,120 ---------- -------- -------- Housing Operating Income.................................. 55,739 51,045 41,830 ---------- -------- -------- FINANCIAL SERVICES: Operating Revenues........................................ 15,662 12,933 13,127 ---------- -------- -------- Operating Costs and Expenses -- General and administrative............................. 11,637 10,915 9,049 Interest............................................... 692 537 1,268 ---------- -------- -------- 12,329 11,452 10,317 ---------- -------- -------- Financial Services Operating Income....................... 3,333 1,481 2,810 ---------- -------- -------- INCOME BEFORE REORGANIZATION ITEMS AND INCOME TAXES......... 59,072 52,526 44,640 REORGANIZATION ITEMS........................................ -- -- 6,915 ---------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 59,072 52,526 37,725 ---------- -------- -------- PROVISION FOR INCOME TAXES -- Federal and State Income Taxes............................ 22,152 19,697 11,034 Decrease in Deferred Tax Asset Valuation Allowance........ -- -- (45,000) ---------- -------- -------- 22,152 19,697 (33,966) ---------- -------- -------- NET INCOME.................................................. $ 36,920 $ 32,829 $ 71,691 ========= ======== ======== INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Primary................................................... $ 3.14 $ 2.89 $ 6.16 ========= ======== ======== Fully Diluted............................................. $ 2.68 $ 2.50 $ 5.93 ========= ======== ========
The accompanying notes are an integral part of these statements. 20 21 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
1995 1994 1993 -------- --------- --------- Cash Flows From Operating Activities: Net income............................................... $ 36,920 $ 32,829 $ 71,691 Adjustments to reconcile net income to net cash provided by operating activities -- Decrease in deferred tax asset........................ 13,727 22,125 9,148 Decrease in deferred tax asset valuation allowance.... -- -- (45,000) Noncash reorganization items.......................... -- -- 2,940 Other, net (principally depreciation and amortization)....................................... 4,579 4,578 9,060 Changes in assets and liabilities -- Increase in receivables, inventories and other assets........................................... (94,337) (107,200) (98,926) Increase (decrease) in accounts payable and accrued liabilities...................................... 14,923 48,662 (20,456) -------- --------- --------- Net cash provided (used) by operating activities......... (24,188) 994 (71,543) -------- --------- --------- Cash Flows From Investing Activities: Purchase of property, plant and equipment, net of disposals............................................. (2,526) (2,034) (2,273) Decrease in restricted cash.............................. 327 436 4,098 Proceeds from investments in mortgages................... 1,687 868 1,015 Other.................................................... (661) 22 (353) -------- --------- --------- Net cash provided (used) by investing activities......... (1,173) (708) 2,487 -------- --------- --------- Cash Flows From Financing Activities: Proceeds from short-term debt, net of repayments......... 41,058 (2,410) (12,095) Net proceeds from sale of senior notes and convertible subordinated debentures............................... -- -- 271,800 Long-term debt assumed................................... -- 1,037 -- Repayment of long-term debt.............................. (11,519) (12,692) (17,022) Payment of liabilities subject to compromise............. -- -- (166,020) -------- --------- --------- Net cash provided (used) by financing activities......... 29,539 (14,065) 76,663 -------- --------- --------- Net Increase (Decrease) In Cash............................ 4,178 (13,779) 7,607 Cash At Beginning Of Year.................................. 2,050 15,829 8,222 -------- --------- --------- Cash At End Of Year........................................ $ 6,228 $ 2,050 $ 15,829 ======== ========= ========= Supplemental Disclosure: Interest paid, before amount capitalized -- Housing............................................... $ 31,761 $ 30,559 $ 30,384 Financial Services.................................... 645 572 1,302 -------- --------- --------- $ 32,406 $ 31,131 $ 31,686 ======== ========= =========
The accompanying notes are an integral part of these statements. 21 22 U.S. HOME CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
UNEARNED COMMON STOCK CONVERTIBLE CAPITAL IN COMPENSATION RETAINED -------------------- PREFERRED EXCESS OF ON RESTRICTED EARNINGS $.10 PAR $.01 PAR STOCK PAR VALUE STOCK (DEFICIT) -------- -------- ----------- ---------- ------------- --------- BALANCE AT DECEMBER 31, 1992................... $ 4,531 $ -- $ -- $ 216,322 $ -- $(166,807) Common and convertible redeemable preferred stock issued in connection with the Plan (8,524,468 shares and 2,816,762 shares, respectively)............................. (4,531) 85 70,419 65,277 -- -- Conversion of convertible redeemable preferred stock to common stock (862,032 shares)................................... -- 9 (21,551) 21,542 -- -- Other........................................ -- -- -- 52 -- Net income for the year...................... -- -- -- -- -- 71,691 -------- ------ --------- --------- ------- --------- BALANCE AT DECEMBER 31, 1993................... -- 94 48,868 303,193 -- (95,116) Conversion of convertible redeemable preferred stock to common stock (1,435,835 shares)................................... -- 14 (35,896) 35,882 -- -- Issuance of common stock under incentive bonus program (29,046 shares)............. -- -- -- 740 -- -- Contribution of common stock issued to profit sharing plan (55,000 shares).............. -- 1 -- 847 -- -- Other........................................ -- -- (3) 11 -- -- Net income for the year...................... -- -- -- -- -- 32,829 -------- ------ --------- --------- ------- --------- BALANCE AT DECEMBER 31, 1994................... -- 109 12,969 340,673 -- (62,287) Conversion of convertible redeemable preferred stock to common stock (198,536 shares)................................... -- 2 (4,963) 4,961 -- -- Issuance of common stock under stock payment plan (21,731 shares)...................... -- -- -- 382 -- -- Issuance of common stock under restricted stock plan (144,547 shares)............... -- 1 -- 2,599 (2,600) -- Other........................................ -- -- (25) (38) 289 -- Net income for the year...................... -- -- -- -- -- 36,920 -------- ------ --------- --------- ------- --------- BALANCE AT DECEMBER 31, 1995................... $ - $ 112 $ 7,981 $ 348,577 $(2,311) $ (25,367) ======== ====== ========= ========= ======= =========
The accompanying notes are an integral part of these statements. 22 23 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SIGNIFICANT ACCOUNTING POLICIES General Nature of Operations The Company is one of the largest single-family home builders in the United States based on homes delivered. The Company currently builds and sells homes in more than 200 new home communities in 32 market areas in 12 states. The Company offers a wide variety of moderately-priced homes that are designed to appeal to the affordable, move-up and retirement and active-adult/second home buyers. In addition to building and selling single-family homes, the Company provides mortgage banking services to its customers. The Company originates, processes and sells mortgages to third-party investors. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors. Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries after elimination of all significant intercompany balances and transactions. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Management's estimates and assumptions are reflective of, among other things, prevailing market conditions, expected market conditions based on published economic forecasts, current operating strategies and the availability of capital which are all subject to change. Changes to the aforementioned or other conditions could in turn cause changes to such estimates and assumptions and, as a result, actual results could differ from the original estimates. The Company is engaged in two related industry segments, the on-site development of single-family residential communities and financial services. Identifiable assets and the results of operations of the Company's segments are reported in the consolidated balance sheets and consolidated statements of operations. Capital expenditures, depreciation and amortization expense for the years ended December 31, 1995, 1994 and 1993 were insignificant. Accounting Change The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121"), in March 1995, with an effective date for fiscal years beginning after December 15, 1995, to provide additional guidance on when long-lived assets should be reviewed for possible impairment, how impairment losses should be measured and when such losses should be recognized. In addition to long-lived assets, SFAS No. 121 amended the accounting standards for valuing real estate assets to the lower of cost or fair value less cost to sell (for certain assets the lower of cost or fair value) from the lower of cost or net realizable value. Under SFAS No. 121, real estate assets are to be reviewed for possible impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable such as a significant decrease in market value, a significant adverse change in legal factors or business climate, a significant change in intended use, an accumulation of costs significantly in excess of the amount originally expected, or current period losses combined with a history of losses or a forecast of continuing losses. If indications are that the carrying amount of an asset may not be recoverable, SFAS No. 121 requires an estimate of the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If these cash 23 24 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) flows are less than the carrying amount of the asset, an impairment loss must be recognized to write down the asset to its estimated fair value less cost to sell. While the determination of whether a property is impaired under the new accounting standard is similar to previous accounting standards, the amount of a write-down under SFAS No. 121 could be greater than under the previous standards. Fair value differs from net realizable value in that, among other things, fair value assumes a cash sale under current market conditions, considers a potential purchaser's requirement for future profit and discounts the timing of estimated future cash receipts, whereas net realizable value is the price obtainable in the future based on the current intended use of the land, net of disposal and holding costs, without provision for future profits or discounting future cash flow to present value. During the fourth quarter of 1995, the Company elected to early adopt SFAS No. 121 retroactive to January 1, 1995. The adoption of SFAS No. 121 did not impact the Company's results of operations or financial position and did not result in a restatement of any of the financial results for the prior three quarters of 1995. The Company believes the adoption of SFAS No. 121 would not have had a material effect in 1994 or 1993 had SFAS No. 121 been applied to those years. Income Per Share The following weighted average number of common and common equivalent shares were used to compute income per share:
1995 1994 1993 ---------- ---------- ---------- Primary.................................. 11,773,099 11,366,810 11,631,071 Fully diluted............................ 14,525,989 13,620,331 12,110,237
The weighted average number of common and common equivalent shares outstanding for primary income per share include the dilutive effect of the convertible redeemable preferred stock and Class B warrants and the assumed exercise of stock options for periods subsequent to June 21, 1993 (based on the average stock price for the periods). No effect was given to the shares that would be issuable on exercise of the warrants and stock options in 1994, since they would be antidilutive or immaterial. Fully diluted income per share includes the assumed conversion of the convertible subordinated debentures and the dilutive effect of the Class B warrants and stock options (based on the higher year-end stock price) in 1995 and 1993. Cash Equivalents The Company considers all short-term investments with an initial maturity of less than 90 days to be cash equivalents. Financial Instruments The Company believes that fair value approximates recorded values for such financial instruments as cash and cash equivalents, trade receivables and payables, short-term debt and option deposits because of the typically liquid, short-term nature, market rate terms and lack of specific concentration of these instruments. The fair value of the senior notes and convertible subordinated debentures can not be determined as neither of these instruments are actively traded on the open market. The Company has been informed that the senior notes are currently trading at a nominal premium and the convertible subordinated debentures are currently trading at a discount under ten percent; however, the actual amount of the premium or discount can not be determined because of the limited activity. The Company does not presently intend to repurchase any of these instruments prior to maturity. In addition, the Credit Agreement (see Note 2) prohibits the Company from repurchasing the convertible subordinated debentures. 24 25 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The fair value of the Company's residential mortgage loans approximate their carrying value as such loans are packaged and sold to investors generally within 30 days after home delivery. Additionally, a significant portion of the Company's interest rate risk associated with and generated by these loans is mitigated by the use of forward delivery contracts and commitments. See Hedging Contracts below. Housing Sales and Profit Recognition Profit is recognized from the sale of real estate at time of closing, i.e., when sufficient down payment has been made; any financing has been arranged; title, possession and other attributes of ownership have been transferred to the buyer; and the Company is not obligated to perform additional significant activities after the sale. Inventories and Valuation The components of single-family housing inventories are as follows:
1995 1994 -------- -------- Housing completed and under construction....................... $238,508 $224,870 Models......................................................... 63,475 47,914 Finished lots.................................................. 129,260 118,508 Land under development......................................... 50,714 60,809 Land held for development or sale.............................. 150,078 124,678 -------- -------- $632,035 $576,779 ======== ========
The cost of acquiring and developing land and constructing certain amenities are allocated to the related parcels. Housing inventories are recorded using the specific identification method. As discussed in Accounting Change above, the Company adopted SFAS No. 121 during 1995. Thus, the Company records land under development and to be developed at the lower of cost or fair value and records land substantially completed and ready for its intended use, land held for sale and housing inventories at the lower of cost or fair value less cost to sell. Fair value is the amount at which a property could be bought or sold in a current transaction between willing parties. Prior to 1995, the Company recorded its inventories at the lower of cost or net realizable value. Provisions to reduce land and housing inventories to the lower of cost or fair value in 1995 and the lower of cost or net realizable value in 1994 and 1993 were not significant. Total land and housing reserves were $36,370, $35,417 and $48,362 at December 31, 1995, 1994, and 1993, respectively. During 1995 and 1993, the Company acquired land assets in several transactions with third parties totaling approximately $14,832 and $5,697, respectively, in which the Company received land suitable for single-family detached homes, and these acquisitions were treated as non-cash transactions for purposes of the consolidated statements of cash flows. 25 26 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Capitalization Period Interest is capitalized on land, finished building lots and single-family residential housing construction costs during the development and construction period. Interest is capitalized to eligible assets using an allocation method based on the Company's actual interest costs. A summary of interest for 1995, 1994 and 1993 follows:
YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ------- -------- -------- Capitalized at beginning of year -- U.S. Home......................................... $56,082 $ 55,580 $ 57,474 Joint ventures consolidated....................... -- -- 1,234 -------- -------- -------- 56,082 55,580 58,708 -------- -------- -------- Paid and accrued.................................... 31,995 30,820 22,105 Expensed............................................ -- -- (185) -------- -------- -------- Capitalized......................................... 31,995 30,820 21,920 Included in cost of sales........................... (27,555) (28,871) (22,342) Included in reorganization items, asset write-downs and other......................................... (624) (1,447) (2,706) -------- -------- -------- Capitalized at end of year.......................... $59,898 $ 56,082 $ 55,580 ======== ======== ========
Under Chapter 11 ("Chapter 11") of Title 11 of the United States Code, interest on the Company's unsecured debt was stayed, while the Company was in reorganization (April 1991 to June 1993). Had the accrual of interest not been stayed, paid and accrued interest for 1993 would have been increased by approximately $12,000, and interest expense for 1993 would have been increased by approximately $1,300. Financial Services Revenue Recognition The sale of loans and loan servicing rights is recognized when the closed loans are sold and delivered to an investor. During the years ended December 31, 1995, 1994 and 1993, revenues included net losses from the sale of loans of $512, $831 and $262, respectively, and net gains from the sale of servicing of $5,467, $4,212, and $3,829, respectively. Residential Mortgage Loans Residential mortgage loans held for sale ($34,297 at December 31, 1995) are included in the accompanying consolidated balance sheets at the lower of cost or market on an aggregate basis. The Company estimates the fair value of residential mortgage loans held at December 31, 1995 approximated recorded value based on quoted market prices (at December 31, 1995) for similar loans sold either on a whole loan basis or pooled and sold as collateral for mortgage-backed securities. Hedging Contracts The Company manages its interest rate market risk on the inventory loans held for sale and its estimated future commitments to originate and close mortgage loans at fixed prices ("Loan Quotes") through hedging techniques by regularly entering into either fixed price mandatory forward delivery contracts ("Forward Contracts") to sell mortgage-backed securities to security dealers or fixed price forward delivery commitments ("Forward Commitments") to sell specific whole loans to investors on a mandatory or best efforts basis ("Forward Contracts" and "Forward Commitments" collectively "Hedging Contracts"). The Company 26 27 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) records the inventory of residential mortgage loans at the lower of cost or market on an aggregate basis after considering any market value changes in the inventory loans, Loan Quotes and Hedging Contracts. See Note 7. (2) REVOLVING CREDIT FACILITIES, SENIOR AND CONVERTIBLE SUBORDINATED DEBT AND NOTES PAYABLE Housing Revolving credit facilities, senior and convertible subordinated debt and notes payable consist of the following:
DECEMBER 31, --------------------- 1995 1994 -------- -------- Revolving credit facilities -- Credit agreement............................................. $ 24,000 $ -- Working capital facility..................................... -- 7,553 -------- -------- 24,000 7,553 -------- -------- 9.75% Senior notes due 2003.................................... 200,000 200,000 4.875% Convertible subordinated debentures..................... 80,000 80,000 Notes and mortgage notes payable............................... 20,599 24,327 -------- -------- 300,599 304,327 -------- -------- $324,599 $311,880 ======== ========
On September 29, 1995, the Company entered into a three-year unsecured revolving credit agreement (the "Credit Agreement") with a group of banks, which on October 5, 1995, replaced the Company's secured revolving working capital facility when all amounts outstanding under that facility were repaid. The Credit Agreement enables the Company to borrow up to a maximum of $130,000, of which up to $20,000 may be used for letter of credit obligations, subject to a borrowing base limitation. At December 31, 1995, $89,690 of the Credit Agreement commitment was available for borrowing. Borrowings under the Credit Agreement bear interest at a premium over the Eurodollar rate or the base rate announced by the agent bank. The Credit Agreement expires on September 29, 1998, but may be extended annually for successive one-year periods with the consent of the banks and contains numerous real estate and financial covenants, including restrictions on incurring additional debt, creation of liens and the levels of land and housing inventories maintained by the Company and a prohibition on the payment of dividends, other than stock dividends. The revolving working capital facility, which was replaced in October 1995 by the Credit Agreement, consisted of a $95,000 secured financing agreement of which $25,000 could be used for letter of credit obligations. The facility bore interest at a premium over a composite commercial paper rate. The facility contained real estate and financial covenants which were no more restrictive than the covenants of the Credit Agreement. The 9.75% senior notes are due June 15, 2003. Interest is payable semi-annually. On or after June 15, 1998, the senior notes may be redeemed at the option of the Company, in whole or in part, at prices ranging from 103.656% (during the 12-month period ending June 14, 1999) to 100% (on and after June 15, 2001) of the principal amount thereof, together with accrued and unpaid interest. The indenture relating to the senior notes contains numerous covenants, including a limitation on the incurrence of additional debt and making of certain restricted payments. The 4.875% convertible subordinated debentures are due November 1, 2005. Interest is payable semi-annually. The debentures are convertible at any time at the option of the holder into common stock at a conversion price of $35.50 per share, subject to adjustment under certain conditions. On or after November 1, 27 28 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1996, the debentures may be redeemed at the option of the Company, in whole or in part, at prices ranging from 103.25% (during the 12 month period ending October 31, 1997) to 100% (on or after November 1, 2004) of the principal amount thereof, together with accrued and unpaid interest. Housing notes and mortgage notes payable are primarily for the acquisition and development of land, with interest rates ranging from 6.0% to 10.0%. Assets pledged as collateral under these agreements totaled approximately $59,647 at December 31, 1995. Upon a change of control of the Company, holders of the senior notes and the debentures will have the right to require the Company to redeem the senior notes and debentures at a price of 101% of the principal amount of the senior notes and 100% of the principal amount of the debentures, together with accrued and unpaid interest. There can be no assurance that sufficient funds will be available to make the required repurchases if a change of control occurs. In addition, the Credit Agreement prohibits the Company from repurchasing the debentures prior to the termination of the Credit Agreement. Moreover, the occurrence of a change of control will trigger an event of default under the Credit Agreement. On January 31, 1996, the Company filed a Registration Statement with the Securities and Exchange Commission relating to the continuous offering pursuant to Rule 415 under the Securities Act of 1933, as amended, of up to $100,000 principal amount of debt securities. The debt securities registered thereunder may be sold in one or more series from time to time. The offering of the debt securities will be made only by means of a prospectus. The maximum amounts of borrowings from banks and other financial institutions (excluding debt subject to compromise in 1993) outstanding at any time during 1995, 1994 and 1993 were $67,000, $34,600 and $60,900, respectively. The average amounts of debt outstanding from banks and other financial institutions (excluding debt subject to compromise in 1993) during 1995, 1994 and 1993 were $42,400, $10,700 and $34,900, respectively, and the weighted average interest rates, without giving effect to commitment fees, were 9.7%, 9.2% and 8.3%, respectively. Computations of the weighted average interest rates were based upon the weighted average of outstanding loan balances during the respective years. At December 31, 1995, housing notes and mortgages payable, senior debt and convertible subordinated debt mature as follows: $13,621 in 1996, $4,584 in 1997, $2,071 in 1998, $143 in 1999, $180 in 2000, $200,000 in 2003 and $80,000 in 2005. Financial Services Financial Services' notes payable consist of the following:
DECEMBER 31, ------------------- 1995 1994 ------- ------- Revolving line of credit....................................... $35,371 $10,014 Other.......................................................... -- 1,034 ------- ------- $35,371 $11,048 ======= =======
Financial Services revolving line of credit consists of an agreement with a financial institution whereby the Company's mortgage banking subsidiary, U.S. Home Mortgage Corporation ("Mortgage"), may borrow up to $45,000 under a revolving line of credit (the "Mortgage Credit Facility") secured by residential mortgage loans and mortgage notes receivables. The Mortgage Credit Facility is not guaranteed by the Company, was amended and renewed on August 31, 1995 under substantially the same terms and conditions as the previous agreement, matures on August 31, 1996 and bears interest at a premium over the London Interbank Offered Rate. 28 29 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The maximum amounts of financial services borrowings from banks and other financial institutions outstanding at any time during 1995, 1994 and 1993 were $35,400, $21,600, and $32,600, respectively. The average amounts of short-term debt outstanding from banks and other financial institutions during 1995, 1994, and 1993 were $8,500, $5,600 and $16,200 respectively, and the weighted average interest rates, without giving effect to balance deficiency fees, were 7.0%, 6.3% and 6.6%, respectively. Computations of such rates were made based upon the weighted average of outstanding loan balances during the respective years. (3) INCOME TAXES The Company and its subsidiaries file consolidated federal income tax returns. The components of the provision for income taxes consisted of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 ------- ------- -------- Current -- Federal.............................................. $ 1,136 $ 730 $ 555 State................................................ 1,130 70 345 ------- ------- -------- 2,266 800 900 ------- ------- -------- Deferred -- Federal.............................................. 18,653 16,866 9,078 State................................................ 1,233 2,031 1,056 ------- ------- -------- 19,886 18,897 10,134 ------- ------- -------- Decrease in valuation allowance........................ -- -- (45,000) ------- ------- -------- Total provision.............................. $22,152 $19,697 $(33,966) ======= ======= ========
Deferred income taxes are determined based upon the difference between the financial statements and the tax basis of assets and liabilities and available net operating loss carry forward ("NOL"). At December 31, 1995, the Company has a net deferred tax asset of $15,800, which is comprised of deferred tax assets of $33,900 (including $15,800 relating to land and housing reserves which were expensed for financial reporting purposes but deferred for federal income tax reporting purposes and $2,900 relating to the Company's NOL) and deferred tax liabilities of $18,100 (including $14,800 relating to interest expense capitalized for financial reporting purposes but expensed for federal income tax reporting purposes). At December 31, 1994, deferred tax assets and deferred tax liabilities were $54,800 and $16,400, respectively, and were primarily attributable to the same items as noted above. At December 31, 1995 and 1994, valuation allowances totaling $21,600 and $22,200, respectively, had been provided against the remaining net deferred tax asset. The valuation allowance will be removed and the associated deferred tax asset recognized when it is realized for tax purposes unless the valuation allowance is reduced at an earlier date due to a change in circumstances. The Company's estimate of temporary differences and the NOL are based in part upon certain assumptions which are subject to change. The Company's federal income tax returns for the years ended December 31, 1993 and 1992 are currently being examined by the Internal Revenue Service. At December 31, 1995, the Company has available an NOL of approximately $7,400 which expires in 2008. In addition, the Company has a credit for alternative minimum tax ("AMT") paid ($3,100 at December 31, 1995) which can be carried forward and used to reduce regular taxes payable in excess of AMT in future years. Federal and state income taxes paid, net of refunds, was $2,159 in 1995. In 1994 and 1993, the amounts were not significant. 29 30 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) When the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", in 1992, a valuation allowance was provided for the total amount of deferred tax assets attributable to the NOL because the Company was precluded from recognizing the tax benefit of the NOL during the pendency of the Cases. Subsequent to emerging from Chapter 11, the Company concluded that it would, based on the Company's historical and then current pretax earnings (adjusted for reorganization items) and business plans, more likely than not be able to realize substantially all of the benefit associated with deferred tax assets. Accordingly, during the six months ended December 31, 1993, the Company reduced its valuation allowance by $45,000 (based on 39.0% effective tax rate), resulting in a reduction of the Company's provision for income taxes and recognition of a deferred tax asset in the same amount, which amount has been eliminated at December 31, 1995 as a result of pretax income generated during 1995, 1994 and 1993. The decrease in the deferred tax asset valuation allowance increased primary and fully diluted income per share in 1993 by $3.87 per share and $3.72 per share, respectively. As a result of the Company's recognition of the deferred tax asset attributable to its NOL, effective July 1, 1993 (and for all future periods), the Company began providing income taxes based on its effective tax rate. Excluding the decrease in deferred tax asset valuation allowance in 1993, the following table reconciles the statutory federal income tax rate to the effective income tax rate for:
YEARS ENDED DECEMBER 31, -------------------- 1995 1994 1993 ---- ---- ---- Tax provision at statutory rate.................................. 35.0% 35.0% 35.0% Increases (decreases) in taxes resulting from -- State and local income taxes, net of federal income tax provision................................................... 4.0 4.0 4.0 Utilization of net operating loss carry forward in first half of 1993..................................................... -- -- (9.8) Other, net..................................................... (1.5) (1.5) -- ---- ---- ---- Effective rate................................................... 37.5% 37.5% 29.2% ==== ==== ====
(4) STOCKHOLDERS' EQUITY As of December 31, 1995, the Company's capital structure consisted of the following: Common Stock -- Authorized 50,000,000 shares, par value $.01 per share, outstanding 11,243,147 shares. Shares reserved for issuance -- Convertible subordinated debentures...... 2,253,521 Class B warrants....................................................... 1,885,392 Stock plans............................................................ 1,433,722 Convertible redeemable preferred stock................................. 403,597 --------- 5,976,232 =========
Preferred Stock -- Authorized 10,000,000 shares, par value $.10 per share, including 403,597 convertible redeemable preferred shares and 9,596,403 shares undesignated as to series. (a) Convertible redeemable preferred stock -- $25 per share liquidation preference and redemption value, outstanding 319,254 shares. The shares may be redeemed at the option of the Company at any time at an amount equal to the liquidation preference/redemption value ($25 per share) plus any declared and unpaid dividends. Each share of convertible redeemable preferred stock is convertible, subject to adjustment, into one share of common stock at the option of the holder and at any time prior to its redemption by the Company. As of December 31, 1995, 2,496,403 shares of convertible redeemable preferred stock had been converted into an equal number of shares of common stock. If 30 31 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the closing price of the common stock is equal to or greater than $30 per share for 20 consecutive trading days, the convertible redeemable preferred stock will automatically convert into common stock. Any shares converted are restored to the status of authorized and unissued preferred stock without designation as to series. The holders of the convertible redeemable preferred stock are entitled to one vote for each share of convertible redeemable preferred stock held by them. The holders of the convertible redeemable preferred stock vote together as a single class with the holders of the common stock on substantially all matters requiring stockholder action. (b) Undesignated as to series -- None outstanding. Shares may be issued in one or more classes or series with preferences, limitations and relative rights as determined by the Company's Board of Directors at the time of issuance. Any shares issued will rank, as to dividends and liquidation preference, junior to the convertible redeemable preferred stock, if any shares are outstanding. Class B Warrants -- In connection with the Plan of Reorganization (see Note 8), pre-Effective Date stockholders received Class B warrants to acquire an aggregate of 1,904,757 shares of common stock for $20 per share, of which 4,130 warrants had been exercised at December 31, 1995. The warrants expire in June 1998. The Credit Agreement and the senior note indenture contain restrictions on the (i) payment of dividends on the Company's common and preferred stock and (ii) purchase, redemption, retirement or other acquisition of the Company's common and preferred stock, other than upon conversion of the convertible redeemable preferred stock into common stock and upon exercise into the Company's common stock of Class B warrants and options to acquire common stock issued pursuant to stock options and stock payment plans. (5) STOCK PLANS Stock Option Plans The Company has two stock option plans for key employees (the "1996 Employee Plan", which is subject to stockholder approval, and the "1993 Employee Plan") to purchase a maximum of 1,000,000 shares (500,000 shares for each plan) of the Company's common stock. Under both plans, the Company may grant incentive and non-qualified stock options. The Company also has a stock option plan whereby options may be granted to non-employee directors (the "Director Plan") to purchase a maximum of 100,000 shares of the Company's common stock. Options under the Director Plan are granted annually in a fixed amount. Options granted under the 1996 and 1993 Employee Plans will be exercisable at not less than the closing price of the common stock on date of grant. Options granted under the Director Plan will be exercisable at not less than the average closing price of the common stock for the ten consecutive trading days prior to the date of grant; provided that the grant price will not be less than 95% of the average closing price of the common stock for the 20 consecutive trading days prior to the date of grant. The options are exercisable as specified in the stock option agreements relating to the options and may not be exercised later than ten years from the date of grant and, with respect to the 1996 Employee Plan, no options may be exercised prior to stockholder approval. In 1995, options for 131,000 shares were granted at exercise prices ranging from $16.82 to $27.75 per share to certain key employees and non-employee directors, options for an aggregate of 3,331 shares were cancelled and no options were exercised. In 1994, options for 104,000 shares were granted at exercise prices ranging from $15.13 to $22.71 per share to certain key employees and non-employee directors, options for an aggregate of 9,000 shares were cancelled and no options were exercised. 31 32 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In 1993, options for 318,500 shares were granted at exercise prices ranging from $23.29 to $26.50 per share to certain key employees and non-employee directors, options for an aggregate of 10,000 shares were cancelled and no options were exercised. At December 31, 1995, options for 531,169 shares were outstanding at exercise prices ranging from $15.13 to $27.75 per share, of which options for 365,537 shares were exercisable. As of December 31, 1995, 568,831 shares were available for granting of options, including 29,500 shares to non-employee directors. Stock Payment Plan The Company's employee stock payment plan (the "Payment Plan") provides that up to 25% of a key employee's annual incentive pay (compensation other than base salary), which is charged to expense when earned, may be payable in shares of the Company's common stock as determined by the Company's Board of Directors, of which up to 50% of the shares payable will vest to the employee not later than two years after the end of the incentive compensation year and will expire in the event the employee is not employed by the Company on the vesting date. Shares to be issued under the Payment Plan will be valued at the average closing price of the common stock for a ten consecutive trading day period as defined in the Payment Plan. The Payment Plan has a five-year term and commenced on January 1, 1994. In 1995, 21,731 shares were issued to officers and key employees at prices ranging from $16.74 to $17.99 per share. As of December 31, 1995, 228,269 shares were available for issuance under the Payment Plan. Restricted Stock Plan The Company has a restricted stock plan (the "Restricted Plan") for officers and other key employees. Under the Restricted Plan, a maximum of 250,000 shares of the Company's common stock may be granted as restricted stock. Shares granted under the Restricted Plan will be granted at the average closing price of the common stock for a ten consecutive trading day period as defined in the Restricted Plan. Participants in the Restricted Plan may not dispose of any of the stock granted for five years from date of grant. Restrictions lapse at the rate of 20% of the stock granted per year, commencing with the end of the fifth year. The lapsing of the restrictions between the end of the fifth year and the ninth year may be accelerated if certain stipulated improvements in the Company's return on assets (as defined in the Restricted Plan) over the base year are achieved. As of January 1, 1995, a total of 144,547 restricted shares of the Company's common stock were issued to officers and other key employees. The market value of the shares issued of $2,600 has been charged to stockholders' equity as Unearned Compensation on Restricted Stock and is being amortized to expense over a nine-year period. (6) PROFIT SHARING The Company has a qualified profit sharing plan for the benefit of its employees which may be terminated at any time at the option of the Company. The annual contributions may be made in such amount as the Board of Directors of the Company determines, limited to 15% of the total compensation (as defined in the profit sharing plan) of all participating employees. The aggregate amounts accrued for contribution to the profit sharing plan for distribution to employees were $991 in 1995, $891 in 1994 and $546 in 1993. (7) COMMITMENTS AND CONTINGENCIES Housing The Company is significantly affected by the cyclical nature of the home building industry, which is sensitive to fluctuations in economic activity, interest rates and the level of consumer confidence. The sale of new homes and profitability from sales are heavily influenced by the level and expected direction of interest 32 33 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) rates. Increases in interest rates tend to have a depressing effect on the market for new homes in view of increased monthly mortgage costs to potential home buyers. As of December 31, 1995, the Company had refundable and non-refundable deposits outstanding totaling $63,375 for options and contracts to purchase undeveloped land and finished lots having a total purchase price of approximately $296,175. These options expire at various dates through 2001. The Company is involved from time to time in litigation arising from the normal course of business, none of which, in the opinion of the Company, are expected to have a material adverse effect on the financial position or results of operations of the Company. Financial Services At December 31, 1995, Mortgage, in connection with managing the interest rate market risk on its inventory loans held for sale of $34,547 and Loan Quotes of $11,680, had outstanding $33,262 (face amount of $33,500 and estimated fair value of $33,631) of Forward Contracts and $10,015 of Forward Commitments which expire over the next three months, when the inventory loans are expected to be sold and Loan Quotes are expected to close. At December 31, 1995, the estimated fair value of the inventory loans and Loan Quotes hedged by Forward Contracts and not covered by the Forward Commitments was $36,063. Mortgage reduces its risk of nonperformance under the Hedging Contracts by entering into those contracts with reputable security dealers and investors and evaluating their financial condition. However, there is a risk if certain of the Loan Quotes do not close or are renegotiated in a declining interest rate market and close at lower prices. Mortgage reduces this risk by collecting commitment fees on certain of the Loan Quotes along with entering into Forward Commitments to deliver loans to investors on a best efforts basis and adjusting, from time to time, the estimate of loan closings covered by Forward Contracts. (8) REORGANIZATION AND EMERGENCE FROM CHAPTER 11 On June 21, 1993 (the "Effective Date"), the Company and 46 of its affiliates emerged from Chapter 11 pursuant to their Plan of Reorganization (the "Plan"). Seven other affiliates were liquidated pursuant to their liquidation plan. None of the financial services subsidiaries were a party to the Company's reorganization. Under the Plan, creditors received 4,873,650 shares of common stock and 2,816,762 shares of convertible redeemable preferred stock and pre-Effective Date stockholders received 3,510,818 shares of common stock and warrants (exercisable at $20 per share), which, if fully exercised, would result in the issuance of an additional 1,904,757 shares of the Company's common stock. In connection with the Plan, the Company issued 140,000 shares of common stock to corporate officers and certain other key employees for services rendered in connection with the reorganization of the Company. The Company has reflected the issuance as an increase in stockholders' equity and an offsetting charge to earnings (which charge has been included in the accompanying consolidated statement of operations for 1993 as "reorganization items, net") of $2,940 based upon the prevailing market price of the Company's common stock at the Effective Date. 33 34 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION Summarized quarterly financial information for the years ended December 31, 1995 and 1994 is as follows:
THREE MONTHS ENDED --------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1995 1995 1995 1995 --------- -------- ------------- ------------ Housing -- Operating revenues................ $ 260,127 $255,564 $ 282,422 $294,170 Gross profit...................... $ 41,781 $ 39,900 $ 44,522 $ 47,432 Operating income.................. $ 12,639 $ 11,650 $ 14,602 $ 16,848 Financial Services -- Operating revenues................ $ 3,075 $ 3,714 $ 4,286 $ 4,587 Operating income.................. $ 385 $ 853 $ 1,141 $ 954 Net Income.......................... $ 8,140 $ 7,814 $ 9,839 $ 11,127 Income Per Common and Common Equivalent Share -- Primary........................... $ .70 $ .67 $ .83 $ .92 Fully diluted..................... $ .62 $ .59 $ .72 $ .81
THREE MONTHS ENDED --------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1994 1994 1994 1994 --------- -------- ------------- ------------ Housing -- Operating revenues................ $ 222,000 $238,143 $ 252,553 $269,682 Gross profit...................... $ 36,196 $ 38,142 $ 40,956 $ 43,487 Operating income.................. $ 11,149 $ 11,712 $ 13,742 $ 14,442 Financial Services -- Operating revenues................ $ 3,300 $ 2,943 $ 3,287 $ 3,403 Operating income.................. $ 427 $ 44 $ 466 $ 544 Net Income.......................... $ 7,061 $ 7,172 $ 9,230 $ 9,366 Income Per Common and Common Equivalent Share -- Primary........................... $ .60 $ .63 $ .81 $ .82 Fully diluted..................... $ .52 $ .55 $ .70 $ .72
(10) RECEIVABLES The Company had housing and financial services receivables of approximately $6,574 in 1995 and $6,627 in 1994 that were due after one year. The 1995 balance due after one year included notes and mortgage notes receivable of $4,583 with interest notes ranging from 8.0% to 10.5%. A majority of the balance matures within five years. 34 35 U.S. HOME CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (11) ACCRUED EXPENSES At December 31, 1995 and 1994, accrued expenses and other current liabilities consisted of the following:
1995 1994 ------- ------- Housing -- Customer deposits.............................................. $16,887 $19,112 Salaries and other compensation................................ 12,013 10,522 Income taxes................................................... 6,266 -- Interest....................................................... 2,206 1,972 Taxes, other than income taxes................................. 2,852 3,816 Other.......................................................... 5,846 5,075 ------- ------- $46,070 $40,497 ======= ======= Financial Services -- Accounts payable............................................... $12,935 $ 7,993 Other.......................................................... 5,883 4,740 ------- ------- $18,818 $12,733 ======= =======
35 36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to the directors of the Company is incorporated by reference from the Nominees for Directors Section, pages 2 through 5, of the Company's Proxy Statement, dated March 20, 1996, for the Annual Meeting of Stockholders to be held on April 24, 1996, to be filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934 ("1996 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information is incorporated by reference from the Executive Compensation Section, pages 6 and 7 of the 1996 Proxy Statement (see Part I -- Item 4, Executive Officers of the Company). ITEM 12. COMMON STOCK The information relating to the security ownership of certain beneficial owners and management is incorporated by reference from the Security Ownership of Management and Certain Beneficial Owners Section, pages 16 and 17 of the 1996 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 36 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. The following financial statements and financial statement schedules are filed as part of this Report: See Index to Financial Statements -- Item 8. (a) 3. Exhibits 2.1 -- First Amended Consolidated Plan of Reorganization of U.S. Home Corporation and certain of its affiliates dated April 1, 1993. Incorporated by reference from exhibit 2.1 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.2 -- Modification to "USH Debtors' First Amended Consolidated Plan of Reorganization." Incorporated by reference from exhibit 2.2 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.3 -- First Amended Joint Plan of Reorganization of certain affiliates of U.S. Home Corporation dated April 1, 1993. Incorporated by reference from exhibit 2.3 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.4 -- Findings of Fact, Conclusions of Law and Order Confirming the First Amended Consolidated Plan of Reorganization of U.S. Home Corporation and certain of its affiliates. Incorporated by reference from exhibit 28.1 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 2.5 -- Findings of Fact, Conclusions of Law and Order Confirming the First Amended Joint Plan of Reorganization of certain affiliates of U.S. Home Corporation. Incorporated by reference from exhibit 28.2 to U.S. Home Corporation's Current Report on Form 8-K filed June 9, 1993. 3.1 -- Restated Certificate of Incorporation of U.S. Home Corporation effective on June 21, 1993. Incorporated by reference from exhibit 3.1 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 3.1 (i) -- Certificate of Amendment of Restated Certificate of Incorporation as filed with the State of Delaware on May 13, 1994. Incorporated by reference from exhibit 3.1 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 1994. 3.2 -- Amended and Restated By-Laws of U.S. Home Corporation, dated as of June 21, 1993. Incorporated by reference from exhibit 3.2 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.1 -- Credit Agreement, dated as of September 29, 1995, between U.S. Home Corporation and The First National Bank of Chicago, as Agent. Incorporated by reference from exhibit 10.1 to U.S. Home Corporations Quarterly Report on Form 10-Q for period ended September 30, 1995. 10.2 -- Trust Indenture, dated as of June 21, 1993, by and between U.S. Home Corporation and IBJ Schroder Bank & Trust Company, as trustee, relating to U.S. Home Corporation's 9.75% Senior Notes due 2003. Incorporated by reference from exhibit 10.2 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966).
37 38 10.3 -- Trust Indenture, dated as of November 3, 1993, by and between U.S. Home Corporation and Marine Midland Bank, N.A., as trustee, relating to U.S. Home Corporation's 4.875% Convertible Subordinated Debentures. Incorporated by reference from exhibit 4.1 to U.S. Home Corporation's Current Report on Form 8-K filed November 3, 1993. 10.4 -- Warrant Agreement, dated as of June 21, 1993, between U.S. Home Corporation and The First National Bank of Boston relating to U.S. Home Corporation's Class B Warrants. Incorporated by reference from exhibit 10.3 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.5 -- U.S. Home Corporation 1996 Employees' Stock Option Plan. 10.6 -- U.S. Home Corporation's 1993 Stock Option Plan. Incorporated by reference from exhibit 4.1 to Registration Statement on Form S-8 of U.S. Home Corporation (Registration No. 33-64712). 10.7 -- U.S. Home Corporation's Non-Employee Directors' Stock Option Plan. on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.8 -- U.S. Home Corporation's Employee Stock Payment Plan. Incorporated by reference from exhibit B to U.S. Home Corporation's 1993 Proxy Statement dated March 3, 1994. 10.9 -- U.S. Home Corporation's Corporate Officers and President of Operations Restricted Stock Plan. Incorporated by reference from exhibit 10.8 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. 10.10 -- U.S. Home Corporation's Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1996 to December 31, 1996. 10.11 -- U.S. Home Corporation's Key Employees' Separation Pay Plan. Incorporated by reference from exhibit 10.5 to Amendment No. 1 to Registration Statement on Form S-1 of U.S. Home Corporation (Registration No. 33-60638). 10.12 -- U.S. Home Corporation's Retirement Plan for Non-Employee Directors. Incorporated by reference from exhibit 10 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1994. 10.13 -- Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, between U.S. Home Corporation and Robert J. Strudler. 10.14 -- Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, between U.S. Home Corporation and Isaac Heimbinder. 10.15 -- Registration Rights Agreement, dated as of June 21, 1993, between U.S. Home Corporation and Loomis, Sayles & Company Incorporated, on behalf of certain holders of the common stock of U.S. Home Corporation. Incorporated by reference from exhibit 10.10 to Registration Statement on Form S-3 of U.S. Home Corporation (Registration No. 33-68966). 10.16 -- Trust Agreement, dated December 18, 1986, between U.S. Home Corporation, as Grantor, and Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Isaac Heimbinder. Incorporated by reference from exhibit 10.25 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1986. 10.17 -- Trust Agreement, dated December 18, 1986, between U.S. Home Corporation, as Grantor, and Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Robert J. Strudler. Incorporated by reference from exhibit 10.26 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1986.
38 39 10.18 -- Letter, dated as of March 20, 1990, between U.S. Home Corporation and William E. Reichard, as Successor Trustee, with respect to Trust Agreements dated December 18, 1986 between U.S. Home Corporation, as Grantor, Kenneth J. Hanau, Jr., as Trustee, with respect to retirement benefits for Robert J. Strudler and Isaac Heimbinder. Incorporated by reference from exhibit 10.19 to U.S. Home Corporation's Annual Report on Form 10-K for the year ended December 31, 1992. 10.19 -- First Amended and Restated Warehousing Credit and Security Agreement (single-family mortgage loans), dated as of August 31, 1995, between U.S. Home Mortgage Corporation and Residential Funding Corporation. Incorporated by reference from exhibit 10.2 to U.S. Home Corporation's Quarterly Report on Form 10-Q for the period ended September 30, 1995. 10.19(i) -- First Amendment to First Amended Restricted Warehousing Credit and Security Agreement (single-family mortgage loans, dated as of December 27, 1995, between U.S. Home Mortgage Corporation and Residential Funding Corporation. 10.20 -- U.S. Home Corporation's Amortizing Incentive Plan. Incorporated by reference from exhibit 4.2 to Registration Statement on Form S-8 of U.S. Home Corporation (Registration No. 33-64712). 10.21 -- Form of Indemnification Agreement for directors and executive officers. Incorporated by reference from exhibit 10.15 to Amendment No. 2 to Registration Statement on Form S-1 of U.S. Home Corporation (Registration No. 33-60638). 11 -- Computation of earnings per share 22 -- Subsidiaries of U.S. Home Corporation 23 -- Consent of Independent Public Accountants 27 -- Financial Data Schedule
(b) Report on Form 8-K No Current Report on Form 8-K was filed by the Company during October, November or December 1995. 39 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 9, 1996 U.S. HOME CORPORATION By: /s/ ISAAC HEIMBINDER -------------------------------- Isaac Heimbinder President, Co-Chief Executive Officer and Chief Operating Officer By: /s/ CHESTER P. SADOWSKI -------------------------------- Chester P. Sadowski Vice President, Controller and Chief Accounting Officer (principal accounting officer) By: /s/ THOMAS A. NAPOLI -------------------------------- Thomas A. Napoli Vice President, Finance and Chief Financial Officer (principal financial officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ----------------- /s/ ROBERT J. STRUDLER Director, Chairman and February 9, 1996 - ----------------------------------------- Co-Chief Executive Officer Robert J. Strudler (principal executive officer) /s/ ISAAC HEIMBINDER Director, President, February 9, 1996 - ----------------------------------------- Co-Chief Executive Officer Isaac Heimbinder and Chief Operating Officer /s/ GLEN ADAMS Director February 9, 1996 - ----------------------------------------- Glen Adams /s/ STEVEN L. GERARD Director February 9, 1996 - ----------------------------------------- Steven L. Gerard /s/ KENNETH J. HANAU, JR. Director February 9, 1996 - ----------------------------------------- Kenneth J. Hanau, Jr. /s/ MALCOLM T. HOPKINS Director February 9, 1996 - ----------------------------------------- Malcolm T. Hopkins /s/ JACK L. MCDONALD Director February 9, 1996 - ----------------------------------------- Jack L. McDonald /s/ CHARLES A. MCKEE Director February 9, 1996 - ----------------------------------------- Charles A. McKee /s/ GEORGE A. POOLE, JR. Director February 9, 1996 - ----------------------------------------- George A. Poole, Jr. /s/ HERVE RIPAULT Director February 9, 1996 - ----------------------------------------- Herve Ripault /s/ JAMES W. SIGHT Director February 9, 1996 - ----------------------------------------- James W. Sight
40 41 INDEX TO EXHIBITS Exhibit Number - ------- 10.5 U.S. Home Corporation Employees' 1996 Stock Option Plan 10.9 U.S. Home Corporation Corporate Officers Incentive Compensation Program for the Incentive Period January 1, 1996 to December 31, 1996 10.13 Amended and Restated Employment and Consulting Agreement dated October 17, 1995 between U.S. Home Corporation and Robert J. Strudler 10.14 Amended and Restated Employment and Consulting Agreement dated October 17, 1995 between U.S. Home Corporation and Isaac Heimbinder 10.19(i) First Amendment to First Amended and Restated Warehousing Credit and Security Agreement (single- family mortgage loans), dated as of December 27, 1995, between U.S. Home Mortgage Corporation and Residential Funding Corporation 11 Computation of earnings per share 22 Subsidiaries of U.S. Home Corporation 23 Consent of Independent Public Accountants 27 Financial Data Schedule EX-10.5 2 EMPLOYEES' 1996 STOCK OPTION PLAN 1 EXHIBIT 10.5 U.S. HOME CORPORATION 1996 EMPLOYEES' STOCK OPTION PLAN 1. PURPOSES. The 1996 Employees' Stock Option Plan (the "Stock Option Plan") is intended to provide an incentive for key employees of U.S. Home Corporation (the "Company") and its subsidiaries and divisions in order to encourage them to remain in the employ of the Company and contribute to the Company's success by granting them stock options. 2. ADMINISTRATION. (a) The Board of Directors of the Company (the "Board") will (i) administer the Stock Option Plan, (ii) establish, subject to the provisions of the Stock Option Plan, such rules and regulations as it may deem appropriate for the proper administration of the Stock Option Plan and (iii) make such determinations under, and such interpretations of, and take such steps in connection with, the Stock Option Plan or the options issued thereunder as it may deem necessary or advisable. (b) The Board may from time to time appoint a Committee (the "Committee") which will be comprised of at least three members of the Board, all of whom are to be disinterested persons (as defined herein) and outside directors (as defined herein), and may delegate to the Committee full power and authority to take any and all action required or permitted to be taken by the Board under the Stock Option Plan, whether or not the power and the authority of the Committee is hereinafter fully set forth. The members of the Committee may be appointed from time to time by the Board and serve at the pleasure of the Board. The Board, if each member is a disinterested director and outside director, or the Committee, as applicable, will hereinafter be referred to as the "Administrator." (c) For the purposes hereof, (i) a "disinterested person" is a person who, on a given date, is disinterested within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) an "outside director" is a director who, on a given date, is an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "IRC"). 3. STOCK. The stock (the "Stock") to be made the subject of an option under the Stock Option Plan will be the shares of common stock, $.01 par value per share, of the Company, whether authorized and unissued or treasury stock. The total amount of Stock for which options may be granted under the Stock Option Plan will not exceed, in the aggregate, 500,000 shares, subject to adjustment in accordance with the provisions of Section 11 hereof. Any shares of Stock which were the subject of unexercised portions of any terminated or expired options may again be subject to the grant of options under the Stock Option Plan. 2 4. AWARD OF OPTIONS. (a) The Administrator may award options to those Officers (as defined herein) selected by the Administrator in the amounts determined by the Administrator, provided that the maximum number of shares of Stock which may be the subject of options granted to any individual in any calendar year is 250,000. Such options will be exercisable in accordance with the terms hereof. (b) The Administrator may, at any time prior to the expiration of 10 years from the date on which the Stock Option Plan is adopted, authorize the granting of options to such members of that class of the Company's key employees consisting of the officers and managerial or supervisory personnel, who are salaried employees of the Company (the "Officers"), as it may select, and in such amounts and in such installments as it will designate, subject to the provisions of this Section. The Administrator, in its sole discretion, will designate such options as (i) "Incentive Stock Options" within the meaning of Section 422 of the IRC, (ii) other stock options subject to the terms and conditions set forth herein ("Nonqualified Stock Options") or (iii) any combination of Incentive Stock Options and Nonqualified Stock Options. In the event that any portion of an option cannot be exercised as an Incentive Stock Option by reason of the limitation contained in Section 422(d) of the IRC, such portion will be treated as a Nonqualified Stock Option. (c) No person will be eligible to receive or hold an Incentive Stock Option under the Stock Option Plan if, immediately after such option is granted, such person owns (within the meaning of Section 422 of the IRC) stock possessing more than 10 percent of the total combined voting power or value of all classes of capital stock of the Company. (d) All Incentive Stock Options will be evidenced by a written agreement in substantially the form of Exhibit A annexed hereto, and all Nonqualified Stock Options will be evidenced by a written agreement in substantially the form of Exhibit B annexed hereto (each an "Option Agreement"). 5. PRICE. (a) The exercise price of an option will be the closing price of the Stock on the New York Stock Exchange ("NYSE") on the day that such option is granted if a sale is executed on such Exchange on that day, and if there was no such sale, the price will be the closing price of the Stock on the last preceding day on which a sale was executed. Notwithstanding the foregoing, the exercise price of such option will in no event be less than 95% of the average of the daily last sale prices of the Stock on the NYSE (or if no sale takes place on any such day on the NYSE, the average of the last reported closing bid and asked prices on such day as officially quoted on the NYSE) for the 20 consecutive trading days immediately prior to the date such option is granted, unless otherwise determined by the Administrator. 2 3 (b) The closing price of the Stock, as of any particular day, will be as reported in The Wall Street Journal; provided, however, that if the Stock is not listed on the New York Stock Exchange on the date the particular option is granted, the exercise price will be not less than the fair market value of the shares of Stock covered by the option at the time that the option is granted, as determined by the Administrator based on such empirical evidence as it deems to be necessary under the circumstances. 6. TERM. Subject to Sections 8 and 9 hereof, an option may be exercised by the holder thereof (a "Holder") at such times and in such installments, if any, as may be specified in such Holder's Option Agreement, which will provide that no option will be exercised in any amount later than 10 years from the date such option was granted. 7. TRANSFERABILITY. No option will be transferable by a Holder other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the IRC or Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). During the lifetime of a Holder, the option will be exercisable only by such Holder. An Officer who acquires Stock hereunder will only transfer such Stock in compliance with applicable federal and state securities laws. 8. TERMINATION OF EMPLOYMENT. Except to the extent otherwise specified by the Administrator, if, on or after the date an option is granted under the Stock Option Plan, (i) (A) a Holder's employment with the Company is terminated by the Company for any reason other than (x) for Cause (as defined in the applicable Option Agreement), or (y) death or disability (within the meaning of Section 22(e)(3) of the IRC), (B) the Holder retires in accordance with the Company's normal retirement policy or with the consent of the Board, or (C) such Holder's employment with the Company is Constructively Terminated (as defined in the applicable Option Agreement), the Holder will have the right, not later than the earlier of (a) three months after such termination or retirement or (b) the termination date of the option, to exercise the option, to the extent the right to exercise such option will have accrued at the date of such termination of employment or retirement, except to the extent that such option theretofore will have been exercised, or (ii) a Holder's employment with the Company is terminated (A) by the Company for Cause, or (B) by the Holder for any reason other than due to (x) such Holder being Constructively Terminated, (y) such Holder's retirement in accordance with the Company's normal retirement policy or with the consent of the Board or (z) such Holder's death or disability, the right to exercise the option will thereupon terminate. 3 4 9. DEATH OR DISABILITY. (a) Except to the extent otherwise specified by the Administrator and as provided in paragraph (b) of this Section 9, if a Holder's employment with the Company is terminated because of disability (within the meaning of Section 22(e)(3) of the IRC), the disabled Holder will have the right, not later than the earlier of (i) one year after such termination or (ii) the termination date of the option, to exercise the option, to the extent the right to exercise such option will have accrued at the date of such termination of employment, except to the extent that such option theretofore has been exercised. (b) Except to the extent otherwise specified by the Administrator, if a Holder dies while in the employ of the Company or within three months after termination of employment with the Company because of disability, such Holder's personal representative or the person or persons to whom the option will have been transferred by will or by the laws of descent and distribution will have the right, not later than the earlier of (i) one year from the date of such Holder's death or (ii) the termination date of the option, to exercise such option, to the extent the right to exercise such option shall have accrued at the date of death or disability, except to the extent such option theretofore will have been exercised. 10. PAYMENT FOR STOCK. (a) The purchase price of Stock issued upon exercise of options granted hereunder will be paid in full on the date of purchase. Payment will be made either in cash or such other consideration as the Administrator deems appropriate, including, without limitation, Stock already owned by the Holder or Stock to be acquired by the Holder upon exercise of the option having a total fair market value, as determined by the Administrator, equal to the purchase price, or a combination of cash and Stock having a total fair market value, as so determined, equal to the purchase price. (b) The Company may make loans to such Holders as the Administrator, in its discretion, may determine in connection with the exercise of options granted under the Stock Option Plan; provided, however, that the Administrator will have no discretion to authorize the making of any loan where the possession of such discretion or the making of such loan would result in a "modification" (as defined in Section 424(h) of the IRC) of any Incentive Stock Option. Such loans will be subject to the following terms and conditions and such other terms and conditions as the Administrator will determine not inconsistent with the Stock Option Plan. Such loans will bear interest at such rates as the Administrator will determine from time to time, which rates may be below then current market rates (except in the case of Incentive Stock Options). In no event may any such loan exceed the fair market value, at the date of exercise, of the shares covered by the option, or portion thereof, exercised by the Holder. No loan will have an initial term exceeding five years, but any such loan may be renewable at the discretion of the Administrator. When a loan is made, the Holder will pledge to the Company shares of Stock 4 5 having a fair market value at least equal to the principal amount of the loan. Every loan will comply with all applicable laws, regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction over the Company. (c) Stock will not be issued upon the exercise of options unless and until the aggregate amount of federal, state or local taxes of any kind required by law to be withheld with respect to the exercise of such options have been paid or satisfied or provision for their payment and satisfaction has been made upon such terms as the Administrator may prescribe, including, without limitation, payment of any such taxes by exchanging shares of Stock previously owned by the Holder or acquired upon the exercise of an option. 11. STOCK ADJUSTMENTS. (a) The total amount of Stock for which options may be granted under the Stock Option Plan and option terms (both as to the number of shares of Stock and the price of the option) will be appropriately adjusted for any increase or decrease in the number of outstanding shares of Stock resulting from payment of a stock dividend on the Stock, a subdivision or combination of the Stock, or a reclassification of the Stock, and (in accordance with the provisions contained in the following paragraph) in the event of a consolidation or a merger in which the Company will be the surviving corporation. (b) After any merger of one or more corporations into the Company in which the Company will be the surviving corporation, or after any consolidation of the Company and one or more other corporations, each Holder will, at no additional cost, be entitled, upon any exercise of his option, to receive, in lieu of the number of shares of Stock as to which such option will then be so exercised, the number and class of shares of stock, other securities or other consideration to which such Holder would have been entitled pursuant to the terms of the applicable agreement of merger or consolidation if at the time of such merger or consolidation such Holder had been a Holder of record of a number of shares of Stock equal to the number of shares for which such option may then be so exercised. Comparable rights will accrue to each Holder in the event of successive mergers or consolidations of the character described above. (c) In the event of any sale of all or substantially all of the assets of the Company, or any merger of the Company into another corporation, or any dissolution or liquidation of the Company or, in the discretion of the Board, any consolidation or other reorganization in which it is impossible or impracticable to continue in effect any options, all options granted under the Stock Option Plan and not previously exercised will become exercisable by Holders who are at such time in the employ of the Company or any of its subsidiaries or divisions, commencing 10 days before the scheduled closing of such event, and will terminate unless exercised at least one business day before the scheduled closing of such event; provided, that any such exercise will be conditioned on the closing of such transaction; and provided further, that the Administrator may, in its discretion, require instead that all options 5 6 granted under the Stock Option Plan and not previously exercised will be assumed by such other corporation on the basis provided in the preceding paragraph. (d) The adjustments described in this Section 11 and the manner of application of the foregoing provisions will be determined by the Administrator in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an option. 12. RIGHTS AS A STOCKHOLDER. A Holder or a transferee of an option will have no rights as a stockholder with respect to any share of Stock covered by such Holder's option until such Holder has become the Holder of record of such share of Stock, and, except for stock dividends as provided in Section 11 hereof, no adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such share for which the record date is prior to the date on which he will become the holder of record thereof. 13. AMENDMENT AND TERMINATION. The Board may at any time terminate, amend or modify the Stock Option Plan in any respect it deems suitable; provided, however, that no such action of the Board, without the approval of the stockholders of the Company, may (i) materially increase the benefits accruing to employees eligible to receive options under the Stock Option Plan, (ii) materially increase the total amount of Stock for which options may be granted under the Stock Option Plan or (iii) materially modify the requirements for participation in the Stock Option Plan; provided, further, that no amendment, modification or termination of the Stock Option Plan may (A) in any manner affect any option theretofore granted under the Stock Option Plan without the consent of the then Holder or (B) modify the allocation of options to the persons designated by the Administrator. 14. INVESTMENT PURPOSE. At the time of exercise of any option, the Company may, if it will deem it necessary or desirable for any reason, require the Holder to (i) represent in writing to the Company that it is such Holder's then intention to acquire the Stock for investment and not with a view to the distribution thereof or (ii) postpone the date of exercise until such time as the Company has available for delivery to the Holder a prospectus meeting the requirements of all applicable securities laws. 6 7 15. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained herein or in any Option Agreement will restrict the right of the Company to terminate the employment of any Holder at any time, with or without Cause. 16. FINALITY OF DETERMINATIONS. Each determination, interpretation, or other action made or taken pursuant to the provisions of the Stock Option Plan by the Administrator will be final and be binding and conclusive for all purposes. 17. INDEMNIFICATION OF DIRECTORS. Each director of the Company will be indemnified by the Company against all costs and expenses reasonably incurred by such director in connection with any action, suit or proceeding to which he or she or any of the other directors may be a party by reason of any action taken or failure to act under or in connection with the Stock Option Plan, or any option granted thereunder, and against all amounts paid by the other directors in settlement thereof (provided such settlement will be approved by independent legal counsel) or paid by the other directors in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith. Upon the institution of any such action, suit or proceeding, a director of the Company will notify the Company in writing, giving the Company an opportunity, at its own expense, to handle and defend the same before such director undertakes to handle it on his or her own behalf. 18. SUBSIDIARY AND PARENT CORPORATIONS. Unless the context requires otherwise, references under the Stock Option Plan to the Company will be deemed to include any divisions of the Company and any subsidiary corporations and parent corporations of the Company, as those terms are defined in Section 424 of the IRC. 7 8 19. GOVERNING LAW. The Stock Option Plan will be governed by the laws of the State of Delaware. 20. EFFECTIVE DATE. The Stock Option Plan will become effective upon the date of its adoption by the Board and options may be granted on or subsequent to such date but no option may be exercised under the Stock Option Plan unless and until the Stock Option Plan shall have been approved by the stockholders of the Company within 12 months after its adoption by the Board. If the Stock Option Plan is not so approved by the stockholders, all options granted hereunder shall be null and void. 21. OVERRIDE. With respect to persons subject to Section 16 of the Exchange Act, transactions under the Stock Option Plan are intended to comply with all applicable conditions of Rule 16b-3 or any successor provision under the Exchange Act. To the extent any provision of the Stock Option Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. 8 9 EXHIBIT A --------- U.S. HOME CORPORATION 1996 EMPLOYEES' STOCK OPTION PLAN INCENTIVE STOCK OPTION AGREEMENT -------------------------------- OPTION AGREEMENT, dated as of ______________ __, ___ between U.S. HOME CORPORATION, a Delaware corporation (the "Company"), and _______________________ (the "Holder"). 1. PURPOSE. The purpose of this Incentive Option Agreement (this "Agreement") is to set forth the terms and conditions of the incentive stock option granted to the Holder under the U.S. Home Corporation 1996 Employees' Stock Option Plan (the "Stock Option Plan"). The terms and conditions (including defined terms) of the Stock Option Plan are expressly incorporated herein and made a part hereof with the same force and effect as if fully set forth herein. The acceptance by the Holder of the Option (as hereinafter defined) granted hereby will constitute acceptance of and agreement with all of the terms and conditions contained in this Agreement and the Stock Option Plan. 2. GRANT OF OPTION. The Company hereby grants to the Holder an option (the "Option") to purchase all or any part of an aggregate of _______ shares of the Company's common stock, $.01 par value per share (the "Stock"), at a price of $______* per share (the "Exercise Price"), subject to adjustment as herein provided. Such Option is intended to qualify as an "Incentive Stock Option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC"); provided, however, that to the extent that any portion of this Option cannot be exercised as an Incentive Stock Option by reason of the $100,000 limitation contained in Section 422(d) of the IRC, such portion will be treated as a Nonqualified Stock Option. 3. TERM OF OPTION. (a) Subject to Sections 4 and 5 hereof, the Option shall be exercisable as follows: - ---------------------------------- * To be determined pursuant to Section 5 of the Stock Option Plan. 10 (b) The Option will expire on the date 10 years from the date hereof. Any exercise will be accompanied by a written notice to the Company in substantially the form attached hereto as Schedule 1. 4. TERMINATION OF EMPLOYMENT. (a) Except to the extent otherwise specified by the Administrator, if, on or after the date an Option is granted under the Stock Option Plan, (i)(A) the Holder's employment with the Company is terminated by the Company for any reason other than (x) for Cause (as herein defined), or (y) death or disability (within the meaning of Section 22(e)(3) of the IRC), (B) the Holder retires in accordance with the Company's normal retirement policy or with the consent of the board of directors of the Company (the "Board"), or (C) the Holder's employment with the Company is Constructively Terminated (as defined herein), the Holder will have the right, not later than the earlier of (a) three months after such termination or retirement or (b) the termination date of the Option to exercise the Option, to the extent the right to exercise such Option will have accrued at the date of such termination of employment or retirement, except to the extent that such Option theretofore will have been exercised, or (ii) the Holder's employment with the Company is terminated (A) by the Company for Cause or (B) by the Holder for any reason other than due to (x) the Holder being Constructively Terminated, (y) the Holder's retirement in accordance with the Company's normal retirement policy or with the consent of the Board, or (z) the Holder's death or disability, the right to exercise the Option will thereupon terminate. (b) For purposes of this Agreement, the term "Cause" means (i) the Holder's continuing willful failure to perform his or her duties with respect to the Company (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by the Holder in the performance of his duties with respect to the Company, (iii) an act or acts on the Holder's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Holder at the expense of the Company or (iv) any other circumstances set forth in an employment agreement between the Company and the Holder which would constitute grounds for the Company to terminate the employment of the Holder for Cause. (c) For purposes of this Agreement, the term "Constructively Terminated" means (i) a reduction in an amount equal to or greater than 15 percent of the Holder's base salary, (ii) a material reduction in the Holder's job function, duties or responsibilities or (iii) a required relocation of the Holder of more than 50 miles from the Holder's current job location; provided, however, that the employment with the Company will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President 2 11 with the Company and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment with the Company will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President of a division other than the division he or she is currently employed by and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of any person will not be deemed Constructively Terminated unless the Holder actually terminates his or her employment with the Company within 60 days after the occurrence of an event specified in clauses (i), (ii) or (iii) above. 5. DEATH OR DISABILITY. (a) Except to the extent otherwise specified by the Administrator and as provided in paragraph (b) of this Section 5, if the Holder's employment with the Company is terminated because of his or her disability (within the meaning of Section 22(e)(3) of the IRC), the disabled Holder will have the right, not later than the earlier of (i) one year after such termination or (ii) the date 10 years from the date hereof, to exercise the Option, to the extent the right to exercise the Option will have accrued hereunder at the date of such termination of employment, except to the extent the Option theretofore will have been exercised. (b) Except to the extent otherwise specified by the Administrator, if the Holder dies while in the employ of the Company or within three months after termination of his or her employment with the Company or any Subsidiary or division thereof because of his or her disability, his personal representative or the person or persons to whom the Option will have been transferred by will or by the laws of descent and distribution will have the right, not later than the earlier of (i) one year from the date of the Holder's death or (ii) the date 10 years from the date hereof, to exercise the Option, to the extent the right to exercise the Option will have accrued at the date of death or disability, except to the extent the Option theretofore will have been exercised. 6. TRANSFERABILITY. The Option will not be transferable by the Holder other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the IRC or Title I of the Employee Retirement Income Security Act of 1974, as amended. During the lifetime of the Holder, the Option will be exercisable only by such Holder. If the Holder acquires Stock hereunder, he or she will only transfer such Stock in compliance with applicable federal and state securities laws. 3 12 7. PAYMENT OF EXERCISE PRICE. Payment for shares of Stock issued upon exercise of the Option will be paid in full on the date of purchase. Payment will be made either in cash or in such other consideration as the Administrator (as defined in the Stock Option Plan) deems appropriate. Notwithstanding the foregoing, shares of Stock will not be issued upon exercise of the Option unless and until the aggregate amount of federal, state and local taxes of any kind required to be withheld with respect to such exercise have been paid or satisfied or provision for their payment and satisfaction has been made upon such terms as the Administrator may prescribe. 8. ADJUSTMENT TO OPTION. The number of shares of Stock subject to the Option and the Exercise Price will be adjusted, as necessary, in accordance with the provisions of Section 11 of the Stock Option Plan. 9. NO RIGHTS AS STOCKHOLDER. The Holder will have no rights as a stockholder with respect to any Stock covered by the Option until he or she has become the holder of record of such Stock, and, except for stock dividends as provided in Section 11 of the Stock Option Plan, no adjustment will be made for dividends (ordinary or extra-ordinary, whether in cash, securities or other property) or distributions or other rights in respect of such Stock for which the record date is prior to the date on which he or she will become the holder of record thereof. 10. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein will restrict any right of the Company to terminate the employment of the Holder at any time, with or without Cause. 11. REPRESENTATIONS. At the time of any exercise of the Option, the Company may, if it will deem it necessary or desirable for any reason, require the Holder (i) to represent in writing to the Company that it is his then intention to acquire the Stock for investment and not with a view to the distribution thereof or (ii) to postpone the date of exercise until such time as the Company has available for delivery to the Holder a prospectus meeting the requirements of all applicable federal or state securities laws. 12. GOVERNING LAW. This Agreement will be governed by the laws of the State of Delaware. 4 13 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. U.S. HOME CORPORATION By:__________________________ Name: Title: HOLDER ______________________________ Signature Name: _______________________ Address: ____________________ ____________________ 5 14 SCHEDULE 1 ---------- U.S. Home Corporation 1800 West Loop South Houston, Texas 77252 Attention: Secretary Re: Notice of Exercise of Incentive Stock Option Dear Sir: I am the holder of the below-described incentive stock option granted under the U.S. Home Corporation (the "Company") 1996 Employees' Stock Option Plan: Number of Shares Exercise Price Date of Option Subject to Option Per Share - -------------- ----------------- -------------- I hereby exercise my option to purchase ______ shares of the common stock, $.01 par value per share, of the Company, reserving my right to purchase any remaining shares subject to the option in accordance with its terms. In making this purchase, I hereby represent to you as follows: 1. I am purchasing these shares for my own account for investment and without any present intention of disposing of the shares by public offering or otherwise. 2. I will not dispose of the shares unless a registration statement under the Securities Act of 1933, as amended, and applicable state securities and "blue sky" laws covering the shares is in effect or, in the opinion of counsel to the Company, an exemption from such registration is available. Dated: ____________ __, ____ Very truly yours, _________________________________ Signature Name: ___________________________ Address: ________________________ ________________________ 15 EXHIBIT B --------- U.S. HOME CORPORATION 1996 EMPLOYEES' STOCK OPTION PLAN NONQUALIFIED STOCK OPTION AGREEMENT OPTION AGREEMENT, dated as of ______________ __, ____ between U.S. HOME CORPORATION, a Delaware corporation (the "Company"), and _______________________ (the "Holder"). 1. PURPOSE. The purpose of this Nonqualified Stock Option Agreement (this "Agreement") is to set forth the terms and conditions of the stock option granted to the Holder under the 1996 Employees' Stock Option Plan (the "Stock Option Plan"). The terms and conditions (including defined terms) of the Stock Option Plan are expressly incorporated herein and made a part of hereof with the same force and effect as if fully set forth herein. The acceptance by the Holder of the Option (as hereinafter defined) granted hereby will constitute acceptance of and agreement with all of the terms and conditions contained in this Agreement and the Stock Option Plan. 2. GRANT OF OPTION. The Company hereby grants to the Holder an option (the "Option") to purchase all or any part of an aggregate of _______ shares of the Company's common stock, $.01 par value per share (the "Stock"), at a price of $______* per share (the "Exercise Price"), subject to adjustment as herein provided. Such Option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC"). 3. TERM OF OPTION. (a) Subject to Sections 4 and 5 hereof, the Option shall be exercisable as follows: __________________________________ * To be determined pursuant to Section 5 of the Stock Option Plan. 16 (b) The Option will expire on the date 10 years from the date hereof. Any exercise will be accompanied by a written notice to the Company in substantially the form attached hereto as Schedule 1. 4. TERMINATION OF EMPLOYMENT. (a) Except to the extent otherwise specified by the Administrator, if, on or after the date an Option is granted under the Stock Option Plan, (i) (A) the Holder's employment with the Company is terminated by the Company for any reason other than (x) for Cause (as herein defined), or (y) death or disability (within the meaning of Section 22(e)(3) of the IRC), (B) the Holder retires in accordance with the Company's normal retirement policy or with the consent of the board of directors of the Company (the "Board"), or (C) the Holder's employment with the Company is Constructively Terminated (as defined herein), the Holder will have the right, not later than the earlier of (a) three months after such termination or retirement or (b) the termination date of the Option, to exercise the Option, to the extent the right to exercise the Option will have accrued hereunder at the date of such termination of employment or retirement, except to the extent that the Option theretofore will have been exercised or (ii) the Holder's employment with the Company is terminated (A) by the Company for Cause or (B) by the Holder for any reason other than due to (x) the Holder being Constructively Terminated, (y) the Holder's retirement in accordance with the Company's normal retirement policy or with the consent of the Board, (z) the Holder's death or disability, the right to exercise the Option will thereupon terminate. (b) For purposes of this Agreement, the term "Cause" will mean (i) the Holder's continuing willful failure to perform his duties with respect to the Company (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by the Holder in the performance of his or her duties with respect to the Company, (iii) an act or acts on the Holder's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Holder at the expense of the Company or (iv) any other circumstances set forth in an employment agreement between the Company and the Holder which would constitute grounds for the Company to terminate the employment of the Holder for Cause. (c) For purposes of this Agreement, the term "Constructively Terminated" means (i) a reduction in an amount equal to or greater than 15 percent of the Holder's base salary, (ii) a material reduction in the Holder's job function, duties or responsibilities or (iii) a required relocation of the Holder of more than 50 miles from such Holder's current job location; provided, however, that the employment with the Company will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or Division President with the Company and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment with the Company will not be deemed to be Constructively Terminated in the event he or she is required to be a Division Chairman or 2 17 Division President of a division other than the division he or she is currently employed by and has job functions, duties or responsibilities of a Division Chairman or Division President and/or is required to relocate in connection with such change in position; provided, further, that the employment of any person will not be deemed Constructively Terminated unless the Holder actually terminates his or her employment with the Company within 60 days after the occurrence of an event specified in clauses (i), (ii) or (iii) above. 5. DEATH OR DISABILITY. (a) Except to the extent otherwise specified by the Administrator and as provided in paragraph (b) of this Section 5, if the Holder's employment with the Company is terminated because of his or her disability (within the meaning of Section 22(e)(3) of the IRC), the disabled Holder will have the right, not later than the earlier of (i) one year after such termination or (ii) the date 10 years from the date hereof, to exercise the Option, to the extent the right to exercise the Option will have accrued hereunder at the date of such termination of employment, except to the extent the Option theretofore will have been exercised. (b) Except to the extent otherwise specified by the Administrator, if the Holder dies while in the employ of the Company or any subsidiary or division thereof or within three months after termination of his or her employment with the Company because of his or her disability, his or her personal representative or the person or persons to whom the Option will have been transferred by will or by the laws of descent and distribution will have the right, not later than the earlier of (i) one year from the date of the Holder's death or (ii) the date 10 years from the date hereof, to exercise the Option, to the extent the right to exercise the Option will have accrued at the date of death or disability, except to the extent the Option theretofore will have been exercised. 6. TRANSFERABILITY. The Option will not be transferable by the Holder other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the IRC or Title I of the Employee Retirement Income Security Act of 1974, as amended. During the lifetime of the Holder, the Option will be exercisable only by such Holder. If the Holder acquires Stock hereunder, he or she will only transfer such Stock in compliance with applicable federal and state securities laws. 7. PAYMENT OF EXERCISE PRICE. Payment for shares of Stock issued upon exercise of the Option will be paid in full on the date of purchase. Payment will be made either in cash or in such other consideration as the Administrator (as defined in the Stock Option Plan) deems appropriate. Notwithstanding the foregoing, shares of Stock will not be issued upon exercise of the Option unless and until the aggregate amount of federal, state and local taxes of any kind required to be withheld with 3 18 respect to such exercise have been paid or satisfied or provision for their payment and satisfaction has been made upon such terms as the Administrator may prescribe. 8. ADJUSTMENT TO OPTION. The number of shares of Stock subject to the Option and the Exercise Price will be adjusted, as necessary, in accordance with the provisions of Section 11 of the Stock Option Plan. 9. NO RIGHTS AS STOCKHOLDER. The Holder will have no rights as a stockholder with respect to any Stock covered by the Option until such person has become the holder of record of such Stock, and, except for stock dividends as provided in Section 11 of the Stock Option Plan, no adjustment will be made for dividends (ordinary or extra-ordinary, whether in cash, securities or other property) or distributions or other rights in respect of such Stock for which the record date is prior to the date on which he or she will become the holder of record thereof. 10. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein will restrict any right of the Company to terminate the employment of the Holder at any time, with or without Cause. 11. REPRESENTATIONS. At the time of any exercise of the Option, the Company may, if it will deem it necessary or desirable for any reason, require the Holder (i) to represent in writing to the Company that it is his then intention to acquire the Stock for investment and not with a view to the distribution thereof or (ii) to postpone the date of exercise until such time as the Company has available for delivery to the Holder a prospectus meeting the requirements of all applicable federal or state securities laws. 4 19 12. GOVERNING LAW. This Agreement will be governed by the laws of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. U.S. HOME CORPORATION By:__________________________ Name: Title: HOLDER _____________________________ Signature Name: _______________________ Address: ___________________ ___________________ 5 20 SCHEDULE 1 ---------- U.S. Home Corporation 1800 West Loop South Houston, Texas 77252 Attention: Secretary Re: Notice of Exercise of Nonqualified Stock Option Dear Sir: I am the holder of the below-described nonqualified stock option granted under the U.S. Home Corporation (the "Company") 1996 Employees' Stock Option Plan: Number of Shares Exercise Price Date of Option Subject to Option Per Share - -------------- ----------------- -------------- I hereby exercise my option to purchase _______shares of the common stock, $.01 par value per share, of the Company, reserving my right to purchase any remaining shares subject to the option in accordance with its terms. In making this purchase, I hereby represent to you as follows: 1. I am purchasing these shares for my own account for investment and without any present intention of disposing of the shares by public offering or otherwise. 2. I will not dispose of the shares unless a registration statement under the Securities Act of 1933, as amended, and applicable state securities and "blue sky" laws covering the shares is in effect or, in the opinion of counsel to the Company, an exemption from such registration is available. Dated: ____________ __, ____ Very truly yours, __________________________________ Signature Name: _____________________________ Address: __________________________ EX-10.9 3 CORPORATE OFFICERS INCENTIVE COMPENSATION PROGRAM 1 (12/8/95) EXHIBIT 10.9 U.S. HOME CORPORATION CORPORATE OFFICERS'(1) INCENTIVE COMPENSATION PROGRAM FOR THE INCENTIVE PERIOD JANUARY 1, 1996 TO DECEMBER 31, 1996 Set forth below is an outline of the Corporate Officers' Incentive Compensation Program for the incentive period January 1, 1996 to December 31, 1996 ("Incentive 1996"). Corporate Officers who are employed by the Corporation as of January 1, 1996 will be eligible to participate in the Corporate Officers' Incentive Compensation Program for the period commencing January 1, 1996 and ending December 31, 1996. Effective January 1, 1996, base salaries are established as set forth in Exhibit A hereto. Under this Program, an incentive compensation pool equal to the lessor of $700,000 or 2% of the pre-tax profits of the Corporation earned in fiscal 1996, shall be established to be distributed to the Corporate Officers at the sole discretion and upon approval of a majority of the non-management members of the Compensation Committee and of the Board of Directors of the Corporation based on its evaluation of the following factors: 1. The Board of Directors shall review the profit and loss of the Company for the fiscal year ended December 31, 1996 as compared to the projected profit and loss for the period January 1, 1996 through December 31, 1996 as set forth in the 1996 Business Plan as presented to the Board of Directors. 2. The Board of Directors shall review the cash flow of the Company as compared to the projected cash flow for the period January 1, 1996 through December 31, 1996 as set forth in the 1996 Business Plan as presented to the Board of Directors. 3. The Board of Directors shall review the overall performance of the Company in comparison to competitive industry performance taking into consideration, an analysis of rates of growth, return on equity and return on sales. 4. The Board of Directors shall review incentive bonus payments by competitors in relation to proposed payments to said officers to insure that they are designed to retain and motivate executives. 5. All other actions by said Officers to maximize the value of shareholders' equity. Upon the recommendation of the Chairman and President of the Company, the Board of Directors shall determine, in its sole discretion, the amount each respective Officer shall receive from the said incentive compensation pool, provided that the maximum incentive compensation payable to any Officer shall not exceed 75% of the base compensation of such Officer. _______________ (1) Excludes Chairman and President who are subject to Employment and Consulting Agreements which govern payment of bonus. 2 Corporate Officers' Incentive Compensation Program Page 2 of 2 pages To be entitled to receive a bonus, a Corporate Officer must remain in the employ of the Company for the entire fiscal year. Notwithstanding the foregoing, the Corporation shall have the right to terminate employment of any Corporate Officer covered under this Program at will, without notice, and without cause, at any time. The total bonus earned pursuant to the incentive program set forth herein shall be paid upon approval of the Board of Directors of the Company as follows: A. 75% of the aggregate incentive bonus earned by the Corporate Officer shall be paid in cash within 30 days following receipt of 1996 audited financial statements. B. 25% of the aggregate incentive bonus earned by the Corporate Officer shall be paid in shares of U.S. Home Corporation's common stock, with each share valued at the average market price of said shares on the New York Stock Exchange, as of the close of trading for the ten (10) trading days commencing the day following release by the Company of its results for the fiscal year ended December 31, 1996. Said shares shall be held in escrow by the Company to be delivered to the respective Corporate Officers as follows: 1. 1/2 of such shares shall be delivered to the Corporate Officer within thirty (30) days of the determination of the respective stock price. 2. 1/2 of such shares shall be delivered to the Corporate Officer on or prior to January 31, 1999. However, in order to receive such shares, the Corporate Officer must remain in the employ of the Corporation as of December 31, 1998. Notwithstanding the foregoing, in the event that said Corporate Officer's employment with the Corporation is terminated by the Corporation other than for "Cause", all remaining shares not previously delivered to the Corporate Officer shall be delivered to said Corporate Officer within thirty (30) days following termination. For purposes of this Program, the term "Cause" shall mean (i) the Officer's continuing, willful failure to perform his duties required of his position (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by the Officer in the performance of his duties hereunder, (iii) an act or acts on the Officer's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Officer at the expense of the Company, or (iv) breach of the provisions of Exhibit B hereto pertaining to confidentiality and competitive activities, but shall not mean (A) the refusal to relocate to another city more than 50 miles from the Officer's present place of business, nor (B) a refusal to perform the duties required of his position as a result of either a material change in the scope of his job responsibilities or a reduction in base compensation. The transfer of said shares by such Corporate Officer shall be required to conform to all applicable laws and regulations pertaining thereto. EX-10.13 4 AMENDED & RESTATED EMPLOYMENT & CONSULTING AGRMNT. 1 EXHIBIT 10.13 AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT, dated as of October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Robert J. Strudler (the "Executive"). WHEREAS, the Company and the Executive are parties to an Employment and Consulting Agreement, dated May 12, 1986, as amended by (i) the First Amendment to Employment and Consulting Agreement, dated February 8, 1990, (ii) the Second Amendment to Employment and Consulting Agreement, dated December 6, 1990, and (iii) the Third Amendment to Employment and Consulting Agreement, dated May 25, 1993 (collectively, the "Agreement"). WHEREAS, the Company and the Executive desire to amend and restate the Agreement as hereinafter provided. WHEREAS, Section 7(c) of the Agreement permits such amendment by written agreement of both parties. NOW, THEREFORE, the Company and the Executive agree to amend and restate the Agreement as follows: 2 1. Employment and Duties. The Company shall employ the Executive, and the Executive shall be employed by the Company, as Chairman and Co-Chief Executive Officer, at the Company's headquarters in Houston, Texas (or such other location as shall be mutually satisfactory to the Executive and the Company) for the term of this Agreement. In these capacities, the Executive shall devote substantially all of his business time and energies to the business of the Company and shall perform such services as shall from time to time be assigned to him by the Board of Directors of the Company. 2. Term. The term of the Executive's employment hereunder shall continue until June 20, 1999; provided, however, that, unless either party otherwise elects by notice in writing delivered to the other at least 90 days prior to June 20, 1999, or any subsequent anniversary of June 20, 1999, such term shall be automatically renewed for successive one-year terms unless sooner terminated by the Executive's voluntary resignation or otherwise terminated pursuant to the terms of this Agreement (the "Employment Term"). 2 3 3. Compensation and Benefits (a). Compensation. During each calendar year of the Employment Term, the Company shall pay the Executive: (i) a base salary at a rate of $425,000 per year (the "Base Salary"), payable in substantially equal biweekly installments, and (ii) any cash bonus to which he is entitled pursuant to the provisions of Appendix A hereto, payable as promptly as practicable after the end of each such calendar year, but in any event by April 15 of the following year. Notwithstanding the foregoing, if the Executive's applicable employee remuneration (as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")) for any taxable year would exceed the higher of $1 million or the maximum amount deductible by the Company under Section 162(m) for such taxable year, the amount otherwise payable shall be reduced to the higher of $1 million or the maximum amount deductible under Section 162(m) and the excess shall be deferred until the expiration of the Employment Term and shall be payable in a cash lump sum on April 16 of the first year of the Consultation Period. The deferred compensation shall accrue interest at the same rate charged the Company from time to time under the Credit Agreement, dated as of September 29, 1995, 3 4 among the Company, the First National Bank of Chicago, as agent, and certain lenders named therein, as amended, restated, supplemented or otherwise modified from time to time, or any successor facility. The Executive's Base Salary and bonus shall be reviewed at least annually by the Board of Directors of the Company, or pursuant to its delegation, and (i) at a minimum, the Board shall increase the Base Salary annually commencing with the 1996 calendar year by an amount determined by multiplying the current Base Salary by the percentage increase in the Consumer Price Index -- U.S. City Average published by the Bureau of Labor Statistics of the United States Department of Labor (or if that Index is no longer published by any substantially equivalent successor thereto) (the "Consumer Price Index") in the preceding calendar year, and (ii) the Board may increase the bonus from time to time. (b). Stock Options. On October 17, 1995, the Executive was granted an option (the "Option") to purchase 50,000 shares of the Company's common stock, $.01 par value per share (the "Common Stock"), pursuant to the Company's 1993 Employee's Stock Option Plan. Such Option shall be an "incentive stock option" within the meaning of Section 422 of the Code to the 4 5 extent permitted by Section 422(d) of the Code; to the extent not permitted by Section 422(d), the remaining portion of the Option shall be a nonqualified stock option. The Option shall be for a term of ten years from, and shall be exercisable immediately at the fair market value of the Common Stock on, the date of grant. (c). Retirement Benefit. (i). In consideration of the Executive's past services to the Company, the Executive shall be entitled to a retirement benefit, payable monthly for his life, in an amount equal to 50 percent of his highest monthly Base Salary during the Employment Term. Such payments shall commence on the first day of the month coincident with or next following the later of the Executive's attainment of age 58 or the end of the Employment Term (the "Commencement Date"); provided, however, that if the Employment Term terminates prior to his attainment of age 58, the Executive may elect by written notice to the Company to have such payments commence on the first day of any month after such termination of employment (the "Early Commencement Date") in a monthly amount equal to the monthly amount that the Executive would have received at the Commencement Date, reduced by one-third of one percent (.33%) per month for each month by which the 5 6 Early Commencement Date precedes the Commencement Date. The amount of each payment hereunder shall be increased on each January 1 following the Early Commencement Date or Commencement Date, as applicable, by an amount determined by multiplying the amount of each monthly payment made in the preceding year by the percentage increase, if any, in the cost of living from the preceding January 1, as reflected by the Consumer Price Index. The Executive's election to have his retirement benefit payments commence on the Early Commencement Date shall not affect the Company's obligation to pay consulting fees to the Executive in accordance with Section 4 hereof. The retirement benefit shall be an unconditional, but unsecured, general credit obligation of the Company to the Executive, and nothing contained in this Agreement, and no action taken pursuant to it, shall create or be construed to create a trust of any kind between the Company and the Executive. The Executive shall have no right, title or interest whatever in or to any investments which the Company may make (including, but not limited to, an insurance policy on the life of the Executive) to aid it in meeting its obligations hereunder. 6 7 (ii) From time to time, the Company shall make such contributions to the trust established under the Trust Agreement dated as of December 18, 1986 (the "1986 Trust") between the Company, as grantor, and William E. Reichard, as successor trustee, to provide a sufficient reserve for the discharge of its obligation to pay the retirement benefit to the Executive as provided in clause (i) of this Section 3(c) and clauses (ii) and (iii) of Section 5(a) hereof. (d) Expense Reimbursement. The Company shall promptly pay, or reimburse the Executive for, all ordinary and necessary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive properly accounts for them in accordance with Company policy. (e) Other Benefit Plans, Fringe Benefits, and Vacations. (i) The Executive shall be eligible to participate in each of the Company's present employee benefit plans, policies or arrangements and any such plans, policies or arrangements that the Company may maintain or establish during the Employment Term and receive all fringe benefits and vacations for which his position makes him eligible in accordance with the 7 8 Company's usual policies and the terms and provisions of such plans, policies or arrangements. (ii) The Company shall not terminate or change, in such a way as to adversely affect the Executive's rights or reduce his benefits, any employee benefit plan, policy or arrangement now in effect or which may hereafter be established and in which the Executive is eligible to participate, including, without limitation, the Company's profit sharing, life insurance, disability and stock option plans, unless a plan, policy or arrangement providing the Executive with at least equivalent rights and benefits has been established. (iii) From and after the last day of the Employment Term, the Executive shall be entitled to participate in each of the Company's employee benefit plans, policies or arrangements which provide medical coverage and similar benefits to the Company's executive officers (the "Company Medical Plan") on the same basis as the Company's other executive officers. The Company shall bear the cost of medical coverage and benefits during the Consultation Period (as defined below); thereafter, the Executive shall bear such cost. After the Executive is eligible for Medicare and the Company becomes a secondary payor 8 9 (or its equivalent) pursuant to Medicare or other applicable law, the Company shall provide secondary medical coverage and benefits. If continued coverage under the Company Medical Plan is not possible under the terms of any insurance policy or applicable law following the Employment Term, the Company shall provide the Executive with coverage equivalent to that provided to the Company's other executive officers under a policy or arrangement acceptable to the Executive. In the event of the Executive's death before the end of the Consultation Period, the Company shall continue to provide such primary and secondary medical coverage, as applicable, and benefits to the Executive's spouse and dependents for the remainder of the Consultation Period on the same basis as provided to the Company's other executive officers. 4. Consultation Period. From and after the last day of the Employment Term and for a period of five years thereafter (the "Consultation Period"), the Executive shall serve as a consultant to the Company with respect to such business matters and at such times (not more than four days per month and not more than two consecutive days per week) as the Company may reasonably request within Harris County, Texas; provided, however, that if 9 10 the Consultant does not reside in Harris County, he may perform his consulting duties hereunder at his then place of residence and shall be required to come to Harris County not more than one day in each calendar month. During the Consultation Period, the Company shall pay the Executive (in addition to any other amounts to which he is entitled pursuant to this Agreement) a consulting fee, in substantially equal biweekly installments, at the rate of $139,854 per year increased by an amount determined by multiplying $139,854 by the percentage increase, if any, in the cost of living between January 1, 1995 and the January 1 immediately preceding the date of commencement of the Consultation Period, as reflected by the Consumer Price Index. The amount of the consulting fee shall be increased on each January 1 during the Consultation Period by an amount determined by multiplying the amount of the consulting fee paid in the preceding year by the percentage increase, if any, in the cost of living from the preceding January 1, as reflected by the Consumer Price Index. During the Consultation Period, the Executive shall be reimbursed up to an amount not to exceed $50,000 during each year of the Consultation Period for any expenses incurred by the Executive for (i) the maintenance of an office that shall be 10 11 located other than at the Company's offices and (ii) secretarial assistance, such expenses to be billed and paid monthly. During the Consultation Period, the Executive shall not be required to undertake any assignment inconsistent with the dignity, importance and scope of his prior positions or with his physical and mental health at the time. It is expressly understood between the parties that during the Consultation Period, the Executive shall be an independent contractor and shall not be subject to the direction, control, or supervision of the Company. The provisions of Sections 5, 6 and 7 hereof shall continue to apply to the Executive during the Consultation Period. 5. Termination. (a) Death and Disability. (i) The Executive's employment hereunder shall terminate upon his death or upon his becoming Totally Disabled. For purposes of this Agreement, the Executive shall be "Totally Disabled" if he is physically or mentally incapacitated so as to render him incapable of performing his usual and customary duties as an executive (for the Company or otherwise). The Executive's receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for 11 12 purposes of this Agreement; provided, however, that in the absence of his receipt of such Social Security benefits, the Board of Directors of the Company may, in its sole discretion, but based upon appropriate medical evidence, determine that the Executive is Totally Disabled. (ii) In the event that the Executive is Totally Disabled before his retirement benefit pursuant to Section 3(c) hereof has commenced to be distributed (whether or not he is in the employ of the Company at the time he is so Totally Disabled), such benefit shall commence to be distributed to him on the first day of the month next following his Total Disability, as if such payments had commenced at his Commencement Date. (iii) In the event of the Executive's death (while Totally Disabled or otherwise) after his retirement benefit has commenced to be distributed pursuant to Section 3(c) hereof or subparagraph (ii) above, as applicable, the Company shall continue to pay such retirement benefit to his Beneficiary for her life. If the Executive's retirement benefit pursuant to Section 3(c) hereof has not commenced to be distributed on the date of his death, such benefit shall commence to be distributed 12 13 to his Beneficiary for her life on the first day of the month next following his date of death, as if such payments had commenced at his Commencement Date. For purposes of this Agreement, the Executive's "Beneficiary" shall be deemed to be his spouse; if his spouse predeceases him (or if he is not married at the time of his death), his Beneficiary shall be deemed to be his estate which shall receive, in lieu of the payments otherwise payable to the Executive's spouse hereunder, a lump sum cash payment equal to the actuarial present value (determined on the basis of a 6 percent per annum interest rate assumption and no decrement for mortality) of the payments that would have been made to a spouse for her life, assuming that such spouse was three years younger than the Executive on his date of death. If the Executive predeceases his spouse, upon her death, a lump sum cash payment equal to the amount of any cash and present value of all property (including any annuity contracts) owned by the 1986 Trust as of the date of the Executive's death shall be paid by the Company to his spouse's estate or any beneficiary or beneficiaries designated in her last will and testament as soon as practicable after such calculation is completed. The acturial present value of any annuity contracts shall be calculated by the 13 14 insurance company that issued such contract or, if any such insurance company cannot supply such present value, by an enrolled actuary. (b) For Cause. The Executive's employment hereunder may be terminated for Cause. For purposes of this Agreement, the term "Cause" shall mean (i) the Executive's continuing willful failure to perform his duties hereunder (other than as a result of total or partial incapacity due to physical or mental illness), (ii) gross negligence or malfeasance by the Executive in the performance of his duties hereunder, (iii) an act or acts on the Executive's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Executive at the expense of the Company, or (iv) breach of the provisions of Section 6(b) hereof. (c) Without Cause. If the Executive's employment or his retention as a consultant hereunder is terminated without Cause, as soon as practicable (but not later than 30 days) after such termination, he shall receive a lump sum cash payment equal to the sum of: (i) an amount equal to his highest monthly Base Salary during the Employment Term prior to such termination 14 15 multiplied by the number of months remaining in the Employment Term (but by not less than thirty-six months if such termination occurs during the Employment Term); (ii) if such termination occurs during the Employment Term, an amount equal to the bonuses paid pursuant to Section 3(a)(ii) hereof and Appendix A hereto or otherwise, whether or not deferred, in respect of the most recently completed three calendar years; (iii) an amount equal to the actuarial present value (determined on the basis of a 6 percent per annum interest rate assumption and no decrement for mortality) of the retirement benefit payments payable to him under Section 3(c), commencing on the Commencement Date (or, if such payments have commenced, such actuarial present value of the remaining payments); and (iv) an amount equal to the consulting fees due him under Section 4 for the term or remainder of the Consultation Period. (d) Change in Control. (i) If a Change in Control Event (as defined in Appendix B hereto) occurs, the Executive shall (A) if he so elects by written notice to the Company within 360 days after such Change in Control Event, be entitled to terminate his employment, if not already terminated by the Company, and, in 15 16 either event, receive the amounts set forth in paragraph (c) above (excluding the amount of the retirement benefit described in Section 5(c)(iii)) within the time period specified in subparagraph (iii) below, as if the Company had terminated his employment without Cause, and (B) if he so elects by written notice to the Company within 360 days after the occurrence of such Change in Control Event, cause the Company to purchase the Executive's principal residence at its fair market value. For purposes of this Agreement, such fair market value shall be determined by two independent real estate firms, one of which shall be selected by the Executive and one by the Company. If such real estate firms fail to agree on such fair market value, the two firms so selected shall select a third firm mutually acceptable to them and such third firm's determination of fair market value shall be binding for all purposes. (ii) Notwithstanding anything to the contrary herein, if the aggregate amounts payable pursuant to subparagraph (i) of paragraph (d) hereof would cause any payment under such subparagraph (i) to be subject to an excise tax as an "excess parachute payment" under Section 4999 of the Code, such aggregate amounts payable hereunder shall be reduced by the smallest amount 16 17 necessary to ensure that no payment hereunder shall be so treated under such Section 4999. Prior to effecting such reduction, the Company shall give the Executive 30 days' written notice of the fact, amount and basis of such reduction, as well as a determination of the shortest period of time over which such aggregate amounts may be paid and not be treated as "excess parachute payments." The Executive shall then have 30 days within which to elect in writing to (A) receive a lump sum payment, reduced pursuant to the first sentence hereof, or (B) receive the aggregate amounts payable pursuant to subparagraph (i) hereof in annual installments over the time period set forth in the Company's notice. In making the determinations called for in this subparagraph (ii), the parties hereto shall rely conclusively on (1) the opinion of Hay-Huggins, or such other consulting firm as the Company shall designate (with the written consent of the Executive) within one year of the date hereof as to the amount of the Executive's compensation which constitutes "reasonable compensation" for purposes of Section 280G of the Code, and (2) the opinion of Kwasha Lipton, or such other actuarial firm as the Company shall designate (with the written consent of the Executive) within one year of the date 17 18 hereof as to any present value calculations under Section 280G of the Code. The Company shall bear all costs associated with obtaining such opinions. (iii) The amounts payable pursuant to this paragraph (d) shall be paid (or commence to be paid) to the Executive not later than 10 days after he notifies the Company under subparagraph (ii) above whether he wishes to receive such amounts in a lump sum or in installments or, if no notice is given by the Company under subparagraph (ii) above, within 30 days after the Executive gives notice to the Company under subparagraph (i) above. (iv) In addition to all other rights granted him under this paragraph (d), if a Control Change (as defined in paragraph (c) of Appendix B hereto) occurs, the Executive shall be entitled to elect to terminate his employment with the Company upon written notice to the Company, effective not more than 10 days after such election. In such event, (A) the Consultation Period shall commence immediately upon termination of employment and shall cease five years thereafter, (B) the Executive shall be entitled to elect at any time to have payment of his retirement benefit commence on the Early Commencement Date in an amount 18 19 determined in accordance with the provisions of Section 3(c) hereof, and (C) the Company shall promptly, but not later than 10 days after such election, transfer sufficient assets to the 1986 Trust so that the assets of the 1986 Trust are then sufficient to discharge the obligations for the consulting fees and retirement benefits due him in full. 6. Covenants. (a) Confidentiality. The Executive acknowledges that he has acquired and will acquire confidential information respecting the business of the Company. Accordingly, the Executive agrees that, without the written consent of the Company as authorized by its Board of Directors, he will not, at any time, willfully disclose any such confidential information to any unauthorized third party with an intent that such disclosure will result in financial benefit to the Executive or to any person other than the Company. For this purpose, information shall be considered confidential only if such information is uniquely proprietary to the Company and has not been made publicly available prior to its disclosure by the Executive. (b) Competitive Activity. Until the end of the Consultation Period, the Executive shall not, without the consent 19 20 of the Board of Directors of the Company, directly or indirectly, knowingly engage or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business which (i) is in competition with any line of business being actively conducted by the Company or any of its affiliates or subsidiaries during the Employment Term or Consultation Period, or (ii) shall hire any person who was employed by the Company or any of its affiliates or subsidiaries within the six-month period preceding such hiring, except for any employee whose annual rate of compensation is not in excess of $55,000. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than one percent of any class of publicly traded securities of any such business. (c) Remedy for Breach. The Executive acknowledges that the provisions of this Section 6 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Company may be entitled, the Company shall be entitled to seek and obtain 20 21 injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining the Executive from any actual or threatened breach of such covenants. Notwithstanding anything to the contrary herein, the provisions of this Section 6 shall cease to apply to the Executive if his employment hereunder terminates without Cause or following a Change in Control Event. In addition, in the event that the Executive breaches the provisions of this Section 6 during the Consultation Period, the Company's sole remedy shall be to terminate the Executive for Cause. 7. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed in that State. (b) Notices. Any notice, consent or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States registered or certified mail, return receipt requested, to the parties at the following 21 22 addresses or at such other address as a party may specify by notice to the other. To the Executive: ---------------- 11110 Greenbay Houston, Texas 77024 To the Company: -------------- U.S. Home Corporation 1800 West Loop South Houston, Texas 77252 Attention: Secretary (c) Entire Agreement; Amendment. This Agreement shall supersede any and all existing agreements between the Executive and the Company or any of its affiliates or subsidiaries relating to the terms of his employment. It may not be amended except by a written agreement signed by both parties. (d) Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (e) Assignment. Except as otherwise provided in this paragraph, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, 22 23 representatives, successors and assigns. This Agreement shall not be assignable by the Executive, and shall be assignable by the Company only to any corporation or other entity resulting from the reorganization, merger or consolidation of the Company with any other corporation or entity or any corporation or entity to which the Company may sell all or substantially all of its assets, and it must be so assigned by the Company to, and accepted as binding upon it by, such other corporation or entity in connection with any such reorganization, merger, consolidation or sale. (f) Litigation Costs. In the event that the Executive shall successfully prosecute a judicial proceeding to enforce any provision of this Agreement, in addition to any other relief awarded the Executive by the court in such action, the parties agree that the judgment rendered shall award the Executive all of his attorneys' fees, disbursements and other costs incurred by the Executive in prosecuting such suit. (g) Separability. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is 23 24 inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. IN WITNESS WHEREOF, the parties hereto have duly executed this Amended and Restated Employment and Consulting Agreement and Appendices A and B thereto as evidence of their adoption this 17th day of October, 1995. U.S. HOME CORPORATION By --------------------------------- Name: Isaac Heimbinder -------------------------- Title: President, Co-Chief ----------------------- Executive Officer and ----------------------- Chief Operating Officer ----------------------- EXECUTIVE: ----------------------------------- Name: Robert J. Strudler 24 25 Appendix A This Appendix A is attached to and shall form a part of the Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Robert J. Strudler (the "Executive"). (a) The Executive's bonus, if any, for each calendar year during the Employment Term commencing with the 1995 calendar year shall be an amount equal to: (i) one-half (1/2) of one percent (1%) of the first $10,000,000 of the Company's Pre-Tax Income for such year, plus (ii) three-fourths (3/4) of one percent (1%) of the next $10,000,000 of the Company's Pre-Tax Income for such year, plus (iii) one percent (1%) of the Company's Pre-Tax Income for such year in excess of $20,000,000. (b) In the event that the Executive's employment hereunder is terminated for any reason prior to the end of a calendar year, including the expiration of the Employment Term, his bonus for such year shall be an amount, estimated in good faith by the Board of Directors of the Company based on 26 reasonable assumptions and projections, but without the benefit of the report referred to in paragraph (c) below, equal to the bonus otherwise determined pursuant to this Appendix A, multiplied by a fraction, the numerator of which is the number of calendar months during such year in which the Executive was employed by the Company for at least one business day, and the denominator of which is 12. (c) For purposes of this Agreement, the Company's "Pre-Tax Income" for any year shall mean the income of the Company and its consolidated and unconsolidated subsidiaries for such year, as reported by the Company and certified by its independent certified public accountants, except that no deduction shall be made for the bonus payable pursuant to this Appendix A and Section 3(a)(ii) hereof for such year or for Federal income and State and local franchise, gross receipts, or income taxes. U.S. HOME CORPORATION By --------------------------------- Name: Isaac Heimbinder ------------------------------ Title: President, Chief --------------------------- Executive Officer and --------------------------- Chief Operating Officer --------------------------- EXECUTIVE: ----------------------------------- Name: Robert J. Strudler 2 27 Appendix B This Appendix B is attached to and shall form a part of the Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Robert J. Strudler (the "Executive"). (a) For purposes of this Agreement, a "Change in Control Event" shall occur when a "Control Change" (as defined in paragraph (c) below) is followed within two years by a "Material Change" (as defined in paragraph (b) below). (b) A "Material Change" shall occur if: (i) the Executive's employment hereunder is terminated without Cause; (ii) the Company makes any change in the Executive's functions, duties or responsibilities from the position that the Executive occupied on the date hereof or, if this Agreement has been renewed or extended, the date of the last renewal or extension, but only if such change would cause: (A) the Executive to report to anyone other than the Board of Directors of the Company, 28 (B) the Executive to no longer be the Chairman of the Board of Directors and Co-Chief Executive Officer of the Company, (C) even if the Executive maintains the positions of Chairman of the Board of Directors and Co-Chief Executive Officer, his responsibilities to be reduced from those in effect on the date hereof or the date of the last renewal or extension of this Agreement, as applicable, or to no longer be commensurate with those of the Co-Chief Executive Officer of a company with gross annual sales of at least $800 million, or (D) the Executive's position with the Company to become one of lesser importance or scope; (iii) the Company assigns or reassigns the Executive (without his written permission) to another place of employment which is more than 10 miles from his place of employment on the date hereof or the date of the last renewal or extension of this Agreement, as applicable, and which is not the corporate headquarters of the Company; or (iv) the Company reduces the Executive's Base Salary or otherwise breaches the terms of this Agreement. 2 29 (c) A "Control Change" shall occur if: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner, directly or indirectly, of 15 percent or more of the combined voting power of the then-outstanding securities of the Company; (ii) any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), shall purchase securities pursuant to a tender offer or exchange offer to acquire any common stock of the Company (or securities convertible into common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15 percent or more of the combined voting power of 3 30 the then-outstanding securities of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire common stock); (iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company (1) in which the Company is not the continuing or surviving corporation, (2) pursuant to which shares of common stock of the Company would be converted into cash, securities or other property, or (3) with a corporation which prior to such consolidation or merger owned 15 percent or more of the cumulative voting power of the then-outstanding securities of the Company, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; or (iv) there shall have been a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. 4 31 (d) Notwithstanding the foregoing, the issuance by the Company of shares of Common Stock of the Company, $.01 par value per share, convertible preferred stock of the Company, $.10 par value per share, and Class B Warrants aggregating 15% or more of the combined voting power of the Company to any one beneficial owner (as such term is used in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) who is a holder of claims or interests pursuant to the First Amended Consolidated Plan of Reorganization of the Company and certain of its affiliates, as modified, filed with the United States Bankruptcy Court for the Southern District of New York (the "USH Plan") in exchange for such claims or interests shall not be deemed to constitute a Control Change unless such person subsequently increases its percentage beneficial ownership above the percentage amount received pursuant to the USH Plan. Shares of common stock, preferred stock and Class B Warrants acquired pursuant to the USH Plan by creditors or stockholders for their claims or interests, though less than 15% of the combined voting power of the Company, shall be included in determining whether a person through acquisition of additional shares, whether through purchase, exchange or otherwise, on or after the Effective Date has 5 32 subsequently become the beneficial owner of 15% or more of the combined voting power of the Company, which shall, in such event, constitute a Control Change. U.S. HOME CORPORATION By ----------------------------------- Name: Isaac Heimbinder -------------------------- Title: President, Co-Chief ------------------------ Executive Officer and ------------------------ Chief Operating Officer ------------------------ EXECUTIVE: -------------------------------------- Name: Robert J. Strudler 6 EX-10.14 5 AMENDED & RESTATED EMPLOYMENT & CONSULTING AGRMNT. 1 AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT, dated as of October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Isaac Heimbinder (the "Executive"). WHEREAS, the Company and the Executive are parties to an Employment and Consulting Agreement, dated May 12, 1986, as amended by (i) the First Amendment to Employment and Consulting Agreement dated February 8, 1990, (ii) the Second Amendment to Employment and Consulting Agreement, dated December 6, 1990, and (iii) the Third Amendment to Employment and Consulting Agreement, dated May 25, 1993 (collectively, the "Agreement"). WHEREAS, the Company and the Executive desire to amend and restate the Agreement as hereinafter provided. WHEREAS, Section 7(c) of the Agreement permits such amendment by written agreement of both parties. NOW, THEREFORE, the Company and the Executive agree to amend and restate the Agreement as follows: 1. Employment and Duties. The Company shall employ the Executive, and the Executive shall be employed by the 2 Company, as President, Co-Chief Executive Officer and Chief Operating Officer at the Company's headquarters in Houston, Texas (or such other location as shall be mutually satisfactory to the Executive and the Company) for the term of this Agreement. In these capacities, the Executive shall devote substantially all of his business time and energies to the business of the Company and shall perform such services as shall from time to time be assigned to him by the Board of Directors of the Company. 2. Term. The term of the Executive's employment hereunder shall continue until June 20, 1999; provided, however, that, unless either party otherwise elects by notice in writing delivered to the other at least 90 days prior to June 20, 1999, or any subsequent anniversary of June 20, 1999, such term shall be automatically renewed for successive one-year terms unless sooner terminated by the Executive's voluntary resignation or otherwise terminated pursuant to the terms of this Agreement (the "Employment Term"). 3. Compensation and Benefits. (a) Compensation. During each calendar year of the Employment Term, the Company shall pay the Executive: (i) a base salary at a rate of $415,000 per year (the "Base Salary"), 2 3 payable in substantially equal biweekly installments, and (ii) any cash bonus to which he is entitled pursuant to the provisions of Appendix A hereto, payable as promptly as practicable after the end of each such calendar year, but in any event by April 15 of the following year. Notwithstanding the foregoing, if the Executive's applicable employee remuneration (as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")) for any taxable year would exceed the higher of $1 million or the maximum amount deductible by the Company under Section 162(m) for such taxable year, the amount otherwise payable shall be reduced to the higher of $1 million or the maximum amount deductible under Section 162(m) and the excess shall be deferred until the expiration of the Employment Term and shall be payable in a cash lump sum on April 16 of the first year of the Consultation Period. The deferred compensation shall accrue interest at the same rate charged the Company from time to time under the Credit Agreement, dated as of September 29, 1995, among the Company, the First National Bank of Chicago, as agent, and certain lenders named therein, as amended, restated, supplemented or otherwise modified from time to time, or any successor facility. The Executive's Base Salary and bonus shall 3 4 be reviewed at least annually by the Board of Directors of the Company, or pursuant to its delegation, and (i) at a minimum, the Board shall increase the Base Salary annually commencing with the 1996 calendar year by an amount determined by multiplying the current Base Salary by the percentage increase in the Consumer Price Index -- U.S. City Average published by the Bureau of Labor Statistics of the United States Department of Labor (or if that Index is no longer published, by any substantially equivalent successor thereto) (the "Consumer Price Index") in the preceding calendar year and (ii) the Board may increase the bonus from time to time. (b) Stock Options. On October 17, 1995, the Executive was granted an option (the "Option") to purchase 50,000 shares of the Company's common stock, $.01 par value per share (the "Common Stock"), pursuant to the Company's 1993 Employee's Stock Option Plan. Such Option shall be an "incentive stock option" within the meaning of Section 422 of the Code to the extent permitted by Section 422(d) of the Code; to the extent not permitted by Section 422(d), the remaining portion of the Option shall be a nonqualified stock option. The Option shall be for a 4 5 term of ten years from, and shall be exercisable immediately at the fair market value of the Common Stock on, the date of grant. (c) Retirement Benefit. (i) In consideration of the Executive's past services to the Company, the Executive shall be entitled to a retirement benefit, payable monthly for his life, in an amount equal to 50 percent of his highest monthly Base Salary during the Employment Term. Such payments shall commence on the first day of the month coincident with or next following the later of the Executive's attainment of age 58 or the end of the Employment Term (the "Commencement Date"); provided, however, that if the Employment Term terminates prior to his attainment of age 58, the Executive may elect by written notice to the Company to have such payments commence on the first day of any month after such termination of employment (the "Early Commencement Date") in a monthly amount equal to the monthly amount that the Executive would have received at the Commencement Date, reduced by one-third of one percent (.33%) per month for each month by which the Early Commencement Date precedes the Commencement Date. The amount of each payment hereunder shall be increased on each January 1 following the Early Commencement Date or Commencement 5 6 Date, as applicable, by an amount determined by multiplying the amount of each monthly payment made in the preceding year by the percentage increase, if any, in the cost of living from the preceding January 1, as reflected by the Consumer Price Index. The Executive's election to have his retirement benefit payments commence on the Early Commencement Date shall not affect the Company's obligation to pay consulting fees to the Executive in accordance with Section 4 hereof. The retirement benefit shall be an unconditional, but unsecured, general credit obligation of the Company to the Executive, and nothing contained in this Agreement, and no action taken pursuant to it, shall create or be construed to create a trust of any kind between the Company and the Executive. The Executive shall have no right, title or interest whatever in or to any investments which the Company may make (including, but not limited to, an insurance policy on the life of the Executive) to aid it in meeting its obligations hereunder. (ii) From time to time, the Company shall make such contributions to the trust established under the Trust Agreement dated as of December 18, 1986 (the "1986 Trust") 6 7 between the Company, as grantor, and William E. Reichard, as successor trustee, to provide a sufficient reserve for the discharge of its obligation to pay the retirement benefit to the Executive as provided in clause (i) of this Section 3(c) and clauses (ii) and (iii) of Section 5(a) hereof. (d) Expense Reimbursement. The Company shall promptly pay, or reimburse the Executive for, all ordinary and necessary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive properly accounts for them in accordance with Company policy. (e) Other Benefit Plans, Fringe Benefits, and Vacations. (i) The Executive shall be eligible to participate in each of the Company's present employee benefit plans, policies or arrangements and any such plans, policies or arrangements that the Company may maintain or establish during the Employment Term and receive all fringe benefits and vacations for which his position makes him eligible in accordance with the Company's usual policies and the terms and provisions of such plans, policies or arrangements. 7 8 (ii) The Company shall not terminate or change, in such a way as to adversely affect the Executive's rights or reduce his benefits, any employee benefit plan, policy or arrangement now in effect or which may hereafter be established and in which the Executive is eligible to participate, including, without limitation, the Company's profit sharing, life insurance, disability and stock option plans, unless a plan, policy or arrangement providing the Executive with at least equivalent rights and benefits has been established. (iii) From and after the last day of the Employment Term, the Executive shall be entitled to participate in each of the Company's employee benefit plans, policies or arrangements which provide medical coverage and similar benefits to the Company's executive officers (the "Company Medical Plan") on the same basis as the Company's other executive officers. The Company shall bear the cost of medical coverage and benefits during the Consultation Period (as defined below); thereafter, the Executive shall bear such cost. After the Executive is eligible for Medicare and the Company becomes a secondary payor (or its equivalent) pursuant to Medicare or other applicable law, the Company shall provide secondary medical coverage and 8 9 benefits. If coverage under the Company Medical Plan is not possible under the terms of any insurance policy or applicable law following the Employment Term, the Company shall provide the Executive with coverage equivalent to that provided to the Company's other executive officers under a policy or arrangement acceptable to the Executive. In the event of the Executive's death before the end of the Consultation Period, the Company shall continue to provide such primary and secondary medical coverage, as applicable, and benefits to the Executive's spouse and dependents for the remainder of the Consultation Period on the same basis as provided to the Company's other executive officers. 4. Consultation Period. From and after the last day of the Employment Term and for a period of five years thereafter (the "Consultation Period"), the Executive shall serve as a consultant to the Company with respect to such business matters and at such times (not more than four days per month and not more than two consecutive days per week) as the Company may reasonably request within Harris County, Texas, provided, however, that if the Consultant does not reside in Harris County, he may perform his consulting duties hereunder at his then place of residence 9 10 and shall be required to come to Harris County not more than one day in each calendar month. During the Consultation Period, the Company shall pay the Executive (in addition to any other amounts to which he is entitled pursuant to this Agreement) a consulting fee, in substantially equal biweekly installments, at the rate of $134,260 per year increased by an amount determined by multiplying $134,260 by the percentage increase, if any, in the cost of living between January 1, 1995 and the January 1 immediately preceding the date of commencement of the Consultation Period, as reflected by the Consumer Price Index. The amount of the consulting fee shall be increased on each January 1 during the Consultation Period by an amount determined by multiplying the amount of the consulting fee paid in the preceding year by the percentage increase, if any, in the cost of living from the preceding January 1, as reflected by the Consumer Price Index. During the Consultation Period, the Executive shall not be required to undertake any assignment inconsistent with the dignity, importance and scope of his prior positions or with his physical and mental health at the time. It is expressly understood between the parties that during the Consultation Period, the Executive shall be an independent contractor and 10 11 shall not be subject to the direction, control, or supervision of the Company. The provisions of Sections 5, 6 and 7 hereof shall continue to apply to the Executive during the Consultation Period. 5. Termination. (a) Death and Disability. (i) The Executive's employment hereunder shall terminate upon his death or upon his becoming Totally Disabled. For purposes of this Agreement, the Executive shall be "Totally Disabled" if he is physically or mentally incapacitated so as to render him incapable of performing his usual and customary duties as an executive (for the Company or otherwise). The Executive's receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for purposes of this Agreement; provided, however, that in the absence of his receipt of such Social Security benefits, the Board of Directors of the Company may, in its sole discretion, but based upon appropriate medical evidence, determine that the Executive is Totally Disabled. (ii) In the event that the Executive is Totally Disabled before his retirement benefit pursuant to 11 12 Section 3(c) hereof has commenced to be distributed (whether or not he is in the employ of the Company at the time he is so Totally Disabled), such benefit shall commence to be distributed to him on the first day of the month next following his Total Disability, as if such payments had commenced at his Commencement Date. In the event of the Executive's death (while Totally Disabled or otherwise) after his retirement benefit has commenced to be distributed pursuant to Section 3(c) hereof or subparagraph (ii) above, as applicable, the Company shall continue to pay such retirement benefit to his Beneficiary for her life. If the Executive's retirement benefit pursuant to Section 3(c) hereof has not commenced to be distributed on the date of his death, such benefit shall commence to be distributed to his Beneficiary for her life on the first day of the month next following his date of death, as if such payments had commenced at his Commencement Date. For purposes of this Agreement, the Executive's "Beneficiary" shall be deemed to be his spouse; if his spouse predeceases him (or if he is not married at the time of his death), his Beneficiary shall be deemed to be his estate which shall receive, in lieu of the payments otherwise payable to the Executive's spouse hereunder, a lump sum cash payment equal 12 13 to the actuarial present value (determined on the basis of a 6 percent per annum interest rate assumption and no decrement for mortality) of the payments that would have been made to a spouse for her life, assuming that such spouse was three years younger than the Executive on his date of death. If the Executive predeceases his spouse, upon her death, a lump sum cash payment equal to the amount of any cash and the present value of all property (including any annuity contracts) owned by the 1986 Trust as of the date of the Executive's death shall be paid by the Company to his spouse's estate or any beneficiary or beneficiaries designated in her last will and testament as soon as practicable after such calculation is completed. The actuarial present value of any annuity contracts shall be calculated by the insurance company that issued such contract or, if any such insurance company cannot supply such present value, by an enrolled actuary. (b) For Cause. The Executive's employment hereunder may be terminated for Cause. For purposes of this Agreement, the term "Cause" shall mean (i) the Executive's continuing willful failure to perform his duties hereunder (other than as a result of total or partial incapacity due to physical 13 14 or mental illness), (ii) gross negligence or malfeasance by the Executive in the performance of his duties hereunder, (iii) an act or acts on the Executive's part constituting a felony under the laws of the United States or any state thereof which results or was intended to result directly or indirectly in gain or personal enrichment by the Executive at the expense of the Company, or (iv) breach of the provisions of Section 6(b) hereof. (c) Without Cause. If the Executive's employment or his retention as a consultant hereunder is terminated without Cause, as soon as practicable (but not later than 30 days) after such termination, he shall receive a lump sum cash payment equal to the sum of: (i) an amount equal to his highest monthly Base Salary during the Employment Term prior to such termination multiplied by the number of months remaining in the Employment Term (but by not less than thirty-six months if such termination occurs during the Employment Term); (ii) if such termination occurs during the Employment Term, an amount equal to the bonuses paid pursuant to Section 3(a)(ii) hereof and Appendix A hereto or otherwise, whether or not deferred, in respect of the most recently completed three calendar years; (iii) an amount equal to the actuarial present value (determined on the basis of 14 15 a 6 percent per annum interest rate assumption and no decrement for mortality) of the retirement benefit payments payable to him under Section 3(c), commencing on the Commencement Date (or if such payments have commenced, such actuarial present value of the remaining payments); and (iv) an amount equal to the consulting fees due him under Section 4 for the term or remainder of the Consultation Period. For purposes of this Agreement, the Executive will be deemed to be terminated without Cause upon the (i) failure to elect the Executive to the office of chairman and chief executive officer of the Company in the event of a vacancy in such office for any reason and (ii) resignation of the Executive within 180 days of such vacancy. (d) Change in Control. (i) If a Change in Control Event (as defined in Appendix B hereto) occurs, the Executive shall (A) if he so elects by written notice to the Company within 360 days after such Change in Control Event, be entitled to terminate his employment, if not already terminated by the Company, and, in either event, receive the amounts set forth in paragraph (c) above (excluding the amount of the retirement benefit described in Section 5(c)(iii)) within the time period specified in 15 16 subparagraph (iii) below, as if the Company had terminated his employment without Cause, and (B) if he so elects by written notice to the Company within 360 days after the occurrence of such Change in Control Event, cause the Company to purchase the Executive's principal residence at its fair market value. For purposes of this Agreement, such fair market value shall be determined by two independent real estate firms, one of which shall be selected by the Executive and one by the Company. If such real estate firms fail to agree on such fair market value, the two firms so selected shall select a third firm mutually acceptable to them and such third firm's determination of fair market value shall be binding for all purposes. (ii) Notwithstanding anything to the contrary herein, if the aggregate amounts payable pursuant to subparagraph (i) of paragraph (d) hereof would cause any payment under such subparagraph (i) to be subject to an excise tax as an "excess parachute payment" under Section 4999 of the Code, such aggregate amounts payable hereunder shall be reduced by the smallest amount necessary to ensure that no payment hereunder shall be so treated under such Section 4999. Prior to effecting such reduction, the Company shall give the Executive 30 days' 16 17 written notice of the fact, amount and basis of such reduction, as well as a determination of the shortest period of time over which such aggregate amounts may be paid and not be treated as "excess parachute payments." The Executive shall then have 30 days within which to elect in writing to (A) receive a lump sum payment, reduced pursuant to the first sentence hereof, or (B) receive the aggregate amounts payable pursuant to subparagraph (i) hereof in annual installments over the time period set forth in the Company's notice. In making the determinations called for in this subparagraph (ii), the parties hereto shall rely conclusively on (1) the opinion of Hay-Huggins, or such other consulting firm as the Company shall designate (with the written consent of the Executive) within one year of the date hereof, as to the amount of the Executive's compensation which constitutes "reasonable compensation" for purposes of Section 280G of the Code, and (2) the opinion of Kwasha Lipton, or such other actuarial firm as the Company shall designate (with the written consent of the Executive) within one year of the date hereof, as to any present value calculations under Section 280G of the Code. The Company shall bear all costs associated with obtaining such opinions. 17 18 (iii) The amounts payable pursuant to this paragraph (d) shall be paid (or commence to be paid) to the Executive not later than 10 days after he notifies the Company under subparagraph (ii) above whether he wishes to receive such amounts in a lump sum or in installments or if no notice is given by the Company under subparagraph (ii) above, within 30 days after the Executive gives notice to the Company under subparagraph (i) above. (iv) In addition to all other rights granted the Executive under this paragraph (d), if a Control Change (as defined in paragraph (c) of Appendix B hereto) occurs, the Executive shall be entitled to elect to terminate his employment upon written notice to the Company, effective not more than 10 days after such an election. In such event, (A) the Consultation Period shall commence immediately upon termination of employment and shall cease five years thereafter, (B) the Executive shall be entitled to elect at any time to have payment of his retirement benefit commence on the Early Commencement Date in an amount determined in accordance with the provisions of Section 3(c) hereof, and (C) the Company shall promptly, but not later than 10 days after such election, transfer sufficient assets to the 1986 18 19 Trust so that the assets of the 1986 Trust are then sufficient to discharge the obligations for the consulting fees and retirement benefits due him in full. 6. Covenants. (a) Confidentiality. The Executive acknowledges that he has acquired and will acquire confidential information respecting the business of the Company. Accordingly, the Executive agrees that, without the written consent of the Company as authorized by its Board of Directors, he will not, at any time, willfully disclose any such confidential information to any unauthorized third party with an intent that such disclosure will result in financial benefit to the Executive or to any person other than the Company. For this purpose, information shall be considered confidential only if such information is uniquely proprietary to the Company and has not been made publicly available prior to its disclosure by the Executive. (b) Competitive Activity. Until the end of the Consultation Period, the Executive shall not, without the consent of the Board of Directors of the Company, directly or indirectly, knowingly engage or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or 19 20 otherwise), with or without compensation, any business which (i) is in competition with any line of business being actively conducted by the Company or any of its affiliates or subsidiaries during the Employment Term or Consultation Period, or (ii) shall hire any person who was employed by the Company or any of its affiliates or subsidiaries within the six-month period preceding such hiring, except for any employee whose annual rate of compensation is not in excess of $55,000. Nothing herein, however, shall prohibit the Executive from acquiring or holding not more than one percent of any class of publicly traded securities of any such business. (c) Remedy for Breach. The Executive acknowledges that the provisions of this Section 6 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Company may be entitled, the Company shall be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining the Executive from any actual or threatened breach of such 20 21 covenants. Notwithstanding anything to the contrary herein, the provisions of this Section 6 shall cease to apply to the Executive if his employment hereunder terminates without Cause or following a Change in Control Event. In addition, in the event that the Executive breaches the provisions of this Section 6 during the Consultation Period, the Company's sole remedy shall be to terminate the Executive for Cause. 7. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed in that State. (b) Notices. Any notice, consent or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered by United States registered or certified mail, return receipt requested, to the parties at the following addresses or at such other address as a party may specify by notice to the other. 21 22 To the Executive: 2 Glendennig Houston, Texas 77252 To the Company: U.S. Home Corporation 1800 West Loop South Houston, Texas 77252 Attention: Secretary (c) Entire Agreement; Amendment. This Agreement shall supersede any and all existing agreements between the Executive and the Company or any of its affiliates or subsidiaries relating to the terms of his employment. It may not be amended except by a written agreement signed by both parties. (d) Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (e) Assignment. Except as otherwise provided in this paragraph, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement shall 22 23 not be assignable by the Executive, and shall be assignable by the Company only to any corporation or other entity resulting from the reorganization, merger or consolidation of the Company with any other corporation or entity or any corporation or entity to which the Company may sell all or substantially all of its assets, and it must be so assigned by the Company to, and accepted as binding upon it by, such other corporation or entity in connection with any such reorganization, merger, consolidation or sale. (f) Litigation Costs. In the event that the Executive shall successfully prosecute a judicial proceeding to enforce any provision of this Agreement, in addition to any other relief awarded the Executive by the court in such action, the parties agree that the judgment rendered shall award the Executive all of his attorneys' fees, disbursements and other costs incurred by the Executive in prosecuting such suit. (g) Separability. If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. 23 24 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement and Appendices A and B thereto as evidence of their adoption this 17th day of October, 1995. U.S. HOME CORPORATION By ----------------------------- Name: Robert J. Strudler ------------------------ Title: Chairman and Co-Chief ------------------------ Executive Officer ------------------------ EXECUTIVE: -------------------------------- Name: Isaac Heimbinder 24 25 Appendix A This Appendix A is attached to and shall form a part of the Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Isaac Heimbinder (the "Executive"). (a) The Executive's bonus, if any, for each calendar year during the Employment Term commencing with the 1995 calendar year shall be an amount equal to: one-half (1/2) of one percent (1%) of the first $10,000,000 of the Company's Pre-Tax Income for such year, plus (i) three-fourths (3/4) of one percent (1%) of the next $10,000,000 of the Company's Pre-Tax Income for such year, plus (ii) one percent (1%) of the Company's Pre-Tax Income for such year in excess of $20,000,000. (b) In the event that the Executive's employment hereunder is terminated for any reason prior to the end of a calendar year, including the expiration of the Employment Term, his bonus for such year shall be an amount, estimated in good faith by the Board of Directors of the Company based on 1 26 reasonable assumptions and projections, but without the benefit of the report referred to in paragraph (c) below, equal to the bonus otherwise determined pursuant to this Appendix A, multiplied by a fraction, the numerator of which is the number of calendar months during such year in which the Executive was employed by the Company for at least one business day, and the denominator of which is 12. (c) For purposes of this Agreement, the Company's "Pre-Tax Income" for any year shall mean the income of the Company and its consolidated and unconsolidated subsidiaries for such year, as reported by the Company and certified by its independent certified public accountants, except that no deduction shall be made for the bonus payable pursuant to this Appendix A and Section 3(a)(ii) hereof for such year or for Federal income and State and local franchise, gross receipts, or income taxes. U.S. HOME CORPORATION By ---------------------------- Name: Robert J. Strudler ----------------------- Title: Chairman and Co-Chief ----------------------- Executive Officer ----------------------- EXECUTIVE: ------------------------------- Name: Isaac Heimbinder 2 27 Appendix B This Appendix B is attached to and shall form a part of the Amended and Restated Employment and Consulting Agreement, dated October 17, 1995, by and between U.S. Home Corporation (the "Company"), and Isaac Heimbinder (the "Executive"). (a) For purposes of this Agreement, a "Change in Control Event" shall occur when a "Control Change" (as defined in paragraph (c) below) is followed within two years by a "Material Change" (as defined in paragraph (b) below). (b) A "Material Change" shall occur if: (i) the Executive's employment hereunder is terminated without Cause; (ii) the Company makes any change in the Executive's functions, duties or responsibilities from the position that the Executive occupied on the date hereof or, if this Agreement has been renewed or extended, the date of the last renewal or extension, but only if such change would cause: (A) the Executive to report to anyone other than the Chairman of the Board of Directors who is also the Co-Chief Executive Officer, 1 28 (B) the Executive to no longer be the President, Co-Chief Executive Officer and Chief Operating Officer of the Company, (C) even if the Executive maintains the positions of President, Co-Chief Executive Officer and Chief Operating Officer, his responsibilities to be reduced from those in effect on the date hereof or the date of the last renewal or extension of this Agreement, as applicable, or to be no longer commensurate with those of the Co-Chief Executive Officer and Chief Operating Officer of a company with gross annual sales of at least $800 million, or (D) the Executive's position with the Company to become one of lesser importance or scope; (iii) the Company assigns or reassigns the Executive (without his written permission) to another place of employment which is more than 10 miles from his place of employment on the date hereof or the date of the last renewal or extension of this Agreement, as applicable, and which is not the corporate headquarters of the Company; or (iv) the Company reduces the Executive's Base Salary or otherwise breaches the terms of this Agreement. 2 29 (c) A "Control Change" shall occur if: (i) a report on Schedule 13D is filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") disclosing that any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), is the beneficial owner, directly or indirectly, of 15 percent or more of the combined voting power of the then-outstanding securities of the Company; (ii) any person (within the meaning of Section 13(d) of the Exchange Act), other than the Company (or one of its subsidiaries) or any employee benefit plan sponsored by the Company (or one of its subsidiaries), shall purchase securities pursuant to a tender offer or exchange offer to acquire any common stock of the Company (or securities convertible into common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15 percent or more of the combined voting power of 3 30 the then-outstanding securities of the Company (as determined under paragraph (d) of Rule 13d-3 under the Exchange Act, in the case of rights to acquire common stock); (iii) the stockholders of the Company shall approve (A) any consolidation or merger of the Company (1) in which the Company is not the continuing or surviving corporation, (2) pursuant to which shares of common stock of the Company would be converted into cash, securities or other property, or (3) with a corporation which prior to such consolidation or merger owned 15 percent or more of the cumulative voting power of the then-outstanding securities of the Company, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; or (iv) there shall have been a change in a majority of the members of the Board of Directors of the Company within a 12-month period, unless the election or nomination for election by the Company's stockholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who were directors at the beginning of such 12-month period. 4 31 (d) Notwithstanding the foregoing, the issuance by the Company of shares of common stock of the Company, $.01 par value per share, convertible preferred stock of the Company, $.10 par value per share, and Class B Warrants aggregating 15% or more of the combined voting power of the Company to any one beneficial owner (as such term is used in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) who is a holder of claims or interests pursuant to the First Amended Consolidated Plan of Reorganization of the Company and certain of its affiliates, as modified, filed with the United States Bankruptcy Court for the Southern District of New York (the "USH Plan") in exchange for such claims or interests shall not be deemed to constitute a Control Change unless such person subsequently increases its percentage beneficial ownership above the percentage amount received pursuant to the USH Plan. Shares of common stock, preferred stock and Class B Warrants acquired pursuant to the USH Plan by creditors or stockholders for their claims or interests, though less than 15% of the combined voting power of the Company, shall be included in determining whether a person through acquisition of additional shares, whether through purchase, exchange or otherwise, on or after the Effective Date has 5 32 subsequently become the beneficial owner of 15% or more of the combined voting power of the Company, which shall, in such event, constitute a Control Change. U.S. HOME CORPORATION By ------------------------------- Name: Robert J. Strudler --------------------------- Title: Chairman and --------------------------- Co-Chief Executive --------------------------- Officer EXECUTIVE: ---------------------------------- Name: Isaac Heimbinder 6 EX-10.19.I 6 AMEND. #1 TO 1ST AMEND. & RESTATED SECURITY AGRMNT 1 FIRST AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED WAREHOUSING CREDIT AND SECURITY AGREEMENT (this "Amendment") is entered into as of this 27th day of December, 1995 by and between U.S. HOME MORTGAGE CORPORATION, a Florida corporation (the "Company") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"). WHEREAS, the Company and the Lender have entered into a single family revolving warehouse facility with a present Commitment Amount of Thirty-Five Million Dollars ($35,000,000), to finance the origination and acquisition of Mortgage Loans as evidenced by a Warehousing Promissory Note in the principal sum of Thirty-Five Million Dollars ($35,000,000), and a Construction Promissory Note in the principal sum of Five Million Dollars ($5,000,000), each dated as of August 31, 1995 (the "Notes"), and by a First Amended and Restated Warehousing Credit and Security Agreement dated as of August 31, 1995, as the same may have been amended or supplemented (the "Agreement"); and WHEREAS, the Company has requested the Lender to amend the Agreement to provide for the warehousing of commercial mortgage loans and to increase the Commitment Amount, and the Lender has agreed to such amendment of the Agreement and increase of the Commitment subject to the terms and conditions of this Amendment. NOW, THEREFORE, for and in consideration of the foregoing and of the mutual covenants, agreements and conditions hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. All capitalized terms used herein and not otherwise defined shall have their respective meanings set forth in the Agreement. 2. The effective date ("Effective Date") of this Amendment shall be 12/27/95, the date on which the Company has complied with all the terms and conditions of this Amendment. 3. Section 1.1 of the Agreement shall be amended by adding the following definitions in the appropriate alphabetical order: "First Mortgage" means a Mortgage which constitutes a first Lien on the property covered thereby. "First Mortgage Loan" means a Mortgage Loan secured by a First Mortgage. -1- 2 "Unimproved Advance" means an Advance made against an Unimproved Mortgage Loan and readvances of funds previously advanced to the Company and repaid to the Lender. "Unimproved Mortgage Loans" means a Mortgage Loan secured by a First Mortgage on unimproved real property intended for commercial or residential development and used by the mortgagor to finance the acquisition of such real property. "Unimproved Rate" means a floating rate of interest per annum equal to two and one-half percent (2.50%) over LIBOR. The Unimproved Rate shall be adjusted on and as of the effective date of each weekly change in LIBOR. The Lender's determination of the Unimproved Rate as of any date of determination shall be conclusive and binding, absent manifest error. 4. Section 1.1 of the Agreement is hereby amended to delete the definition of "Commitment Amount" in its entirety and to substitute the following in lieu thereof: "Commitment Amount" means Forty-Five Million Dollars ($45,000,000). 5. Sections 2.1(b)(1) - (7) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: (1) No Advance shall be made against a Mortgage Loan other than a Single-family Mortgage Loan, a Construction/Perm Mortgage Loan or an Unimproved Mortgage Loan, no Construction Advance shall be made against a Construction/Perm Mortgage Loan which is not secured by a single-family detached dwelling and no Unimproved Advance shall be made against any Unimproved Mortgage Loan without the prior approval of the Lender, which may be given or withheld in its sole and absolute discretion. (2) No Advance shall be made against a Mortgage Loan, other than an Unimproved Mortgage Loan, which is not covered by a Purchase Commitment. (3) No Advance shall be made against a Home Equity Mortgage Loan. (4) The aggregate amount of Wet Settlement Advances outstanding at any one time shall not exceed thirty-five percent (35%) of the Commitment -2- 3 Amount. No Wet Settlement Advance shall be made against an Unimproved Mortgage Loan. (5) The aggregate amount of Construction Advances outstanding at any one time shall not exceed Five Million Dollars ($5,000,000). (6) The aggregate amount of Nonconforming Advances outstanding at any one time shall not exceed One Million Dollars ($1,000,000). (6) The aggregate amount of Unimproved Advances outstanding at any one time shall not exceed Ten Million Dollars ($10,000,000). (7) No Advance (other than a Construction Advance or an Unimproved Advance) shall be made against any Mortgage Loan which was closed more than ninety (90) days prior to the date of the requested Advance. (8) No Advance shall be made against an Unimproved Mortgage Loan (i) if the original principal amount of such Unimproved Mortgage Loan exceeded eighty percent (80%) of the purchase price paid by the mortgage for the property securing such Unimproved Mortgage Loan, (ii) in the case of an Unimproved Mortgage Loan secured by property intended for commercial development, if the Mortgage Note Amount exceeds eighty percent (80%) of the fair market value of such property as determined by the Lender, in its reasonable judgment, or (iii) unless all payments which were due and payable under the related Unimproved Mortgage Loan on or prior to the date of such Advance have been made. 6. Section 2.1(c) of the Agreement is hereby amended by adding the following Section immediately after Section 2.1(c)(3): (4) For an Unimproved Mortgage Loan pledged hereunder, seventy-five percent (75%) of the Mortgage Note Amount. 7. Sections 2.2(a) or 2.2(d) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: (a) The Company may obtain an Advance hereunder, subject to the satisfaction of the conditions set forth in Sections 4.1 and 4.2 hereof, upon compliance with the procedures set forth in this Section 2.2 and in -3- 4 Exhibit D-SF with respect to Ordinary Warehousing Advances and Nonconforming Advances, Exhibit D/CONSTRUCTION with respect to Construction Advances, and Exhibit D-UNI with respect to Unimproved Advances, attached hereto and made a part hereof including the delivery of all documents listed in Exhibit D-SF, Exhibit D-SF/CONSTRUCTION or Exhibit D-UNI (the "Collateral Documents") to the Lender. Requests for Advances (other than Construction Advances and Unimproved Advances) shall be initiated by the Company by delivering to the Lender, no later than one (1) Business Day prior to any Business Day that the Company desires to borrow hereunder, a completed and signed request for an Advance (an "Advance Request") on the then current form approved by the Lender. Requests for Construction Advances shall be initiated by the Company by delivering to the Lender, no later than two (2) Business Days prior to any Business Day that the Company desires to borrower hereunder, a completed and signed request for a Construction Advance (a "Construction Advance Request"). Requests for Unimproved Advances shall be initiated by the Company by delivering to the Lender, no later than (i) in the case of the initial Unimproved Advances, one (1) Business Day, and (ii) in the case of all subsequent Unimproved Advances, five (5) Business Days, prior to any Business Day that the Company desires to borrow hereunder, a completed and signed request for an Unimproved Advance (an "Unimproved Advance Request"). The current forms in use by the Lender are Exhibit C-SF for Ordinary Warehousing Advances and Nonconforming Advances, Exhibit C-SF/CONSTRUCTION for Construction Advances and Exhibit C-UNI for Unimproved Advances, attached hereto and made a part hereof. The Lender shall have the right, on not less than three (3) Business Days' prior Notice to the Company, to modify any of said Exhibits to conform to current legal requirements or Lender practices, and, as so modified, said Exhibits shall be deemed a part hereof. 2.2(d) The Company shall hold in trust for the Lender, and the Company shall deliver to the Lender promptly upon request, or within one hundred twenty (120) days from the date an Advance was made against such Pledged Mortgage and the Pledged Mortgage is not being held by an Investor for purchase or has not been redeemed from pledge, the following: (1) the originals of the Collateral Documents for which copies are required to be delivered to the Lender pursuant to Exhibit D-SF, Exhibit D-SF/CONSTRUCTION or Exhibit D-UNI, as the case may be, (2) the original lender's ALTA Policy of Title Insurance or an equivalent thereto, and (3) any other documents relating to a Pledged Mortgage which the Lender may request, including, without limitation, documentation -4- 5 evidencing the following, if applicable: the FHA Commitment to Insure or the VA Guaranty of any Pledged Mortgage which is either FHA insured or VA guaranteed, the appraisal, Private Mortgage Insurance Certificate, the Regulation Z Statement, certificates of casualty or hazard insurance, credit information on the maker of each such Mortgage Note, a copy of a HUD-1 or corresponding purchase advice and other documents of all kinds which are customarily desired for inspection or transfer incidental to the purchase of any Mortgage Note by an Investor and any additional documents which are customarily executed by the seller of a Mortgage Note to an Investor. 8. Section 2.3 of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 2.3 Notes. The Company's Obligations in respect of Ordinary Warehousing Advances and Nonconforming Advances shall be evidenced by a Warehousing Promissory Note of the Company, and the Company's Obligations in respect of Construction Advances and Unimproved Advances shall be evidenced by a Sublimit Promissory Note of the Company. Each note is dated as of the date hereof (the Warehousing Promissory Note and Sublimit Promissory Note are collectively referred to as the "Notes"). The terms "Warehousing Promissory Note", "Sublimit Promissory Note," "Note" or "Notes" shall include all extensions, renewals and modifications of the Notes and all substitutions therefor. All terms and provisions of the Notes are hereby incorporated herein. 9. Section 2.4(c) of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: (c) Prior to the occurrence of an Event of Default, the unpaid amount of (i) each Construction Advance (net of applicable Buydown) shall bear interest, from the date of such Construction Advance until paid in full, at the Construction Rate, and (ii) each Unimproved Advance (net of applicable Buydown) shall bear interest, from the date of such Unimproved Advance until paid in full, at the Unimproved Rate. 10. Sections 2.5(d)(1), (6), (8) and (9) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: (1) For a Mortgage Loan, other than a Construction/Perm Mortgage Loan or an Unimproved Mortgage Loan, one hundred twenty (120) days elapse from the date of the initial Advance made by the Lender against such Pledged Mortgage, whether or -5- 6 not such Pledged Mortgage is included in an Eligible Mortgage Pool. (6) The Mortgage Loan is (i) in the case of an Unimproved Mortgage Loan, delinquent (without giving effect to any grace period) and remains delinquent for a period of thirty (30) days or more, and (ii) in all other cases, defaulted and remains in default for a period of sixty (60) days or more. (8) If the outstanding Advances against Pledged Mortgages of a specific Mortgage Loan type (other than Unimproved Mortgage Loan) exceed the aggregate Purchase Commitments for such Mortgage Loan type. (9) For a Mortgage Loan, other than a Unimproved Mortgage Loan, three (3) Business Days after the mandatory delivery date of the related Purchase Commitment and the specific Pledged Mortgage was not delivered under the Purchase Commitment prior to such mandatory delivery date, or the Purchase Commitment is terminated; unless in each case, such Pledged Mortgage is eligible for delivery to an Investor under a comparable Purchase Commitment acceptable to the Lender. 11. Sections 2.5(f) and (h) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: (f) In addition to the payments required pursuant to Section 2.5(d), the Company shall be obligated to pay to the Lender, without the necessity of prior demand or notice from the Lender, and the Company authorizes the Lender to cause the Funding Bank to charge the Company's account if the principal amount of (i) any Unimproved Mortgage Loan is paid or prepaid, or (ii) any other Pledged Mortgage is prepaid, in either case in whole or in part, while an Advance is outstanding against such Pledged Mortgage, for the amount of such payment or prepayment, to be applied to such Advance. (h) The Company may, from time to time, prepay a portion of the Advances pursuant to this Section 2.5(h) (any such prepayment is hereafter referred to as a "Buydown"). A Buydown shall not, except as set forth below, be deemed a prepayment of any particular Advances, and shall not entitle the Company to the release of any Collateral. If a Default or an Event of Default has occurred and is continuing, the Lender shall be entitled -6- 7 to retain as additional Collateral any portion of the Buydown which has been funded by the Company. Any portion of the Buydown which has been funded to the Company by its Parent and/or Affiliates shall be refunded to and at the direction of the Company. All or any portion of a Buydown may be reborrowed hereunder, provided no Default or Event of Default has occurred and is continuing, upon written notice to the Lender no later than 9:30 a.m. on the Business Day that the Company desires to reborrow such amount. The Lender shall use its best efforts to apply Buydown to reduce the interest on Advances in the following order: first, Unimproved Advances; second, Construction Advances; third, Nonconforming Advances; and fourth, Ordinary Warehousing Advances; provided, however, that no portion of any Buydown may be or remain applied to Unimproved Advances unless, after giving effect to such application, the outstanding principal balance of the Unimproved Advances (net of the portion of the Buydown applied thereto) would be greater than or equal to Two Million Five Hundred Thousand Dollars ($2,500,000). In the event the Lender receives a payment of Advances that would, as a result of the Buydown, reduce the outstanding principal balance of the Unimproved Advances to an amount less than Two Million Five Hundred Thousand Dollars ($2,500,000), or the outstanding principal balance of the other Advances to an amount less than zero, unless an Event of Default shall have occurred, and be continuing, the Buydowns, or a portion thereof equal to such excess, shall be readvanced to the Company. 12. Section 2.9 of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 2.9 Warehousing Fees. The Company agrees, at the time of each Advance, to pay to the Lender a Warehousing Fee in the amount of (i) Ten Dollars ($10.00) for each Mortgage Loan (other than an Unimproved Mortgage Loan) pledged as Collateral for such Advance, and (ii) One Hundred Dollars ($100.00) for each Unimproved Mortgage Loan pledged as Collateral for such Advance. Notwithstanding the foregoing, if the arithmetic daily average of the Advances (net of Buydown) outstanding in any month exceeds Fifteen Million Dollars ($15,000,000), no Warehousing Fee shall be payable for such month, except with respect to Unimproved Mortgage Loans. Warehousing Fees are due when incurred, but shall not be delinquent if paid within fifteen (15) days after receipt of an invoice or an account analysis statement from the Lender. 13. Section 3.2(g) of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: -7- 8 3.2(g) The Release Amount in connection with any Pledged Mortgage shall be (i) prior to the occurrence of an Event of Default, the principal amount of the Advances made against such Pledged Mortgage, and (ii) from and after the occurrence and during the continuance of an Event of Default, the Committed Purchase Price of such Pledged Mortgage or, if there is no Purchase Commitment therefor, the amount paid to the Lender in a commercially reasonable disposition thereof or in connection with a commercially reasonable disposition of the property securing an Unimproved Mortgage Loan or other defaulted Pledged Mortgage. 14. Sections 3.3 and 3.5 of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: 3.3 Delivery of Additional Collateral or Mandatory Prepayment. At any time that the aggregate Collateral Value of the Pledged Mortgages (other than Unimproved Mortgage Loans) and Pledged Securities then pledged hereunder is less than the aggregate amount of the Advances (other than Unimproved Advances) then outstanding hereunder, the Lender may request, and the Company shall within two (2) Business Days after Notice by the Lender (a) deliver to the Lender for pledge hereunder additional Mortgage Loans (other than Unimproved Mortgage Loans) and/or cash, with a Collateral Value sufficient to cover the difference between the Collateral Value of the Pledged Mortgages (other than Unimproved Mortgage Loans) and Pledged Securities pledged and the aggregate amount of Advances (other than Unimproved Advances) outstanding hereunder, or (b) repay the Advances (other than Unimproved Advances) in an amount sufficient to reduce the aggregate balance thereof outstanding to or below the Collateral Value of the Pledged Mortgages (other than Unimproved Mortgage Loans) and Pledged Securities pledged hereunder. 3.5 Collection and Servicing Rights. So long as no Event of Default shall have occurred and be continuing, the Company shall be entitled to service and receive and collect directly all sums payable to the Company in respect of the Collateral other than (a) proceeds of any Purchase Commitment or proceeds of the sale of any Collateral and (b) payments and prepayments on Pledged Mortgages required to be applied to prepay Advances under Section 2.5(f) hereof. Following the occurrence of any Event of Default, the Lender or its designee shall thereafter be entitled to service and receive and collect all sums payable to the Company in respect of the Collateral, and in such case (a) the Lender or its designee in its discretion may, in its own name, in the name of the Company or otherwise, demand, sue for, collect or receive any -8- 9 money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so, (b) the Company shall, if the Lender so requests, hold in trust for the benefit of the Lender and forthwith pay to the Lender at its office designated by Notice hereunder, all amounts thereafter received by the Company upon or in respect of any of the Collateral, advising the Lender as to the source of such funds, and (c) all amounts so received and collected by the Lender shall be held by it as part of the Collateral. 15. Sections 5.15(c) and (d) of the Agreement shall be deleted in their entirety and the following shall be substituted in lieu thereof: 5.15(c) Any Mortgage Loan and any related document included in the Pledged Mortgages (1) other than a Construction/Perm Mortgage Loan or an Unimproved Mortgage Loan, has been duly executed and delivered by the parties thereto at a closing held not more than ninety (90) days prior to the date of the Advance Request for an Advance against such Mortgage Loan, (2) has been made in compliance with all applicable requirements of the Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, the federal Truth-In-Lending Act and all other applicable laws and regulations, (3) is and will continue to be valid and enforceable in accordance with its terms, without defense or offset, (4) has not been modified or amended except in writing, which writing is part of the Collateral Documents, nor any requirements thereof waived, (5) other than an Unimproved Mortgage Loan, has been evaluated or appraised in accordance with Title XI of FIRREA, and (6) complies and will continue to comply with the terms of this Agreement and, if applicable, with the related Purchase Commitment held by the Company. Each Mortgage Loan, other than a Construction/Perm Mortgage Loan, has been fully advanced in the face amount thereof and each First Mortgage is a first Lien on the premises described therein, and has or will have a title insurance policy, in American Land Title Association form or equivalent thereof, from a recognized title insurance company, insuring the priority of the Lien of the Mortgage and meeting the usual requirements of Investors purchasing such Mortgage Loans. 5.15(d) No default has occurred and is continuing for more than (i) in the case of an Unimproved Mortgage Loan included in the Pledged Mortgages, thirty (30) days, or (ii) in the case of any other Mortgage Loan included in the Pledged Mortgages, sixty (60) days, without the Advance against such Pledged Mortgage having been repaid in accordance with Section 2.5(d)(6) hereof, provided, -9- 10 however, that with respect to Pledged Mortgages which have already been pledged as Collateral hereunder, if any default has occurred, the Company will promptly notify the Lender. 16. Section 6.13(d) of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 6.13(d) Notify the Lender within (i) two (2) Business Days of any default under, or of the termination of, any Purchase Commitment relating to any Pledged Mortgage, Eligible Mortgage Pool or Pledged Security, or (ii) two (2) Business Days of any default (after expiration of any grace period) under any Unimproved Mortgage Loan. 17. Section 7.7 of the Agreement shall be deleted in its entirety and the following shall be substituted in lieu thereof: 7.7 Minimum Tangible Net Worth. Permit Tangible Net Worth of the Company (and its Subsidiaries, on a consolidated basis) at any time to be less than Six Million Dollars ($6,000,000). 18. The Warehousing Promissory Note is amended and restated in its entirety as set forth in the First Amended and Restated Warehousing Promissory Note, in the form of Exhibit A-1 attached to this Amendment. The Construction Promissory Note is amended and restated in its entirety as set forth in the Sublimit Promissory Note, in the form of Exhibit A-2 attached to this Amendment. All references in this Amendment and in the Agreement to the Warehousing Promissory Note and the Construction Promissory Note shall be deemed to refer to the First Amended and Restated Warehousing Promissory Note and the Sublimit Promissory Note, respectively, delivered in connection with this Amendment. 19. New Exhibits C-UNI and D-UNI in the forms attached to this Amendment are hereby added to the Agreement. 20. The Company shall deliver to the Lender (a) an executed original of this Amendment; (b) executed originals of the First Amended and Restated Warehousing Promissory Note and the Sublimit Promissory Note; and (c) a Seven Hundred Fifty Dollar ($750) document production fee. 21. The Company represents, warrants and agrees that (a) there exists no Default or Event of Default under the Loan Documents, (b) the Loan Documents continue to be the legal, valid and binding agreements and obligations of the Company enforceable in accordance with their terms, as modified herein, (c) the Lender is not in default under any of the Loan Documents and the Company has no offset or defense to its performance or obligations under -10- 11 any of the Loan Documents, (d) the representations contained in the Loan Documents remain true and accurate in all respects, and (e) there has been no material adverse change in the financial condition of the Company from the date of the Agreement to the date of this Amendment. 22. Except as hereby expressly modified, the Agreement shall otherwise be unchanged and shall remain in full force and effect, and the Company ratifies and reaffirms all of its obligations thereunder. 23. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Lender have caused this Amendment to be duly executed on their behalf by their duly authorized officers as of the day and year above written. U.S. HOME MORTGAGE CORPORATION By: /s/ T.A. NAPOLI ---------------------------- Its: Vice President --------------------------- RESIDENTIAL FUNDING CORPORATION, a Delaware corporation By: /s/ DONNA A. WEST ---------------------------- Its: Vice President --------------------------- -11- 12 STATE OF TEXAS ) ) ss COUNTY OF HARRIS ) On December 27, 1995, before me, a Notary Public, personally appeared Thomas A. Napoli, the Vice President of U.S. HOME MORTGAGE CORPORATION, a Florida corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ BRENDA GRABLE ---------------------- Notary Public (SEAL) My Commission Expires: 7-1-97 STATE OF FLORIDA ) ) ss COUNTY OF BROWARD ) On December 28, 1995, before me, a Notary Public, personally appeared Donna A. West, the Vice President of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ MARSHA S. GRABIN ---------------------- Notary Public (SEAL) My Commission Expires: 9-15-98 -12- 13 EXHIBIT A-1 WAREHOUSING PROMISSORY NOTE $45,000,000 Date: December 27, 1995 FOR VALUE RECEIVED, the undersigned, U.S. HOME MORTGAGE CORPORATION, a Florida corporation, (herein called the "Company"), hereby promises to pay to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or, together with its successors and assigns, the "Holder") whose principal place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota 55437, or at such other place as the Holder may designate from time to time, the principal sum of Forty-Five Million Dollars ($45,000,000) or so much thereof as may be outstanding from time to time pursuant to the Warehousing Credit and Security Agreement described below, and to pay interest on said principal sum or such part thereof as shall remain unpaid from time to time, from the date of each Advance until repaid in full, and all other fees and charges due under the Agreement, at the rate and at the times set forth in the Agreement. All payments hereunder shall be made in lawful money of the United States and in immediately available funds. This Note is given to evidence an actual warehouse line of credit in the above amount and is the Warehousing Promissory Note referred to in that certain First Amended and Restated Warehousing Credit and Security Agreement (as the same may have been and may hereafter be amended or supplemented from time to time, the "Agreement") dated as of August 31, 1995, between the Company and the Lender, and is entitled to the benefits thereof. Reference is hereby made to the Agreement (which is incorporated herein by reference as fully and with the same effect as if set forth herein at length) for a description of the Collateral, a statement of the covenants and agreements, a statement of the rights and remedies and securities afforded thereby and other matters contained therein. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given them in the Agreement. Without limiting the generality of the foregoing, this Note, together with the Sublimit Promissory Note, evidences a single line of credit, and the Lender has not committed to make Advances with an aggregate principal amount exceeding the Commitment Amount, notwithstanding the fact that the sum of the principal amount of the Notes may exceed the Commitment Amount. This Note is given in replacement for, and not in satisfaction of, that certain Warehousing Promissory Note dated August 31, 1995, and issued by the Company to evidence its obligations under the Agreement (the Existing Note"). All amounts owed by the Company 1 14 under the Existing Note (including, without limitation, the unpaid principal thereunder, interest accrued thereon and fees accrued under the Agreement, whether or not yet due and owing) as of the date hereof, shall be owed hereunder. This Note may be prepaid in whole or in part at any time without premium or penalty. Should this Note be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to principal and interest, fees and charges due under the Agreement, any and all costs of collecting this Note, including reasonable attorneys' fees and expenses. The Company hereby waives demand, notice, protest and presentment. This Note shall be construed and enforced in accordance with the laws of the State of Minnesota, without reference to its principles of conflicts of law. IN WITNESS WHEREOF, the Company has executed this Note as of the day and year first above written. U.S. HOME MORTGAGE CORPORATION By: ------------------------------- Its: ------------------------------ STATE OF ) ----------- ) ss COUNTY OF ) ----------- On , 1995, before me, a Notary Public, personally appeared , the of U.S. HOME MORTGAGE CORPORATION, a Florida corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [SEAL] ------------------------------ Notary Public My Commission Expires: 2 15 EXHIBIT A-2 SUBLIMIT PROMISSORY NOTE $15,000,000 Date: December 27, 1995 FOR VALUE RECEIVED, the undersigned, U.S. HOME MORTGAGE CORPORATION, a Florida corporation, (herein called the "Company"), hereby promises to pay to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender" or, together with its successors and assigns, the "Holder") whose principal place of business is 8400 Normandale Lake Blvd., Suite 600, Minneapolis, Minnesota 55437, or at such other place as the Holder may designate from time to time, the principal sum of Fifteen Million Dollars ($15,000,000) or so much thereof as may be outstanding from time to time pursuant to the Warehousing Credit and Security Agreement described below, and to pay interest on said principal sum or such part thereof as shall remain unpaid from time to time, from the date of each Advance until repaid in full, and all other fees and charges due under the Agreement, at the rate and at the times set forth in the Agreement. All payments hereunder shall be made in lawful money of the United States and in immediately available funds. This Note is given to evidence an actual warehouse facility in the above amount and is the Sublimit Promissory Note referred to in that certain First Amended and Restated Warehousing Credit and Security Agreement (as the same may have been and may hereafter be amended or supplemented from time to time, the "Agreement") dated as of August 31, 1995, between the Company and the Lender, and is entitled to the benefits thereof. Reference is hereby made to the Agreement (which is incorporated herein by reference as fully and with the same effect as if set forth herein at length) for a description of the Collateral, a statement of the covenants and agreements, a statement of the rights and remedies and securities afforded thereby and other matters contained therein. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given them in the Agreement. Without limiting the generality of the foregoing, this Note, together with the Warehousing Promissory Note, evidences a single line of credit, and the Lender has not committed to make Advances with an aggregate principal amount exceeding the Commitment Amount, notwithstanding the fact that the sum of the principal amount of the Notes may exceed the Commitment Amount. This Note is given in replacement for, and not in satisfaction of, that certain Construction Promissory Note dated August 31, 1995, and issued by the Company to evidence its obligations under the Agreement (the "Existing Note"). All amounts owed by the -1- 16 Company under the Existing Note (including, without limitation, the unpaid principal thereunder, interest accrued thereon and fees accrued under the Agreement, whether or not yet due and owing) as of the date hereof, shall be owed hereunder. This Note may be prepaid in whole or in part at any time without premium or penalty. Should this Note be placed in the hands of attorneys for collection, the Company agrees to pay, in addition to principal and interest, fees and charges due under the Agreement, any and all costs of collecting this Note, including reasonable attorneys' fees and expenses. The Company hereby waives demand, notice, protest and presentment. This Note shall be construed and enforced in accordance with the laws of the State of Minnesota, without reference to its principles of conflicts of law. IN WITNESS WHEREOF, the Company has executed this Note as of the day and year first above written. U.S. HOME MORTGAGE CORPORATION By: --------------------------- Its: -------------------------- STATE OF ) ) ss COUNTY OF ) On , 1995, before me, a Notary Public, personally appeared , the of U.S. HOME MORTGAGE CORPORATION, a Florida corporation, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ---------------------- Notary Public (SEAL) My Commission Expires: -2- 17 EXHIBIT C-SF/UNI REQUEST FOR ADVANCE UNIMPROVED MORTGAGE LOAN Mortgage Company: U.S. HOME MORTGAGE CORPORATION Mortgagor:___________________ Loan Number: _______________________________ ___________________ Reviewed By: _______________________________ Address: ___________________ Warehouse Date:_______________________________ ___________________ Property Type: Residential ____________________ Commercial ____________________ Original Mortgage Note Amount: _____________ Interest Rate: ________________ Mortgage Note Date: ________________________ Approved Warehouse Amt: _______ Current Mortgage Note Amount: ______________ Title Company: ________________ Purchase Price for Property: _______________ Company Valuation of Property:* ____________ METHOD OF ADVANCE ( ) Check Funding/Disbursement Check No: ___________________________ Amount: __________________________ Checking Account No: ________________ ( ) Wire Transfer Amount of Wire: _____________________ Date of Wire: ____________________ Credit Acct. No. ____________________ Credit Acct. Name:________________ ABA No.: ____________________________ Bank Name: _______________________ Account to Debit: ___________________ City & State: ____________________ Ref: _____________ Advise: ___________________ Phone: __________________ REQUIRED DOCUMENTATION Attached please find the following documents in connection with the above request (Please check attached documents below): Right ( ) Original and one copy of Mortgage Note ( ) Certified copy of Mortgage or Deed of Trust Left ( ) Request for Advance (original and one (1) copy) ( ) Recorded assignment of Mortgage or Deed of Trust, or Certified True Copy of assignment sent for recording ( ) Recordable assignments of Security Agreement/financing statement; if any ( ) Certified copies of interim assignments of Mortgage (if applicable) Authorized Signature: ============================================================================== FOR RFC INTERNAL USE ONLY Repetitive Code:____________________ Date:_________________________ Wire Initiator's Initials:__________ Wire Verifier's Initials:_____ ============================================================================== *Unimproved Mortgage Loans secured by property intended for commercial development only. 18 EXHIBIT D/UNI PROCEDURES AND DOCUMENTATION FOR WAREHOUSING UNIMPROVED MORTGAGE LOANS The following procedures and documentation requirements must be observed in all respects by the Company. All documents must be satisfactory to the Lender in its sole discretion. Terms used below, which are not otherwise defined, shall have the meanings given them in the Agreement. All Requests for Advance and Collateral Documents, should be submitted to the Lender in a top tabbed, legal size manila file folder, hole-punched and acco-fastened in the order specified in the Request for Advance. Each folder should be labelled with the mortgagor name(s), Company loan number and Company name. I. AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE ADVANCE DATE (except in the initial Unimproved Advances, in which case the following documents must be received at least one (1) Business Days prior to the Advance Date): The Lender must receive a letter signed by the Company providing the following information on the Pledged Mortgage: (1) Mortgagor's name; (2) Company's case/loan number; (3) Expected Advance date; (4) Original Mortgage Note Amount; (5) Current Mortgage Note Amount; (6) Purchase Price for Related Property; (7) Estimation of Fair Market Value of Related Property, Prepared by the Company (Properties Intended for Commercial Development only); and (8) Original signed Request for Advance (Exhibit C-UNI). II. AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF AN ADVANCE: The Lender must receive the following: (1) The original Mortgage Note, endorsed by the Company in blank and without recourse. If the Company is not the named holder of the Mortgage Note, the Mortgage Note must bear an endorsement from the holder to the Company. (2) If the Company is not the mortgagee on the Mortgage, a copy of the assignment of Mortgage by the mortgagee to the Company which was sent for recordation on or before the date of the Advance. (3) Original recorded assignment of the Mortgage to the Lender or certified true copy of assignment of the 1 19 Mortgage sent for recording; (4) Original assignment of the security agreement, if any, to the Lender in recordable form but unrecorded; (5) Original assignment of the UCC financing statements, if any, to the Lender in recordable form but unrecorded; (6) A copy of the title insurance commitment to issue a policy of title insurance marked to show the final policy exceptions or, if available, a copy of the title insurance policy; and (7) Check payable to the Lender for the Warehousing Fee. III. The Lender exclusively shall deliver the Mortgage Notes and other original Collateral Documents in connection with any sale, refinancing, foreclosure or other satisfaction of any Pledged Mortgage. Such deliveries shall be made in accordance with procedures specified from time to time by the Lender. 2 EX-11 7 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 U.S. HOME CORPORATION AND SUBSIDIARIES INCOME PER COMMON SHARE FOR THE CONSOLIDATED STATEMENTS INCOME HAS BEEN COMPUTED ON THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING AS FOLLOWS: (Dollars in Thousands, Except Per Share Data)
Years Ended December 31, ----------------------------------------------------------- 1995 1994 1993 ---- ---- ---- Income per common and common equivalent shares - Net income $ 36,914 $ 32,829 $ 71,691 ============ ============ ============ Weighted average common shares outstanding 11,576,829 11,366,810 11,259,262 Effect of assumed exercise of dilutive stock options and warrants 196,270 - 371,809 ------------ ------------ ------------ Total common and common equivalent shares 11,773,099 11,366,810 11,631,071 ============ ============ ============ Income per common and common equivalent shares $ 3.14 $ 2.89 $ 6.16 ============ ============ ============ Income per common share, assuming full dilution - Net income $ 36,914 $ 32,829 $ 71,691 Add interest applicable to 4.875% convertible subordinated debentures, net of income taxes 2,006 1,220 174 ------------ ------------ ------------ Income per common share, assuming full dilution $ 38,920 $ 34,049 $ 71,865 ============ ============ ============ Total common and common equivalent shares 11,773,099 11,366,810 11,631,071 Assumed additional common shares from exercise of dilutive stock options and warrants resulting from use of market price of common stock at end of period 495,009 - 102,550 Assumed conversion of 4.875% convertible subordinated debentures at $35.50 per share at date of issuance (see Note 2 of Notes to Consolidated Financial Statements) 2,253,521 2,253,521 376,616 ------------ ------------ ------------ Common shares, assuming full dilution 14,521,629 13,620,331 12,110,237 ============ ============ ============ Income per common share assuming full dilution $ 2.68 $ 2.50 $ 5.93 ============ ============ ============
NOTE A - SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EX-22 8 SUBSIDIARIES OF U.S. HOME CORPORATION 1 EXHIBIT 22 Subsidiaries of the Company The following table sets forth the names of U.S. Home's subsidiaries and the state in which incorporated. All subsidiaries are directly or indirectly wholly-owned by U.S. Home. Certain insignificant subsidiaries are omitted. Jurisdiction of Incorporation --------------- Fidelity Guaranty and Acceptance Corporation Delaware U.S. Home Acceptance Corporation Delaware U.S. Home Insurors, Inc. Florida U.S.H. Indemnity Company, Ltd. Bermuda San Felipe Indemnity Company, Ltd. Bermuda U.S. Home Mortgage Corporation Florida USH II Corporation Delaware EX-23 9 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 1, 1996 included in this Form 10-K, into the Company's previously filed Registration Statements No. 33-64712, 33-52993 and 33-00583. ARTHUR ANDERSEN LLP Houston, Texas February 9, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 This Schedule Contains Summary Financial Information Extracted From The Consolidated Condensed Financial Statements As Of December 31, 1995 And For The Year Then Ended And Is Qualified In Its Entirety By Reference To Such Financial Statements. 1,000 YEAR DEC-31-1995 DEC-31-1995 10,556 0 76,746 0 632,035 0 0 0 842,084 0 300,599 112 0 7,981 320,899 842,084 0 1,107,945 918,645 1,048,181 0 0 692 59,072 22,152 36,920 0 0 0 36,920 3.14 2.68
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