-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Y1KrX1g/lZEYqIfgJ0PVnCvEnMZ5scsx6aOqLq4C0yUcn2R41H3fZ/SioJbtDVZN cTm8+L/F1mehAi5WFuxHgA== 0000950134-94-000757.txt : 19940701 0000950134-94-000757.hdr.sgml : 19940701 ACCESSION NUMBER: 0000950134-94-000757 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX CORP CENTRAL INDEX KEY: 0000018532 STANDARD INDUSTRIAL CLASSIFICATION: 1531 IRS NUMBER: 750778259 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06776 FILM NUMBER: 94537093 BUSINESS ADDRESS: STREET 1: 3333 LEE PARKWAY SUITE 1200 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596500 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 FORMER COMPANY: FORMER CONFORMED NAME: CENTEX CONSTRUCTION CO INC DATE OF NAME CHANGE: 19681211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3333 HOLDING CORP CENTRAL INDEX KEY: 0000818762 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 752178860 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09624 FILM NUMBER: 94537094 BUSINESS ADDRESS: STREET 1: 3333 LEE PKWY STREET 2: SUITE 500 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596700 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTEX DEVELOPMENT CO LP CENTRAL INDEX KEY: 0000818764 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 752168471 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09625 FILM NUMBER: 94537061 BUSINESS ADDRESS: STREET 1: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145596700 MAIL ADDRESS: STREET 1: PO BOX 19000 STREET 2: PO BOX 19000 CITY: DALLAS STATE: TX ZIP: 75219 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1994 COMMISSION FILE NO. 1-6776 COMMISSION FILE NOS. 1-9624 AND 1-9625, RESPECTIVELY CENTEX CORPORATION 3333 HOLDING CORPORATION AND CENTEX DEVELOPMENT COMPANY, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS) NEVADA NEVADA AND DELAWARE, RESPECTIVELY (STATE OF INCORPORATION) (STATES OF INCORPORATION OR ORGANIZATION) 75-0778259 75-2178860 AND 75-2168471, RESPECTIVELY (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NOS.) 3333 LEE PARKWAY, SUITE 1200, DALLAS, TEXAS 75219 3333 LEE PARKWAY, SUITE 500, DALLAS, TEXAS 75219 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (214) 559-6500 (214) 559-6700 (REGISTRANT'S TELEPHONE NUMBER) (REGISTRANTS' TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH NAME OF EACH EXCHANGE ON WHICH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED TITLE OF EACH CLASS REGISTERED ------------------- ---------- ------------------- ---------- CENTEX CORPORATION 3333 HOLDING CORPORATION COMMON STOCK NEW YORK STOCK COMMON STOCK NEW YORK STOCK ($.25 PAR VALUE) EXCHANGE ($.01 PAR VALUE) EXCHANGE CENTEX DEVELOPMENT COMPANY, L.P. WARRANTS TO PURCHASE NEW YORK STOCK CLASS B UNITS OF EXCHANGE LIMITED PARTNERSHIP INTEREST EXPIRING NOVEMBER 30, 1997
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether each 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 each such 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 the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to Form 10-K. _____ The aggregate market value of the tandem traded Centex Corporation common stock, 3333 Holding Corporation common stock and Centex Development Company, L.P. warrants to purchase Class B units of limited partnership interest held by non-affiliates of the registrants on June 15, 1994 was approximately $854 million. Indicate the number of shares of each of the registrants' classes of common stock (or other similar equity securities) outstanding as of the close of business on June 15, 1994: Centex Corporation Common Stock 31,201,520 shares 3333 Holding Corporation Common Stock 1,000 shares Centex Development Company, L.P. Class A Units of Limited Partnership Interest 1,000 units
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in Parts A.III and B.III of this Report: Joint proxy statement for the annual meetings of stockholders of Centex Corporation and 3333 Holding Corporation to be held on July 28, 1994. ================================================================================ 2 JOINT ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1994 CENTEX CORPORATION AND SUBSIDIARIES AND 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. JOINT EXPLANATORY STATEMENT On November 30, 1987, Centex Corporation ("Centex" or the "Company") distributed as a dividend to its stockholders (through a nominee, the "Nominee") all the issued and outstanding shares of the common stock, par value $.01 per share ("Holding Common Stock"), of 3333 Holding Corporation ("Holding"), and 900 warrants (the "Stockholder Warrants") to purchase Class B Units of limited partnership interest in Centex Development Company, L.P. ("CDC" or the "Partnership"). The Nominee is the record holder of the Stockholder Warrants and 1,000 shares of Holding Common Stock, which constitutes all of the issued and outstanding capital stock of Holding, on behalf of and for the benefit of persons who are from time to time the holders of the common stock, par value $.25 per share ("Centex Common Stock"), of Centex ("Centex Stockholders"). Each Centex Stockholder owns a beneficial interest in that portion of the 1,000 shares of Holding Common Stock and the Stockholder Warrants that the total number of shares of Centex Common Stock held by such stockholder bears to the total number of shares of Centex Common Stock outstanding from time to time. This beneficial interest is not represented by a separate certificate or receipt. Instead, each Centex Stockholder's beneficial interest in such pro rata portion of the shares of Holding Common Stock and the Stockholder Warrants is represented by the certificate or certificates evidencing such Centex Stockholder's Centex Common Stock, and is currently tradeable only in tandem with, and as a part of, each such Centex Stockholder's Centex Common Stock. The tandem securities are listed and traded on the New York Stock Exchange and The International Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd. and are registered with the Securities and Exchange Commission (the "Commission") separately under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Holding and CDC were each organized in 1987 in connection with the distribution. 3333 Development Corporation, a wholly owned subsidiary of Holding ("Development"), is the sole general partner of CDC. At present, Centex, Holding and CDC have elected to satisfy their respective periodic reporting obligations under the Exchange Act, and the rules and regulations promulgated thereunder, by preparing and filing joint periodic reports. PART A of this Annual Report on Form 10-K for the fiscal year ended March 31, 1994 (the "Report") relates to Centex and its subsidiaries. PART B of this Report relates to Holding (and its subsidiary, Development) and to CDC. This Report should be read in conjunction with the proxy statements of Centex and Holding in connection with their respective 1994 annual meetings of stockholders (portions of which are incorporated by reference into this Report), the Annual Report to Stockholders of Centex for the fiscal year ended March 31, 1994 and the Annual Report to Stockholders of Holding and CDC for the fiscal year ended March 31, 1994. For a complete understanding of the tandem traded securities, PART A and PART B of this Report should be read in combination. Information concerning the earnings and financial condition of the three companies, on an aggregate basis, is included in Note (G) of the Notes to Consolidated Financial Statements of Centex Corporation and subsidiaries on pages 34-35 of this Report. 2 3 FORM 10-K TABLE OF CONTENTS
PAGE ---- JOINT EXPLANATORY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 PART A. CENTEX CORPORATION AND SUBSIDIARIES ------- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . 15 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 17 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 19 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 19 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . 19 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . 19 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . 20 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PART B. 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. PART I
PAGE ---- Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 54
3 4 TABLE OF CONTENTS (CONTINUED)
PART II PAGE ---- Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . 54 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 56 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . 56 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . 56 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . 59 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . 62 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . 63 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73-74 INDICES TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75-79 3333 HOLDING CORPORATION AND SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 80-81 CENTEX DEVELOPMENT COMPANY, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82-84
4 5 PART A. CENTEX CORPORATION AND SUBSIDIARIES PREFATORY STATEMENT PART A of this Report includes information relating to Centex Corporation and subsidiaries ("Centex" or the "Company"), file No. 1-6776. See Joint Explanatory Statement on page 2 of this Report. References to Centex or the Company in this Report shall include Centex and its subsidiaries unless the context otherwise requires. Reference is made to PART B of this Report for information relating separately to 3333 Holding Corporation ("Holding") and its subsidiary, 3333 Development Corporation ("Development"), and to Centex Development Company, L.P. ("CDC" or the "Partnership"). PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Since its founding in 1950 as a Dallas, Texas-based residential and commercial construction company, Centex has evolved into a multi-industry company. Centex currently operates in five business segments: Home Building, Mortgage Banking, Contracting and Construction Services, Construction Products and Savings and Loan. Centex is incorporated in the State of Nevada. The Company's common stock, par value $.25 per share ("Centex Common Stock"), began trading publicly in 1969. As of June 15, 1994, 31,201,520 shares of Centex Common Stock, which are traded on the New York Stock Exchange and The International Stock Exchange of the United Kingdom and the Republic of Ireland, Ltd., were outstanding. Centex's Home Building and Mortgage Banking operations involve the construction, sale and financing of residential housing. These activities include the purchase and development of land, mortgage originations and other related services on homes sold by subsidiaries and by others. Centex has participated in the home building business since 1950 and the mortgage banking business since 1973. Centex entered the contracting and construction services business in 1966 with the acquisition of J. W. Bateson Company, Inc. (now Centex Bateson Construction Company, Inc.), a Dallas-based contractor which has been in business since 1936. Its contracting and construction activities involve the construction of buildings for both government and private interests, including office, commercial and industrial buildings, hospitals, hotels, museums, libraries, airport facilities, condominiums and educational institutions. Centex's involvement in the construction products business dates to 1963 when it began construction on its first cement plant. Since that time, the Company's Construction Products operations have been expanded to include additional cement production and distribution facilities and the production, distribution and sale of aggregates, readymix concrete and gypsum wallboard. In April 1994, the Construction Products group completed an initial public offering of its common stock, resulting in the reduction of Centex's ownership interest in this group to 49%. Centex received payments totaling $186.5 million in the transaction. Centex's Saving and Loan operations were acquired in December 1988 under the Federal Savings and Loan Insurance Corporation's Southwest Plan. These operations include CTX Holding Company and its subsidiary, Texas Trust Savings Bank, FSB. Centex established CDC in fiscal year 1988. Reference is made to PART B of this Report for a discussion of the business of CDC. 5 6 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Notes (B) and (H) of the Notes to Consolidated Financial Statements of Centex on pages 28-29 and 36-37 of this Report contain additional information about the savings and loan acquisition and the Company's business segments for the years ended March 31, 1994, 1993 and 1992 and are incorporated herein by reference. NARRATIVE DESCRIPTION OF BUSINESS HOME BUILDING The Company's Home Building operation primarily involves the construction, sale and financing of residential housing, including the purchase and development of land. The Company's home building operation ranks, by the number of units produced in calendar 1993, as the largest U.S. builder of single-family homes. Centex sells to both first time and move-up home buyers. Approximately 95% of the houses Centex sells are single-family detached homes and the remainder are townhomes and low-rise condominiums. Centex follows a strategy of reducing exposure to local market volatility by spreading operations across geographically and economically diverse markets. Centex presently builds houses in 44 market areas in 20 states. These markets include Phoenix, Arizona; Ft. Lauderdale, Orlando, Jacksonville, Naples/Ft. Myers, Tampa, Palm Beach, Titusville and Sarasota/Bradenton, Florida; East San Francisco Bay, Sacramento, Bakersfield, Southern California, Los Angeles/Ventura, Central Valley and San Diego, California; Chicago, Illinois; Seattle, Washington; Reno, Nevada; Minneapolis, Minnesota; Portland, Oregon; Nashville, Tennessee; Atlanta, Georgia; Northern Virginia; Hampton Roads, Virginia; Central Maryland; Western Maryland; Austin, Dallas/Fort Worth, Houston, Killeen and San Antonio, Texas; Denver, Colorado; Albuquerque, New Mexico; Charlotte and Raleigh/Durham, North Carolina; Indianapolis, Indiana; Columbus, Ohio; Charleston, Columbia and Greenville, South Carolina; and East Windsor, New Jersey. In fiscal 1994, Centex closed 12,563 houses, including first-time, move-up and, in some markets, custom homes, ranging in price from approximately $64,000 to about $805,000, with the average sale price being approximately $147,500. In several locations including Denver, Dallas, San Antonio and West Palm Beach, Centex has opened custom home divisions which offer the higher-end homes. The table below sets forth information regarding Centex's house closings, sales (orders) backlog and sales (orders) by geographic area for its fiscal years ended March 31, 1994 and 1993.
SALES (ORDERS) CLOSINGS BACKLOG SALES (ORDERS) -------- ------- -------------- YEAR ENDED YEAR ENDED YEAR ENDED ---------- ---------- ---------- GEOGRAPHIC AREA 3/31/94 3/31/93 3/31/94 3/31/93 3/31/94 3/31/93 - --------------- ------- ------- ------- ------- ------- ------- West . . . . . . . . . . . . . . . . . . . 1,973 1,358 756 663 2,066 1,440 Midwest . . . . . . . . . . . . . . . . . . 1,114 1,118 622 461 1,275 1,092 East . . . . . . . . . . . . . . . . . . . 2,599 2,118 1,279 1,192 2,686 2,522 Southeast . . . . . . . . . . . . . . . . . 2,895 2,433 1,387 1,260 3,022 2,671 Southwest . . . . . . . . . . . . . . . . . 3,982 3,252 1,751 1,575 4,158 3,696 ------ ------ ----- ----- ------ ------ 12,563 10,279 5,795 5,151 13,207 11,421 ====== ====== ===== ===== ====== ======
The residential housing industry is essentially a "local" business and is highly competitive. Centex competes in each of its market areas with numerous other home builders. The Company's operations account for less than 2% of the total housing starts in the United States. The main competitive factors affecting Centex's operation are location, price, cost of providing mortgage financing for customers, construction costs, design and quality of homes, marketing expertise, availability of land and a builder's reputation. Management believes the Company competes effectively by maintaining geographic diversity, being responsive to the specific demands of each market and managing the operations at a local level. The home building industry is cyclical and is particularly affected by changes in local economic conditions and in long-term and short-term interest rates and, to a lesser extent, changes in property taxes and energy costs, federal income tax laws, federal mortgage financing programs and various demographic factors. The political and economic environment affects both the demand for housing constructed by the Company and the Company's cost of financing. Although Centex's Home Building operations, in the aggregate, are not generally seasonal, certain phases of home construction are seasonal in certain geographic 6 7 areas where Centex's Home Building operations are located. Unexpected climatic conditions, such as unusually heavy or prolonged rain or snow, may affect Home Building operations in certain areas. Centex has numerous suppliers of all the materials and services and sources of lots and land used in home building and believes that it can deal effectively with any problems it may experience relating to the supply of materials and services as well as lots and land. The housing industry is subject to extensive and complex regulations. The Company and its subcontractors must comply with various federal, state and local laws and regulations including zoning, building, environmental, advertising and consumer credit rules and regulations. The Company is also subject to other rules and regulations in connection with its manufacturing and sales activities, including requirements as to building materials to be used and building designs. The Company's homes are inspected by local authorities, where required, and homes eligible for insurance or guarantees provided by the Federal Housing Administration ("FHA") and the Veterans Administration ("VA") are inspected by the FHA and VA. MORTGAGE BANKING The Mortgage Banking operation offers mortgage origination and other related services on homes sold by subsidiaries and by others. Through CTX Mortgage Company ("CTX"), Centex provides mortgage origination and other mortgage related services for FHA and VA and conventional loans on homes built and sold by the Company as well as for purchases of homes not built by the Company. During fiscal 1994, CTX opened 50 new operating locations, raising the number of CTX offices and "satellite" locations to 152 as of March 31, 1994. CTX originates mortgage loans, securitizes and sells them on the secondary market shortly after closing and also sells the servicing rights. Revenues come primarily from three sources: the loan origination fee, the positive spread between short-term and long-term rates during the securitization period (the time between the loan's closing and its delivery to the secondary market), and the sale of servicing rights. The establishment by CTX of mortgage operations in substantially all of Centex's housing markets has enabled it to expand the solicitation of mortgage business that is not associated with the sale of a Centex home. In fiscal 1994 CTX provided financing for 9,289 Centex-built homes, representing approximately 74% of Centex's total closings. In addition CTX provided 49,254 loans to others. The 58,543 loans for fiscal 1994 aggregated approximately $6.4 billion, compared to $4.2 billion in the prior year. Other financial-related services provided by CTX affiliates include acting as an agent for the issuance of homeowners' insurance policies and title insurance policies and escrow services. CTX Insurance Agency provides hazard insurance to home buyers in Texas and Florida. During fiscal 1994, CTX opened its first commercial loan operation. The mortgage banking industry in the United States is highly competitive. CTX competes with other mortgage banking companies as well as financial institutions to supply mortgage financing at attractive rates to purchasers of Centex homes as well as the general public. The origination of mortgage loans by CTX is subject to rules and regulations promulgated by FHA, VA, Government National Mortgage Association ("Ginnie Mae"), Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). CONTRACTING AND CONSTRUCTION SERVICES Centex's construction contracting work is performed nationwide. Centex entered the contracting and construction services industry in 1966 with the acquisition of J. W. Bateson Company, Inc. (now called Centex Bateson Construction Company, Inc.), a Dallas-based contractor which has become one of the nation's larger general contractors specializing in public facilities. Centex's participation in the industry was expanded in 1978 with the acquisition of Frank J. Rooney, Inc. (now Centex-Rooney Construction Co., Inc.), one of the larger general contractors in Florida, followed in fiscal 1982 by the purchase of M. H. Golden Company (now Centex Golden Construction Company), a general contractor with operations in the San Diego and Los Angeles markets, and Eugene Simpson & Brother, Inc., a contractor in the Washington, D.C. area, which had been engaged primarily 7 8 in negotiated work for the private sector. Centex also had a subsidiary company, Centex Construction Company, Inc., in the Washington, D.C. area which had been engaged primarily in construction of buildings for the federal government. In the first half of fiscal 1991, the two Washington, D.C. area subsidiaries, Centex Construction Company, Inc. and Eugene Simpson & Brother, Inc. merged into a single entity, now known as Centex-Simpson Construction Company, Inc. In 1987, the Company formed a subsidiary, Centex-Rodgers Construction Company in Nashville, Tennessee, which is active nationally in the private medical construction services market. Centex also has another Florida subsidiary, Centex-Great Southwest Corporation (formerly Great Southwest Corporation), which does work principally in the Tampa and Orlando areas. During its 1990 fiscal year, Centex's Contracting and Construction Service operations were expanded into the industrial contracting area with the acquisition of the working assets of Forcum-Lannom Associates Inc. of Dyersburg, Tennessee. As a general contractor or construction manager, Centex provides the supervisory personnel for the construction of the building or facility. In addition, Centex may perform varying amounts of the actual construction work on a project, but will generally hire subcontractors to perform the majority of the work. As a result, the Company's Contracting and Construction Services operation requires a relatively small asset base. Construction contracts are primarily entered into under two formats: competitively bid and negotiated jobs. In a competitively bid format, Centex will bid a fixed amount for which it will agree to construct the project based on an evaluation of detailed plans and specifications. In a negotiated job, the contractor bids on a fixed fee over the cost of the project and, in many instances, agrees that the final cost will not exceed a designated amount. Such contracts may include a provision whereby the owner will pay a part of any savings from the guaranteed amount to the contractor. The Company's highest margins in contracting operations have usually been on competitively bid jobs. On average, about half of Centex's projects are competitively bid, public jobs and the other half are negotiated contracts with private owners. The Company's public work for federal, state and local governments includes hospitals, jails, airports, parking garages, office buildings, military facilities, post offices and convention and performing arts centers. Most of Centex's private owner contracts are for hotels, medical facilities and office buildings, plus some shopping centers and condominiums. Centex Contracting and Construction Services companies participate in a diversified range of building construction in both the public and private sectors across broad geographic lines. Among the buildings which Centex's general construction group has completed are: Cinderella's Castle, the Land Pavilion at Epcot Center, the Grand Floridian and Caribbean Beach Resorts in the Disney World complex; portions of the Department of Labor and the Library of Congress; the CIA Buildings in Washington, D.C.; a number of Veterans Affairs Medical Centers and major airport terminals; Texas Stadium, the Dallas Museum of Art and the Morton H. Meyerson Symphony Center in Dallas; the Tampa Convention Center and the Tampa Bay Performing Arts Center in Florida; Wilshire Court in Los Angeles and America Plaza in San Diego. New contracts for fiscal 1994 totaled $1.03 billion versus $1.17 billion in fiscal 1993. At March 31,1994, the backlog of uncompleted construction contracts was $1.24 billion, a record for any fiscal year end, compared to the $1.17 billion backlog at March 31, 1993. The new contracts included the $153.9 million Acute Care Naval Hospital in Portsmouth, Virginia; a $100 million Clinical Addition and Spinal Cord Injury Center at the Veterans Affairs Medical Center in Dallas, Texas; the $90.2 million Genesys Regional Medical Center in Flint, Michigan; a $41.8 million Airside Terminal for Tampa International Airport in Tampa, Florida; the $35.9 million Brittany Condominiums in Naples, Florida; the $32.1 million State Farm Insurance Regional Center in Frederick, Maryland; the $30.5 million Martin Luther King Trauma Center in Los Angeles, California; the $29.5 million El Centro Southwest High School in El Centro, California; a $26 million addition to Medical City Dallas Hospital; $24.1 million Veterans Affairs Medical Center in El Paso, Texas; a $23.5 million Performing Arts Center for California Polytechnic in San Luis Obispo, California; $20.8 million of additions to our current contract at Donelson Hospital in Nashville, Tennessee; a $20.8 million middle school and elementary school complex in Naples, Florida; a $20.3 million medical center in Odessa, Texas; the $16.2 million Catoma Water Pollution Control plant in Montgomery, Alabama; a $14.1 million addition to the Audubon Institute's Aquarium of the Americas in New Orleans, Louisiana; a $13.9 million police facility in Alhambra, California; the $13.0 million Eastern Idaho Regional Medical Center in Idaho Falls; and a $6.6 million Wal-Mart store in Fayetteville, Arkansas. As a group, Centex's Contracting and Construction Services subsidiaries rank as the second largest general building contractor in the country as well as the third largest constructor of healthcare facilities. 8 9 The construction industry has become increasingly competitive, and Centex competes with numerous other companies. With respect to competitively bid projects, Centex generally competes for projects throughout the United States and with local, regional or national contractors, depending upon the nature of the project. In negotiated contract projects, Centex's subsidiaries compete primarily in the general geographical area where they are located and with other local, regional and national contractors. Centex solicits new projects by attending project bid meetings, meetings with builders and owners and through existing customers. Centex competes successfully on the basis of its reputation and financial strength. The Company's Contracting and Construction Services operations obtain materials and services from numerous sources. The Company believes that its construction companies can deal effectively with problems that they may experience in the supply of materials and services. CONSTRUCTION PRODUCTS Centex's Construction Products operations include the manufacture, production, distribution and sale of portland cement (a basic construction material which is the essential binding ingredient in concrete), aggregates (sand and gravel), readymix concrete and gypsum wallboard. Centex operates cement plants in Buda, Texas, LaSalle, Illinois, Fernley, Nevada and Laramie, Wyoming. The plants in LaSalle and Buda are owned by joint ventures in which the Company has 50% interest. In fiscal 1992, Centex completed the purchase of the remaining 1% interest in the joint venture that owns the Laramie, Wyoming plant. As a result, Centex currently owns 100% of this plant. The cement plants operated by the Company use coal as their primary source of energy. Natural gas can also be used as a backup or primary source of fuel. All four of the cement plants are fuel efficient dry process plants. The kiln start-up dates of the cement plants were: Buda, Texas, 1978 (expanded in 1983); LaSalle, Illinois, 1974; Fernley, Nevada (2 kilns), 1964 and 1969; and Laramie, Wyoming, 1988. The principal raw material used in the production of portland cement is calcium carbonate in the form of limestone. Limestone is obtained principally from quarries owned or leased by Centex or the joint ventures and located in close proximity to the plants. Other raw materials used in substantially smaller quantities than limestone are sand, clay, iron ore and gypsum, which are either obtained from reserves owned or leased by Centex or the joint ventures or are purchased from outside suppliers and are readily available. Centex's management estimates that its primary raw material reserves, either owned, leased or available, will be adequate to permit production at present capacities for the foreseeable future at all four of the existing plants. The Company's net cement production, which excludes the joint venture partners' 50% shares in the LaSalle and Buda plants, totaled 1.8 million tons in fiscal 1994 and 1.6 million tons in fiscal 1993. Total net cement sales were 1.9 million tons in fiscal 1994 and 1.8 million tons in fiscal 1993. In fiscal 1994 and 1993 all four cement plants sold all of the product that they produced and each had supplemental sales with outside cement purchases. Cement produced by cement plants operated by Centex is sold principally to readymix concrete producers and paving contractors. No single customer accounts for as much as 10% of Centex's total cement sales. The principal markets for Centex's cement are Texas and the Western portion of Louisiana (serviced by the Buda, Texas plant); Illinois and Southern Wisconsin (serviced by the LaSalle, Illinois plant); Nevada (except Las Vegas) and Northern California (serviced by the Fernley, Nevada plant) and Wyoming, Utah, Southern Idaho, Northern Colorado and Western Nebraska (serviced by the Laramie, Wyoming plant). Distribution of cement is generally made by common carriers or customer pick up and, to a lesser degree, by trucks owned and operated by Centex. In addition, the Company transports cement principally by rail to its storage and distribution terminals located in Roanoke, Waco, Corpus Christi, Houston and Orange, Texas; Hartland, Wisconsin; Sacramento, California; Denver, Colorado; Salt Lake City, Utah; Rock Springs, Wyoming; North Platte, Nebraska and Bliss, Idaho, from which further distribution occurs. 9 10 The cement business is highly competitive. In every regional market in which Centex sells cement, one or more other domestic producers compete for the available business. In addition, foreign companies compete in most of the Company's markets by importing cement into the United States. Centex competes by operating efficient cement plants, merchandising a high quality product and providing good service and competitive pricing. The Company also sells cement from terminals to expand each cement plant's marketing area. Demand for cement has generally been cyclical and is closely related to the general level of the economy, new housing starts, government construction programs and other construction activities. The cement business is seasonal and requires some build-up of inventory during the winter (particularly in northern states) to meet peak demands from spring into the fall. Significant increases in the Texas market price have occurred during fiscal 1994 and 1993 primarily as a result of improved levels of business activity. Centex's readymix concrete and aggregate operations are located in Austin, Texas and in northern California. Centex also operates an aggregate-only production facility south of the Dallas/Fort Worth, Texas metropolitan area. In addition, Centex has a 10,000 acre aggregate deposit in Northern California which contains in excess of 2 billion tons of reserves. Centex sells aggregates from this deposit in the Sacramento, California market. Centex operates two gypsum wallboard manufacturing facilities in Albuquerque, New Mexico and nearby Bernilillo, New Mexico. These facilities use natural gas as their primary energy source. The Company has lease rights and owns mineral rights to extract gypsum rock, which is the principal ingredient of gypsum wallboard, from quarries in close proximity to its plants. Other materials required to manufacture gypsum wallboard are readily available to the Company, and no problems relating to material supply are anticipated in the foreseeable future. The newer gypsum wallboard manufacturing facility in Bernalillo, New Mexico, north of the original plant, more than doubled Centex's total productive capacity. The newer plant commenced operation at the beginning of fiscal 1991 and has made encouraging progress toward correcting design deficiencies and attaining stable production. Centex's older Albuquerque wallboard plant did not operate during fiscal 1993, but began operating on a limited production schedule in early fiscal 1994. The gypsum wallboard industry is highly competitive and subject to cyclical pricing based upon supply and demand. During fiscal 1994, demand and pricing for gypsum wallboard continued to increase, and the company's wallboard operation reported a profitable fiscal year for the first time since 1990. Subsequent to fiscal year end, 51% of the stock of Centex Construction Products, Inc., the entity in which the Company had consolidated its cement-related and gypsum wallboard operations, was sold through an initial public offering, raising $164 million. Including a dividend and other payments, Centex received $186.5 million from the transaction, which was used to pay down corporate debt. SAVINGS AND LOAN In December 1988, Centex purchased certain assets and assumed certain liabilities of four Texas savings and loan associations under the Federal Savings and Loan Insurance Corporation's assisted transactions process commonly known as the "Southwest Plan". The acquisition was made by Texas Trust Savings Bank, FSB ("Texas Trust"), a federal stock savings bank and subsidiary of CTX Holding Company ("CTX Holding"), a wholly owned subsidiary of Centex. The Federal Savings and Loan Insurance Corporation (the "FSLIC") received a warrant to purchase a 20% interest in Texas Trust's common stock for $400,000 through December 2003. The acquisition was made pursuant to acquisition agreements and an assistance agreement (the "Assistance Agreement") with the FSLIC. Under the terms of these agreements, the FSLIC provided assistance to Texas Trust in the form of a note (the "Note") in the original principal amount of $172.3 million representing the aggregate negative capital (as defined in the agreements) of the insolvent associations as of December 29, 1988. This note, which was due on December 29, 1998, was prepaid in fiscal 1991 and 1992. 10 11 In August 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted which abolished the FSLIC and established the FSLIC Resolution Fund (the "Fund") to assume all reserves, assets, debts, obligations and other liabilities of the FSLIC. The Fund is managed by the Federal Deposit Insurance Corporation (the "FDIC"). All subsequent references to the Fund include its obligations created pursuant to previous agreements with the FSLIC. Certain of the acquired assets are subject to Fund assistance through December 1998 ("Covered Assets"). Subject to the terms of the Assistance Agreement, the Fund will reimburse Texas Trust for any write-downs, losses or costs incurred in connection with the operations and disposition of these assets. Disposition gains, if any, will be shared by the Fund and Texas Trust. In addition, the Fund will supplement the actual yield on Covered Assets to provide a guaranteed yield equal to the Texas Cost of Funds plus a designated spread until December 29, 1998. At that time, any remaining Covered Assets will be adjusted to their then fair market value and retained by Texas Trust. The Fund will reimburse Texas Trust for any required valuation adjustments. Yield maintenance on Covered Assets for the years ended March 31, 1994, 1993 and 1992 were $2.8, $8.5 and $22.0 million, respectively. In addition, $12.1, $86.1 and $80.1 million of assistance was provided in fiscal 1994, 1993 and 1992, respectively, as reimbursement for losses relating to Covered Assets. Fund agreements also provide for maintenance by Texas Trust of certain minimum capital levels; reimbursement by the Fund of certain amounts over a 10-year period; sharing by the Fund in a portion of the tax benefits realized by Centex in connection with the acquisitions by Texas Trust; and indemnification by the Fund against unassumed liabilities and claims. Under the terms of a related capital maintenance agreement, Texas Trust is prohibited from declaring or paying dividends that would cause its regulatory capital to fall below specified levels. Centex has no obligations to make additional capital contributions to CTX Holding or Texas Trust. During fiscal 1990, certain forbearances previously granted by regulatory authorities were rescinded by FIRREA. In addition, more stringent capital requirements were established. At March 31, 1994, and throughout the period since their establishment, Texas Trust has been in full compliance with the new federally-mandated capital requirements. The elimination of forbearances does not significantly impact Texas Trust. Also, under FIRREA, all 1988 transactions and their agreements, including the Texas Trust transaction, became subject to further review by the Resolution Trust Corporation (the "RTC"). Cost reduction options exercised to date by the RTC include the early payoff of the $172.3 million Fund note, substantial Covered Asset write-downs and directed dispositions. Texas Trust and the RTC are currently negotiating to terminate the Assistance Agreement. In connection therewith, the RTC would prepay a non-interest-bearing obligation at a discounted value, purchase all remaining Covered Assets and sell its 20% warrant to Texas Trust. Management anticipates that the termination process will be concluded during fiscal year 1995 without a significant impact on the Company's financial condition or results of operations. Texas Trust, currently headquartered in Dallas, Texas, operates eight savings and loan branch offices in the central Texas cities of Buchanan Dam, Burnet, Giddings, Kingsland, Llano, Marble Falls, Mason and San Angelo. In fiscal 1993, Texas Trust expanded its financial services businesses with the formation of a new mortgage banking operation, TxT Mortgage Company, and the initiation of an interim lending program for single-family home builders. TxT Mortgage Company, also headquartered in Dallas, Texas, currently has offices in Arlington, Austin, Hurst, and, Tyler, Texas, Denver, Colorado and three offices in California. Texas Trust offers a number of services and products including checking accounts, savings accounts, certificates of deposit, residential mortgage loans, consumer loans and interim construction loans to single-family home builders. Subsequent to March 31, 1994, Texas Trust commenced negotiations to sell the assets and related liabilities of its TXT Mortgage Company division to CTX Mortgage Company. The financial services industry in Texas is highly competitive. Competition for customer deposits is intense among commercial banks, credit unions, savings and loan associations, mutual funds and insurance companies. After the acquisition, Texas Trust lowered the rates that it offers on variable rate accounts and new fixed rate certificates of deposit. As expected, some depositors responded to these changes by withdrawing or choosing not to renew maturing deposits. Total deposits increased by $6.9 million from April 1, 1993 to March 31, 1994, and decreased by $31.8 million from April 1, 1992 to March 31, 1993, by $120.4 million from April 1, 1991 to March 31, 1992, and by $30.1 million from April 1, 1990 to March 31, 1991, and were replaced with funds generated by the disposition of certain assets and with lower-cost funds from the Federal Home Loan Bank of Dallas ("FHLBD") advances. At March 31, 1994, total deposits of $207.1 million included $130.1 million of deposits which mature 11 12 during the next twelve months. At March 31, 1993, the total deposits of $200.1 million included $144.3 million of deposits, which matured during fiscal year 1994. Texas Trust, chartered as a federal savings bank, is required to be a member of the Federal Home Loan Bank System and to have its deposits insured by the Savings Association Insurance Fund administered by the FDIC. Texas Trust is subject to extensive regulation by the Office of Thrift Supervision ("OTS"), a bureau in the U.S. Department of Treasury. Such regulatory supervision includes, among other things, net worth and regulatory capital maintenance requirements, liquidity maintenance requirements, limitations on the rate of growth of deposit liabilities and limitations on the type and amount of its investments. Regulations promulgated under the Home Owners Loan Act and other federal laws limit Texas Trust's ability to engage in transactions with, and pay dividends to, Centex and Centex's affiliates. Texas Trust is also subject to regulations of the Federal Reserve Board governing reserves required to be maintained on deposits and other matters. The FDIC and OTS conduct periodic examinations to test compliance with these and other regulatory requirements. Centex and CTX Holding, as savings and loan holding companies, are subject to certain regulation by the OTS. Negotiations are underway with the Federal Deposit Insurance Corporation (FDIC) to terminate the agreement under which Texas Trust was acquired. It is expected that the termination of the Assistance Agreement will be completed sometime during fiscal 1995. The Savings and Loan group has established adequate reserves for the costs associated with this transaction. 12 13 The following is a summary of average balances and average interest rates for the year ended March 31, 1994, 1993 and 1992. TEXAS TRUST SAVINGS BANK, FSB AVERAGE BALANCES AND INTEREST RATES ($ IN THOUSANDS)
FOR THE YEAR FOR THE YEAR ENDED MARCH 31, 1994 ENDED MARCH 31, 1993 -------------------- -------------------- AVERAGE REVENUE/INTEREST AVERAGE REVENUE/INTEREST BALANCE EXPENSE % BALANCE EXPENSE % ------- ------- - ------- ------- - Earning assets: Interest-bearing deposits in other financial institutions and other investment securities . . . . . . . . . $101,181 $5,208 5.15% $ 78,756 $ 6,469 8.21% Loans, primarily residential mortgage, net of $830, $1,565 and $3,377, respectively, of valuation adjustments . . . . . . . . . . . . . . 37,665 3,161 8.39% 10,728 1,347 12.56% Assets covered by Fund assistance . . . 60,827 1,316 2.16% 111,101 8,015 7.21% Notes and receivables from the Fund . . -- -- -- -- -- -- -------- ------ ---- -------- ------- ----- Total earning assets . . . . . . . 199,673 9,685 4.85% 200,585 15,831 7.89% ------ ---- ------- ----- Cash and amounts due from banks . . . . . . 3,465 807 Other assets . . . . . . . . . . . . . . . 25,446 84,500 -------- -------- Total assets . . . . . . . . . . . $228,584 $285,892 ======== ======== Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . $197,341 7,205 3.65% $217,561 9,480 4.36% FHLB advances and short-term borrowings . . . . . . . . . . . . . . . 10,882 622 5.72% 47,735 2,567 5.38% -------- ------ ---- -------- ------- ----- Total interest-bearing liabilities 208,223 7,827 3.76% 265,296 12,047 4.54% ------ ---- ------- ----- Other liabilities . . . . . . . . . . . . . 4,928 4,254 Stockholder's equity . . . . . . . . . . . 15,433 16,342 -------- -------- Total liabilities and stock- holder's equity . . . . . . . . . $222,584 $285,892 ======== ======== Net interest margin . . . . . . . . . . . . $1,858 $ 3,784 ====== ======= Net yield on earning assets . . . . . . . . .93% 1.89% ==== ===== Net margin . . . . . . . . . . . . . . . . 1.09% 3.35% ==== =====
FOR THE YEAR ENDED MARCH 31, 1992 -------------------- AVERAGE REVENUE/INTEREST BALANCE EXPENSE % ------- ------- - Earning assets: Interest-bearing deposits in other financial institutions and other investment securities . . . . . . . . . $ 32,887 $2,350 7.15% Loans, primarily residential mortgage, net of $830, $1,565 and $3,377, respectively, of valuation adjustments . . . . . . . . . . . . . . 9,504 1,982 20.85% Assets covered by Fund assistance . . . 213,822 19,218 8.99% Notes and receivables from the Fund . . 27,831 2,263 8.13% -------- ------ ----- Total earning assets . . . . . . . 284,044 25,813 9.09% ------ ----- Cash and amounts due from banks . . . . . . 804 Other assets . . . . . . . . . . . . . . . 52,714 -------- Total assets . . . . . . . . . . . $337,562 ======== Interest-bearing liabilities: Deposits . . . . . . . . . . . . . . . . $284,358 18,530 6.52% FHLB advances and short-term borrowings . . . . . . . . . . . . . . . 31,702 2,353 7.42% -------- ------ ----- Total interest-bearing liabilities 316,060 20,883 6.61% ------ ----- Other liabilities . . . . . . . . . . . . . 2,429 Stockholder's equity . . . . . . . . . . . 19,073 -------- Total liabilities and stock- holder's equity . . . . . . . . . $337,562 ======== Net interest margin . . . . . . . . . . . . $4,930 ====== Net yield on earning assets . . . . . . . . 1.74% ===== Net margin . . . . . . . . . . . . . . . . 2.48% =====
13 14 EMPLOYEES The Company and its subsidiaries had approximately 8,430 employees at March 31, 1994. ITEM 2. PROPERTIES PLANT FACILITIES The Company, in connection with its Construction Products operations, operates cement plants, quarries and related facilities at Buda, Texas, LaSalle, Illinois, Fernley, Nevada and Laramie, Wyoming. The Buda and LaSalle plants are owned by separate joint ventures in each of which Centex has a 50% interest. The Company's principal aggregate plants and quarries are located in Austin and Cleburne, Texas and Marysville, California. In addition, the Company operates gypsum wallboard plants near Albuquerque and Bernalillo, New Mexico. The Buda cement plant is no longer pledged as security on debts incurred by such joint venture for construction or renovation of this facility, as the principal and interest relating to such debts were paid in full by the joint venture during fiscal 1994. See "Item 1. Business" on pages 5-14 of this Report for additional information relating to the Company's properties. ITEM 3. LEGAL PROCEEDINGS The management of the Company believes that none of the litigation matters in which Centex or any subsidiary is involved, if determined unfavorable to Centex or any subsidiary, would have a material adverse effect on the consolidated financial condition or operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF CENTEX (SEE ITEM 10 OF PART III) The following is an alphabetical listing of the Company's executive officers, as such term is defined under the rules and regulations of the Securities and Exchange Commission. All of these executive officers have been employed by the Company and/or one or more subsidiaries of the Company for the past five years. All of these executive officers were elected by the Board of Directors of the Company at its Annual Meeting on July 23, 1993, to serve until the next Annual Meeting of Directors or until their respective successors are duly elected. There is no family relationship between any of these officers.
Name Age Positions with Centex ---- --- --------------------- Michael S. Albright 46 Vice President - Finance and Controller (Vice President - Finance since July 1992; Controller since November 1987; Vice President from July 1989 to July 1992) Timothy R. Eller 45 President, Chief Executive Officer and Chief Operating Officer of Centex Real Estate Corporation (President and Chief Operating Officer since January 1990; Chief Executive Officer since July 1991; Executive Vice President from July 1987 to January 1990) William J Gillilan III 48 President and Chief Operating Officer (President since July 1991; Chief Operating Officer since January 1990; Executive Vice President from July 1989 until July 1991)
14 15 Laurence E. Hirsch 48 Chairman of the Board and Chief Executive Officer (Chairman of the Board since July 1991; Chief Executive Officer since July 1988; President from March 1985 until July 1991) David W. Quinn 52 Executive Vice President and Chief Financial Officer (since February 1987) Raymond G. Smerge 50 Vice President, Chief Legal Officer, General Counsel and Secretary (Vice President and Chief Legal Officer since September 1985; General Counsel and Secretary since April 1993)
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK PRICES AND DIVIDENDS -------------------------- Year Ended March 31, 1994 Year Ended March 31, 1993 ------------------------- ------------------------- Price Price ----- ----- QUARTER High Low Dividends High Low Dividends ---- --- --------- ---- --- --------- First $35 1/2 $27 1/2 $.05 $24 3/8 $20 $.05 Second $42 5/8 $32 1/2 $.05 $26 $22 1/4 $.05 Third $44 5/8 $36 7/8 $.05 $32 3/4 $24 $.05 Fourth $45 5/8 $30 7/8 $.05 $34 1/8 $29 3/4 $.05
The common stock of Centex Corporation is traded on the New York Stock Exchange (ticker symbol CTX) and The International Stock Exchange (London). The approximate number of record holders of the common stock of Centex Corporation as of June 15, 1994 was 1,713. The closing price of Centex common stock on the New York Stock Exchange on June 15, 1994 was $28.125. On November 30, 1987, Centex Corporation distributed as a dividend to its stockholders securities relating to Centex Development Company, L.P. (see Note G to the Consolidated Financial Statements of Centex Corporation and Subsidiaries). Since this distribution, such securities have traded in tandem with, and as a part of, the common stock of Centex Corporation. Dividend amounts represent cash dividends per share paid by Centex Corporation on the common stock of Centex Corporation. 3333 Holding Corporation has paid no dividends on its common stock since its incorporation. 15 16 ITEM 6. SELECTED FINANCIAL DATA Centex Corporation and Subsidiaries SUMMARY OF SELECTED FINANCIAL DATA (Unaudited)
For the Years Ended March 31, ----------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) Revenues $ 3,214,482 $ 2,502,692 $ 2,165,707 $ 2,243,836 $ 2,072,644 Earnings Before Discontinued Operations and 1988 Accounting Change $ 85,162 $ 61,038 $ 34,557 $ 43,605 $ 62,003 Net Earnings from Discontinued Operations -- -- -- -- -- Cumulative Effect of Change in Accounting for Income Taxes -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net Earnings $ 85,162 $ 61,038 $ 34,557 $ 43,605 $ 62,003 =========== =========== =========== =========== =========== Total Assets $ 2,580,356 $ 2,272,093 $ 2,347,452 $ 2,037,486 $ 2,045,141 Total Long-term Debt, including debentures $ 222,832 $ 223,988 $ 232,294 $ 137,235 $ 140,112 Total Debt $ 429,470 $ 368,988 $ 298,508 $ 267,946 $ 267,739 Deferred Income Taxes $ 35,088 $ 55,722 $ 56,627 $ 80,205 $ 59,311 Negative Goodwill $ 24,102 $ 28,102 $ 31,702 $ 34,702 $ 37,102 Stockholders' Equity $ 668,659 $ 578,415 $ 518,494 $ 483,677 $ 447,911 Total Debt as a Percent of Total Capitalization (Total Debt, Deferred Income Taxes, Negative Goodwill and Stockholders' Equity) 37.1% 35.8% 33.0% 30.9% 33.0% Net Earnings as a Percent of Beginning Stockholders' Equity 14.7% 11.8% 7.1% 9.7% 16.1% Per Common Share Earnings Before Discontinued Operations and 1988 Accounting Change $ 2.60 $ 1.91 $ 1.11 $ 1.42 $ 2.01 Net Earnings from Discontinued Operations -- -- -- -- -- Cumulative Effect of Change in Accounting for Income Taxes -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net Earnings $ 2.60 $ 1.91 $ 1.11 $ 1.42 $ 2.01 =========== =========== =========== =========== =========== Cash Dividends $ .20 $ .20 $ .20 $ .20 $ .20 Book Value Based on Shares Outstanding at Year End $ 21.12 $ 18.57 $ 16.99 $ 16.07 $ 14.85 Stock Prices High $ 45 5/8 $ 34 1/8 $ 27 3/8 $ 21 7/8 $ 20 7/8 Low $ 27 1/2 $ 20 $ 17 $ 9 3/4 $ 14
For the Years Ended March 31, ----------------------------- 1989 1988 1987 1986 1985 ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) Revenues $ 1,845,484 $ 1,485,068 $ 1,321,961 $ 1,441,907 1,219,840 Earnings Before Discontinued Operations and 1988 Accounting Change $ 40,020 $ 24,063 $ 44,204 $ 47,569 $ 39,354 Net Earnings from Discontinued Operations -- -- -- -- 3,780 Cumulative Effect of Change in Accounting for Income Taxes -- 50,100 -- -- -- ----------- ----------- ----------- ----------- ----------- Net Earnings $ 40,020 $ 74,163 $ 44,204 $ 47,569 $ 43,134 =========== =========== =========== =========== =========== Total Assets $ 1,800,522 $ 1,148,098 $ 1,150,720 $ 1,068,063 922,745 Total Long-term Debt, including debentures $ 140,192 $ 178,862 $ 133,461 $ 65,263 $ 63,674 Total Debt $ 240,457 $ 222,962 $ 134,724 $ 120,394 $ 137,674 Deferred Income Taxes $ 74,487 $ 139,767 $ 229,576 $ 204,588 $ 169,303 Negative Goodwill $ 38,981 $ -- $ -- $ -- $ -- Stockholders' Equity $ 384,174 $ 364,846 $ 363,014 $ 327,792 $ 301,954 Total Debt as a Percent of Total Capitalization (Total Debt, Deferred Income Taxes, Negative Goodwill and Stockholders' Equity) 32.6% 30.6% 18.5% 18.4% 22.6% Net Earnings as a Percent of Beginning Stockholders' Equity 11.0% 20.4% 13.5% 15.8% 10.5% Per Common Share Earnings Before Discontinued Operations and 1988 Accounting Change $ 1.32 $ .75 $ 1.24 $ 1.31 $ 1.01 Net Earnings from Discontinued Operations -- -- -- -- .09 Cumulative Effect of Change in Accounting for Income Taxes -- 1.57 -- -- -- ----------- ----------- ----------- ----------- ----------- Net Earnings $ 1.32 $ 2.32 $ 1.24 $ 1.31 $ 1.10 =========== =========== =========== =========== =========== Cash Dividends $ .14375 $ .125 $ .125 $ .125 $ .125 Book Value Based on Shares Outstanding at Year End $ 13.28 $ 12.13 $ 10.23 $ 9.17 $ 8.14 Stock Prices High $ 14 7/8 $ 17 $ 20 1/4 $ 16 3/4 $ 14 1/4 Low $ 10 $ 7 7/8 $ 14 1/2 $ 10 1/4 $ 9
Discontinued operations represents revenues and earnings data of Cenergy Corporation, an oil and gas subsidiary spun off on October 1, 1984. On November 30, 1987, Centex Corporation distributed as a dividend to its stockholders securities relating to Centex Development Company, L.P. (see Note G to the Consolidated Financial Statements of Centex Corporation and Subsidiaries). Since this distribution, such securities have traded in tandem with, and as a part of, the common stock of Centex Corporation. Debt represents Centex Corporation's debt with the mortgage company and savings and loan association reflected on the equity method versus consolidation. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Led by record results from its Home Building and Mortgage Banking businesses and significant improvement in its Construction Products operations, Centex reported for fiscal year 1994 the highest fiscal year revenues of $3.2 billion, earnings before income taxes of $135 million, net earnings of $85.2 million and earnings per share of $2.60, in its history. During fiscal 1994, Home Building revenues, operating earnings and closings reached record highs. The following table summarizes Home Building only results (excluding CDC and certain other items reported in this segment) for the three-year period ending March 31, 1994 (in millions, except per unit data):
1994 1993 1992 ---- ---- ---- Home Building Revenues* $ 1,869.8 100.0% $1,433.1 100.0% $1,061.9 100.0% Cost of Sales (1,560.0) (83.5) (1,186.6) (82.8) (869.2) (81.9) Selling, General & Administrative (213.8) (11.4) (170.4) (11.9) (137.4) (12.9) --------- ----- -------- ----- -------- ----- Operating Earnings* $ 96.0 5.1% $ 76.1 5.3% $ 55.3 5.2% ========= ===== ======== ===== ======== ===== Units Closed 12,563 10,279 7,739 Unit Sales Price $ 147,466 $138,359 $135,678 % Change 6.6% 2.0% 5.6% Operating Earnings per Unit $ 7,640 $ 7,408 $ 7,141 % Change 3.1% 3.7% (23.9%)
*CDC and other items excluded from this table represented revenues of $1.8, $(1.8) and $1.4 million, respectively, and operating losses of $1.8, $.5 and $1.0 million, respectively. Closings increased 22% in 1994 resulting in an approximate 31% increase in housing revenues from 1993. The average home sales price increased 6.6% in fiscal 1994 compared to fiscal 1993. Operating earnings from this segment, including CDC and other items, were a record $94.2 million this year, up more than 25% over the prior fiscal year. Home Building's gross profit margin declined in fiscal 1994 compared to fiscal 1993 due to increases in construction materials costs, primarily lumber. Margins in 1994 were also impacted by the results of operations in California, which continued to experience negative economic conditions. Operating margins did, however, improve sequentially throughout the year, rising from 4.2% in the first quarter to 5.7% in the fourth quarter. Home closings and orders for fiscal 1994 were at the highest level in company history. New orders for the current fiscal year reached an all-time high of 13,207 homes, up 16% over 11,421 homes for the prior fiscal year. The backlog of homes sold but not closed at March 31, 1994 reached 5,795 units, a 13% increase over the backlog of 5,151 homes at March 31, 1993. Revenues from Mortgage Banking for the year ended March 31, 1994 totaled $187.9 million, up 45% from $129.7 million for the prior fiscal year. Operating earnings reached an all-time high of $71.0 million, a 48% increase over $47.8 million in 1993. For fiscal 1994, the company originated 58,543 loans valued at approximately $6.4 billion compared to 38,301 originations valued at about $4.2 billion last year. Originations for Centex-built homes rose 20% to 9,289 this year while third-party originations increased 61% to 49,254. For fiscal 1994, revenues from Contracting and Construction Services were $966.6 million, up 23% from $783.2 million for fiscal 1993. This segment had an operating loss of $4.5 million this year versus an operating loss of $4.1 million for the prior fiscal year. The operating loss was due primarily to continued weak operating margins which resulted from fewer available projects and increased competition. However, the backlog of uncompleted construction contracts at March 31, 1994 was $1.24 billion, slightly higher than the March 31, 1993 backlog of $1.17 billion and a little lower than the record backlog of $1.3 billion reported at December 31, 1993. Construction Products revenues were $172.9 million in fiscal 1994, up 22% from $141.2 million for fiscal 1993. Operating earnings from Construction Products reached $16.6 million this year, compared to earnings of $4.6 million in the prior fiscal year. The increase was due primarily to high demand for the cement-related and Gypsum wallboard operations, which resulted in improved pricing levels. 17 18 The Savings and Loan segment reported fiscal 1994 revenues of $15.5 million, compared to $17.3 million in the prior fiscal year. Operating earnings from the Savings and Loan were $2.6 million for the current fiscal year, compared to $3.0 million in the previous year. The record fiscal year Home Building results were due to more closings and to margins that improved throughout the year because of home price increases and lower lumber costs. The record Mortgage Banking results were due to the lower interest rate environment which prevailed throughout most of fiscal 1994 and stimulated new home sales and refinancings. The gain in Construction Products results was due primarily to increased demand for its products, higher production levels and improved pricing in its cement-related and gypsum wallboard operations. The company's wallboard operation reported a profit in fiscal 1994, the first since 1990. Despite the high construction backlog levels maintained by its Contracting and Construction Services division throughout the year, margins in this business remained under intense competitive pressure. Lumber prices have recently retreated from record levels. The lower current lumber prices coupled with higher prices for the company's homes will result in a further strengthening of Home Building margins as fiscal 1995 progresses. Higher mortgage interest rates, however, have slowed home building orders and significantly reduced mortgage refinancing activity, both of which will negatively impact fiscal 1995 results for the segments. Results from the company's Contracting and Construction Services division are not expected to improve until later in the economic cycle. FINANCIAL CONDITION The company has adequate unsecured revolving credit facilities. These credit facilities serve as back-up lines for overnight borrowings under uncommitted bank lines and commercial paper. In addition, CTX Mortgage Company has sufficient committed and uncommitted credit facilities of its own to finance mortgages which are held during the period while they are being securitized and readied for delivery against forward sale commitments. Information regarding Centex's short-term and long-term debt is included in Note (D) of the Notes to Consolidated Financial Statements of Centex Corporation and subsidiaries on pages 30-31 of this Report. Based on its financial condition and existing credit relationships, Centex believes it will be able to provide adequately for its current and future growth. STOCK REPURCHASE PROGRAM In April and May 1994, Centex announced a 2.1 million share common stock repurchase program of which approximately 1.1 million shares have been repurchased. SUBSEQUENT EVENT Subsequent to fiscal year end, the Company completed an initial public offering of 51% of its construction products subsidiary. The new publicly-held entity, Centex Construction Products, Inc., is trading on the New York Stock Exchange under the symbol "CXP." Centex received a dividend and other payments from CXP totaling approximately $186.5 million which has been used to reduce Centex's outstanding indebtedness. In addition, Centex will report an after-tax gain related to CXP's initial public offering of approximately $37.5 million during the first quarter of fiscal 1995. 18 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for in this Item 8 is included herein on pages 21-46 of this Report. 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 (See Item 11 below.) ITEM 11. EXECUTIVE COMPENSATION Except for the information relating to the executive officers of the Company, which follows Item 4 of Part I of this Report, the information called for by Items 10, 11, 12 and 13 is incorporated herein by reference to the information included and referenced under the following captions (on the pages indicated) in the Company's Proxy Statement dated July 1, 1994 for the July 28, 1994 Annual Meeting of Stockholders (the "1994 Centex Proxy Statement"):
ITEM CAPTION IN THE 1994 CENTEX PROXY STATEMENT PAGES ---- ------------------------------------------ ----- 10 Election of Directors 3-6 10 Section 16(a) Compliance 15 11 Executive Compensation 9-14 12 Security Ownership of Management and Certain Beneficial Owners 7-8 13 Certain Transactions 15-16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (See Item 11 above.) ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (See Item 11 above and Schedule II on page 45 of this Report for information respecting indebtedness to Centex of certain officers and directors.) 19 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) AND (2) See the Index to Consolidated Financial Statements and Schedules below for a list of the Financial Statements and Financial Statement schedules filed herewith. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
FORM 10-K PAGE REFERENCE -------------- CENTEX CORPORATION AND SUBSIDIARIES Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Statement of Consolidated Earnings for the years ended March 31, 1994, 1993 and 1992 . . . . . 22 Consolidated Balance Sheets as of March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 23 Statement of Consolidated Cash Flows for the years ended March 31, 1994, 1993 and 1992 . . . . 24 Statement of Consolidated Stockholders' Equity for the years ended March 31, 1994, 1993 and 1992 25 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Quarterly Results (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Consolidated Supporting Schedules: Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 I - Marketable Securities - Other Investments - March 31, 1994 . . . . . . . . . . . . . . . . 44 II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties for the years ended March 31, 1994, 1993 and 1992 . . . . . . . . . . . . 45 IX - Short-Term Borrowings for the years ended March 31, 1994, 1993 and 1992 . . . . . . . . . 46
Consolidated supporting schedules other than those listed above have been omitted either because the required information is contained in notes to the consolidated financial statements or because such schedules are not required or are not applicable. (3) EXHIBITS The information on exhibits required by this Item 14 is set forth in the Centex Index to Exhibits appearing on pages 75-79 of this Report. (b) Reports on Form 8-K: None. 20 21 Centex Corporation and Subsidiaries AUDITORS' REPORT TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CENTEX CORPORATION: We have audited the accompanying consolidated balance sheets of Centex Corporation (a Nevada corporation) and subsidiaries as of March 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Centex Corporation and subsidiaries as of March 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1994, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplemental balance sheet data of Centex Corporation and Financial Services are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. This information has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. ARTHUR ANDERSEN & CO. Dallas, Texas, May 11, 1994 21 22 Centex Corporation and Subsidiaries STATEMENT OF CONSOLIDATED EARNINGS
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in thousands, except per share data) REVENUES Home Building $1,871,627 $1,431,265 $1,063,271 Mortgage Banking 187,870 129,747 74,642 Contracting and Construction Services 966,562 783,222 865,009 Construction Products 172,900 141,164 135,676 Savings and Loan 15,523 17,294 27,109 ---------- ---------- ---------- 3,214,482 2,502,692 2,165,707 ---------- ---------- ---------- COSTS AND EXPENSES Home Building 1,777,449 1,355,677 1,008,934 Mortgage Banking 116,885 81,920 55,175 Contracting and Construction Services 971,062 787,325 861,267 Construction Products 156,274 136,516 134,538 Savings and Loan 12,958 14,267 24,994 Corporate General and Administrative 15,158 13,120 12,807 Interest 29,683 22,108 22,140 ---------- ---------- ---------- 3,079,469 2,410,933 2,119,855 ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES 135,013 91,759 45,852 Income Taxes 49,851 30,721 11,295 ---------- ---------- ---------- NET EARNINGS $ 85,162 $ 61,038 $ 34,557 ========== ========== ========== EARNINGS PER SHARE $ 2.60 $ 1.91 $ 1.11 ========== ========== ==========
See notes to consolidated financial statements. 22 23 Centex Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS
Centex Corporation and Subsidiaries Centex Corporation ------------ ------------------ March 31, March 31, --------- --------- 1994 1993 1994 1993 ---- ---- ---- ---- (Dollars in thousands) ASSETS Cash and Cash Equivalents $ 76,287 $ 26,065 $ 13,284 $ 13,802 Marketable Securities 78,241 110,316 - - Receivables - Residential Mortgage Loans 677,641 591,328 - - Construction Contracts 161,929 153,780 161,929 153,780 Trade 79,487 67,623 54,630 45,086 Note 10,115 8,163 10,115 8,163 Affiliates - - - - Inventories - Housing Projects 969,769 764,959 969,769 764,959 Land Held for Development and Sale 104,869 106,785 104,869 106,785 Construction Products 22,819 24,601 22,819 24,601 Investments - Joint Ventures and Unconsolidated Subsidiaries 56,928 50,277 62,191 73,350 Centex Development Company, L.P. 71,000 71,517 71,000 71,517 Property and Equipment, net 188,930 177,610 169,234 167,406 Government-Guaranteed S&L Assets - Receivables 19,030 13,579 - - Covered Assets 24,737 69,244 - - Other Assets and Deferred Charges 38,574 36,246 22,101 24,020 ---------- ---------- ---------- ---------- $2,580,356 $2,272,093 $1,661,941 $1,453,469 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 618,943 $ 527,094 $ 504,622 $ 422,242 S&L Deposits and FHLB Borrowings 211,055 204,140 - - Short-term Debt 783,585 637,570 206,638 145,000 Long-term Debt 222,832 223,988 222,832 223,988 Deferred Income Taxes 51,180 72,784 35,088 55,722 Negative Goodwill 24,102 28,102 24,102 28,102 Stockholders' Equity - Common Stock, $.25 Par Value; Authorized 50,000,000 Shares; Issued 31,663,808 and 31,140,878 Shares 7,916 7,785 7,916 7,785 Capital in Excess of Par Value 26,631 15,376 26,631 15,376 Retained Earnings 634,112 555,254 634,112 555,254 ---------- ---------- ---------- ---------- Total Stockholders' Equity 668,659 578,415 668,659 578,415 ---------- ---------- ---------- ---------- $2,580,356 $2,272,093 $1,661,941 $1,453,469 ========== ========== ========== ==========
Financial Services ------------------ March 31, --------- 1994 1993 ---- ---- ASSETS Cash and Cash Equivalents $ 63,003 $ 12,263 Marketable Securities 78,241 110,316 Receivables - Residential Mortgage Loans 677,641 591,328 Construction Contracts - - Trade 24,857 22,537 Note - - Affiliates 80,806 63,555 Inventories - Housing Projects - - Land Held for Development and Sale - - Construction Products - - Investments - Joint Ventures and Unconsolidated Subsidiaries - - Centex Development Company, L.P. - - Property and Equipment, net 19,696 10,204 Government-Guaranteed S&L Assets - Receivables 19,030 13,579 Covered Assets 24,737 69,244 Other Assets and Deferred Charges 16,473 12,226 ---------- ---------- $1,004,484 $ 905,252 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 114,321 $ 104,852 S&L Deposits and FHLB Borrowings 211,055 204,140 Short-term Debt 576,947 492,570 Long-term Debt - - Deferred Income Taxes 16,092 17,062 Negative Goodwill - - Stockholders' Equity - Common Stock, $.25 Par Value; Authorized 50,000,000 Shares; Issued 31,663,808 and 31,140,878 Shares 12 12 Capital in Excess of Par Value 51,938 46,982 Retained Earnings 34,119 39,634 ---------- ---------- Total Stockholders' Equity 86,069 86,628 ---------- ---------- $1,004,484 $ 905,252 ========== ==========
See notes to consolidated financial statements. In the supplemental data presented above, "Centex Corporation" means the basis of presentation as described in Note A to the consolidated financial statements; "Financial Services" means CTX Mortgage Company and CTX Holding Company and its savings and loan subsidiary, Texas Trust Savings Bank, FSB and affiliates. Transactions between Centex Corporation and Financial Services have been eliminated from the Centex Corporation and Subsidiaries balance sheets. 23 24 Centex Corporation and Subsidiaries STATEMENT OF CONSOLIDATED CASH FLOWS
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in thousands) CASH FLOWS - OPERATING ACTIVITIES Net Earnings $ 85,162 $ 61,038 $ 34,557 Adjustments - Depreciation, Depletion and Amortization 19,640 16,156 15,421 Deferred Income Taxes (7,760) 3,545 (3,962) Equity in (Earnings) Losses of Joint Ventures, Unconsolidated Subsidiaries and CDC (3,387) 120 (1,040) -------- -------- -------- 93,655 80,859 44,976 (Increase) Decrease in Receivables (21,965) (15,001) 11,889 Increase in Inventories (201,539) (136,259) (49,221) Increase in Payables and Accruals 91,864 77,920 3,981 (Increase) Decrease in Other Assets (4,190) (6,337) 813 Other, net (13,859) (2,265) (5,026) -------- -------- -------- (56,034) (1,083) 7,412 -------- -------- -------- CASH FLOWS - INVESTING ACTIVITIES (Increase) Decrease in Advances to Joint Ventures, Unconsolidated Subsidiaries and CDC (2,747) 2,669 (2,374) Property and Equipment Additions, net (31,936) (18,019) (18,119) Decrease (Increase) in Marketable Securities 32,075 91,710 (202,026) -------- -------- -------- (2,608) 76,360 (222,519) -------- -------- -------- CASH FLOWS - FINANCING ACTIVITIES Increase in Residential Mortgage Loans (87,048) (12,840) (279,453) Decrease in Government-Guaranteed S&L Assets 39,056 105,275 241,589 Increase (Decrease) in S&L Deposits, FHLB Borrowings and Debt 6,915 (241,130) (2,203) Increase in Debt 144,859 30,250 284,362 Stock and Dividend Transactions, net 5,082 (1,117) 260 -------- -------- -------- 108,864 (119,562) 244,555 -------- -------- -------- NET INCREASE (DECREASE) IN CASH 50,222 (44,285) 29,448 CASH AT BEGINNING OF YEAR 26,065 70,350 40,902 -------- -------- -------- CASH AT END OF YEAR $ 76,287 $ 26,065 $ 70,350 ======== ======== ========
See notes to consolidated financial statements. 24 25 Centex Corporation and Subsidiaries STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in thousands) COMMON STOCK Balance at Beginning of Year $ 7,785 $ 7,623 $ 7,569 Exercise of Stock Options, net 131 200 86 Retirement of 187,400 and 128,800 Shares in 1993 and 1992 - (38) (32) -------- -------- -------- Balance at End of Year 7,916 7,785 7,623 -------- -------- -------- CAPITAL IN EXCESS OF PAR VALUE Balance at Beginning of Year 15,376 10,501 4,257 Exercise of Stock Options, including related tax benefits 11,255 8,828 10,684 Retirement of Common Shares - (3,953) (4,440) -------- -------- -------- Balance at End of Year 26,631 15,376 10,501 -------- -------- -------- RETAINED EARNINGS Balance at Beginning of Year 555,254 500,370 471,851 Net Earnings 85,162 61,038 34,557 Cash Dividends (6,304) (6,154) (6,038) -------- -------- -------- Balance at End of Year 634,112 555,254 500,370 -------- -------- -------- TOTAL STOCKHOLDERS' EQUITY $668,659 $578,415 $518,494 ======== ======== ========
See notes to consolidated financial statements. 25 26 Centex Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (A) SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Centex Corporation and subsidiaries (Centex or the company) after the elimination of all significant intercompany balances and transactions. BASIS OF BALANCE SHEET PRESENTATION Balance sheet data are presented in the following categories: * CENTEX CORPORATION AND SUBSIDIARIES. This represents the adding together of Centex Corporation, Financial Services and all of their consolidated subsidiaries. The effects of transactions among related companies within the consolidated group have been eliminated. * CENTEX CORPORATION. This information is presented as supplemental information and represents the adding together of all subsidiaries other than CTX Mortgage Company (Mortgage Banking group) and CTX Holding Company (CTX Holding) and its savings and loan subsidiary, Texas Trust Savings Bank, FSB (Texas Trust) and affiliates (together, the Savings and Loan group) which are presented on an equity basis of accounting. * FINANCIAL SERVICES. This represents the adding together of the Mortgage Banking group and the Savings and Loan group. REVENUE RECOGNITION Revenue from housing projects is recognized as homes are sold and title passes. Earnings from sale of mortgage servicing rights and from loan origination fees are recognized when the related loan is sold and delivered to third-party purchasers. Long-term construction contract revenues are recognized on the percentage-of-completion method based on the costs incurred relative to total estimated costs. Full provision is made for any anticipated losses. Billings for long-term construction contracts are rendered monthly, including the amount of retainage withheld by the customer until contract completion. As a general contractor, the company withholds similar retainages from each subcontractor. Retainages of $63 million included in construction contracts receivable and $54 million included in accounts payable at March 31, 1994 are generally receivable and payable within one year. Claims are recognized as revenue only after management is confident of collection or when agreement has been reached with the customer. Notes receivable at March 31, 1994 are collectible primarily over 4 years, with $4.4 million being due within one year. The weighted average interest rate at March 31, 1994 was 5.1%. INVENTORY, CAPITALIZATION AND SEGMENT EXPENSES Housing projects and land held for development and sale are stated at the lower of cost (including direct construction costs and capitalized interest and real estate taxes) or market. The capitalized costs, other than interest, are included in Home Building costs and expenses in the statement of consolidated earnings as related revenues are recognized. Interest costs relieved from inventories are included as interest expense. Construction Products inventories are stated at the lower of average cost (including applicable material, labor and plant overhead) or market. General operating expenses associated with each segment of business are expensed as incurred and are included in the appropriate segment of business. 26 27 JOINT VENTURES The company is involved in joint ventures with interests ranging up to 50%. Proportionate revenues and costs and expenses, which are not significant, are included in the statement of consolidated earnings for 50%-owned ventures. Earnings or losses of less than 50%-owned ventures are not significant and are included in the appropriate segment of business revenues. Investments in joint ventures are carried on the equity method in the consolidated balance sheets. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and improvements are capitalized and depreciated. Repairs and maintenance are expensed as incurred. Depreciation is provided on a straight-line basis over the estimated useful lives of depreciable assets. Raw material deposits are depleted as such deposits are extracted for production. Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts and any resulting gains or losses are recognized at such time. EARNINGS PER SHARE Earnings per share are based on the weighted average number of common and common equivalent shares outstanding in 1994, 1993 and 1992 of 32,789,852; 32,015,785 and 31,251,626, respectively. MARKETABLE SECURITIES Marketable securities at March 31, 1994 represent U.S. Government and corporate securities owned by Texas Trust. These securities had a market value which approximates book value. RESIDENTIAL MORTGAGE LOANS RECEIVABLE Residential mortgage loans held by CTX Mortgage of $632.1 million and Texas Trust of $45.5 million at March 31, 1994 are stated at the lower of aggregate cost or market. Market is determined based on CTX Mortgage and Texas Trust's forward sale commitments. Substantially all of CTX Mortgage and Texas Trust's mortgage loans are sold forward upon closing and subsequently delivered to third-party purchasers within 60 days thereafter. STATEMENT OF CONSOLIDATED CASH FLOWS - SUPPLEMENTAL DISCLOSURES Interest expenses relating to the financial services operations (Mortgage Banking and Savings and Loan) are included in their respective costs and expenses. Interest related to non-financial services operations are included as interest expense as summarized below.
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- Total Interest Incurred $68,856 $63,721 $67,838 Less--Mortgage Banking (30,696) (28,882) (23,726) Savings and Loan ( 8,477) (12,731) (21,972) ------- ------- ------- Interest Expense $29,683 $22,108 $22,140 ======= ======= =======
Net payments made for federal, state and foreign income taxes during the fiscal years ended March 31, 1994, 1993 and 1992 were $41.9 million, $11.4 million, and $18.5 million, respectively. OFF-BALANCE-SHEET RISK CTX Mortgage and Texas Trust enter into various financial agreements, in the normal course of business, in order to manage the exposure to changing interest rates as a result of having issued loan commitments to their customers at a specified price and period, and committing to sell mortgage loans to various investors. 27 28 CTX Mortgage and Texas Trust had commitments to mortgagors of approximately $505 million and commitments to sell to investors against these loan commitments of approximately $379 million at March 31, 1994. POST-RETIREMENT OBLIGATIONS The company has no significant post-retirement obligations. Accordingly, the adoption of Statement of Financial Accounting Standards (SFAS) No. 106, had no impact on the company's financial statements. (B) SAVINGS AND LOAN OPERATIONS ACQUISITION In December 1988, the company purchased certain assets and assumed certain liabilities of four Texas savings and loan associations pursuant to acquisition agreements and an assistance agreement with the Federal Savings and Loan Insurance Corporation (FSLIC). The acquisition was made by Texas Trust, a federal stock savings bank and subsidiary of CTX Holding, a wholly-owned subsidiary of the company. The FSLIC received a warrant to purchase a 20% interest in Texas Trust's common stock for $.4 million through December 2003. Texas Trust's common equity as of March 31, 1994 was approximately $5.9 million. In August 1989, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) which abolished the FSLIC and established the FSLIC Resolution Fund (the Fund) to assume all assets, debts, obligations and other liabilities of the FSLIC. The Fund is managed by the Federal Deposit Insurance Corporation (FDIC). All subsequent references to the Fund include previous agreements with the FSLIC. Certain of the acquired assets are subject to Fund assistance through December 1998 (Covered Assets). Any losses, write-downs or costs incurred in connection with the operation and disposition of these assets are reimbursed by the Fund. In addition, the Fund provided a guaranteed minimum yield on the Covered Assets equal to the Texas Cost of Funds plus a designated spread through December 1998. At that time, any remaining Covered Assets will be adjusted to their then fair market value and retained by Texas Trust. The Fund will reimburse Texas Trust for any required valuation adjustments. Yield maintenance on Covered Assets for the years ended March 31, 1994, 1993 and 1992 were $2.8, $8.5, and $22.0 million, respectively. In addition, $12.1, $86.1, and $80.1 million of assistance were provided in fiscal 1994, 1993 and 1992, respectively, primarily as reimbursement for losses relating to Covered Assets. The agreements also provide for maintenance by Texas Trust of certain minimum capital levels, reimbursement by the Fund of certain non-interest bearing amounts over a 10-year period, sharing by the Fund in a portion of the tax benefits realized by Centex Corporation, and indemnification by the Fund against unassumed liabilities and claims. Under the terms of a related capital maintenance agreement, Texas Trust cannot declare or pay dividends that would cause its regulatory capital to fall below specified levels or which would exceed 50% of net income on a cumulative basis for common dividends and 75% for preferred dividends. Centex Corporation has no obligation to make additional capital contributions to CTX Holding or Texas Trust. At March 31, 1994, and throughout the period since their establishment, Texas Trust has been in full compliance with federally- mandated capital requirements. Centex and Texas Trust are negotiating with the FDIC to terminate the assistance agreement and to have the FDIC prepay the non-interest-bearing fund receivable at a discounted value, retire the warrant to purchase 20% of Texas Trust common stock and purchase all remaining covered assets. Management anticipates that the termination of the assistance agreement will be concluded during fiscal year 1995 without a significant impact on the company's financial condition or results of operations. PURCHASE METHOD OF ACCOUNTING The acquisition, recorded under the purchase method of accounting, resulted in the establishment of negative goodwill representing the net assets acquired (including the company's portion of certain tax benefits existing at acquisition date) in excess of costs. 28 29 GOVERNMENT-GUARANTEED S&L ASSETS
March 31, --------- 1994 1993 ---- ---- Receivables from the Fund $19,030 $13,579 ======= ======= Covered Assets, including mortgage loans, by type of collateral - Land and Commercial Real Estate $11,961 $37,077 Single- and Multi-family Residential - 15,833 Investments in Subsidiaries and Other 12,776 16,334 ------- ------- 24,737 69,244 Less--Management's Estimate of Future Disposition Losses to be Reimbursed by the Fund--Unaudited (3,155) (6,000) ------- ------- Estimated Market Value--Unaudited $21,582 $63,244 ======= =======
DEPOSITS AND FHLB BORROWINGS
March 31, --------- 1994 1993 ---- ---- Weighted Weighted Average Average Contractual Contractual Interest Rate Amount Interest Rate Amount -------------- ------ ------------- ------- Certificates of Deposit 3.87% $169,715 4.27% $160,828 Savings and Checking Accounts 2.42% 37,340 2.58% 39,312 -------- -------- Total Deposits 207,055 200,140 Federal Home Loan Bank (FHLB) Borrowings, secured by assets aggregating $4.5 million 9.88% 4,000 9.88% 4,000 -------- -------- $211,055 $204,140 ======== ========
Contractual maturities of certificates of deposit as of March 31, 1994 are: fiscal 1995, $130,067; fiscal 1996, $25,245; fiscal 1997, $6,131; fiscal 1998, $2,471; fiscal 1999, $5,513; and thereafter, $288. Maturities of FHLB borrowings at March 31, 1994 are: fiscal 1996, $2,000; and fiscal 1999, $2,000. 29 30 (C) PROPERTY AND EQUIPMENT Cost by major category and accumulated depreciation are summarized below:
March 31, --------- 1994 1993 ---- ---- Land, Buildings and Improvements $ 37,707 $ 37,793 Plants, Machinery, Equipment and Other 273,242 247,051 ---------- --------- 310,949 284,844 Accumulated Depreciation (122,019) (107,234) ---------- --------- $ 188,930 $ 177,610 ========== =========
(D) INDEBTEDNESS SHORT-TERM DEBT Balances of short-term debt were:
March 31, --------- 1994 1993 ---- ---- Centex Mortgage Centex Mortgage Corporation Banking Corporation Banking ----------- ------- ----------- ------- Banks $ 84,500 $ 225,500 $ 86,500 $305,000 Commercial Paper 122,000 - 58,500 - Other Financial Institutions 138 351,447 - 187,570 -------- --------- -------- -------- $206,638 $ 576,947 $145,000 $492,570 -------- --------- -------- -------- Consolidated Short-term Debt $783,585 $637,570 ======== ========
The company borrows on a short-term basis from banks under uncommitted lines which bear interest at prevailing market rates. The weighted average interest rates of the short-term indebtedness outstanding during fiscal 1994 and 1993 were 3.6% and 4.2%, respectively. The weighted average interest rates of balances outstanding at March 31, 1994 and 1993 were 4.1% and 4.4%, respectively. LONG-TERM DEBT Balances of long-term debt were: 30 31
March 31, --------- 1994 1993 ---- ---- Senior Notes, 9.05% Due in May 1996 $100,000 $100,000 Subordinated Debentures, 8.75% to 8.8% Due in 2007 119,284 119,255 Other Indebtedness, 4.25% to 10% Due Through 2000 3,548 4,733 -------- -------- $222,832 $223,988 ======== ========
Maturities of long-term debt during the next five fiscal years are: 1995, $3,139; 1996, $409; 1997, $100,000; 1998, $0; 1999, $0. Included in other long-term debt is a $2.1 million convertible subordinated debenture sold in August 1985 to a corporate officer at par. The indebtedness bears interest at prime and is convertible into 200,000 shares of the company's common stock. In connection with this transaction, the company has guaranteed the payment of a $2.1 million note payable to a bank by the officer. CREDIT FACILITIES Centex has a long-term revolving credit agreement totaling $350 million with a group of banks, which is available for general corporate purposes. Borrowings under this agreement bear interest at money market rates. Annual commitment fees are .25% of the facility amount. The agreement expires in April 1996. Under the terms of the agreement, $140 million may be borrowed directly by CTX Mortgage. The maximum principal amount outstanding under this agreement during the fiscal year ended March 31, 1994 was $140 million, all of which was borrowed by CTX Mortgage. There were no borrowings outstanding to Centex Corporation under this or the previous facilities during the fiscal years ended March 31, 1994 and 1993. During August 1993, Centex entered into a $115 million, 364-day revolving credit agreement with a group of banks. The facility was also for general corporate purposes and the stated interest rates were tied to short-term money market indices. Effective May 1994, this facility was canceled by the company. CTX Mortgage has a $300 million committed and secured mortgage warehouse facility with a group of banks, which expires in November 1994. CTX Mortgage also maintains committed mortgage warehouse facilities of $300 million expiring in December 1994 with two investment banks. In addition, in May 1993, CTX Mortgage established a $200 million asset-backed commercial paper program, which expires in May 1996. The bank warehouse facility and the commercial paper program provide for limited support by Centex, as defined, of up to a maximum of 10% of the commitments. Management believes the facilities expiring by December 1994 can be renewed or replaced on essentially the same terms. Under the most restrictive covenants of the various debt agreements, retained earnings of $285 million were free of restrictions at March 31, 1994. (E) CAPITAL STOCK SHAREHOLDER RIGHTS PLAN In September 1986, the company adopted a Shareholder Rights Plan (Rights Plan) pursuant to which each holder of record of a share of common stock was granted one right for each share of common stock held. The Rights Plan was amended in May 1988. Under the Rights Plan, as amended, each right entitles its holder to purchase one one-hundredth of a share of a new series of preferred stock designated Junior Participating Preferred Stock, Series D at an exercise price of $120. The rights will become exercisable 10 days after anyone acquires 20% or more of the company's common stock, or 10 business days after anyone commences a tender offer which, if successful, would result in such person owning 20% or more of the company's common stock. In addition, if anyone acquires 20% or more of the common stock (other than pursuant to certain offers for all shares of common stock specified in the Rights Plan), or a 20% or more holder engages in certain specified "self-dealing" transactions or combines with the company in a reverse merger in which the company survives and its shares of common stock are not changed, each right will entitle its holder (other than a holder which owns 20% or more of the common stock) to purchase shares of company common stock (or, in certain circumstances, other consideration) with a value of twice the $120 exercise price. If, following an acquisition of 20% or more of the common stock, the company is acquired in a merger or sells 50% of its assets or earning power, each right will entitle its holder (other than a holder which owns 20% or more of the common stock) to purchase common stock of the acquiring company with a value of twice the $120 exercise price. In general, the rights are redeemable at $.05 per right until 15 days after anyone acquires 20% or more of the common stock. Unless earlier redeemed, the rights will expire on October 1, 1996. 31 32 STOCK OPTIONS The company has two stock option plans for directors, officers and key employees of the company, the Centex Corporation 1987 Stock Option Plan (the 1987 Plan) and the Centex Corporation Stock Option Plan (the Centex Plan). Option grants under the Centex Plan may not be less than the fair market value at the date of the grant. Option grants under the 1987 Plan may be less than the fair market value at the date of the grant. Under both plans, option periods and exercise dates may vary within a maximum period of 10 years. A summary of the activity in the stock option plans is presented below:
Number Option Price Options at March 31, of Shares Range per Share - -------------------- --------- --------------- Outstanding 1994 3,641,300 $8.50 TO $33.875 1993 3,699,230 $8.50 to $23.125 Exercised 1994 518,930 $8.50 TO $18.313 1993 1,262,414 $5.30 to $18.375 Exercisable 1994 849,002 $8.50 TO $18.375 1993 956,678 $8.50 to $18.375 Available for grant 1994 872,656 1993 1,333,656
During fiscal 1994, options for 475,000 shares were granted and previously granted options for 14,000 shares became available for reissue. At March 31, 1994, the company had 4,513,956 common shares reserved for stock options. The company records proceeds from the exercise of options as additions to common stock and capital in excess of par value. The federal tax benefit, if any, is considered additional capital in excess of par value. No charges or credits would be made to earnings unless options were to be granted at less than fair market value at the date of the grant. PREFERRED STOCK The company is authorized to issue 5,000,000 shares of preferred stock, the terms of which shall be set by the Board of Directors. (F) INCOME TAXES The provision for income taxes includes the following components:
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- Current Provision Federal $ 52,943 $ 22,429 $ 10,994 State 4,668 4,747 4,263 -------- -------- -------- 57,611 27,176 15,257 -------- -------- -------- Deferred Provision (Benefit) Federal (10,762) 2,581 (1,983) State 3,002 964 (1,979) -------- -------- -------- (7,760) 3,545 (3,962) -------- -------- -------- Provision for Income Taxes $ 49,851 $ 30,721 $ 11,295 ======== ======== ========
32 33 The effective tax rate is greater than the federal statutory rate of 35% in 1994 and less than the federal statutory rate of 34% in 1993 and 1992 due to the following items:
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- Financial Income Before Taxes $135,013 $91,759 $45,852 ======== ======= ======= Income Taxes at Statutory Rate $ 47,254 $31,198 $15,590 Increases (Decreases) in Tax Resulting From - State Income Taxes, net 4,826 3,840 1,379 Statutory Depletion in Excess of Cost (912) (603) (560) Tax Exempt Fund Assistance (1,238) (3,000) (4,650) Other (79) (714) (464) -------- ------- ------- Provision for Income Taxes $ 49,851 $30,721 $11,295 ======== ======= ======= Effective Tax Rate 37% 33% 25%
During fiscal year 1994, the "Revenue Reconciliation Act of 1993" was signed into law which, among other things, changed the federal statutory tax rate from 34% to 35%. In accordance with SFAS No. 109, "Accounting for Income Taxes," the tax effect of this new law was recognized by the company during the year. These changes had no material effect on the financial statements of the company. Certain payments from the Fund are exempt from federal income taxes. These tax benefits have been reflected as a reduction of the income tax provision. The deferred income tax provision (benefit) results from the following temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes:
For the Years Ended March 31, ------------------------------ 1994 1993 1992 ---- ---- ---- Installment Sale Reversals $ (153) $ (326) $(1,469) Net Operating Loss Utilization (Carryforward) 247 918 (1,165) Uniform Capitalization for Tax Reporting (777) (580) (605) Completed Contract Reporting (318) (2,997) (42) Excess Tax Depreciation and Amortization 444 88 2,878 Interest and Real Estate Taxes Expensed as Incurred 430 2,988 2,149 Alternative Minimum Tax 11,012 3,985 (7,683) Financial Accrual Changes and Other (18,645) (531) 1,975 ------- ------- ------- $(7,760) $ 3,545 $(3,962) ======= ======= =======
33 34 Components of deferred income taxes are as follows:
March 31, --------- 1994 1993 ---- ---- Deferred Tax Liabilities Excess Tax Depreciation and Amortization $ 37,977 $ 37,533 Interest and Real Estate Taxes Expensed as Incurred 26,698 26,459 Financial Accruals - 17,333 Consolidated Return Regulation Deferrals 6,898 6,767 All Other 11,163 9,780 ------- -------- Total Deferred Tax Liabilities 82,736 97,872 ------- -------- Deferred Tax Assets Alternative Minimum Tax (507) (10,560) Uniform Capitalization for Tax Reporting (12,574) (11,797) Financial Accruals (16,143) - All Other (2,332) (2,731) ------- -------- Total Deferred Tax Assets (31,556) (25,088) ------- -------- Net Deferred Tax Liability $51,180 $ 72,784 ======= ========
(G) CENTEX DEVELOPMENT COMPANY, L.P. In March 1987, certain of the company's subsidiaries contributed to Centex Development Company, L.P. (CDC), a newly formed master limited partnership, properties with a historical cost basis (which approximated market value) of approximately $76 million. CDC was formed to enable stockholders to participate in long-term real estate development projects whose dynamics are inconsistent with Centex's traditional financial objectives. In November 1987, the company distributed as a dividend to its stockholders securities relating to CDC. These securities included all of the issued and outstanding shares of common stock of 3333 Holding Corporation and warrants to purchase approximately 80% of the Class B units of limited partnership interest in CDC. A wholly-owned subsidiary of 3333 Holding Corporation serves as general partner of CDC. These securities are held by a nominee on behalf of the stockholders and will trade in tandem with the common stock of the company until such time as they are detached. The securities may be detached at any time by Centex's Board of Directors but the warrants to purchase Class B units automatically become detached in November 1997 unless extended by Centex's stockholders. The partnership agreement provides that Centex, the Class A limited partner, is entitled to a cumulative preferred return of 9% per annum on the average outstanding balance of its unrecovered capital, defined as its initial capital contribution, adjusted for cash distributions representing return of the initial capital contribution. No payments were made in fiscal 1994, 1993 or 1992. Supplementary condensed combined financial statements for the company, 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. are set forth below. For additional information on 3333 Holding Company and its subsidiary and Centex Development Company, L.P., see their separate financial statements and related footnotes included elsewhere in this annual report. 34 35 SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS
March 31, --------- 1994 1993 ---- ---- ASSETS Cash and Cash Equivalents $ 76,388 $ 27,317 Marketable Securities 78,241 110,316 Receivables 930,428 821,852 Inventories 1,223,753 1,027,938 Investments in Joint Ventures and Unconsolidated Subsidiaries 56,928 50,277 Property and Equipment, net 188,930 177,610 Government-Guaranteed S&L Assets 43,767 82,823 Other Assets and Deferred Charges 38,574 36,246 ---------- ---------- $2,637,009 $2,334,379 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 620,824 $ 529,381 S&L Deposits and FHLB Borrowings 211,055 204,140 Short-term Debt 837,734 696,832 Long-term Debt 222,832 223,988 Deferred Income Taxes 51,180 72,784 Negative Goodwill 24,102 28,102 Stockholders' Equity 669,282 579,152 ---------- ---------- $2,637,009 $2,334,379 ========== ==========
SUPPLEMENTARY CONDENSED COMBINED STATEMENT OF EARNINGS
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- Revenues $3,224,025 $2,501,691 $2,174,777 Costs and Expenses 3,089,126 2,410,028 2,129,032 ---------- ---------- ---------- Earnings Before Income Taxes 134,899 91,663 45,745 Income Taxes 49,851 30,721 11,295 ------------ ---------- ---------- Net Earnings $ 85,048 $ 60,942 $ 34,450 =========== ========== ==========
35 36 (H) BUSINESS SEGMENTS The company operates in five business segments: Home Building, Mortgage Banking, Contracting and Construction Services, Construction Products and Savings and Loan. Intersegment revenues are not material and are not shown in the following tables. Included with the Construction Products segment are Investments in Joint Ventures of $50.5, $46.9 and $44.0 million at March 31, 1994, 1993, and 1992, respectively, including their earnings before income taxes of $5.3, $4.5 and $2.2 million for 1994, 1993, and 1992, respectively. The remaining investments are included in the other segments. The investment in Centex Development Company, L.P. is included in the Home Building segment. HOME BUILDING Home Building operations involve the construction and sale of residential housing. These activities also include the purchase and development of land. The following table sets forth financial information relating to the Home Building operations.
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in millions) Revenues $ 1,871.6 $1,431.3 $1,063.3 Cost of Sales & Expenses 1,777.4 1,355.7 1,009.0 --------- -------- -------- Operating Earnings $ 94.2 $ 75.6 $ 54.3 ========= ======== ======== Identifiable Assets $ 1,203.2 $ 981.1 $ 838.3 ========= ======== ======== Capital Expenditures $ 9.3 $ 2.1 $ 2.0 ========= ======== ======== Depreciation and Amortization $ 2.8 $ 2.2 $ 1.9 ========= ======== ========
Mortgage Banking Mortgage Banking operations involve the financing of residential housing. These activities include mortgage origination and other related services on homes sold by subsidiaries and by others. The following table sets forth financial information relating to the Mortgage Banking operations.
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in millions) Revenues $187.9 $129.7 $ 74.6 Cost of Sales & Expenses 116.9 81.9 55.1 ------ ------ ------- Operating Earnings $ 71.0 $ 47.8 $ 19.5 ====== ====== ======= Identifiable Assets $685.6 $624.8 $ 598.1 ====== ====== ======= Capital Expenditures $ 11.0 $ 7.1 $ 1.7 ====== ====== ======= Depreciation and Amortization $ 3.6 $ 1.5 $ 1.0 ====== ====== =======
CONTRACTING AND CONSTRUCTION SERVICES Contracting and Construction Services includes the construction of buildings for both private and government interests, including office, commercial and industrial buildings, hospitals, hotels, museums, libraries, airport facilities, condominiums and educational institutions. The following table sets forth financial information relating to the Contracting and Construction Services operation. As this segment generates significant levels of cash flow for use in the company's other segments, Intracompany Interest Income (credited at the prime rate in effect) is reflected in this segment. These amounts are eliminated in consolidation.
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ---- ---- ---- (Dollars in millions) Revenues $966.6 $783.2 $865.0 Cost of Sales & Expenses 971.1 787.3 861.3 ------ ------ ------ Operating Earnings (Loss) (4.5) (4.1) 3.7 Intracompany Interest Income 13.8 14.0 16.5 ------ ------ ------ Total $ 9.3 $ 9.9 $ 20.2 ====== ====== ====== Identifiable Assets * $178.9 $170.4 $175.2 ====== ====== ====== Capital Expenditures $ 2.8 $ 1.8 $ 2.4 ====== ====== ====== Depreciation and Amortization $ 3.0 $ 2.8 $ 2.9 ====== ====== ======
* The "net assets" position of the Contracting and Construction Services segment provides significant cash flow because payables and accruals consistently exceed gross assets. 36 37 CONSTRUCTION PRODUCTS Construction Products operations include the production, distribution and sale of cement, aggregates, readymix concrete and gypsum wallboard. Financial information relating to the Construction Products operation is summarized below:
For the Years Ended March 31, ----------------------------- (Dollars in millions) 1994 1993 1992 ---- ---- ---- Cement Gypsum Total Cement Gypsum Total Cement Gypsum Total ------ ------ ----- ------ ------ ----- ------ ------ ------- Revenues $140.1 $ 32.8 $172.9 $119.8 $ 21.4 $141.2 $118.2 $ 17.5 $135.7 Cost of Sales & Expenses 123.6 32.7 156.3 110.6 26.0 136.6 110.7 23.9 134.6 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating Earnings (Loss) $ 16.5 $ 0.1 $ 16.6 $ 9.2 $ (4.6) $ 4.6 $ 7.5 $ (6.4) $ 1.1 ====== ======= ====== ====== ====== ====== ====== ====== ====== Identifiable Assets $182.8 $ 70.5 $253.3 $181.4 $ 68.3 $249.7 $180.7 $ 67.5 $248.2 ====== ======= ====== ====== ====== ====== ====== ====== ====== Capital Expenditures $ 5.7 $ 1.5 $ 7.2 $ 3.3 $ 1.5 $ 4.8 $ 12.7 $ 1.3 $ 14.0 ====== ======= ====== ====== ====== ====== ====== ====== ====== Depreciation, Depletion and Amortization $ 8.7 $ 2.9 $11.6 $ 9.0 $ 2.9 $ 11.9 $ 8.9 $ 2.8 $ 11.7 ====== ======= ====== ====== ====== ====== ====== ====== ======
SAVINGS AND LOAN The Savings and Loan segment includes the operations of CTX Holding Company and its subsidiary, Texas Trust Savings Bank, FSB (see Note B). The following table sets forth financial information relating to the Savings and Loan operations.
For the Years Ended March 31, ----------------------------- 1994 1993 1992 ------ ------ ------ (Dollars in millions) Interest, Fund Assistance, Other Income and Negative Goodwill Amortization $ 18.9 $ 20.3 $ 29.6 Interest and Other Expenses (16.3) (17.3) (27.5) -------- ------- ------- Operating Earnings $ 2.6 $ 3.0 $ 2.1 ======== ======= ======= Identifiable Assets $ 238.0 $ 216.7 $ 458.4 ======== ======= ======= Capital Expenditures $ 2.3 $ 0.5 $ - ======== ======= ======= Depreciation and Amortization, including Negative Goodwill $ (2.2) $ (3.1) $ (3.0) ======== ======= =======
CORPORATE Corporate general and administrative expenses represent salaries and other costs not identifiable with a specific segment. Corporate assets are primarily cash and cash equivalents, receivables and other assets not associated with a business segment. The following table summarizes financial information relating to the Corporate segment.
For the Years Ended March 31 ---------------------------- 1994 1993 1992 ------ ------ ------ (Dollars in millions) Corporate General and Administrative Expenses $ 15.2 $ 13.1 $ 12.8 ====== ====== ====== Identifiable Assets $ 21.3 $ 29.3 $ 29.3 ====== ====== ====== Capital Expenditures $ 0.1 $ 0.2 $ 0.7 ====== ====== ====== Depreciation and Amortization $ 0.8 $ 1.0 $ 1.0 ====== ====== ======
37 38 (I) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires companies to disclose the estimated fair value of their financial instrument assets and liabilities. The estimated fair values shown below have been determined using current quoted market prices where available and, where necessary, estimates based on present value methodology suitable for each category of financial instruments. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the company could realize in a current market exchange. All assets and liabilities which are not considered financial instruments have been valued using historical cost accounting. No disclosure of the intangible relationship value of Texas Trust's customer deposits is required by Statement No. 107, nor has the company estimated that value. There is no material difference between the recorded amount and the estimated fair value of CTX Mortgage or Texas Trust's off-balance-sheet unfunded loan commitments. These are generally priced at market at the time of funding. For Texas Trust's loans and deposits with floating interest rates, the estimated fair values generally approximate the carrying values. The consolidated carrying values of Cash and Cash Equivalents, Other Receivables, Accounts Payable and Accrued Liabilities and Short-term Debt approximate their fair values. The carrying values and estimated fair values of other financial assets and liabilities were as follows:
March 31, --------- 1994 1993 ---- ---- Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- Financial Assets Marketable Securities $ 78,241 $ 78,241 (a) $110,316 $110,821 (a) Residential Mortgage Loans $ 677,641 $677,052 (a) $591,328 $595,103 (a) Government-Guaranteed S&L Receivables $ 19,030 $ 19,030 (b) $ 13,579 $ 14,138 (b) Financial Liabilities S&L Deposits and FHLB Borrowings $ 211,055 $210,930 (b) $204,140 $205,772 (b) Long-term Debt $ 222,832 $234,618 (b) $223,988 $241,632 (b)
(a) Fair values are based on quoted market prices for similar instruments. (b) Fair values are based on a present value discounted cash flow with the discount rate approximating current market for similar instruments. 38 39 (J) COMMITMENTS AND CONTINGENCIES In order to assure the future availability of land for home building, the company has made deposits totaling $8.0 million as of March 31, 1994 for options to purchase undeveloped land and developed lots having a total purchase price of approximately $300 million. These options expire at various dates to 1997. The company has also committed to purchase land and developed lots totaling approximately $107 million. In addition, the company has executed lot purchase contracts with CDC (see Note G) which aggregate approximately $9.9 million. The company is contingently liable at March 31, 1994 on $3.8 million of long-term debt of joint ventures which represents the company's share of mortgages on plant facilities and land. In addition, a Centex subsidiary has guaranteed repayment of a $2.1 million bank loan to CDC. Management believes that none of the litigation matters in which it or any subsidiary is involved, if determined unfavorable to Centex or any subsidiary, would have a material adverse effect on the consolidated financial condition or results of operations of the company. The company has certain deductible limits under its workers' compensation and automobile and general liability insurance policies for which reserves are established based on the estimated costs of known and anticipated claims. (K) SUBSEQUENT EVENT In April 1994 the company's construction products subsidiary, Centex Construction Products, Inc. (CXP), completed the sale of 11.73 million shares (51%) of its common stock in an initial public offering. CXP is comprised of Centex's cement, concrete, aggregate and gypsum wallboard operations, including CXP's 50% joint venture interests in its Texas and Illinois cement plants. Centex retains a 49% ownership in CXP. In connection with CXP's initial public offering, Centex received a dividend and other payments from CXP of $186.5 million, which was used by Centex to reduce outstanding indebtedness. CXP used the proceeds from the offering, together with borrowings under a credit facility, to repay the debt incurred under a bridge loan to fund the dividend and other payments to Centex. As a result of the sale of CXP stock, the company no longer holds a majority interest in CXP and will account for its investment in CXP on the equity method in subsequent periods. The following pro forma statement of consolidated earnings for the fiscal year ended March 31, 1994, assumes the above-mentioned transactions occurred as of the beginning of the fiscal year. Pro forma adjustments include (i) the elimination of CXP fiscal 1994 operating results, (ii) the addition of Centex's 49% portion of CXP earnings, (iii) the reduction of interest expense due to the dividend and other payments being used to decrease short-term debt, and (iv) the related tax effect of the above adjustments. The pro forma statement of earnings does not reflect adjustments for the $37.5 million non-recurring after-tax gain on the sale of the stock, which will be recorded in the quarter ending June 30, 1994. 39 40 PRO FORMA STATEMENT OF CONSOLIDATED EARNINGS
As Pro Forma Reported (Unaudited) --------- ----------- REVENUES Home Building $1,871,627 $1,871,627 Mortgage Banking 187,870 187,870 Contracting and Construction Services 966,562 966,562 Construction Products/49% of CXP Earnings 172,900 8,147 Savings and Loan 15,523 15,523 ---------- ---------- $3,214,482 $3,049,729 ---------- ---------- COSTS AND EXPENSES Home Building $1,777,449 $1,777,449 Mortgage Banking 116,885 116,885 Contracting and Construction Services 971,062 971,062 Construction Products 156,274 - Savings and Loan 12,958 12,958 Corporate General and Administrative 15,158 15,158 Interest 29,683 22,681 ---------- ---------- $3,079,469 $2,916,193 ---------- ---------- INCOME BEFORE INCOME TAXES 135,013 133,536 Income Taxes 49,851 49,568 ---------- ---------- NET INCOME $ 85,162 $ 83,968 ========== ========== EARNINGS PER SHARE * $ 2.60 $ 2.56 ========== ==========
* Based on the weighted average number of common and common equivalent shares outstanding of 32,789,852. 40 41 The following pro forma consolidated balance sheets give effect to (i) the elimination of CXP's assets and liabilities as if the initial public offering had occurred as of March 31, 1994 and (ii) the use of the dividend and other payments to reduce short-term debt. PRO FORMA CONSOLIDATED BALANCE SHEETS
Centex Corporation and Subsidiaries Centex Corporation ---------------------- ------------------ As Pro Forma As Pro Forma Reported (unaudited) Reported (unaudited) -------- ----------- -------- ----------- ASSETS Cash and Cash Equivalents $ 76,287 $ 74,995 $ 13,284 $ 11,992 Marketable Securities 78,241 78,241 - - Receivables 929,172 902,623 226,674 200,125 Inventories 1,097,457 1,074,638 1,097,457 1,074,638 Investments 127,928 156,895 133,191 162,158 Property and Equipment, net 188,930 42,273 169,234 22,577 Government-Guaranteed S&L Assets 43,767 43,767 - - Other Assets and Deferred Charges 38,574 33,098 22,101 16,625 ---------- ---------- ---------- ---------- $2,580,356 $2,406,530 $1,661,941 $1,488,115 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable and Accrued Liabilities $ 618,943 $ 610,829 $ 504,622 $ 496,508 S&L Deposits and FHLB Borrowings 211,055 211,055 - - Short-term Debt 783,585 597,085 206,638 20,138 Long-term Debt 222,832 222,217 222,832 222,217 Deferred Income Taxes 51,180 35,088 35,088 18,996 Negative Goodwill 24,102 24,102 24,102 24,102 Stockholders' Equity 668,659 706,154* 668,659 706,154* ---------- ---------- ---------- ---------- $2,580,356 $2,406,530 $1,661,941 $1,488,115 ========== ========== ========== ==========
*Reflects the $37.5 million non-recurring after-tax gain related to the CXP initial public offering. 41 42 Centex Corporation and Subsidiaries QUARTERLY RESULTS (UNAUDITED)
March 31, --------- 1994 1993 ---- ---- (Dollars in thousands, except per share data) First Quarter Revenues $ 698,249 $ 558,258 Earnings Before Income Taxes $ 26,707 $ 14,573 Net Earnings $ 17,006 $ 10,002 Earnings Per Share $ .52 $ .32 Second Quarter Revenues $ 813,492 $ 644,799 Earnings Before Income Taxes $ 38,001 $ 27,418 Net Earnings $ 22,846 $ 18,104 Earnings Per Share $ .70 $ .57 Third Quarter Revenues $ 833,253 $ 648,658 Earnings Before Income Taxes $ 36,682 $ 26,697 Net Earnings $ 23,586 $ 17,645 Earnings Per Share $ .72 $ .55 Fourth Quarter Revenues $ 869,488 $ 650,977 Earnings Before Income Taxes $ 33,623 $ 23,071 Net Earnings $ 21,724 $ 15,287 Earnings Per Share $ .66 $ .47
42 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Stockholders and Board of Directors of Centex Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Centex Corporation (a Nevada corporation) and subsidiaries included in Centex Corporation and subsidiaries' annual report to the stockholders included in this Form 10-K, and have issued our report thereon dated May 11, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The consolidated supporting schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These consolidated supporting schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN & CO. Dallas, Texas, May 11, 1994 43 44 CENTEX CORPORATION AND SUBSIDIARIES SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS MARCH 31, 1994 (Amounts in thousands)
Amount At Which No. Of Shares Market Carried In The Description Or Units Cost Value Balance Sheet ----------- ------------- ---- ------ --------------- U.S. Treasury Notes 33,000 $ 34,320 $ 33,899 $ 33,899 Other Securities (A) 45,357 $ 45,244 $ 44,342 44,342 -------- $ 78,241 ========
(A) Securities of any one individual issuer did not exceed two percent of total assets of the Company. 44 45 CENTEX CORPORATION AND SUBSIDIARIES SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992 (Dollars in thousands)
Deductions Balance ----------- Balance At Amounts At End Beginning Amounts Written Of Of Period Additions Collected Off Period --------- --------- --------- ------- ------- 1994 ---- (A) Laurence E. Hirsch . . . . . . . . $ 1,000 $ -- $ -- $ -- $ 1,000 (B) David W. Quinn . . . . . . . . . . $ 125 $ -- $ 125 $ -- $ -- (C) Bob L. Moss . . . . . . . . . . . . $ 150 $ -- $ 50 $ -- $ 100 1993 ---- (A) Laurence E. Hirsch . . . . . . . . $ 1,000 $ -- $ -- $ -- $ 1,000 (B) David W. Quinn . . . . . . . . . . $ 250 $ -- $ 125 $ -- $ 125 (C) Bob L. Moss . . . . . . . . . . . . $ 200 $ -- $ 50 $ -- $ 150 (D) Bruce Lady . . . . . . . . . . . . $ 195 $ -- $ 195 $ -- $ -- 1992 ---- (A) Laurence E. Hirsch . . . . . . . . $ 1,000 $ -- $ -- $ -- $ 1,000 (B) David W. Quinn . . . . . . . . . . $ 250 $ -- $ -- $ -- $ 250 (C) Bob L. Moss . . . . . . . . . . . . $ 200 $ -- $ -- $ -- $ 200 (D) Bruce Lady . . . . . . . . . . . . $ 197 $ -- $ 2 $ -- $ 195
NOTES: (A) This represents a real estate lien note secured by Mr. Hirsch's Dallas, Texas residence and is due in March 1995. This loan, which was made in September 1985 in connection with Centex's employment of Mr. Hirsch, is for the principal amount of $1,000,000, of which $700,000 is non-interest bearing and $300,000 bears interest at 10% (12% through September 1990). (B) This represents a real estate lien note secured by Mr. Quinn's residence which bears interest at 10% and was due on January 30, 1996. In June 1993, Mr. Quinn repaid to Centex the full amount of all outstanding principal and interest owed on such loan. (C) This represents two non-interest bearing real estate lien notes which are secured by Mr. Moss' residence. Principal is due in four annual installments of $50,000 beginning August 8,1992 and continuing through August 8, 1995. Interest is to accrue and be paid annually on August 8 only on matured, unpaid principal and all interest and unpaid principal is due and payable August 8, 1995. (D) This represented a real estate lien note secured by Mr. Lady's residence with an annualized interest rate of 10%. Principal and interest were due in monthly installments through August 1, 2019. The note was repaid in fiscal year 1993. The above notes receivable are included in the consolidated balance sheet caption "trade receivables" or "notes receivable". In addition, the Company from time to time extends loans to its personnel in connection with relocations in accordance with established policies. 45 46 CENTEX CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992 (Dollars in thousands)
Weighted Weighted Average Maximum Average Average Interest Amount Amount Interest Balance Rate At Outstanding Outstanding Rate During Category Of Aggregate At End End Of During The During The The Short-term Borrowings Of Period Period Period Period Period --------------------- -------------- ----------- -------------- ------------ ----------- (A) (B) 1994 ---- Banks . . . . . . . . . . . . . . . . $310,000 3.7% $ 584,397 $ 414,969 3.6% Commercial Paper . . . . . . . . . . 122,000 3.8% $ 177,000 $ 118,686 3.4% Other Financial Institutions . . . . 351,585 4.3% $ 577,571 $ 350,444 3.8% -------- $783,585 ======== 1993 ---- Banks . . . . . . . . . . . . . . . . $391,500 4.5% $ 818,300 $ 445,205 4.3% Commercial Paper . . . . . . . . . . 58,500 3.4% $ 215,000 $ 173,925 3.9% Other Financial Institutions . . . . 187,570 3.8% $ 563,476 $ 128,444 4.1% -------- $637,570 ======== 1992 ---- Banks . . . . . . . . . . . . . . . . $579,014 4.9% $ 579,014 $ 269,154 5.5% Commercial Paper . . . . . . . . . . 20,000 4.6% $ 217,838 $ 141,385 5.7% Other Financial Institutions . . . . 201,195 4.2% $ 201,195 $ 16,766 4.2% -------- $800,209 ========
(A) The average amount outstanding during the period is derived by dividing the aggregate of principal balances by the number of months in each year. (B) The weighted average interest rate during the period is derived by dividing the sum of calculated interest expense by the average principal outstanding. 46 47 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. CENTEX CORPORATION ------------------ Registrant June 28, 1994 By: /s/ LAURENCE E. HIRSCH ----------------------------------- Laurence E. Hirsch, Chairman of the Board and Chief Executive 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 in the capacities and on the dates indicated. June 28, 1994 /s/ LAURENCE E. HIRSCH ---------------------- Laurence E. Hirsch, Chairman of the Board and Chief Executive Officer (principal executive officer) June 28, 1994 /s/ DAVID W. QUINN ------------------ David W. Quinn, Executive Vice President and Chief Financial Officer (principal financial officer) June 28, 1994 /s/ MICHAEL S. ALBRIGHT ----------------------- Michael S. Albright, Vice President -- Finance and Controller (principal accounting officer) Directors: Alan B. Coleman, Dan W. Cook III, Frank M. Crossen, William J Gillilan III, Laurence E. Hirsch, Clint W. Murchison, III, Charles H. Pistor, David W. Quinn, Paul R. Seegers, Paul T. Stoffel June 28, 1994 By: /s/ LAURENCE E. HIRSCH ---------------------- Laurence E. Hirsch, Individually and as Attorney-in-Fact* --------------- *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 47 48 PART B. 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. PREFATORY STATEMENT PART B of this Report includes information relating to 3333 Holding Corporation ("Holding"), file No. 1-9624, and subsidiary, and Centex Development Company, L.P. ("CDC" or the "Partnership"), file No. 1-9625. See the Joint Explanatory Statement on page 2 of this Report. References to Holding in this Report shall include references to its subsidiary, 3333 Development Corporation, a Nevada corporation and the sole general partner of CDC ("Development"), unless the context otherwise requires. Because CDC is a separate reporting entity under the Exchange Act, the information required by Form 10-K is separately included even though CDC may be deemed a "subsidiary" of Holding under the rules and regulations of the Securities and Exchange Commission (the "Commission") promulgated pursuant to the Exchange Act. Accordingly, information provided with respect to CDC should be deemed provided with respect to Holding to the extent appropriate. Information relating to both Holding and CDC is included herein as a single disclosure where applicable or appropriate; all other information is set forth separately. Reference is made to PART A of this Report for information relating separately to Centex Corporation and its subsidiaries ("Centex"). PART I ITEM 1. BUSINESS (a) Holding Holding is a Nevada corporation incorporated on May 5, 1987. Its executive offices are located at 3333 Lee Parkway, Suite 500, Dallas, Texas 75219; telephone (214) 559-6700. Holding owns all of the outstanding common stock of Development, and, as a result, has the ability to control Development. Development is the sole general partner of CDC, a Delaware limited partnership engaged in the real estate development business. Information concerning the acquisition of the capital stock of Development by Holding is included in Note (A) of the Notes to Combining Financial Statements of Holding and CDC (the "Holding/CDC Combining Financial Statements") included on page 67 of this Report. Holding operates in a single industry segment. The principal liability of Holding is a $7,700,000 note payable to Centex which had an unpaid balance of $7,600,000 at March 31, 1994 (the "Holding Note"). See "Item 13. Certain Relationships and Related Transactions". Presently, Holding is not engaged in any business other than its ownership and control of Development. The Amended and Restated Agreement of Limited Partnership of Centex Development Company, L.P. (the "Partnership Agreement"), which governs the operations of CDC, provides that neither Holding nor Development shall be permitted, prior to Payout (as defined in the Partnership Agreement)("Payout") and repayment of the Holding Note, to own business interests or to engage in business activities other than those relating to CDC. Were Holding to engage in any other business activities the Partnership Agreement would need to be amended to provide for the same. (b) CDC GENERAL DEVELOPMENT OF BUSINESS CDC is a Delaware limited partnership formed in March 1987 to enable Centex Stockholders to participate in long term real estate development projects whose dynamics are inconsistent with Centex's traditional financial objectives and is presently governed by the Partnership Agreement. Development, a wholly owned subsidiary of Holding, is the sole general partner of CDC. CDC's executive offices are located at 3333 Lee Parkway, Suite 500, Dallas, Texas 75219; telephone (214) 559-6700. Six subsidiaries of Centex (the "Original Limited Partners") contributed certain real estate with an approximate market value of $75.9 million (the "Original Properties") to CDC in exchange for an aggregate of 1,000 Class A Units of limited partnership 48 49 interest in CDC (the "Class A Units"). See "Item 2. Properties". The Class A Units were originally issued to Centex Land Company ("CLC") (244 units), Centex Homes of New Jersey, Inc. ("CHNJ") (220 units), Centex Homes Corporation ("CHC") (71 units), Fox & Jacobs, Inc. ("F&J") (400 units), Great Lakes Development Co., Inc. ("GLD") (31 units) and 111 E. Chestnut Corp. ("111 Chestnut") (34 units). Dividends consisting of Class A partnership units were made to Centex Real Estate Corporation ("CREC") by certain of its subsidiaries, as follows: CHC, 71 units on March 31, 1987; F&J, 400 units on March 31, 1987; GLD, 31 units on April 30, 1988; and CLC, 244 units on December 2, 1988. On December 15, 1988, CREC received 34 units from 111 Chestnut in consideration for the assumption by CREC of debt in the amount of $2,570,000. On December 31, 1989 CREC bought 220 units from Centex Development Management Company (formerly known as CHNJ) in exchange for the assumption of debt amounting to $16,710,000. See "Item 12. Security Ownership of Certain Beneficial Owners and Management". Prior to their contribution to CDC, the Original Properties were each separately owned or controlled and managed by the Original Limited Partners. The Original Properties are now owned by or for the benefit of CDC. Under the Partnership Agreement, the holder of the Class A Units, presently CREC, a wholly owned subsidiary of Centex, is entitled to a 9% preferred return (the "Preferred Return") on its unrecovered capital and certain other distributions of cash and other property and allocations of income and loss in preference to other limited partners. See Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 70-71 of this Report. In addition to the Original Properties, the Partnership has additional properties which it has acquired ("Additional Properties"). The Additional Properties were purchased from third parties at negotiated prices or from affiliates for the affiliate's cost basis which approximated market value. To fund the purchase of the Additional Properties, the Partnership borrowed funds from unrelated financial institutions and CREC. Information concerning the debt incurred by CDC is included in Note (E) of the Notes to the Holding/CDC Combining Financial Statements included on pages 69-70 of this Report. NARRATIVE DESCRIPTION OF BUSINESS The purpose of CDC, as stated in the Partnership Agreement, is (a) to engage in all aspects of the real estate business, including investing in, acquiring, owning, holding a leasehold interest in, managing, maintaining, developing, operating, leasing, improving, selling, exchanging and otherwise disposing of the Original Properties and any other properties acquired by CDC, with all such activities related to the Original Properties to be conducted pursuant to the Plan for Original Properties (which is an exhibit to the Partnership Agreement) (the "Plan"), (b) in connection therewith, to exercise all of the rights and powers conferred on CDC by the Partnership Agreement, and (c) to enter into any lawful transaction and engage in any lawful activities in furtherance of such purposes. CDC will hold for investment and development purposes the Original Properties, which predominantly consist of unimproved land and, to a lesser extent, improved properties. CDC may invest in or acquire additional properties of any kind and may dispose of or develop any or all of the Original Properties or any other properties acquired (subject to the Plan). Pursuant to management agreements with CDC, Centex subsidiaries provide property management and development assistance and expertise to CDC in respect of the properties under CDC's control, including seeking zoning changes and special use permits, negotiating utility agreements, and securing necessary rights of way and access on behalf of CDC, and will, consistent with the Plan, develop and/or contract for the sale and sell on behalf of CDC some or all of such properties in exchange for compensation for its efforts to enhance the value of the properties owned or controlled by CDC. See "Item 10. Directors and Executive Officers of the Registrant--Management Agreement". Although subsidiaries of Centex also engage generally in the real estate business, such subsidiaries typically acquire land that is already zoned for one purpose, usually home development. These entities generally develop such land over a relatively short time period and build and sell homes to individual purchasers. Unlike such subsidiaries, CDC intends principally to invest in larger tracts of undeveloped land, which land may be zoned for different types of development or which may not be zoned for any particular development. CDC anticipates holding such tracts for a longer period of time than Centex's subsidiaries might otherwise have held such real estate because of the broader range of development activities and with the anticipation that such land will increase in value as a result of preparing such tracts for development and subdivision into multiple parcels and/or uses, as appropriate for the particular tract. In the course of holding such real property, CDC may sell a portion of any particular tract and retain the remainder for eventual development or sale. CDC may develop such properties alone or in conjunction with others, including Centex subsidiaries. Any newly-acquired properties may be wholly owned, or may consist of interests in joint ventures with other persons or entities, including Centex and its affiliates, and any properties to be sold or developed may be acquired by Centex or any of its affiliates. However, Centex and its affiliates continue to conduct many facets of real estate development and, for this reason, may be in competition with CDC in certain activities and projects. See "Competition and Regulation" below in this Item 1. 49 50 Although the real estate interests held by CDC from time to time will normally be held for the purpose of maximizing values through the development process, some portion of CDC's portfolio may consist of income producing properties, and in order to meet CDC's cash flow needs, certain parcels may be sold prior to the time that they may otherwise have been sold or developed. Increases in real estate values may occur from development of raw land or general increases in the value of such real estate caused by factors external to CDC. The Partnership had a backlog of land sales of approximately $11 million as of March 31, 1994, and $3 million as of March 31, 1993. The ultimate sales prices may vary due to contractual clauses that adjust the price depending upon the closing date. The Plan prescribes in general terms the manner by which CDC will conduct its activities in respect of the Original Properties. The Plan sets forth certain guidelines regarding sales and maintenance of the Original Properties and zoning considerations, and places restrictions on these and other types of activities, including, without the consent of the Original Limited Partner that contributed such Original Property, the sale of any Original Property at a price that is less than the value at which such Original Property was contributed to CDC plus the portion of the unpaid Preferred Return related thereto. CDC also continues to analyze the present zoning for certain of the Original Properties with a view to determining the highest and best use to which the tracts may be made and, if appropriate, seeking zoning changes for such uses. If zoning changes are obtained, CDC will have to decide whether to further develop these properties or to seek the sale of all or a portion thereof. If not developed sooner, the Plan provides that CDC will generally endeavor to sell the Original Properties over time for the best price available, taking into account the condition of the marketplace and CDC's cash flow requirements. See "Item 2. Properties". Except as otherwise provided in the Plan, CDC is not limited by any provision of the Partnership Agreement, any Operating Partnership Agreement (as herein defined) or otherwise with regard to the types of real estate or other investments it may make, the percentage of its assets that it may invest in any one type of real estate or other investment, the percentage of securities of any one issuer or interest in any joint venture or partnership that it may acquire, or the geographic areas in which it may make investments. CDC is not a real estate investment trust, and therefore CDC's activities will not be subject to the restrictions on its activities imposed on real estate investment trusts qualified under the Internal Revenue Code of 1986, as amended. CDC anticipates that it will incur additional indebtedness or issue additional equity interests to the extent that Development, as CDC's general partner, deems it appropriate to finance operations, acquisitions of additional properties, development or construction. Such indebtedness will generally be in the form of temporary or term loans from banks, institutional investors or other lenders, and, subject to the Plan, may be secured by certain mortgages on any one or more of CDC's properties. Further, Development has the authority under the Partnership Agreement to issue debt securities of CDC; provided, that if Development proposes to take any of these actions prior to Payout, such action shall require the consent of a majority in interest (as defined) of the limited partners. Centex and its affiliates may lend additional money to or subscribe for additional interests in CDC from time to time; however, Centex is not obligated to make any such loans or to provide additional capital to CDC. The Articles of Incorporation of Holding contain provisions that may affect certain business combinations with, and sales of assets and issuances of securities of CDC, to certain persons at any time when a subsidiary of Holding, such as Development, acts as general partner of CDC. However, it is not believed that such restrictions or pledge will negatively affect the ability of CDC to undertake its activities, to incur additional indebtedness or to issue additional securities as and when deemed necessary. For regulatory and administrative purposes, CDC may conduct many of its operations or own or manage certain assets through one or more Operating Partnerships ("Operating Partnerships") in which CDC will hold a 99% interest as the sole limited partner and Development will hold a 1% interest as the sole general partner. To date, CDC has not determined that it is necessary or appropriate to establish any Operating Partnerships. COMPETITION AND REGULATION Within the geographical areas where the remaining Original Properties and the Additional Properties are located, CDC is subject to substantial competition from other owners of similarly-situated or developed properties who wish to sell or develop their properties, many of whom may hold or be in the process of developing more parcels than CDC or may have greater financial resources and longer operating histories than CDC. CDC will also compete in the acquisition of additional desirable 50 51 properties with a variety of investors, including Centex and its affiliates, and institutional investors and developers, seeking similar investments. The failure of many financial institutions and seizure of assets by agencies of the federal government has created an oversupply of inventory in various markets. The terms under which the Resolution Trust Corporation (the "RTC") (depository for the seized assets) ultimately disposes of these assets may have a significant effect on these markets. The economic recession in California and the overbuilding of commercial properties in California and Texas, where certain of CDC's properties are located, may limit CDC's ability to sell these properties at favorable prices or may make current development of such properties by CDC inadvisable. CDC's mixed-use properties located in California and, to a lesser extent, Texas are believed to be most affected by the present economic environment. However, certain of CDC's properties are located in geographical areas where there is moderate to good demand for land suitable for development, including Florida, Illinois and New Jersey. Except for the Forster Ranch property located in San Clemente, California, CDC believes that it is well situated to weather the current adverse economic environment in those geographical areas affected and to take advantage of the long-term economic outlook for the areas where its properties are located. See "Properties--(b) CDC--California Properties" on pages 52-53 of this Report. Ownership and development of each of CDC's properties is subject to licensing and regulation by zoning, land use, environmental, health, sanitation and other agencies in the state and/or municipality in which the property is located. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the development or sale of any of such properties. In addition, certain of the Original Properties and the Additional Properties may be subject to zoning limitations that may not permit development of such properties for their highest and best use. The ability of CDC to obtain favorable zoning changes may affect the ultimate value of such properties to CDC or to a third-party purchaser. ITEM 2. PROPERTIES (a) Holding Due to the nature of its business, Holding does not own or hold for investment any real or personal properties other than cash, receivables and other similar assets, and the securities relating to its subsidiary, Development. (b) CDC The Original Properties transferred to CDC by the Original Limited Partners and the Additional Properties consist of properties located in Illinois, Texas, New Jersey, Florida, California and Puerto Rico. Such properties predominantly consist of undeveloped sites zoned for light manufacturing, agricultural, general retail, office, research and development, single- and multi-family uses and resort property purposes. The description set forth below of the remaining Original Properties and the Additional Properties owned by CDC at March 31, 1994 includes the present zoning therefor. Also, in those cases where CDC is considering seeking a change in zoning, an alternate zoning classification is set forth. Illinois Properties: Fox Hills Lots--Originally 100 acres in Cook County, Illinois fronting 131st Street that have been subdivided into 118 residential lots. These lots are located adjacent to an existing development of single-family detached housing. CDC has installed residential improvements such as streets, street signs, water, sanitary sewer and energy lines and other typical pre- construction subdivision improvements. CDC still owned 20 of these lots at March 31, 1994. Bolingbrook Commercial--Two non-contiguous tracts totaling 33.92 acres in Bolingbrook located at the intersection of Interstate 55 and State highway 355. This acreage is zoned for commercial use. 51 52 Texas Properties: Colony South Planning Unit--located in suburban Dallas in the cities of The Colony (519.87 acres) and Lewisville (151.95 acres). The Lewisville acreage is zoned light industrial. The acreage in The Colony is zoned office (26.84 acres), general retail (21.70 acres), business park (350.04 acres), residential (119.22 acres) and open space (2.07 acres). CREC acquired 113 residential lots in March 1994. Bryan Place--located in Dallas just east of downtown and Central Expressway. This property is comprised of 28 parcels zoned industrial and office ranging from approximately 2,000 square feet to 80,000 square feet. The total area of the property is approximately 622,000 square feet. Carrollton Property--30,028 square foot office building and five fabrication-warehouse buildings containing a total of 95,178 square feet on 17.413 paved acres, zoned industrial, with a rail spur located in Carrollton, a suburb of Dallas; however, the buildings do not necessarily add value to the property. New Braunfels Acreage--398 acres of unzoned, wooded land on FM 306 and Hoffman Lane near the north city limits of New Braunfels. CDC may seek to have this tract zoned for a mixed use planned development, including residential, commercial and retail uses. Fate Lots and Acreage--18 developed single-family residential detached lots on Pecan and Ellis Streets and 7.152 cleared acres, to be zoned prior to development, on State Highway 66 located in or near Fate, a community located east of Dallas. New Jersey Property: East Windsor--a 600 acre parcel with four separate residential tracts, 13 farm parcels and 100 acres of office industrial zoned property in East Windsor, a township located in the vicinity of Princeton. The residential tracts have final plan approval for a total of 75 half-acre lots, 174 quarter-acre lots and preliminary plan approval for 426 multi-family units. The farm parcels vary in size from 11 to 35 acres and total 313 acres. Two of the quarter-acre lots have been sold to CREC, which has a contract for the remaining 172. Puerto Rico Property: 116.5 acres of land (approximately 6 acres zoned commercial and the remainder zoned residential) in Canovanas and Rio Grande, Puerto Rico. In most cases, CDC has acquired record title to the Original Properties. However, CDC has acquired only beneficial title rather than record title to the New Jersey and Puerto Rico properties. Pursuant to agreements dated as of March 31, 1987 among CDC and the entities holding record title, the parties agreed that CDC shall have all of the benefits and burdens of ownership of such properties. Upon the direction of CDC, title to such properties will be conveyed to CDC or its designee or transferee. The descriptions set forth below of the Additional Properties owned by CDC at March 31, 1994 include present zoning therefor. Also, in cases where CDC is considering seeking a change in zoning, an alternate zoning classification is set forth. California Properties: Forster Ranch--This property was purchased on March 31, 1989 and originally included 1,077 acres primarily zoned agricultural. The Partnership's Development Agreement with the City of San Clemente allows a series of residential villages containing a total of approximately 2,200 lots and 78 acres of mixed use property. As of March 31, 1994, 580 of these lots had been sold to CREC and 21 acres of mixed use property had been sold to other entities. The Partnership 52 53 has entered an agreement with the holder of the Forster Ranch non-recourse notes that may result in the transfer of the underlying real estate to them in satisfaction of the debt, a portion of which is past due. Sonora Shopping Center--In March of 1992, the Partnership acquired 9.45 acres of commercial property that it developed into a 116,000 square foot shopping center in Sonora, California. As of March 31, 1994, all of this property had been sold except for a half-acre restaurant site which sold in June 1994. Florida Property: Deerfield--This property, located in Orlando, Florida, was originally purchased by CREC for the account of CDC. CDC purchased the property from CREC at its cost utilizing bank financing. This 345 acre parcel included 994 residential lots, a 10 acre church site, a 14 acre school site and 20 acres of commercial property. As of March 31, 1994, CREC had acquired 906 residential lots and had the remaining 88 lots under contract. All other Deerfield properties have been sold to outside entities. Kingsbridge--CDC acquired 340 developed residential lots in the Orlando area in January, 1993 utilizing seller provided non-recourse financing. The Partnership sold 131 of these lots to CREC in April, 1993 and the remainder in April, 1994. Lake Down--In April, 1992, CDC purchased 18 developed residential lots with non-recourse financing. As of March 31, 1994, 5 of these Orlando area lots had been sold to CREC. Texas Property: Allen Property--In December 1991, CDC acquired 108 acres of residential property in Allen, Texas, principally through an exchange of a portion of the Bryan Place property. CDC anticipates developing this property into a residential subdivision. CDC's principal assets consist of the Original Properties and the Additional Properties remaining unsold. ITEM 3. LEGAL PROCEEDINGS Holding is not a party to, and its assets are not the subject of, any material pending legal proceedings. CDC may be involved from time to time in litigation matters incident to its day-to-day business; however, management of Development believes that such litigation, if determined unfavorably to CDC, would not have a material adverse effect on the financial condition or operations of CDC. 53 54 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF HOLDING AND DEVELOPMENT Information concerning the present executive officers of Holding is set forth below. All of such officers have served in their capacities since the organization of Holding, except as indicated. CDC has no executive officers. The executive officers of Holding set forth below hold the same offices in Development, the general partner of CDC, as disclosed in "Item 10. Directors and Executive Officers of the Registrant - Directors and Executive Officers of Development".
NAME POSITION AGE ---- -------- --- J. Stephen Bilheimer President (1) 62 Roger D. Sefzik Vice President and Treasurer (2) 38
(1) Mr. Bilheimer is an employee of Centex Development Management Company ("CDMC"), a subsidiary of Centex, and served as Executive Vice President of CREC from April 1987 until March 31, 1988. Mr. Bilheimer was a director of Development from its date of incorporation until his resignation as of June 1, 1987 and was re-elected to the Board of Directors of Development on May 24, 1989. Since April 1, 1988, Mr. Bilheimer has devoted a majority of his time to the business and affairs of Holding and Development. (2) Mr. Sefzik is an employee of CDMC and was a Vice President of CTX Mortgage Company from May 1987 to March 1988 and Executive Vice President of Centex Title Company from July 1986 to March 1988. Prior thereto he held various offices with various Centex subsidiaries since March 1983. Mr. Sefzik was elected to his present positions with Holding as of April 1, 1988. Since April 1, 1988, Mr. Sefzik has devoted a majority of his time to the business and affairs of Holding and Development. All executive officers of Holding are elected annually by the Board of Directors to serve until the next annual meeting of the Board of Directors or until their successors have been duly elected. There are no family relationships among or between such executive officers or the directors. Holding's executive officers hold the same positions with its subsidiary, Development. Holding has no full time employees. The directors and executive officers perform all executive management functions; all other services necessary to the conduct of Holding's business are performed by a subsidiary of Centex or its designee under a services agreement. See "Item 10. Directors and Executive Officers of the Registrant--Services Agreement". PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Holding The information called for by this Item 5 with respect to Holding is included herein in (1) the Joint Explanatory Statement on page 2 of this Report, (2) the information included under the caption "Stock Prices and Dividends" is on page 15 of this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements is on pages 70-71 of this Report. Prior to the date of the distribution, Centex owned all of the issued and outstanding shares of Holding Common Stock and, accordingly, there was no public market for such shares. Following the distribution by Centex, shares of Holding Common Stock have been tradeable only in tandem with, and as a part of, shares of Centex Common Stock, and may not be separately sold or otherwise transferred. Therefore, except with respect to the trading market established for the tandem traded securities, 54 55 there is no separate market for shares of Holding Common Stock. Because of the tandem trading arrangement, it is not possible to identify precisely the portion of the market price of the tandem traded securities allocable to shares of Holding Common Stock. The restrictions on the transfer of the Holding Common Stock and the Stockholder Warrants separate from Centex Common Stock are imposed by the terms of a nominee agreement (the "Nominee Agreement") among Centex, Holding, CDC and the Nominee. Centex Common Stock certificates issued after the date of the Nominee Agreement bear a legend referring to the restrictions on transfer imposed thereby. No dividends have been paid on shares of Holding Common Stock since the incorporation of Holding. Future cash dividends on Holding Common Stock will depend on the earnings, financial condition, capital requirements and other factors affecting Holding and Development. The provisions of the loan agreement and pledge and security agreement relating to Holding's $7,700,000 note to Centex (the "Holding Note"), which had a balance of $7,600,000 at March 31, 1994, include certain restrictive covenants that limit the extent to which Holding and its subsidiaries (including Development but not CDC or any Operating Partnership) may create, assume or guarantee additional indebtedness, pledge or encumber certain of their assets or otherwise take certain corporate actions. These covenants include limitations on (a) incurring, assuming or guaranteeing any other indebtedness, except indebtedness which provides for all payments of principal to be made after April 1, 1994, indebtedness that is fully and completely subordinated on terms satisfactory to Centex, and certain trade debt, (b) creating any additional liens other than statutory liens for taxes, certain mechanics' and materialmen's liens and other similar liens, (c) effecting a merger or consolidation, (d) selling property and (e) declaring any dividends or making certain other shareholder payments, as defined. Holding's obligations under the Holding Note are secured by a pledge of all of the issued and outstanding shares of the common stock of Development pursuant to a pledge and security agreement under which a default by Holding in the performance of its obligations could give Centex the right to vote such shares, to seek the registration under the Securities Act of 1933, as amended, of all or a portion thereof, and to sell such shares to satisfy Holding's obligations. See "Item 13. Certain Relationships and Related Transactions" and Note (G) of the Notes to the Holding/CDC Combining Financial Statements included on page 71 of this Report. (b) CDC Except as additionally provided below, the information called for by this Item 5 with respect to CDC is included herein in (1) the Joint Explanatory Statement on page 2 of this Report, (2) the information included and referenced under the caption "Stock Prices And Dividends" on page 15 of this Report and (3) the information included in Notes (F) and (G) of the Notes to the Holding/CDC Combining Financial Statements on pages 70-71 of this Report. The Stockholder Warrants were issued to Centex immediately prior to the November 30, 1987 distribution to Centex Stockholders and, accordingly, there was no public market for the Stockholder Warrants prior to the distribution. Following the distribution by Centex, the Stockholder Warrants have been tradeable only in tandem with, and as part of, shares of Centex Common Stock, and may not be separately sold or otherwise transferred. Therefore, except with respect to the trading market established for the tandem traded securities, there is no separate market for the Stockholder Warrants. Because of the tandem trading arrangement, it is not possible to identify precisely the portion of the market price of the tandem traded securities allocable to the Stockholder Warrants. The restrictions on the transfer of the Stockholder Warrants and the Holding Common Stock separate from Centex Common Stock are imposed by the terms of a nominee agreement (the "Nominee Agreement") among Centex, Holding, CDC and the Nominee. Centex Common Stock certificates issued after the date of the Nominee Agreement bear a legend referring to the restrictions on transfer imposed thereby. No dividends or distributions have been made on the Stockholder Warrants since their issuance. CREC, a subsidiary of Centex, is the present holder of all of the Class A Units, and accordingly, at this time there is no public market for such securities. See "Item 1. Business--General Development of Business". CDC has not made any payment to the holder of the Class A Units with respect to the Preferred Return during the last four fiscal years. Preference payments in arrears at March 31, 1994 amounted to $28,995,000. 55 56 ITEM 6. SELECTED FINANCIAL DATA (a) Holding The information called for by this Item 6 with respect to Holding is incorporated herein by reference to the Combining Statements of Operations and the Combining Balance Sheets included in the Holding/CDC Combining Financial Statements on pages 65-66 of this Report. (b) CDC The information called for by this Item 6 with respect to CDC is incorporated herein by reference to the Combining Statements of Operations and the Combining Balance Sheets included in the Holding/CDC Combining Financial Statements on pages 65-66 of this Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Holding The information called for by this Item 7 with respect to Holding is incorporated herein by reference to the information included and referenced under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 72 of this Report. (b) CDC The information called for by this Item 7 with respect to CDC is incorporated herein by reference to the information included and referenced under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 72 of this Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by this Item 8 is included herein on pages 64-72 of this Report (see Item 14). 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 (a) Holding DIRECTORS AND EXECUTIVE OFFICERS OF HOLDING Except as additionally provided below, the information called for by this Item 10 with respect to Holding is incorporated herein by reference to the information included under the caption "Election of Directors" on page 20 and the information included under the caption "Section 16(a) Compliance" on page 24 of Holding's proxy statement dated July 1, 1994 56 57 for the 1994 Annual Meeting of Stockholders of Holding to be held on July 28, 1994 (the "1994 Holding Proxy Statement"); however, as required by Instruction 3 to Item 401(b) of Regulation S-K, information regarding executive officers of Holding is included under the caption "Executive Officers of Holding" included in Part B of this Report following Item 4. SERVICES AGREEMENT Holding has no full time employees. The directors and executive officers of Holding, who hold the same directorships and offices in Development, perform all executive management functions. See "Item 11. Executive Compensation". All tax, accounting, bookkeeping, clerical and similar services that are necessary to operate the business of Holding are provided pursuant to a services agreement (the "Services Agreement") entered into between Holding and Centex Service Company ("CSC"), an indirect subsidiary of Centex. See "Item 13--Certain Relationships and Related Transactions". The term of the Services Agreement is subject to automatic renewal for successive one-year terms unless either party elects to terminate the Services Agreement upon at least 30 days' written notice prior to December 31 of any year. However, the Services Agreement may not be terminated by Holding (other than in the event of a breach by CSC constituting gross negligence or willful or wanton misconduct) prior to the payment in full of the Holding Note, the full and complete detachment of the Stockholder Warrants from Centex Common Stock or the occurrence of Payout. Service fees of $30,000 were paid pursuant to the Services Agreement during fiscal 1994. (b) CDC GENERAL PARTNER AND MANAGEMENT CDC has no directors, officers or employees and, instead, is managed by Development, its sole general partner. Directors and officers of Development perform all executive management functions required for CDC. Except as provided in the Plan with respect to the Original Properties, the limited partners of CDC have no power to direct or participate in the control of CDC, and Development makes all decisions regarding the acquisition, disposition or development of real estate belonging to CDC and all other decisions regarding CDC's business or operations. See "Item 1. Business". CDC has entered into a management agreement pursuant to which CDMC will operate, manage and develop the properties of CDC for and on behalf of CDC. See "Management Agreement" below in this Item 10. Except for the allocations of profit and loss and distributions of cash and other property to which Development is entitled under the Partnership Agreement, and except for the right to be reimbursed for certain expenses, Development does not receive any compensation from CDC in respect of its duties and obligations as general partner of CDC. See "Item 11. Executive Compensation". DIRECTORS AND EXECUTIVE OFFICERS OF DEVELOPMENT Information concerning the present directors and executive officers of Development is set forth below. All of such persons have served in their capacities since the organization of Development, except as indicated.
NAME POSITION AGE ---- -------- --- J. Stephen Bilheimer . . . . . . Director and President (1) 62 Josiah O. Low, III . . . . . . . Director (2)* 55 David M. Sherer. . . . . . . . . Director (3)* 57 Roger D. Sefzik. . . . . . . . . Vice President and Treasurer (4) 38
- --------------- *Member of the audit committee of the Board of Directors. (1) Mr. Bilheimer is an employee of CDMC and served as Executive Vice President of CREC from April 1987 until March 31, 1988. Mr. Bilheimer was a director of Development from its date of incorporation until his resignation as of June 1, 1987. Mr. Bilheimer was re-elected to the Board of Directors on May 24, 1989. (2) Mr. Low serves as Senior Vice President of Donaldson, Lufkin & Jenrette Securities Corporation (since February 1985). Mr. Low is also a director of Holding. Mr. Low was elected as a director of Development as of June 1, 1987. 57 58 (3) Mr. Sherer has been President of David M. Sherer Associates, Inc., a commercial real estate, investment and brokerage firm, for more than five years. Mr. Sherer is also a director of Holding. Mr. Sherer was elected as a director of Development as of June 1, 1987. (4) Mr. Sefzik is an employee of CDMC and served as Vice President of CTX Mortgage Company from May 1987 to March 1988 and Executive Vice President of Centex Title Company from July 1986 to March 1988. Mr. Sefzik was elected to his present positions with Development as of April 1, 1988. All directors are elected annually by the shareholders to serve until the next annual meeting of stockholders and until their successors have been elected and qualified, subject to removal by a vote of the holders of not less than two-thirds of the outstanding shares of the common stock, par value $1.00 per share, of Development. All executive officers of Development are elected annually by the Board of Directors to serve until the next annual meeting of the Board of Directors or until their successors have been duly elected. There are no family relationships among or between Development's directors or executive officers. The current executive officers of Development are employees of Centex or one of its subsidiaries, and it is presently anticipated that this circumstance will continue. See "Item 11. Executive Compensation". MANAGEMENT AGREEMENT All services (other than executive management decision-making) necessary to operate CDC's business are provided to CDC pursuant to a management agreement (the "Management Agreement") entered into with Centex Development Management Company, a subsidiary of Centex ("CDMC"). Under the Management Agreement, CDMC keeps all necessary books and records, and provides all additional accounting and clerical services that Development may deem necessary. CDMC's responsibilities related to real estate management also include ensuring that CDC's properties are operated, managed and maintained in full compliance with all relevant laws and regulations, that all real property and any improvements thereon are maintained and repaired, that all income produced by CDC's properties is collected and that any development on any property is done in an efficient manner. CDMC is entitled to reimbursement from CDC for all reasonable costs and expenses incurred and paid by CDMC in connection with the performance of its duties and obligations under the Management Agreement. During fiscal 1994, CDMC earned fees and is owed reimbursements from CDC totaling $785,000 for its services. The Management Agreement also provides that CDMC will provide, consistent with the Plan, pre-development and development services on behalf of CDC, and the Management Agreement specifically provides that CDMC is delegated full authority to carry out and perform on behalf of CDC all aspects of the Plan. The term of the Management Agreement is subject to automatic renewal for successive one-year terms unless either party elects to terminate the Management Agreement upon at least 30 days' written notice prior to December 31st of any year. However, it may not be terminated by CDC (other than in the event of a breach by CDMC constituting gross negligence or willful or wanton misconduct) prior to the latest of the complete detachment of the Stockholder Warrants from Centex Common Stock, Payout or the payment in full of the Holding Note. From time to time, CDMC may delegate the performance of certain of its responsibilities to CREC, upon terms and conditions to be determined. These responsibilities may include enhancement of properties owned or controlled by CDC, for which reasonable additional compensation may be paid by CDC to CDMC pursuant to terms to be negotiated between them. In turn, some or all of such additional compensation may be paid by CDMC to CREC. 58 59 ITEM 11. EXECUTIVE COMPENSATION Holding and CDC The information called for by this Item 11 with respect to Holding and CDC is incorporated herein by reference to the information included and referenced under the caption "Executive Compensation" in the 1994 Holding Proxy Statement on pages 22-24 thereof. CDC does not have any directors, officers or employees, and is managed by its sole general partner, Development. Except for the allocations of profit and loss and distributions of cash and other property to which Development is entitled under the Partnership Agreement, and except for the right to be reimbursed for certain expenses, Development does not receive any compensation from CDC in respect of its duties and obligations as general partner for CDC. As general partner, Development is entitled to be allocated certain items of income and loss of CDC and to receive certain distributions of cash from CDC depending upon the level of income and cash available for distribution and whether Payout has occurred. The terms and conditions upon which Development will be allocated items of income and loss and will receive distributions are set forth in the Partnership Agreement. For a summary of these rights and benefits, see Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 70-71 of this Report. The directors and executive officers of Development perform all executive management functions for CDC. See "Item 10. Directors and Executive Officers of the Registrant". Services required by CDC in its operations are also provided pursuant to a Management Agreement with CDMC pursuant to which CDMC operates, manages and develops the properties of CDC for and on behalf of CDC. See "Item 11--Directors and Executive Officers of the Registrant--Management Agreement". The executive officers of Development did not receive any remuneration from Development or CDC for the year ended March 31, 1994. Directors of Development who are neither officers nor employees of Development, Centex or Centex's subsidiaries received compensation from Development in the form of directors' and committee members' fees. During the 1994 fiscal year, each executive officer of Development received remuneration from Centex or one of its subsidiaries in his capacity as a director, officer or employee thereof. None of the directors or executive officers of Development received any additional compensation from Centex or any of its subsidiaries for services rendered on behalf of Development or CDC during the 1994 fiscal year. During fiscal 1994, J. Stephen Bilheimer, a Director and the President of Development, and Roger D. Sefzik, Vice President and Treasurer of Development, both of whom are employees of subsidiaries of Centex, have devoted a majority of their time and attention to the management of Development and Holding. Messrs. Bilheimer and Sefzik, who are the only executive officers of Development, provided such services to Development on behalf of and in their capacities as officers and employees of CDMC pursuant to the Management Agreement. Each current executive officer of Development continues to receive remuneration from Centex or one of its subsidiaries in his capacity as an officer or employee thereof and is not compensated by Development or CDC. The directors of Development, who also hold the same directorships in Holding and are neither officers nor employees of Development, Centex or Centex's subsidiaries, each receive approximately $8,000 annually in the form of directors' and committee members' fees in their capacities as directors and/or committee members of Development. In addition, Development reimburses these directors for the reasonable expenses incurred in attending directors' and committee meetings. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Holding The information called for by this Item 12 with respect to Holding is incorporated herein by reference to the information included and referenced under the caption "Security Ownership of Management and Certain Beneficial Owners" in the 1994 Holding Proxy Statement on pages 21-22. 59 60 (b) CDC The following table sets forth certain information with respect to the ownership of the equity securities of CDC as of June 15, 1994 by Development, the directors of Development, individually itemized, all directors and executive officers of Development as a group, and any person known to CDC to be the beneficial owner of more than 5% of any class of CDC's equity securities. Except as otherwise indicated, all securities are owned directly, and the beneficial owner of such securities has the sole voting and investment power with respect thereto.
NAME OF NUMBER OF UNITS PERCENT TITLE OF CLASS* BENEFICIAL OWNER** OR WARRANTS OWNED OF CLASS ---------------------- ------------------ ----------------- -------- General Partner Interest (1) 3333 Development Corporation . . . . . . . . All 100% 3333 Lee Parkway, Suite 500 Dallas, Texas 75219 Class A Units (2) Centex Real Estate Corporation . . . . . . . 1,000 100% 3333 Lee Parkway, Suite 1100 Dallas, Texas 75219 Stockholder Warrants (3) 3333 Development Corporation . . . . . . . . -- *** J. Stephen Bilheimer . . . . . . . . . . . . -- *** Josiah O. Low, III . . . . . . . . . . . . . -- *** Roger D. Sefzik . . . . . . . . . . . . . . -- *** David M. Sherer . . . . . . . . . . . . . . -- *** All directors and executive officers of Development as a group (4 persons) . . . . . -- *** FMR Corp.(4) . . . . . . . .. . . . . . . 145 14.47% 82 Devonshire Street Boston, Massachusetts 02109 Centex Class B Unit Centex Corporation . . . . . . . . . . . . . 100 100% Warrants (5) 3333 Lee Parkway, Suite 1200 Dallas, Texas 75219 Class B Units (6) Centex Corporation (7) . . . . . . . . . . . 350 (8) 28% (7) 3333 Lee Parkway, Suite 1200 Dallas, Texas 75219
- --------------- *Under the terms of the Partnership Agreement, CDC is managed by a sole corporate general partner and none of the present classes of CDC's securities are "voting securities" within the meaning of the rules and regulations of the Commission promulgated pursuant to the Exchange Act. Nonetheless, information with respect to each class of CDC's equity securities has been set forth in accordance with such rules and regulations. **The address of any person who is the beneficial owner of more than five percent of a class of CDC's securities is also included. ***Less than 1%. (1) In connection with the formation of CDC, Development made a capital contribution to CDC of $767,182, in exchange for Development's general partner interest in CDC. As general partner, Development is entitled to receive allocations of income and loss and distributions of property from CDC. See "Item 11. Executive Compensation". 60 61 (2) The Class A Units were issued to the Original Limited Partners in exchange for the contribution to CDC of the Original Properties. Record title to the Class A Units presently is held by CREC, a subsidiary of Centex. See "Item 1. Business-- General Development of Business". As of the date or dates when the Stockholder Warrants are deemed to have been exercised, the Class A Units will be automatically converted into (i) a number of Class B Units equal to 20% of the total number of Class B Units that would be outstanding after conversion based on the actual exercise of the Stockholder Warrants and the assumed exercise of all the then exercisable Centex Class B Unit Warrants (see footnote (3)) and (ii) a like number of Class A Units. The Class A Units will be automatically cancelled upon Payout and the exercise and/or expiration of all of the Stockholder Warrants and the Centex Class B Unit Warrants. (3) The Nominee holds record title to the Stockholder Warrants, which are exercisable for Class B Units, for the benefit of Centex Stockholders pursuant to the Nominee Agreement. See "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters". However, the Nominee has no power to vote the Class B Units issuable upon exercise of the Stockholder Warrants or to direct the investment of the Stockholder Warrants or such Class B Units. Beneficial ownership of the Stockholder Warrants is, by virtue of the Nominee arrangement, indirect and undivided. The number of Stockholder Warrants listed as beneficially owned has been rounded to the nearest whole warrant and is based on the assumption that options to purchase Centex Common Stock, presently exercisable, or exercisable within 60 days, have been exercised. The Class B Units issuable upon exercise of the Stockholder Warrants have not been shown as "beneficially owned" under the rules and regulations of the Commission promulgated pursuant to the Exchange Act because the beneficial owners of the Stockholder Warrants have no present right to exercise the Stockholder Warrants and acquire Class B Units. (4) Centex has received information from FMR Corp. ("FMR") stating that, as of June 15, 1994, FMR may be deemed to beneficially own 4,514,872 shares of Centex Common Stock, (and therefore to own a beneficial interest in 145 Stockholder Warrants) acquired solely for investment purposes, as a parent holding company with respect to holdings of wholly owned investment adviser subsidiaries of FMR or other entities affiliated with FMR. FMR stated that it held 147,284 shares of Centex Common Stock with sole voting power (and therefore held a beneficial interest in 5 Stockholder Warrants with sole voting power) and no shares with shared voting power. The remaining shares that FMR may beneficially own may be voted by (i) the Board of Trustees of certain Fidelity Funds, or (ii) certain institutions whose funds are managed by Fidelity Management Trust Company, a wholly owned subsidiary of FMR. (5) On November 30, 1987, Centex acquired from CDC 100 warrants (the "Centex Class B Unit Warrants") to purchase a like number of Class B Units, subject to adjustment, pursuant to an agreement for purchase of warrants. The Centex Class B Unit Warrants are generally in the same form as, and contain the same terms as, the Stockholder Warrants, except for the manner in which they may be subdivided (and the corresponding exercise price) and the applicable exercise period. See Note (F) of the Notes to the Holding/CDC Combining Financial Statements included on pages 54-55 of this Report. (6) Presently, there are no Class B Units issued or outstanding. (7) When issued, record title to 200 of these Class B Units will be held by the owners of the Class A Units. See footnote (2). (8) The Class B Units that may be acquired upon conversion of outstanding Class A Units as of the date of the exercise of the Stockholder Warrants, which date Centex may indirectly determine by virtue of its ability, in its sole and absolute discretion, to determine the date of detachment of the Stockholder Warrants from Centex Common Stock, and the Class B Units that may be acquired upon exercise of the Centex Class B Unit Warrants are included as "beneficially owned" pursuant to the rules and regulations of the Commission promulgated pursuant to the Exchange Act. See footnotes (2) and (3). The number of Class B Units and the percentage of class listed assume that the Stockholder Warrants and the Centex Class B Unit Warrants have been exercised in full for Class B Units but that no subdivision of any of the warrants has occurred; however, both the Stockholder Warrants and the Centex Class B Unit Warrants may be subdivided or combined and any such subdivision or combination would necessarily change the number of Class B Units beneficially owned and the percent of class represented thereby. 61 62 All of the issued and outstanding shares of Development have been pledged to secure the Holding Note. See "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Holding The information called for by this Item 13 with respect to Holding is incorporated herein by reference to the information included under the caption "Certain Transactions" in the 1994 Holding Proxy Statement on pages 24-25. (b) CDC Holding entered into a services agreement in May, 1987 with Centex Service Company ("CSC"), whereby CSC will provide certain tax, accounting and other similar services for Holding at a fee of $2,500 per month. Service fees of $30,000 were paid pursuant to this agreement for fiscal year 1994. CDC has entered into agreements with certain Centex subsidiaries for them to provide management services to CDC in connection with the development and operation of properties acquired by CDC, maintenance of CDC property, and accounting and clerical services. Management fees and development costs totaling $785,000 were incurred in fiscal 1994, and remain unpaid as of June 15, 1994. In connection with Holding's acquisition of additional shares of common stock of Development in 1987, Holding borrowed $7,700,000 from Centex pursuant to a secured promissory note (the "Holding Note"). The Holding Note, which had a fluctuating balance during 1994, bears interest, payable quarterly, at the prime rate of interest of NationsBank of Texas, N.A. ("NationsBank") plus 1% (8 1/4% at June 15, 1994). As of June 15, 1994, the outstanding principal balance of the Holding Note was $6,710,000. The Holding Note is secured by a pledge of all of the issued and outstanding shares of Development. The Holding Note, as amended, matures on the earlier to occur of April 1, 1996 or the last detachment of Holding Common Stock and the Stockholder Warrants from Centex Common Stock pursuant to the Nominee Agreement. There was interest expense of $439,000 related to the Holding Note for the year ended March 31, 1994. In fiscal year 1994, CDC sold to CREC 246 lots for $2,354,000. CREC acquired 209 lots for $2,050,000 in April 1994, and has contracts to purchase an additional 260 lots from CDC. In 1987, Development loaned $7,700,000 to CREC, pursuant to an unsecured note (the "CREC Note") and related loan agreement. The CREC Note bears interest, payable quarterly, at the prime rate of interest of NationsBank plus 7/8% (8 1/8% at June 15 , 1994). As of June 15, 1994, the outstanding principal balance on the CREC Note was $7,700,000. The CREC Note matures on April 30, 1996. There was interest income of $537,000 related to the CREC Note for the year ended March 31,1994. In July 1992, on behalf of CDC, CREC guaranteed a $10,000,000 bank line of credit for CDC to utilize in conjunction with development of lots to be sold to CREC. In July 1993, the amount of such line of credit was reduced to $5,000,000. This line of credit, which had an outstanding balance of $2,165,000 at June 15, 1994, bears interest at LIBOR plus 3/4% (5 1/16% at June 15, 1994), is unsecured and matures in July 1994. 62 63 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) and (2) See the Index to Financial Statements below for a list of the Financial Statements filed herewith. INDEX TO FINANCIAL STATEMENTS
FORM 10-K PAGE REFERENCE -------------- 3333 HOLDING CORPORATION AND SUBSIDIARY AND CENTEX DEVELOPMENT COMPANY, L.P. Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Combining Balance Sheets as of March 31, 1994 and 1993 . . . . . . . . . . . . . . . 65 Combining Statements of Operations and Cash Flows for the years ended March 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Combining Statements of Stockholders' Equity and Partners' Capital for the years ended March 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . 67 Notes to Combining Financial Statements . . . . . . . . . . . . . . . . . . . . . . 67 Quarterly Results (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) EXHIBITS (A) Holding The information on exhibits required by this Item 14 is set forth in the Holding Index to Exhibits appearing on pages 80-81 of this Report. (B) CDC The information on exhibits required by this Item 14 is set forth in the CDC Index to Exhibits appearing on pages 82-84 of this Report. (b) Reports on Form 8-K: Neither Holding nor CDC filed any reports on Form 8-K during the quarter ended March 31, 1994. 63 64 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. AUDITORS'REPORT TO THE BOARD OF DIRECTORS OF 3333 HOLDING CORPORATION: We have audited the accompanying combining balance sheets of 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. as of March 31, 1994 and 1993, and the related combining statements of operations and cash flows and stockholders'equity and partners'capital for each of the three years in the period ended March 31, 1994. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the individual and combined financial positions of 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. as of March 31, 1994 and 1993, and the individual and combined results of their operations and their cash flows for each of the three years in the period ended March 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Dallas, Texas, May 11, 1994 64 65 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. COMBINING BALANCE SHEETS
March 31, -------------------------------------------------------------------------------------------- 1994 1993 1994 1993 1994 1993 ---------------------------- ------------------------- ---------------------- 3333 Holding Centex Development Corporation Combined Company, L.P. and Subsidiary ---------------------------- ------------------------- ---------------------- (Dollars in thousands) Assets Cash $ 101 $ 1,252 $ 101 $ 1,252 $ -- $ -- Accounts Receivable-- Affiliates -- -- 768 1,763 -- -- Centex Corporation and Subsidiaries 133 133 -- -- 133 133 Other 105 287 105 287 -- -- Notes Receivable-- Centex Corporation and Subsidiaries 7,700 7,700 -- -- 7,700 7,700 Other 1,151 671 1,151 671 -- -- Investment in Affiliate -- -- -- -- 767 767 Land Held for Development and Sale-- Forster Ranch 49,199 44,777 49,199 44,777 -- -- Other 69,703 79,871 69,703 79,871 -- -- -------- -------- -------- -------- ------ ------ $128,092 $134,691 $121,027 $128,621 $8,600 $8,600 ======== ======== ======== ======== ====== ====== Liabilities, Stockholders' Equity And Partners' Capital Accounts Payable and Accrued Liabilities-- Affiliates $ -- $ -- $ -- $ -- $ 768 $1,763 Centex Corporation and Subsidiaries 894 1,450 785 1,350 109 100 Other 2,369 2,759 2,369 2,759 -- -- Notes Payable-- Centex Corporation and Subsidiaries 7,600 6,500 -- -- 7,600 6,500 Forster Ranch 49,199 44,777 49,199 44,777 -- -- Other 4,950 14,485 4,950 14,485 -- -- Land Sale Deposits 141 157 141 157 -- -- Stockholders' Equity and Partners' Capital-- Stock and Stock/Class B Unit Warrants 501 501 500 500 1 1 Capital in Excess of Par Value 800 800 -- -- 800 800 Retained Earnings (Deficit) (678) (564) -- -- (678) (564) Partners' Capital 62,316 63,826 63,083 64,593 -- -- -------- -------- -------- -------- ------ ------ Total Stockholders' Equity and Partners' Capital 62,939 64,563 63,583 65,093 123 237 -------- -------- -------- -------- ------ ------ $128,092 $134,691 $121,027 $128,621 $8,600 $8,600 ======== ======== ======== ======== ====== ======
See notes to combining financial statements. 65 66 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. COMBINING STATEMENTS OF OPERATIONS AND CASH FLOWS
For the Years Ended March 31, ----------------------------------------------------------------------------------------------- 1994 1993 1992 1994 1993 1992 1994 1993 1992 ----------------------------- ------------------------------- --------------------------- 3333 Holding Centex Corporation Combined Development Company,L.P. and Subsidiary ----------------------------- ------------------------------- --------------------------- (Dollars in thousands, except per share/unit data) Combining Statements Of Operations Revenues Real Estate Sales $12,540 $ 9,097 $23,601 $12,540 $ 9,097 $23,601 $ -- $ -- $ -- Interest and Other Income 709 1,059 798 319 686 397 537 566 679 ------- ------- ------- ------- ------- ------- ----- ----- ----- 13,249 10,156 24,399 12,859 9,783 23,998 537 566 679 ------- ------- ------- ------- ------- ------- ----- ----- ----- Costs And Expenses Real Estate Sales 12,684 8,360 23,071 12,684 8,360 23,071 -- -- -- Forster Ranch Valuation Provision -- 3,702 -- -- 3,702 -- -- -- -- Selling and Administrative 1,750 1,962 1,694 1,685 1,897 1,633 65 65 61 Interest 439 404 447 -- -- -- 586 597 725 ------- ------- ------- ------- ------- ------- ----- ----- ----- 14,873 14,428 25,212 14,369 13,959 24,704 651 662 786 ------- ------- ------- ------- ------- ------- ----- ----- ----- Loss Before Income Taxes (1,624) (4,272) (813) (1,510) (4,176) (706) (114) (96) (107) Income Taxes -- -- -- -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- ----- ----- ----- Net Loss $(1,624) $(4,272) $ (813) $(1,510) $(4,176) $ (706) $(114) $ (96) $ (107) ======= ======= ======= ======= ======= ======= ===== ===== ====== Loss Per Share/Unit (Average Outstanding Shares, 1,000; Units, 1,000) $(1,510) $(4,176) $ (706) $(114) $ (96) $ (107) ======= ======= ======= ===== ===== ====== Combining Statements Of Cash Flows Cash Flows-Operating Activities Net Loss $(1,624) $(4,272) $ (813) $(1,510) $(4,176) $ (706) $(114) $ (96) $ (107) Forster Ranch Valuation Provision -- 3,702 -- -- 3,702 -- -- -- -- Net Change in Payables, Receivables and Deposits (110) (3,692) 281 (224) (3,788) 175 114 96 106 (Increase) Decrease in Notes Receivable (480) 262 (46) (480) 262 (46) -- -- -- Decrease (Increase) in Land Held for Development and Sale 5,746 (10,680) 5,494 5,746 (10,680) 5,494 -- -- -- ------- ------- ------- ------- ------- ------ ----- ----- ----- 3,532 (14,680) 4,916 3,532 (14,680) 4,917 -- -- (1) ------- ------- ------- ------- -------- ------ ----- ----- ----- Cash Flows-Financing Activities Increase (Decrease) in Notes Payable- Centex Corporation & Subsidiaries 430 (870) 870 430 (870) 870 -- -- -- Other (5,113) 15,852 (5,871) (5,113) 15,852 (5,871) -- -- -- ------- ------- ------- ------- ------- ------ ----- ----- ----- (4,683) 14,982 (5,001) (4,683) 14,982 (5,001) -- -- -- ------- ------- ------- ------- ------- ------ ----- ----- ----- Net (Decrease) Increase In Cash (1,151) 302 (85) (1,151) 302 (84) -- -- (1) Cash At Beginning Of Year 1,252 950 1,035 1,252 950 1,034 -- -- 1 ------- ------- ------- ------- ------ ------ ----- ----- ----- Cash At End Of Year $ 101 $ 1,252 $ 950 $ 101 $ 1,252 $ 950 $ -- $ -- $ -- ======= ======= ======= ======= ======= ====== ===== ===== =====
See notes to combining financial statements. 66 67 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. COMBINING STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
For the Years Ended March 31, 1994, 1993 and 1992 ------------------------------------------------- Centex Development 3333 Holding Company, L.P. Corporation and Subsidiary -------------------------------- ------------------------------------------------ Class B General Limited Capital In Retained Unit Partner's Partner's Stock Common Excess Of Earnings Combined Warrants Capital Capital Warrants Stock Par Value (Deficit) -------- -------- ------- ------- -------- ----- --------- ---------- (Dollars in thousands) Balance at March 31, 1991 $69,648 $500 $767 $68,708 $ 1 $ -- $800 $(361) Net Loss (813) -- -- (706) -- -- -- (107) ------- ---- ---- ------- ---- ---- ---- ----- Balance at March 31, 1992 68,835 500 767 68,002 1 -- 800 (468) Net Loss (4,272) -- -- (4,176) -- -- -- (96) ------- ---- ----- ------- ---- ---- ---- ----- Balance at March 31, 1993 64,563 500 767 63,826 1 -- 800 (564) Net Loss (1,624) -- -- (1,510) -- -- -- (114) ------- ---- ----- ------- ---- ---- ---- ----- Balance at March 31, 1994 $62,939 $500 $767 $62,316 $ 1 $ -- $800 $(678) ======= ==== ==== ======= ==== ==== ==== =====
See notes to combining financial statements. NOTES TO COMBINING FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (A) ORGANIZATION Centex Development Company, L.P. (the Partnership) was formed on March 31, 1987 to invest in, acquire, develop, operate and sell residential and commercial real estate. Centex Real Estate Corporation (CREC), its limited partner, is a subsidiary of Centex Corporation (Centex). 3333 Development Corporation (a Nevada corporation) (Development), which serves as its general partner, is owned by 3333 Holding Corporation (a Nevada corporation) (Holding). In November 1987, Centex distributed all of the issued and outstanding shares of the common stock of Holding and warrants to purchase approximately 80% of the Class B units of limited partnership interest in the Partnership (see Note F). These securities trade in tandem with the common stock of Centex and are being held by a nominee on behalf of Centex stockholders until such time as the securities are detached and trade separately. The securities may be detached at any time by Centex's Board of Directors, but the warrants to purchase Class B units automatically become detached in November 1997 unless extended by Centex's stockholders. Supplementary condensed combined financial statements of Centex Corporation and subsidiaries, 3333 Holding Corporation and subsidiary and Centex Development Company, L.P. are set forth below. For additional information on Centex Corporation and subsidiaries, see their separate financial statements and related footnotes. 67 68 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. SUPPLEMENTARY CONDENSED COMBINED BALANCE SHEETS
March 31, ------------------------------------------- 1994 1993 ------------------------------------------- (Dollars in thousands) Assets Cash and Cash Equivalents $ 76,388 $ 27,317 Marketable Securities 78,241 110,316 Receivables 930,428 821,852 Inventories 1,223,753 1,027,938 Investments in Joint Ventures and Unconsolidated Subsidiaries 56,928 50,277 Property and Equipment, net 188,930 177,610 Government-Guaranteed S&L Assets 43,767 82,823 Other Assets and Deferred Charges 38,574 36,246 ---------- ---------- $2,637,009 $2,334,379 ========== ========== Liabilities And Stockholders' Equity Accounts Payable and Accrued Liabilities $ 620,824 $ 529,381 S&L Deposits and FHLB Borrowings 211,055 204,140 Short-term Debt 837,734 696,832 Long-term Debt 222,832 223,988 Deferred Income Taxes 51,180 72,784 Negative Goodwill 24,102 28,102 Stockholders' Equity 669,282 579,152 ---------- ---------- $2,637,009 $2,334,379 ========== ==========
SUPPLEMENTARY CONDENSED COMBINED STATEMENT OF EARNINGS
For the Years Ended March 31, --------------------------------------------------------------------------- 1994 1993 1992 --------------------------------------------------------------------------- (Dollars in thousands) Revenues $3,224,025 $2,501,691 $2,174,777 Costs and Expenses 3,089,126 2,410,028 2,129,032 ---------- ---------- ---------- Earnings Before Income Taxes 134,899 91,663 45,745 Income Taxes 49,851 30,721 11,295 ---------- ---------- ---------- Net Earnings $ 85,048 $ 60,942 $ 34,450 ========== ========== ==========
68 69 (B) BASIS OF PRESENTATION The accompanying combining financial statements present the individual and combined financial statements of Holding and its subsidiary and the Partnership as of March 31, 1994 and 1993 and results of operations for each of the three years ended March 31, 1994. The financial statements of the Partnership are included in the combined statements since Development, as general partner of the Partnership, is able to exercise effective control over the Partnership. (C) SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Revenue from real estate sales is recognized as required payments are received and title passes. Inventory Capitalization and Cost Allocation Land held for development and sale is stated at the lower of cost (including development costs and, where appropriate, capitalized interest and real estate taxes) or market. The capitalized costs are included in cost of land sales in the combining statements of operations as related revenues are recognized. Earnings (Loss) per Share/Unit Earnings (loss) per share/unit are based on the weighted average number of outstanding shares of common stock (1,000 for Holding) and Class A limited partnership units (1,000 for the Partnership). These shares/units do not include common stock/unit equivalents because they have no material effect on earnings (loss) per share/unit. Combining Statements of Operations and Cash Flows - Supplemental Disclosures Interest capitalized by the Partnership during fiscal years ended March 31, 1994, 1993 and 1992 totaled $4,090,000, $4,039,000 and $4,288,000, respectively, of which $3,945,000, $3,834,000 and $3,865,000, respectively, relates to the Forster Ranch property. No income taxes were paid during the years ended March 31, 1994, 1993 and 1992. (D) NOTES RECEIVABLE Development issued common stock to Holding and used the proceeds to advance $7.7 million to CREC, as evidenced by a note receivable due April 30, 1996. Interest at prime plus .875% is due in quarterly installments. Interest income of $537,000, $547,000 and $679,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1994, 1993 and 1992, respectively. Notes Receivable - Other at March 31, 1994 and 1993 have stated interest rates ranging up to 10% and are due in monthly or quarterly installments. Discounts and allowances totaled $313,000 at March 31, 1994 and $248,000 at March 31, 1993. The weighted average interest rate, inclusive of discounts, was 9% at March 31, 1994 and 10% at March 31, 1993. Notes receivable at March 31, 1994 are collectible over eight years, with $154,000 being due within one year. (E) NOTES PAYABLE Centex had advanced Holding $7.6 million as of March 31, 1994 which is evidenced by a note secured by the common stock of Development. The note, which had a fluctuating balance during fiscal 1994 and 1993, bears interest at prime plus 1% which is payable quarterly. The principal balance together with all unpaid accrued interest is due on the earlier of April 1, 1996 or the date on which the warrants to purchase Class B units of limited partnership interest are detached from shares of the common stock of Centex. Interest expense of $439,000, $404,000 and $447,000 related to this note is included in the accompanying combining financial statements for the years ended March 31, 1994, 1993 and 1992, respectively. Under the most restrictive covenants of the note agreement, Holding and its subsidiary (excluding the Partnership) may not, without Centex's consent, (i) create any additional liens on or sell real estate properties contributed by the limited partner, (ii) effect a merger or consolidation, (iii) declare dividends or make certain other shareholder payments or (iv) allow tangible net worth, as defined, to be less than $7.7 million for Development. 69 70 All Forster Ranch and other notes payable are non-recourse, secured solely by the underlying real estate. As land is sold, a portion of the proceeds is restricted for repayment of the notes. The prime rate in effect was 6 1/4% at March 31, 1994 and 6% at March 31, 1993. The 30-day LIBOR rate at March 31, 1994 was 3 11/16% and 3 3/16% at March 31, 1993. The note balances and rates in effect were as follows:
March, 31 ----------------------- 1994 1993 --------- ------- (Dollars in thousands) Credit Line at LIBOR Plus 3/4% Maturing in fiscal year 1995 unsecured, guaranteed by CREC $ 2,115 $10,000 Note Payable at 6 1/2%, Paid in April 1994 2,050 3,700 Note Payable at 12%, Maturing in fiscal year 1995 785 785 Forster Ranch Non-recourse Notes - Payable at Prime Plus 1%, Matured in April 1993 12,420 12,420 Payable at Prime Plus 2% (10 1/2% floor), Maturing in fiscal year 2002 36,779 32,357 ------- ------- $54,149 $59,262 ======= =======
The Partnership and the holder of the Forster Ranch non-recourse notes have signed an agreement to transfer ownership of the property in satisfaction of this debt, subject to revision of certain land use entitlements by April 1995. In connection with this agreement, CREC has agreed to fund certain holding and other costs CDC will incur through April 1995 in connection with its rezoning efforts. CDC wrote down its investment in the Forster Ranch real estate by approximately $3.7 million during fiscal year 1993 to an amount which equaled the related non-recourse debt after receiving notice that the note, which matured in April 1993, would not be renewed. (F) STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL Preferred Return The partnership agreement provides that the Class A limited partner is entitled to a cumulative preferred return of 9% per annum on the average outstanding balance of its Unrecovered Capital, which is defined as its initial capital contribution adjusted for cash distributions representing return of the initial capital contributions. Preference payments in arrears at March 31, 1994 amounted to $28,995,000. Allocation of Profits and Losses As provided in the partnership agreement, prior to Payout (as defined below), net income of the Partnership is to be allocated to the partners in the following order of priority: (i) To the Class A limited partner to the extent of the cumulative preferred return. (ii) To the partners to the extent and in the same ratio that cumulative net losses were allocated. (iii) To the partners in accordance with their percentage interests, as defined. Currently, this would be 20% to the Class A limited partner and 80% to the general partner. All loss allocations and allocations of net income after Payout, shall be made to the partners in accordance with their percentage interests, as defined. 70 71 Distributions Distributions of cash or other property are to be made at the discretion of the general partner and are to be distributed in the following order of priority: (i) Prior to the time at which the Class A limited partner has received aggregate distributions equal to its original capital contribution (Payout), distributions of cash or other property shall be made as follows: (a) To the Class A limited partner with respect to its preferred return, then (b) To the partners in an amount equal to the maximum marginal corporate tax rate times the amount of taxable income allocated to the partners, then (c) To the Class A limited partner until its Unrecovered Capital is reduced to zero. (ii) After Payout, distributions of cash shall be made to the partners in accordance with their percentage interests, as defined. Warrants In November 1987, Centex acquired from the Partnership 100 warrants to purchase 100 Class B units in the Partnership at an exercise price of $500 per Class B unit, and Centex acquired from Holding 100 warrants to purchase 100 shares of Holding common stock at an exercise price of $800 per share. These warrants are subject to future adjustment to provide the holders of options to purchase Centex common stock with the opportunity to acquire Class B units and shares of Holding. These warrants will generally become exercisable upon the detachment of the tandem-traded securities from Centex common stock. (G) RELATED PARTY TRANSACTIONS Service and Management Agreements Holding entered into a service agreement in May 1987 with Centex Service Company (CSC), a wholly-owned subsidiary of Centex, whereby CSC will provide certain tax, accounting and other similar services for Holding at a fee of $2,500 per month. Service fees of $30,000 for each of fiscal years 1994, 1993 and 1992 are reflected as administrative expenses in the accompanying combining financial statements. The Partnership has entered into agreements with certain Centex Corporation subsidiaries for them to provide management services to the Partnership in connection with the development and operation of properties acquired by the Partnership, maintenance of partnership property and accounting and clerical services. Management fees of $785,000 were accrued under these agreements and are reflected as administrative expenses in the accompanying combining financial statements for the year ended March 31, 1994. These fees amounted to $1,350,000 and $1,100,000 for the years ended March 31, 1993 and 1992. Additionally, property management fees of $28,000 and $104,000 were capitalized in fiscal years 1993 and 1992 respectively. Sales and Purchases Partnership revenues during fiscal years 1994, 1993, and 1992 include land sales to CREC of $2,354,000, $8,648,000 and $13,520,000, respectively. Additionally, CREC has contracts to purchase lots for the aggregate price of approximately $9.9 million to be paid as lots are delivered. Accounts Receivable and Accounts Payable Included in Accounts Receivable-Affiliates and Accounts Payable-Affiliates in the accompanying combining financial statements are $768,000 at March 31, 1994 and $1,763,000 at March 31, 1993, which the Partnership advanced to Holding. Interest of $148,000 and $193,000 was accrued on advances during fiscal years 1994 and 1993 respectively. (H) INCOME TAXES At March 31, 1994, Holding had operating loss carryforwards for income tax reporting purposes of $650,000. If unused, the loss carryforwards will expire in the fiscal years 2003 through 2010. Holding joins with its subsidiary in filing consolidated income tax returns. The taxable income of the Partnership has been allocated to the holder of the Class A units. Accordingly, no tax provision for Partnership earnings is shown in the combining financial statements. 71 72 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. QUARTERLY RESULTS (Unaudited)
March 31, ------------------------------------------------------------------------------ 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- 3333 Holding Centex Development Corporation Combined Company, L.P. and Subsidiary -------- ------------- -------------- (Dollars in thousands, except per share/unit data) First Quarter Revenues $ 1,928 $ 8,734 $ 1,832 $ 8,637 $134 $144 Earnings (Loss) Before Taxes $ (264) $ 397 $ (235) $ 424 $(29) $(27) Net Earnings (Loss) $ (264) $ 397 $ (235) $ 424 $(29) $(27) Earnings (Loss) Per Share/Unit $ (235) $ 424 $(29) $(27) Second Quarter Revenues $10,136 $ 253 $10,039 $ 166 $134 $135 Loss Before Taxes $ (664) $ (321) $ (636) $ (293) $(28) $(28) Net Loss $ (664) $ (321) $ (636) $ (293) $(28) $(28) Loss Per Share/Unit $ (636) $ (293) $(28) $(28) Third Quarter Revenues $ 374 $ 947 $ 275 $ 843 $136 $155 Loss Before Taxes $ (424) $ (321) $ (395) $ (313) $(29) $ (8) Net Loss $ (424) $ (321) $ (395) $ (313) $(29) $ (8) Loss Per Share/Unit $ (395) $ (313) $(29) $ (8) Fourth Quarter Revenues $ 811 $ 222 $ 713 $ 137 $133 $132 Loss Before Taxes $ (272) $(4,027) $ (244) $(3,994) $(28) $(33) Net Loss $ (272) $(4,027) $ (244) $(3,994) $(28) $(33) Loss Per Share/Unit $ (244) $(3,994) $(28) $(33)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - -------------------------------------------------------------------------------- On a combined basis, 3333 Holding Corporation (Holding) and subsidiary (Development) and Centex Development Company, L.P. (the Partnership) operations for the year ended March 31, 1994 reflected a loss of $1,624,000 on revenue of $13,249,000. The loss was $4,272,000 and revenue was $10,156,000 for the fiscal year ended March 31, 1993. The fiscal 1993 loss included the Partnership' expensing of its equity in the Forster Ranch project. According to an agreement with the lender, the Partnership expects to transfer ownership of the property to the lender in satisfaction of the related non-recourse debt upon receipt of certain development approvals. The Partnership completed construction of its shopping center in Sonora, California during the year, and sold all of this property except a restaurant site which was sold in June 1994. Two of the original partnership properties, a 15 acre industrial site in Houston, Texas, and 168 acres of ranch land in Comal County, Texas, were also sold during the year. The Partnership sold 131 residential lots to Centex Real Estate Corporation (CREC) at a subdivision in Orlando, Florida. Subsequent to year end, the Partnership sold the remaining 209 lots in the subdivision to CREC. In East Windsor, New Jersey, CDC delivered the first two lots of this development to CREC and expects additional sales as development continues. CDC also sold 113 lots to CREC at its development in The Colony, Texas. The Partnership has an additional development underway in the Dallas/Fort Worth metroplex where closings are expected next fiscal year. Holding, Development and the Partnership believe that they will be able to provide or obtain the necessary funding for their current operations and future expansion needs. The revenues, earnings and liquidity of these companies are largely dependent on future land sales, the timing of which is uncertain. The ability to obtain external debt or equity capital is subject to the provisions of Holding's loan agreement with Centex and the partnership agreement governing the Partnership. 72 73 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. 3333 HOLDING CORPORATION ------------------------ Registrant June 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President 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 in the capacities and on the dates indicated. June 28, 1994 /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President (principal executive officer) June 28, 1994 /s/ ROGER D. SEFZIK ------------------- Roger D. Sefzik, Vice President and Treasurer (principal financial and accounting officer) Directors: J. Stephen Bilheimer, Josiah O. Low, III, David M. Sherer June 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, Individually and as Attorney-in-Fact* ______________ *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 73 74 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. CENTEX DEVELOPMENT COMPANY, L.P. -------------------------------- Registrant By: 3333 Development Corporation, ----------------------------- General Partner June 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of 3333 Development Corporation, as general partner of, and on behalf of, the registrant in the capacities and on the dates indicated. June 28, 1994 /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, President (principal executive officer) June 28, 1994 /s/ ROGER D. SEFZIK ------------------- Roger D. Sefzik, Vice President and Treasurer (principal financial and accounting officer) Directors: J. Stephen Bilheimer, Josiah O. Low, III, David M. Sherer June 28, 1994 By: /s/ J. STEPHEN BILHEIMER ------------------------ J. Stephen Bilheimer, Individually and as Attorney-in-Fact* ______________ *Pursuant to authority granted by powers of attorney, copies of which are filed herewith. 74 75 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------- ------- ------------------------- -------- 2.1 The Acquisition Agreement, dated December Exhibit 2.1 to Annual Report on Form 10-K 29, 1988, between The Federal Savings and of Centex Corporation ("Centex") (File Loan Insurance Corporation as Receiver for No. 1-6776) for fiscal year ended March Burnet Savings and Loan Association and 31, 1993 ("Centex Form 10-K") Texas Trust Savings Bank, FSB. 2.2 Capital Maintenance Agreement, dated Exhibit 2.2 to Centex Form 10-K December 29, 1988, among CTX Holding Company, Texas Trust Savings Bank, FSB and The Federal Savings and Loan Insurance Corporation. 2.3 Warrant Agreement, dated as of December 29, Exhibit 2.3 to Centex Form 10-K 1988, between Texas Trust Savings Bank, FSB and The Federal Savings and Loan Insurance Corporation. 2.4 Assistance Agreement, dated December 29, Exhibit 2.4 to Centex Form 10-K 1988, between the Federal Savings and Loan Insurance Corporation, CTX Holding Company and Texas Trust Savings Bank, FSB. 3.1 Restated Articles of Incorporation of Exhibit 3.1 to Centex Form 10-K Centex. 3.2 By-laws of Centex. Exhibit 3.2 to Centex Form 10-K 4.1 Specimen Centex common stock certificate Exhibit 4.1 to Centex Form 10-K (with tandem legend and Rights Agreement legend). 4.2 Nominee Agreement, dated November 30, 1987, Exhibit 4.2 to Centex Form 10-K by and between Centex, 3333 Holding Corporation ("Holding") and Centex Development Company, L.P. ("CDC"), and Chemical Bank, as successor nominee. 4.3 Agreement for Purchase of Warrants, dated Exhibit 4.3 to Centex Form 10-K as of November 30, 1987, by and between Holding and Centex.
75 76 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 4.4 Common Loan Administration Agreement dated Exhibit 4.4 to Centex Form 10-K as of July 31, 1984, between Centex and six commercial banks. 4.5 Rights Agreement, dated as of September 17, Exhibit 1 to Form 8-A Registration 1986, between Centex and Chemical Bank, as Statement of Centex dated September 17, successor rights agent. 1986 4.6 Amendment No. 1 to Rights Agreement, dated Exhibit 4.6 to Centex Form 10-K as of May 18, 1988, between Centex and Chemical Bank, as successor rights agent. 4.7 Indenture dated as of March 12, 1987 Exhibit 4.7 to Centex Form 10-K between Centex and Texas Commerce Bank-- Dallas, N.A. with respect to Subordinated Debt Securities of Centex. 4.8 Supplemental Indenture dated as of Exhibit 4.8 to Centex Form 10-K March 12, 1987 between Centex and Texas Commerce Bank-Dallas, N.A. with respect to $100,000,000 8 3/4% Subordinated Debentures Due March 1, 2007. 4.9 Supplemental Indenture dated as of June 16, Exhibit 4.9 to Centex Form 10-K 1988 between Centex and Texas Commerce Bank-Dallas, N.A. with respect to up to $100,000,000 Subordinated Medium-Term Notes, Series A. 4.10 Instruments with respect to long-term debt N/A which do not exceed 10% of the total assets of Centex and its subsidiaries have not been filed. Centex agrees to furnish a copy of such instruments to the Commission upon request.
76 77 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 4.11 Debenture Purchase Agreement, dated as of Exhibit 4.11 to Centex Form 10-K June 17, 1987, between Centex and the State Investment Council of New Mexico with respect to $20,000,000 Aggregate Principal Amount of 8.80% Subordinated Debenture of Centex due June 30, 2007. 4.12 Indenture dated as of May 1, 1991 between Exhibit 4.12 to Centex Form 10-K Centex and Chemical Bank with respect to Senior Debt Securities. 4.13 Supplemental Indenture dated as of May 10, Exhibit 4.13 to Centex Form 10-K 1991 between Centex and Chemical Bank with respect to $100,000,000 9.05% Senior Notes due May 1, 1996. 4.14 Subordination Agreement dated as of May 1, Exhibit 4.14 to Centex Form 10-K 1991 by and among Centex Corporation and all of its subsidiaries. 4.15 Supplemental Indenture dated as of June 17, Filed herewith. 1987 between Centex and Texas Commerce Bank--Dallas, N.A. with respect to 8.80% Subordinated Debentures due June 30, 2007. 4.16 Debenture No. 1 dated June 17, 1987 of Filed herewith. Centex 8.80% Subordinated Debentures due June 30, 2007. 10.1 Centex Corporation Stock Option Plan, as Exhibit 10.1 to Centex Form 10-K amended. 10.2 Centex Corporation 1987 Stock Option Plan, Exhibit 28.1 to Joint Registration as amended. Statement of Centex, Holding and CDC on Form S-8 (No. 33-44575) dated December 13, 1991. 10.3 Credit Agreement dated as of May 1, 1987, Exhibit 10.2 to Amendment No. 3 dated by and between Holding and Centex and November 24, 1987 to Registration related (i) Promissory Note dated May 1, Statement of Holding on Form 10 (File No. 1987, executed by Holding and payable to 1-9624) dated July 12, 1987. the order of Centex in the principal amount of $7,700,000 and (ii) Pledge and Security Agreement dated as of May 1, 1987 executed by Holding in favor of Centex. 10.4 Employment Agreement dated as of July 15, Exhibit 10.4 to Centex Form 10-K 1988 between Centex and Paul R. Seegers.
77 78 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 10.5 Amendment to Employment Agreement dated as Exhibit 10.5 to Centex Form 10-K. of July 18, 1991 between Centex and Paul R. Seegers. 10.6 Executive Employment Agreement dated as of Exhibit 10.6 to Centex Form 10-K September 17, 1990 between Centex and Laurence E. Hirsch. 10.7 Executive Employment Agreement dated as of Exhibit 10.7 to Centex Form 10-K January 18, 1991 between Centex and David W. Quinn. 10.8 Executive Employment Agreement dated as of Exhibit 10.8 to Centex Form 10-K January 18, 1991 between Centex and William J Gillilan III. 10.9 Centex Corporation $2,100,000 Subordinated Filed herewith. Convertible Note issued to Laurence E. Hirsch on August 26, 1985.
78 79 INDEX TO EXHIBITS CENTEX CORPORATION AND SUBSIDIARIES-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 21.A List of Subsidiaries of Centex. Filed herewith. 23.A Consent of Independent Public Accountants. Filed herewith. 24.A Powers of Attorney. Filed herewith.
- --------------- 79 80 INDEX TO EXHIBITS 3333 HOLDING CORPORATION AND SUBSIDIARY
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 3.1 Articles of Incorporation of 3333 Holding Exhibit 3.2a to Amendment No. 1 dated Corporation ("Holding"). October 14, 1987 ("Amendment No. 1") to the Registration Statement of Holding on Form 10 (File No. 1-9624) dated July 12, 1987 (the "Holding Registration Statement"). 3.2 By-laws of Holding, as amended. Exhibit 3.2 to Annual Report on Form 10-K of Holding (File No. 1-9624) for fiscal year ended March 31, 1993 (the "Holding 10-K") 4.1 Specimen Holding common stock Exhibit 4.1 to Amendment No. 1. certificate. 4.2 Specimen Centex Corporation ("Centex") Exhibit 4.2 to Holding Form 10-K. common stock certificate (with tandem trading legend and Rights Agreement legend). 4.3 Nominee Agreement, dated as of November 30, Exhibit 4.3 to Holding Form 10-K. 1987 by and between Centex, Holding and Centex Development Company, L.P. ("CDC"), and Chemical Bank, as successor nominee. 4.4 Agreement for Purchase of Warrants, dated Exhibit 4.4 to Holding Form 10-K. as of November 30, 1987, by and between Holding and Centex. 10.1 Services Agreement, dated as of May 5, Exhibit 10.1 to Amendment No. 3 dated 1987, by and between Holding and Centex November 24, 1987 ("Amendment No. 3") to Service Company. the Holding Registration Statement. 10.2 Credit Agreement dated as of May 1, 1987, Exhibit 10.2 to Amendment No. 3. by and between Holding and Centex and related (i) Promissory Note dated May 1, 1987, executed by Holding and payable to the order of Centex in the principal amount of $7,700,000 and (ii) Pledge and Security Agreement dated as of May 1, 1987 executed by Holding in favor of Centex.
80 81 INDEX TO EXHIBITS 3333 HOLDING CORPORATION AND SUBSIDIARY-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- ------- 10.3 Credit Agreement dated as of May 1, 1987, Exhibit 10.3 to the Holding Registration by and between 3333 Development Corporation Statement. and Centex Real Estate Corporation and related Promissory Note dated May 1, 1987, executed by Centex Real Estate Corporation payable to the order of 3333 Development Corporation in the principal amount of $7,700,000. 21.B Subsidiaries of Holding. Filed herewith. 23.B Consent of Independent Public Accountants. Filed herewith. 24.B Powers of Attorney. Filed herewith.
- --------------- 81 82 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- ---- 2.1 Option Agreement, dated as of November 3, Filed herewith. 1988, by and between Centex Development Company, L.P. ("CDC") and Estrella Properties, Ltd. 2.2 Additional Interest Agreement, dated March Filed herewith. 30, 1989, by and between CDC and Westinghouse Credit Corporation. 2.3 Construction Loan Agreement, dated March 30, Filed herewith. 1989, by and among Westinghouse Credit Corporation and CDC. 2.4 Forster Ranch Development Agreement, dated Filed herewith. March 31, 1989, by and between the City of San Clemente, California and CDC. 3.1 Articles of Incorporation, as amended, of Exhibit 3.2a to Amendment No. 1 dated 3333 Development Corporation ("Development") October 14, 1987 ("CDC Amendment No. 1") to as currently in effect. the Registration Statement of CDC on Form 10 (File No. 1-9625) dated July 12, 1987 (the "CDC Registration Statement"). 3.2 By-laws of Development, as amended. Exhibit 3.2 to Annual Report on Form 10-K of CDC (File No. 1-9625) for fiscal year ended March 31, 1993 (the "CDC 10-K"). 4.1 Certificates of Limited Partnership of CDC. Exhibit 4.1 to the CDC Registration Statement. 4.2 Amended and Restated Agreement of Limited Exhibit 4.2 to Amendment No. 3 dated Partnership of CDC. November 24, 1987 ("CDC Amendment No. 3") to the CDC Registration Statement. 4.3 Specimen certificate for Class A limited Exhibit 4.3 to the CDC Registration partnership units. Statement. 4.4 Specimen certificate for Class B limited Exhibit 4.4 to the CDC Registration partnership units. Statement.
82 83 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- ------- 4.5 Warrant Agreement, dated as of November 30, Exhibit 4.5 to CDC Form 10-K 1987, by and between CDC and Centex Corporation ("Centex"). 4.6 Specimen warrant certificate. Exhibit 4.6 to CDC Amendment No. 3. 4.7 Specimen Centex common stock certificate Exhibit 4.7 to CDC Form 10-K. (with tandem trading legend and Rights Agreement legend). 4.8 Nominee Agreement, dated as of November 30, Exhibit 4.8 to CDC Form 10-K. 1987, by and between Centex, 3333 Holding Corporation ("Holding") and CDC, and Chemical Bank, as successor nominee. 4.9 Agreement for Purchase of Warrants, dated as Exhibit 4.9 to CDC Form 10-K. of November 30, 1987, by and between CDC and Centex. 4.10 Form of Operating Partnership Agreement. Exhibit 4.9 to the CDC Registration Statement. 10.1 Management Agreement by and between Centex Exhibit 10.1 to CDC Amendment No. 3. Real Estate Corporation and CDC. 10.2 Supplement to Management Agreement by and Exhibit 10.1a to CDC Amendment No. 3. between Centex Real Estate Corporation and CDC. 10.3 Documents of Conveyance of Property from Exhibit 10.2 to CDC Amendment No. 1. Centex Land Corporation to CDC. 10.4 Documents of Conveyance of Property from Exhibit 10.3 to the CDC Registration Centex Homes Corporation to CDC. Statement. 10.5 Documennts of Conveyance of Property from Fox Exhibit 10.4 to the CDC Registration & Jacobs, Inc. to CDC. Statement. 10.6 Documents of Conveyance of Property from Exhibit 10.5 to the CDC Registration Great Lakes Development Co., Inc., to CDC. Statement. 10.7 Agreement dated as of April 1, 1987 by and Exhibit 10.6 to the CDC Registration among CDC, Centex Real Estate Corporation, Statement. Centex Homes Corporation and Centex Land Company.
83 84 INDEX TO EXHIBITS CENTEX DEVELOPMENT COMPANY, L.P.-CONTINUED
EXHIBIT FILED HEREWITH OR SEQ. NO. NUMBER EXHIBIT INCORPORATED BY REFERENCE PAGE ------ ------- ------------------------- -------- 10.8 Agreement dated as of April 1, 1987 by and Exhibit 10.7 to the CDC Registration between CDC and Centex Homes of New Jersey, Statement. Inc. 10.9 Agreement dated as of April 1, 1987 by and Exhibit 10.8 to CDC Amendment No. 1. between CDC and David Little. 10.10 Trust Agreement dated March 31, 1987 by and Exhibit 10.9 to CDC Amendment No. 1. between CDC and David Little. 23.C Consent of Independent Public Accountants. Filed herewith. 24.C Powers of Attorney. Filed herewith.
- --------------- 84 EX-4.15 2 CENTEX CORPORATION SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.15 CENTEX CORPORATION CENTEX CORPORATION Issuer and TEXAS COMMERCE BANK-DALLAS, N.A. Trustee SUPPLEMENTAL INDENTURE Dated as of June 17, 1987 to INDENTURE Dated as of March 12, 1987 $20,000,000 8.80% SUBORDINATED DEBENTURES DUE JUNE 30, 2007 2 SUPPLEMENTAL INDENTURE, dated as of June 17, 1987, between CENTEX CORPORATION, a Nevada corporation (together with its successors and assigns as provided in the Indenture referred to below, the "Company"), and TEXAS COMMERCE BANK-DALLAS, N.A., a national banking association (together with its successors in trust thereunder as provided in the Indenture referred to below, the "Trustee"), as trustee under an Indenture dated as of March 12, 1987 (the "Indenture"). PRELIMINARY STATEMENT Section 2.02 of the Indenture provides, among other things, that the Company may, when authorized by its Board of Directors, and the Trustee may, at any time and from time to time, enter into an indenture supplemental to the Indenture for the purpose of authorizing a Series of Subordinated Debt Securities and to specify certain terms of such Series of Subordinated Debt Securities. The Board of Directors of the Company has duly authorized the creation of a Series of Subordinated Debt Securities with an aggregate principal amount of $20,000,000 to be known as the Company's 8.80% Subordinated Debentures due June 30, 2007 (the "Debentures"), and the Company and the Trustee are executing and delivering this Supplemental Indenture in order to provide for the issuance of the Debentures. All terms used in this Supplemental Indenture which are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined in this Supplemental Indenture or the context clearly requires otherwise. SECTION 1. Designation. The Debentures shall be designated as the Company's "8.80% Subordinated Debentures due June 30, 2007." SECTION 2. Date of Debentures. The Debentures which are authenticated and delivered by the Trustee to or upon the order of the Company on the Closing Date for the Debentures shall be dated June 17, 1987. All other Debentures which are authenticated after the Closing Date for the Debentures for any other purpose under the Indenture shall be dated the date of their authentication. For the purposes of this Section 2 and Section 12 hereof, "Closing Date" shall mean the -2- 3 date on which the Debentures are first executed, authenticated and delivered. SECTION 3. Aggregate Principal Amount. The aggregate principal amount of Debentures that may be authenticated and delivered under the Indenture and this Supplemental Indenture is limited to $20,000,000, except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Sections 2.06, 2.07, 2.08 or 11.04 of the Indenture. SECTION 4. Interest Rate. The Debentures shall bear interest at the rate of 8.80% per annum. Interest shall be computed based on the actual number of days elapsed in a year consisting of 365 days or 366 days, as the case may be. SECTION 5. Interest Payment Dates. The interest payment dates for the Debentures are June 30 and December 31 in each year, commencing December 31, 1987. SECTION 6. Record Date. The record date with respect to an interest payment date shall be the close of business on the 15th day of the calendar month in which the related interest payment is due, or in the case of defaulted interest, the close of business on any special record date. SECTION 7. Denominations of Debentures. The Debentures are issuable in denominations of $100,000 and in integral multiples of $1,000 above such amount. SECTION 8. Currency of Issuance and Payments. The Debentures shall be issued in the currency of United States of America and shall be paid in such coin or currency. -3- 4 SECTION 9. Redemption of Debentures at the Option of the Company. In accordance with the provisions of Article Four of the Indenture, the Debentures will be redeemable at the option of the Company on or after June 30, 1997, in whole at any time or in part from time to time at 100% of the principal amount thereof plus accrued interest to the date fixed for redemption; provided however, that no such redemption may be made by the Company directly or indirectly from or in anticipation of money borrowed having an interest cost to the Company of less than 8.80% per annum. SECTION 10. Sinking Fund. Prior to maturity, the Debentures will not be subject to any sinking fund payments by the Company. SECTION 11. Additions to Article Four of the Indenture. With respect to the Debentures, as permitted by clause (12) of Section 2.02 of the Indenture, Article Four of the Indenture shall be amended by adding new Sections 4.13, 4.14 and 4.15 thereto to read in their entirety as follows: "Section 4.13. To the extent specified in the related Series Supplement, a Holder may request the redemption of Subordinated Debt Securities of a Series upon such terms and conditions as may be set forth in such Series Supplement. Section 4.14. Any request for redemption pursuant to Section 4.13 hereof may be withdrawn by the person making the same upon the delivery of a written request for such withdrawal received by the Trustee not later than the close of business on the Business Day immediately preceding the applicable redemption date with respect to which such request occurs. If not so withdrawn, the redemption request will be -4- 5 irrevocable after such date. In the event a request for redemption has been withdrawn as provided herein, the Trustee shall return the certificate or certificates representing the Subordinated Debt Securities of the Series in respect of which the redemption request has been withdrawn. Section 4.15. The Trustee shall maintain at its Corporate Trust Office a register in which it shall record, in order of receipt, all requests for redemptions received by the Trustee under Section 4.13. If necessary under the circumstances, the Trustee may establish such procedures as it may deem fair and equitable in order to determine the order of receipt of requests for redemption received by the Trustee on a single day, and any such determination shall be conclusive. In establishing procedures for determining the order of receipt of requests for redemption, the Trustee may designate from time to time any particular person, department or office as a designated recipient of such requests and provide that, after Holders have been notified in writing of such designation, no request for redemption will be deemed received until received by the person, department or office so designated. Unless withdrawn as provided in Section 4.14 hereof, all such requests shall remain in effect until the Subordinated Debt Securities of a Series which are the subject of such request have been redeemed." SECTION 12. Redemption of Debentures at Request of Debentureholders. The Company, through its wholly-owned subsidiary, Centex American Gypsum Company (the "Subsidiary"), will use the proceeds to it from the sale of the Debentures to construct a gypsum wallboard manufacturing facility (the "Facility") in the State of New Mexico. The State Investment Council, acting on behalf of the Severance Tax Permanent Fund, of the State New Mexico (the -5- 6 "Purchaser") has agreed to purchase the Debentures pursuant to the authority granted by the provisions of Section 7-27-5.4(B) NMSA 1978 (the "Bonding Act"), which provides in part that the Company must establish or expand business outlets or ventures, such as the Facility, in the State of New Mexico. Pursuant to Section 4.13 of the Indenture, in the event that (i) the Company or the Subsidiary fails to break ground for the Facility by June 30, 1988, (ii) the Company or the Subsidiary fails to initiate the first production run of the Facility by June 30, 1990, (iii) the total expenditures by the Company or the Subsidiary for the Facility are not in excess of $20,000,000 by June 30, 1990 as shown by a certificate of the Company's independent public accountants (in substantially the form attached hereto as Exhibit A) which shall be provided to the Trustee within a reasonable period of time thereafter, (iv) the Company or the Subsidiary ceases the operation of the Facility as a production facility for gypsum wallboard for 12 consecutive months with the intention to permanently cease production operations, dismantles the operating capability of the Facility with the intention to permanently cease production operations or otherwise declares an intention to permanently cease production operations of the Facility, (v) the proceeds to the Company from the sale of the Debentures to the Purchaser are not used for the construction of the Facility as required by the Bonding Act and subparagraph F of Part II of the State Investment Council Guidelines, Rule 85-1, adopted February 28, 1985, or (vi) the Company or the Subsidiary fails to permit a duly authorized representative of the Purchaser access to the Facility for purposes of conducting a physical inspection thereof during normal business hours and without undue interruption of production activities, after the Purchaser provides not less than 10 Business Days' notice of its intention to make such an inspection to the President or the Treasurer of the Company (which notice must actually be received by such President or Treasurer), then any Debentureholder shall have the right to request the redemption of its Debentures, or any portion thereof which is an integral multiple of $1,000, prior to maturity, unless the Debentures have been declared due and payable by reason of an Event of Default under the Indenture, at 100% of the principal amount thereof with respect to which redemption has been requested plus accrued interest to the redemption date; provided however, that the right of a Debentureholder to request redemption of its Debentures under clause (iii) above shall extend only to such Debentureholder's pro rata portion of the aggregate principal amount of all of the Debentures issued on the Closing Date in excess of the total expenditures by the Company or the Subsidiary for the Facility upon completion thereof; and -6- 7 provided further however, that if the Facility is damaged or destroyed by an event beyond the control of the Company (such as a fire, tornado, flood or similar event) which renders the Facility substantially inoperable for its intended purpose, and the Company commences the repair or reconstruction of the Facility as soon as practicable thereafter and completes such repairs or reconstruction within three years of such event, a Debentureholder shall not be entitled to request the redemption of its Debentures under clause (iv) above. A Debentureholder may request redemption by delivering the following to the Trustee at the Corporate Trust Office not less than 60 days prior to the date specified for such redemption: (i) a written request for redemption in form satisfactory to the Trustee (such as the form appearing on the Debenture certificate) and signed by the Debentureholder or the Debentureholder's legal representative (with appropriate evidence of authority), with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city of in which the Corporate Trust Office is located, or by a member firm of a national securities exchange, and (ii) the certificate or certificates representing the Debenture or Debentures, or portions thereof, for which redemption is being requested. Such written request for redemption shall specify the date on which such redemption is to be effected (which shall be no earlier than the 60th day following the date on which the Trustee receives such written request) and shall certify that an event permitting redemption at the request of a Debentureholder has occurred. The Trustee shall be entitled to rely on such certification as to the occurrence of a redemption event without further investigation. Upon receipt of a request for redemption satisfying all of the conditions of this Section 12, the Trustee shall accept for redemption the Debentures accompanying such request whereupon such Debentures shall become due and payable on the applicable redemption date at 100% of the principal amount thereof plus accrued interest to the date fixed for redemption, and on or after such date fixed for redemption (unless the Company shall default in the payment of such Debentures at such redemption price, together with interest accrued to the date fixed for redemption) no interest shall thereafter accrue or be payable in respect of the Debentures so redeemed. No payment in respect of the redemption of such Debentures, or portions thereof, will be made until such Debentures are surrendered to the Trustee. Requests for redemption may be rejected by the Trustee if not made in accordance with this Section 12, in which event the Trustee shall -7- 8 return such request and documentation to the persons submitting the same with instructions as to the further documentation required and such rejected request for redemption shall be deemed to have been withdrawn by the person making the same as provided in Section 4.14 of the Indenture (without prejudice, however, to the right of the Debentureholder to thereafter submit a request for redemption for the same event). The second paragraph of Section 4.03 of the Indenture shall apply to redemptions effected pursuant to Section 4.13 of the Indenture in the same manner and to the same extent that such paragraph applies to redemptions effected pursuant to Section 4.01 of the Indenture. A redemption or a request therefor pursuant to this Section 12 shall not be deemed a declaration of acceleration of the maturity of the Debentures for purposes of Section 3.02(e) of the Indenture. SECTION 13. Amendments to Provisions of Article Three of the Indenture. With respect to the Debentures, as permitted by clause (12) of Section 2.02 of the Indenture, the following provisions of Article Three of the Indenture shall be amended as specified below: (a) The proviso clause of Section 3.04 of the Indenture shall be amended to read in its entirety as follows: "provided, however, that, unless prior to the date on which (i) any written request for redemption of Subordinated Debt Securities of a Series at the request of a Debentureholder, to the extent permitted by the related Series Supplement, is received by the Trustee, or (ii) the notice of redemption of any Subordinated Debt Securities of a Series is mailed pursuant to Article Four hereof, the Trustee or any paying agent shall have received such notice, the Trustee or any paying agent shall have full power and authority to receive any monies which may be paid to it for such purpose and to apply the same to the redemption of such Subordinated Debt Securities." -8- 9 (b) The second proviso clause of Section 3.06 of the Indenture shall be amended to read in its entirety as follows: "provided, further, that, unless prior to the date on which (i) any written request for redemption of Subordinated Debt Securities of a Series at the request of a Debentureholder, to the extent permitted by the related Series Supplement, is received by the Trustee, or (ii) the notice of redemption of any Subordinated Debt Securities of a Series is mailed pursuant to Article Four hereof, the Trustee or any paying agent shall have received such notice, then, anything herein contained to the contrary notwithstanding, the Trustee or any paying agent shall have full power and authority to receive any monies which may be paid to it for such purpose and to apply the same to the redemption of such Subordinated Debt Securities, and shall not be affected by any notice to the contrary which may be received by it on or after such date." SECTION 14. Form of Debentures. The Debentures shall be in the form attached hereto as Exhibit B. Pursuant to Section 2.01 of the Indenture, the Debentures need not be issued in printed, lithographed or engraved form. SECTION 15. Maturity. The Debentures will mature and be payable in accordance with their terms on June 30, 2007, if not previously redeemed in accordance with their terms. SECTION 16. Counterparts. This Supplemental Indebenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. -9- 10 SECTION 17. Governing Law. This Supplemental Indenture and the Indenture and each Debenture issued hereunder and thereunder shall be deemed to be a contract made under the laws of the State of Texas, and for all purposes shall be construed in accordance with the laws of said State. SECTION 18. Acceptance of Trusts. Texas Commerce Bank-Dallas, N.A., hereby accepts the trusts in this Supplemental Indenture declared and provided, upon the terms and conditions herein and in the Indenture set forth. SECTION 19. Ratification of Indenture. As supplemented by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplemental Indenture shall be read, taken and construed as one and the same instrument. -10- 11 IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized and their respective seals duly attested to be hereunto affixed all as of the day and year first above written. CENTEX CORPORATION (SEAL) "Company" Attest: By /s/ HARRY J. LEONHARDT Harry J. Leonhardt, Executive Vice President /s/ JOHN G. JONES John G. Jones, Vice President, General Counsel and Secretary TEXAS COMMERCE BANK-DALLAS, N.A. (SEAL) "Trustee" Attest: By /s/ BRAD A. CARSON Brad A. Carson, Senior Vice President and Trust Officer /s/ PATTY A. STREETY Patty A. Streety, Vice President and Trust Officer -11- 12 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a Notary Public in and for said state, on this day personally appeared Harry J. Leonhardt and John G. Jones, known to me to be the persons and officers whose names are subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said CENTEX CORPORATION, a Nevada corporation, and that they executed the same as the act of said corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of June, 1987. /s/ ELIZABETH S. BOOHER Notary Public in and for the State of Texas My commission expires: Elizabeth S. Booher (Type or Print Name) 4/29/89 STATE OF TEXAS ) ) COUNTY OF DALLAS ) BEFORE ME, the undersigned authority, a Notary Public in and for said state, on this day personally appeared Brad A. Carson and Patty A. Streety, known to me to be the persons and officers whose names are subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said TEXAS COMMERCE BANK-DALLAS, N.A., a national banking association, and that they executed the same as the act of said association for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 15th day of June, 1987. /s/ ELIZABETH S. BOOHER Notary Public in and for the State of Texas My commission expires: Elizabeth S. Booher (Type or Print Name) 4/29/89 -12- EX-4.16 3 CENTEX CORPORATION DEBENTURE NO. 1 DATED 6-17-87 1 EXHIBIT 4.16 CENTEX CORPORATION $20,000,000 No. 1 CUSIP No. 152312 AB 0 CENTEX CORPORATION 8.80% SUBORDINATED DEBENTURES DUE JUNE 30, 2007 CENTEX CORPORATION, a corporation duly organized and existing under the laws of the State of Nevada (herein referred to as the "Company"), for value received, hereby promises to pay to the State Investment Council, acting on behalf of the Severance Tax Permanent Fund, of the State of New Mexico, or registered assigns, the principal sum of TWENTY MILLION DOLLARS ($20,000,000), on June 30, 2007, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, and to pay interest on said principal sum at the rate per annum specified in the title of this Debenture, with respect to interest accrued (based on the actual number of days elapsed in a year consisting of 365 or 366 days, as the case may be) from the date of delivery to the date of the current interest payment, to the registered holder hereof as of the close of business on the 15th day of the month in which the related interest payment is due, in like coin or currency, all at any office or agency of the Company to be maintained by the Company pursuant to Section 5.02 of the Indenture hereinafter referred to, which at all times shall include an office or agency in the Borough of Manhattan, the City of New York, such interest payments to be made, except as otherwise provided in the Indenture hereinafter referred to, semiannually on June 30 and December 31, in each year, commencing December 31, 1987, until payment of said principal sum has been made or duly provided for; provided, however, that payment of interest may be made at the option of the Company by check mailed on or before each such payment date to the address of the person entitled thereto as such address shall appear on the Subordinated Debt Security Register. This Debenture shall be deemed to be a contract made under the laws of the State of Texas, and for all purposes shall be construed in accordance with the laws of said State. Additional provisions of this Debenture are contained on the following pages hereof and such provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee under the Indenture. IN WITNESS WHEREOF, Centex Corporation has caused this instrument to be signed in its corporate name by the facsimile signature of its President or a 2 Vice President and by its Secretary or an Assistant Secretary by his signature or a facsimile thereof, and a facsimile of its corporate seal to be affixed hereunto or imprinted hereon. Dated: June 17, 1987 CENTEX CORPORATION (SEAL) By /s/ JEFFREY N. SECHAL Vice President and Treasurer Attest: /s/ JOHN JONES Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. TEXAS COMMERCE BANK-DALLAS, N.A., as Trustee By: /s/ BRAD CARSON Authorized Signature -2- 3 CENTEX CORPORATION 8.80% SUBORDINATED DEBENTURES DUE JUNE 30, 2007 This Debenture is one of a duly authorized issue of Subordinated Debt Securities of the Company issued and to be issued in one or more Series, and this Debenture is one of the Series of Subordinated Debt Securities designated as its 8.80% Subordinated Debentures due June 30, 2007 (herein referred to as the "Debentures"), limited to the aggregate principal amount of Twenty Million Dollars ($20,000,000), all issued or to be issued under and pursuant to an indenture dated as of March 12, 1987 (herein referred to as the "Indenture"), duly executed and delivered by the Company to Texas Commerce Bank-Dallas, N.A., as trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto (including the Supplemental Indenture dated as of June 17, 1987, which authorizes the Debentures) reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Subordinated Debt Securities of each particular Series and the terms upon which the Subordinated Debt Securities of each Series are, and are to be, authenticated and delivered. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. As provided in the Indenture, the Subordinated Debt Securities are issuable in Series which may vary as in the Indenture provided or permitted. The indebtedness evidenced by the Debentures is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company. As provided in the Indenture, each holder of this Debenture, by his acceptance hereof, agrees to and shall be bound by all the provisions of the Indenture relating to such subordination and authorizes the Trustee to take such action in his behalf as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and appoints the Trustee his attorney-in-fact for any and all such purposes. In case an Event of Default shall have occurred and be continuing with respect to the Debentures, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that in certain events such declaration and its consequences may be waived by the holders of a majority in aggregate principal amount of the Debentures then outstanding. An Event of Default with respect to the Subordinated Debt Securities of any other Series issued under the Indenture, including the failure to make any payment of principal or interest with respect thereto when and as due, will not be an Event of Default with respect to the Debentures. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions -3- 4 of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Debentures, provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of the Debentures, the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. It is also provided in the Indenture that the holders of a majority in aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all the Debentures waive any past default under the Indenture and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debentures. Any such consent or waiver by the holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange or substitution herefor, whether or not any notation of such consent or waiver is made upon this Debenture. Subject to the rights of holders of Senior Indebtedness of the Company set forth in the Indenture, no reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the place, at the respective times, at the rate and in the currency herein prescribed. As provided in the Indenture, the Debentures will be redeemable at the option of the Company on or after June 30, 1997, in whole at any time or in part from time to time at 100% of the principal amount thereof plus accrued interest to the date fixed for redemption: provided, however, that no such redemption may be made by the Company directly or indirectly from or in anticipation of money borrowed having an interest cost to the Company of less than 8.80% par annum. In addition, as provided in the Indenture, unless the Debentures have been declared due and payable by reason of an Event of Default, a Holder may request redemption of the Debentures, or any portion thereof which is an integral multiple of $2,000, held thereby upon the terms and subject to the conditions set forth in the Indenture by delivering the following to the Trustee not less than 60 days prior to the date specified for such redemption: (i) a written request for redemption in form satisfactory to the Trustee (such as the form appearing on this certificate) and signed by the Holder or the Holder's legal representative (with appropriate evidence of authority), with such signature guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office is located, or by a member firm of a national securities exchange, and (ii) the certificate or certificates representing the Debenture or Debentures, or portions thereof, for which redemption is being requested. Such written request for redemption shall specify the date on which such redemption is to be effected (which shall be no earlier than the 60th day following the date on which the Trustee receives such written request) and shall certify that an event permitting redemption at the request of a Holder has occurred. The Trustee shall be entitled to rely on such certification as to the occurrence of a redemption event without -4- 5 further investigation. Upon receipt of a request for redemption satisfying all of the conditions of the Indenture, the Trustee shall accept for redemption the Debentures accompanying such request whereupon such Debentures shall become due and Payable on the applicable redemption date at 100% of the principal amount thereof plus accrued interest to the date fixed for redemption, and on and after such date fixed for redemption (unless the Company shall default in the payment of such Debentures at such redemption price, together with interest accrued to the date razed for redemption) no interest shall thereafter accrue or be payable in respect of the Debentures so redeemed. No payment in respect of the redemption of a Debenture, or portion thereof, will be made until such Debenture is surrendered to the Trustee. Requests for redemption may be rejected by the Trustee if not made in accordance with the Indenture, in which event the Trustee shall return such request and documentation to the persons submitting the same with instructions as to the further documentation required and such rejected request for redemption shall be deemed to have been withdrawn by the person making the same as provided in the Indenture (without prejudice, however, to the right of a Holder to thereafter submit a request for redemption for the same event). The Debentures shall not be subject to any sinking fund payments by the Company. Upon due presentment for registration of transfer of this Debenture at any designated office or agency of the Company to be maintained by the Company pursuant to Section 5.02 of the Indenture, which at all times shall include an office or agency in the Borough of Manhattan, the City of New York, a new Debenture or Debentures of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange herefor, subject to the limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith, and the Debentures may in like manner be exchanged for one or more new Debentures of other authorized denominations but of the same aggregate principal amount. The Company, the Trustee, any paying agent and any Subordinated Debt Security registrar for the Debentures may deem and treat the registered holder hereof as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any such Subordinated Debt Security Registrar), for the purpose of receiving payment hereof or on account hereof and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any such Subordinated Debt Security Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of, or premium, if any, or interest on, this Debenture, or for any claim based hereon or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. -5- 6 FORM OF ASSIGNMENT FOR VALUE RECEIVED, ________________________________________________ hereby sells, assigns and transfers unto ____________________________________ the within Debenture of Centex Corporation standing in the name(s) of the undersigned in the Subordinated Debt Security Register of the Company with respect to such Debenture and does hereby irrevocably constitute and appoint _______________________________ Attorney to transfer such Debenture in such Subordinated Debt Security Register, with full power of substitution in the premises. Please insert social security or other identifying number of assignee: Dated:________________________________ ______________________________________ ______________________________________ (Signature) ______________________________________ (Signature) Signature Guarantee: Notice: The signature(s) to this assignment must correspond with the name(s) as written upon the ______________________________________ face of this Debenture in every Authorized Officer particular without alteration or any change whatsoever. The ______________________________________ signature(s) must be guaranteed Name of Institution by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office is located, or by a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable as guaranteed signatures. -6- 7 REQUEST FOR REDEMPTION TO: Texas Commerce Bank-Dallas, N.A. Corporate Trust Department 600 North Pearl, Suite 344 Dallas, Texas 75201 The undersigned Holder, or legal representative of the Holder, hereby Presents the within Debenture of Centex Corporation for redemption in the principal amount indicated below on the redemption date set forth below for redemption in accordance with, and subject to, the terms and conditions of the within Debenture and the Indenture. By executing this Request for Redemption in the space provided below, the undersigned Holder, or legal representative of the Holder, hereby represents and certifies that an event permitting redemption at the request of a Holder under the Indenture has occurred. Redemption Request (complete one): /_/ Full principal amount of Debenture /_/ Principal amount of $_________________ (must be an integral multiple of $1,000) Redemption Date:_______________________________ (Holder must specify) Dated:______________________________ ___________________________________ (Signature) ___________________________________ (Signature) Signature Guarantee: Notice: The signature(s) to this request must correspond with the name(s) as written upon _________________________ the face of this Debenture Authorized Officer in every particular without alteration or any change _________________________ whatsoever. The signatures Name of Institution must be guaranteed by a commercial bank or trust company located, or having a correspondent located, in the City of New York or the city in which the Corporate Trust Office is located or by a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable as guaranteed signatures. -7- EX-10.9 4 CENTEX CORPORATION $2,100,000 SUB. CONV. NOTE 1 EXHIBIT 10.9 CENTEX CORPORATION THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS ("STATE LAWS") AND MAY NOT BE TRANSFERRED UNLESS THE COMPANY IS FIRST FURNISHED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OR ANY STATE LAWS. TRANSFER OF THIS NOTE IS ALSO RESTRICTED AS HEREINAFTER PROVIDED. CENTEX CORPORATION CONVERTIBLE SUBORDINATED NOTE $2,100,000 Dallas, Texas August 26, 1985 FOR VALUE RECEIVED, Centex Corporation, a Nevada corporation (herein, together with any successor to all or substantially all its assets, by merger or otherwise, called the "Company"), promises to pay to Laurence E. Hirsch (the "Holder"), at the Company's principal executive office in Dallas, Dallas County, Texas, or such other place as the Company may specify to the Holder in writing, the principal sum of Two Million One Hundred Thousand dollars ($2,100,000), in lawful money of the United States of America, and to pay interest from the date hereof on the unpaid principal balance hereof at a fluctuating rate per annum which shall change from time to time so that it will always be equal to the Prime Rate or the Highest Lawful Rate, whichever is the lesser. As used herein, the term "Prime Rate" shall mean the rate of interest announced or published by RepublicBank Dallas, N.A. as its prime rate from time to time. The "Highest Lawful Rate" shall be the maximum rate of interest that the Company may pay on this Note from time to time under applicable laws. If and to the extent the Highest Lawful Rate is determined pursuant to the laws of the State of Texas, the Indicated Rate Ceiling provided by Article 5069-1.04 of the Texas Revised Civil Statutes Annotated, as amended, shall be the ceiling applicable to this Note. 1. Payment Terms. The principal of this Note shall be payable in full on March 1, 1995. Accrued interest on this Note shall be payable quarterly on October 1, January 1, April 1, and July 1 in each year, beginning with October 1, 1985, and at maturity. The Company promises to pay interest, payable on demand, on overdue principal and, to the extent permitted by law, on overdue interest, from their due dates at the Highest Lawful Rate. 2. Subordination. Upon any liquidation of the Company or distribution of assets to creditors of the Company in bankruptcy, receivership, or otherwise, no payment of principal or interest shall be demanded, made, or received on this Note, nor shall any portion of this Note be directly or indirectly repurchased by the Company (except through conversion of this Note into Common Stock, to the extent permitted by Section 3 below), until all Senior Indebtedness has been paid in full. Any cash, securities, or property received by the Holder in 2 violation of the immediately preceding sentence shall be held in trust for the benefit of the holders of Senior Indebtedness and promptly paid over to them, pro rata as their respective interests may appear, upon demand. The Holder shall be subrogated to the rights of any holder of Senior Indebtedness to the extent the Holder or the Company pays funds over to any holder of Senior Indebtedness pursuant to these subordination provisions, but such right of subrogation may not be enforced until all Senior Indebtedness has been paid in full. "Senior Indebtedness" means obligations of the Company, whether outstanding on the date hereof or created hereafter, for (a) money borrowed by the Company, (b) money borrowed by others and guaranteed by the Company, (c) indebtedness incurred, assumed or guaranteed by the Company in connection with the payment of all or any portion of the purchase price of any business, real property or other assets (except indebtedness incurred for materials acquired or services rendered in the ordinary course of business of the Company) purchased by the Company or any of its subsidiaries, (d) indebtedness arising in favor of any bonding company under any performance or payment bond or other similar bond issued by such bonding company in connection with any construction contract to which the Company or any of its subsidiaries is or was a party, (e) renewals, extensions and refundings of any indebtedness described in clauses (a)-(d), inclusive, and (f) interest due and premium and collection costs owed by the Company with respect to any indebtedness described in clauses (a)-(e), inclusive, including interest which accrues subsequent to any bankruptcy or similar proceeding involving the Company; provided that Senior Indebtedness shall not include (i) any indebtedness which is expressly stated in any instrument binding on the holder of such indebtedness not to be Senior Indebtedness, (ii) this Note or (iii) any indebtedness as to which neither the Company nor any subsidiary has any personal liability. Upon request of the Company, the Holder will expressly confirm to any holder or proposed holder of indebtedness conforming to the preceding definition that such indebtedness is "Senior Indebtedness" within the meaning of the preceding sentence. 3. Conversion. The Holder may, at his option (but subject to the provisions of this Note relating to compliance with the Securities Act and State Laws), convert the unpaid Vested Principal (as hereinafter defined) of this Note into Common Stock (as hereinafter defined) of the Company, at the rate of one share of Common Stock for each twenty-one dollars ($21.00) of Vested Principal so converted, at any time and from time to time in accordance with the third paragraph of this Section 3, by surrendering this Note, together with written directions as to the amount of Vested Principal to be converted, to the Company at its principal executive office. Upon such surrender, the Company shall promptly issue and deliver to the Holder one or more certificates (as the Holder may specify) evidencing the shares into which the Vested Principal has been converted, and shall return this Note to the Holder with a notation thereon showing the amount of Vested Principal that has been converted and the date of such conversion. Any such conversion shall be deemed effective, and the shares issuable in respect thereof shall be deemed issued, on the first Business Day (defined as any day on which banks are authorized to be open for business under Texas law) following the day this Note is duly surrendered for conversion, as described above, regardless of when the Company actually issues -2- 3 and delivers the shares to the Holder. No adjustment shall be made in respect of any dividends (except common stock dividends, as hereinafter provided) or distributions paid prior to the effective conversion date or payable, after the effective conversion date, to holders of record as of a date prior to the effective conversion date. No fractional shares shall be issuable on conversion of this Note, and if the Holder designates an amount of Vested Principal which would result in issuance of a fractional share, the amount of Vested Principal to be converted shall be reduced to eliminate the issuance of such fractional shares. The principal of this Note shall become "Vested Principal" as follows: (a) On March 1, 1986 and on March 1 in each of the following four years (1987 through 1990), an amount of principal equal to 20% of the original principal amount of this Note shall become Vested Principal. (b) If the Holder should cease to be an employee of at least one of the employers in the group of employers consisting of the Company and its Affiliates (defined as any parent or subsidiary of the Company, within the meaning of subsections 425(e) and (f) of the Internal Revenue Code of 1954, as amended), as a result of (i) his death, (ii) his Disability (defined as mental or physical impairment which, in the opinion of the Company's board of directors, (A) renders the Holder incapable of performing his obligations and agreements under the Executive Employment Agreement between the Company and the Holder dated as of February 20, 1985, and (B) lasts for a period of twelve or more months), or (iii) his discharge by the Company's or an Affiliate's board of directors for any reason other than Cause (defined as acts constituting theft, dishonesty, fraud, embezzlement, or breach of any employment agreement between the Holder and the Company or an Affiliate, as determined in good faith by the Company's board of directors), or if the shareholders of the Company approve a plan of complete liquidation and dissolution of the Company (other than a plan adopted in connection with a Reorganization, as defined below), the entire unpaid principal of this Note shall become Vested Principal. Notwithstanding the foregoing, if the Holder is discharged as an employee by the Company's or an Affiliate's board of directors for Cause, then any part of the principal of this Note which is Vested Principal shall, upon such discharge, cease to be Vested Principal. For purposes of this Section 3, the term "Common Stock" shall mean the common stock, $.25 par value, of Centex Corporation as constituted on the date of this Note and any stock, securities, or other property (including cash), whether of Centex Corporation or some other corporation or entity, into which the outstanding shares of such common stock may hereafter be changed pursuant to any merger, consolidation, recapitalization, or similar transaction (collectively, a "Reorganization"). In furtherance of the preceding sentence, (i) if the outstanding shares of Common Stock of the Company shall be subdivided into a greater number of shares or combined into a lesser number of shares (by stock split, reverse stock split, stock dividend, or otherwise), -3- 4 the number of shares of Common Stock issuable upon conversion of this Note shall be appropriately adjusted to give effect to such subdivision or combination, and (ii) if any Reorganization should occur, there shall be delivered to the Holder, upon conversion of any portion of the Vested Principal of this Note subsequent to such Reorganization, the stock, securities, or other property (including cash) that the Holder would have received if he had converted such Vested Principal into Common Stock prior to such Reorganization and participated therein as a holder of such Common Stock. No Reorganization shall be effected unless, under the express terms thereof, the resulting or surviving entity assumes the obligations of the Company under this Note. 4. Prepayment. The Company shall not be entitled to prepay all or any part of this Note, except that this Note shall be prepaid, in full (but not in part): (a) On the first anniversary of the date the Holder ceases to be employed by at least one of the employers in the group of employers consisting of the Company and its Affiliates for any reason other than (i) the Holder's voluntary termination of employment with the Company or an Affiliate or (ii) the Holder's discharge by the Company's or an Affiliate's board of directors for Cause; (b) within thirty (30) days after the Holder, as a result of his voluntary termination of employment, is no longer employed by any of the employers in the group of employers consisting of the Company and its Affiliates or is discharged as an employee by the Company's or an Affiliate's board of directors for Cause; and (c) within thirty (30) days following the approval by the shareholders of the Company of a plan of complete liquidation and dissolution of the Company, other than such a plan adopted in connection with a Reorganization. 5. Default. If any one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) Default shall be made in the payment of any principal of or interest on this Note when due and shall continue for more than 10 days after written notice from the Holder to the Company; or (b) The Company shall (i) apply for or consent to the appointment of a receiver, trustee, or liquidator of the Company or all or substantially all the assets of the Company, (ii) make a general assignment for the benefit of creditors, (iii) be adjudicated bankrupt or insolvent or (iv) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization or an arrangement with creditors to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, moratorium, dissolution, liquidation, or debtor relief law, or any chapter of any such law, or an answer -4- 5 admitting the material allegations of a petition filed against it in any proceeding under any such law or chapter; or an order, judgement, or decree shall be entered, without the application, approval, or consent of the Company by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Company or of all or substantially all of the assets of the Company and such order, judgment, or decree shall not have been dismissed within 120 days after it was so entered; then and in each and every such case the Holder may, subject to the subordination provisions previously stated in this Note, by notice in writing to the Company declare the unpaid principal of this Note, with accrued interest thereon, to be forthwith due and payable and thereon such principal and interest shall be due and payable without presentment, protest, or further demand or notice of any kind, all of which are hereby expressly waived. 6. Transfer. This Note may not be transferred, voluntarily or involuntarily, by the Holder to any person or entity whatsoever without the written consent of the Company and may not in any event be transferred, voluntarily or involuntarily, by the Holder prior to March 1, 1986; provided, however, that such transfer restriction shall not apply (i) to a transfer, by will or by the laws of descent and distribution, to the executor or estate of the Holder upon his death, (ii) to the pledge of, or grant of a security interest in, this Note by the Holder to a bank (or other financial institution) approved by the Company in writing as security for the indebtedness of the Holder to such bank or institution in connection with the Holder's purchase of this Note, or (iii) to the foreclosure of any such pledge or security interest so long as only such bank or financial institution is the purchaser at such sale. In no event may the conversion privileges of this Note be exercised by any person or entity to whom this Note is transferred (including the Holder), voluntarily or involuntarily, in violation of the preceding sentence, or by any transferee of such person or entity (including the Holder), or by any purchaser (including the bank or other financial institution that may be the pledgee of or holder of a security interest in this Note) at a foreclosure sale (even if such foreclosure is permitted under the preceding sentence). Subject to the immediately preceding paragraph, this Note is transferable only on the books of the Company by the Holder or the Holder's duly authorized attorney-in-fact. The Company shall be entitled to treat the registered holder of this Note as the true and lawful owner hereof for all purposes, including payment, notwithstanding any actual knowledge of the Company to the contrary. 7. Miscellaneous. Except as otherwise expressly specified in this Note, the Company and each surety, guarantor, endorser, or other party liable for payment on this Note hereby waive diligence, presentment, demand, protest, and notice of any kind whatsoever, and agree that their liability on this Note shall not be affected by any renewal or extension in the time of payment hereof, by any -5- 6 indulgences, or by any release or change in any security for payment of this Note. In no event shall the Company be obligated to issue any Common Stock on conversion of this Note if, in the opinion of counsel for the Company, such issuance would violate the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any State Laws. The Holder shall, as a condition precedent to his right to convert Vested Principal to Common Stock, make such written representations to, and agreements with, the Company concerning the Holder's financial position, business and investment experience, intentions as to resale or other disposition of the shares, and such other matters as counsel for the Company may deem necessary in order to assure compliance with the Securities Act, Exchange Act, and applicable State Laws. The certificates evidencing the shares issued on conversion of this Note shall bear such legends as counsel for the Company may deem necessary to ensure compliance with the Securities Act, Exchange Act, and applicable State Laws. In no event shall the existence of this Note be deemed to create any right of continued employment of the Holder by the Company or any Affiliate. The Company is entitled to offset against this Note (whether or not this Note is then due), (i) any amounts due and owing by the Holder to the Company or any Affiliate and (ii) any amounts which the Company may owe to Republic Bank Dallas, N.A. (the "Bank") arising under the Company's guarantee of the Holder's $2,100,000 promissory note to the Bank dated August 19, 1985 (and all renewals, extensions, modifications and amendments of and to such promissory note). Any such offset shall be applied first to accrued and unpaid interest, next to principal that is not Vested Principal, and then to Vested Principal. Upon any such offset, the offset principal shall be deemed paid and shall cease to bear interest. If this Note is placed in the hands of an attorney for collection after occurrence of an Event of Default, or if it is collected through legal or bankruptcy proceedings, the Company agrees to pay all costs of collection, including but not limited to court costs and reasonable attorneys' fees. It is the intention of the Holder and the Company that this Note conform in all respects to applicable law so that no payment of interest or other sum construed to be interest shall exceed the Highest Lawful Rate. In determining the rate of interest paid or payable under this Note, all funds paid or to be paid as interest or construed to be interest shall be prorated, allocated, or spread as permitted under applicable law. If, through any circumstances, the provisions of this Note would result in the Company's paying or agreeing to pay interest on this Note in excess of the Highest Lawful Rate, or if the Company pays any sum as interest or any amount which is construed to be interest in excess of such rate, then (1) the amount of interest contracted for shall be automatically reduced to the amount permitted by the Highest Lawful Rate and (2) the amount of excess interest paid shall be applied to the reduction of the principal balance of this Note, if any, and if the principal -6- 7 balance has been fully paid, the excess interest shall be refunded to the Company. This Note shall be governed by and construed in accordance with the laws of the State of Texas. CENTEX CORPORATION By /s/ PAUL R. SEEGERS Paul R. Seegers, Chairman of the Board and Chief Executive Officer -7- EX-21.A 5 CENTEX CORPORATION SUBSIDIARIES 1 EXHIBIT 21.A CENTEX CORPORATION The following is a list of the subsidiaries of the Company, wholly-owned unless otherwise stated. This list of subsidiaries includes all of the significant subsidiaries of the Company as of March 31, 1994. FEDERALLY CHARTERED: Texas Trust Savings Bank, FSB NEVADA CORPORATIONS: B C N Industries, Inc. CDMC Holding, Inc. C P Service Company Centex Acceptance Corporation Centex Bateson Enterprises, Inc. Centex Cement Corporation Centex Construction Products, Inc. Centex Collateralized Mortgage Corporation Centex Construction Group, Inc. Centex Construction Group Texas, Inc. Centex Credit Corporation Centex Development Management Company Centex Escrow Company Centex Financial Corporation Centex Financial Management Corporation Centex Golden Construction Company Centex International, Inc. Centex Materials, Inc. Centex New Jersey Realty, Inc. Centex Real Estate Corporation Centex Realty Company Centex-Rodgers Construction Company Centex Roofing Company Centex-Rooney Enterprises, Inc. Centex Service Company Centex-Simpson Construction Company, Inc. Centex Title Company CTX Financial Corporation CTX Holding Company CTX Mortgage Company CTX Mortgage Ventures Corporation Forcum-Lannom Associates Inc. 4500 Finance Company GHQ Company, Inc. Great Lakes Development Co., Inc. H Corp. . Ilce, Inc. MCC, Inc. MCC II, Inc. 2 NEVADA CORPORATIONS (continued): M & W Drywall Supply Company M&W General Construction Company (1) Mogul Water Company (2) Moore Design, Inc. Mountain Cement Company Nevada Cement Company Russell Creek Coal Company San Juan Land Company Texas Cement Company Texas-CTX Holding Company Western Aggregates, Inc. CALIFORNIA CORPORATIONS: Mathews Readymix, Inc. Western Cement Company of California DELAWARE CORPORATIONS: Brazos Point, Inc. Centex Construction Products, Inc. FLORIDA CORPORATIONS: Centex-Great Southwest Corporation Centex-Rooney Construction Co., Inc. Metropolitan Title & Guaranty Company GEORGIA CORPORATIONS: Centex-Hamby Construction, Inc. Centex Homes Marketing, Inc. ILLINOIS CORPORATIONS: 111 E. Chestnut Corporation LOUISIANA CORPORATIONS: Centex Landis Construction Co., Inc. NEW MEXICO CORPORATIONS: Centex American Gypsum Company NORTH CAROLINA CORPORATIONS: Bradfield Farms Water Company John Crosland Acceptance Corporation Three Crosland Bond Company John Crosland Company Genbond Two, Inc. 3 SOUTH CAROLINA CORPORATIONS: Woodlake Village, Inc. (3) TEXAS CORPORATIONS: Apple Development and Realty, Inc. Burnet Mortgage Corp. Centex Bateson Construction Company, Inc. Centex Homes, Inc. Dundee Insurance Agency, Inc. Forest Lane, Inc. Fox & Jacobs, Inc. Independent General Agency, Inc. Peoples Mortgage Company Ranchers Development Corporation 1629 Service Corporation VERMONT CORPORATIONS: Armor Insurance Company VIRGIN ISLANDS CORPORATIONS: Centex-Rooney Thermac, Inc. (4) WISCONSIN CORPORATIONS: Wisconsin Cement Company, Inc. WYOMING CORPORATIONS: Wyoming Construction Company PARTNERSHIPS: Bateson Dailey, a Joint Venture (5) Bayfront Associates, Ltd. (6) Blakeney Heath Venture Company (7) Centex Auchter, a Joint Venture (5) Centex-Draper 156 Partnership (8) Centex-Draper 162 Partnership (8) Centex Engle Joint Venture (12) Centex-Great Southwest Corporation/Construct Two, a Joint Venture (9) Centex-Great Southwest Corporation Polote (10) Centex Homes Company, General Partnership Centex-Rodgers Construction Company-Construction Control Services Corporation, a Joint Ventue (5) Centex-Rodgers-Sorenson Gross, J.V. (9) Centex-Rooney Jones, J.V. (10) Centex-Rooney/Landis Co., a Joint Venture (17) Centex-Rooney National Development, J.V. (11) Centex-Rooney/Russell, a Joint Venture (12) 4 PARTNERSHIPS (continued): Centex-Schaumberg Industrial Park (13) Central Park Professional Center (12) COINS #1 CCMC A FB (14) COINS #4 CAC D B (14) COINS #5 CAC E B (14) COINS #8 CAC H B (14) COINS #9 CAC I, J & K, FB (14) COINS #15 CAC 0 FB (14) COINS #21 CCC C FS (14) Crosland Acceptance Associates V, a General Partnership Hines Baseball Limited Partnership (15) Illinois Cement Company, a Joint Venture (8) Mortgage Acceptance Associates No. 2, a General Partnership Mortgage Collateral Associates No. 1, a General Partnership Mortgage Collateral Associates No. 3, a General Partnership Mountain Cement Company, a Joint Venture Palmdale 101 (12) Queen Isabella Development, a Joint Venture (16) Roselie Property (13) Sycamore Creek (12) Texas-Lehigh Cement Company, a Joint Venture (8) All of the Company's subsidiaries are included in the Consolidated Financial Statements of the Company included in this Form 10-K. - ----------------------------------- (1) 49% owned subsidiary (2) 51% owned subsidiary (3) 60% owned subsidiary (4) 80% owned subsidiary (5) 65% owned joint venture (6) 50% owned limited partnership (7) 15% owned joint venture (8) 50% owned joint venture (9) 80% owned joint venture (10) 55% owned joint venture (11) 75% owned joint venture (12) 50% owned general partnership (13) 20% owned general partnership (14) 1% owned general partnership (15) 1% owned limited partnership (16) 60% owned joint venture (17) 70% owned joint venture EX-23.A 6 CENTEX CORP.--CONSNET OF INDP. PUBLIC ACCOUNTANTS 1 EXHIBIT 23.A CENTEX CORPORATION CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the previously filed registration statements on Form S-8 (numbers 33-44575; 33-29174; 2-95271; 2-51637; 2-54043; 2-59535; 2-68747; 2-78831) of our report dated May 11, 1994, included in Centex Corporation's Form 10-K for the year ended March 31, 1994, and to all references to our firm included in these registration statements. ARTHUR ANDERSEN & CO. Dallas, Texas, June 29, 1994 EX-24.A 7 POWERS OF ATTORNEY FOR CENTEX CORPORATION 1 EXHIBIT 24.A CENTEX CORPORATION CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Alan B. Coleman Alan B. Coleman Director Centex Corporation 2 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Dan W. Cook III Dan W. Cook III Director Centex Corporation 3 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Frank M. Crossen Frank M. Crossen Director Centex Corporation 4 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ William J Gillilan III William J Gillilan III Director Centex Corporation 5 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Clint W. Murchison, III Clint W. Murchison, III Director Centex Corporation 6 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, with full power of substitution in the premises, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Charles H. Pistor Charles H. Pistor Director Centex Corporation 7 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch, as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ David W. Quinn David W. Quinn Director Centex Corporation 8 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorneys-in-Fact, may not be revoked until the Attorneys-in-Fact have received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Paul T. Stoffel Paul T. Stoffel Director Centex Corporation 9 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints Laurence E. Hirsch and David W. Quinn, or either of such individuals, as the undersigned's true and lawful agents and attorneys-in-fact (the "Attorneys-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Paul R. Seegers Paul R. Seegers Director Centex Corporation 10 CENTEX CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints David W. Quinn as his true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of Centex Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Laurence E. Hirsch Laurence E. Hirsch Director Centex Corporation EX-21.B 8 3333 HOLDING CORPORATION SUBSIDIARIES 1 EXHIBIT 21.B 3333 HOLDING CORPORATION The following list of subsidiaries of 3333 Holding Corporation, wholly-owned unless otherwise stated, includes all of the significant subsidiaries of 3333 Holding Corporation as of March 31, 1994: NEVADA CORPORATIONS: 3333 Development Corporation PARTNERSHIPS: Centex Development Company, L.P. All of the Company's subsidiaries are included in the Consolidated Financial Statements of the Company incorporated by reference into this Form 10-K from the Centex 1994 Annual Report to Stockholders. EX-23.B 9 3333 HOLDING CORP.--CONSENT OF IND. PUBLIC ACCNTS. 1 EXHIBIT 23.B 3333 HOLDING CORPORATION CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the previously filed registration statements on Form S-8 (numbers 33-44575; 33-29174; 2-95271; 2-51637; 2-54043; 2-59535; 2-68747; 2-78831) of our report dated May 11, 1994, included in 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. Form 10-K for the year ended March 31, 1994, and to all referendes to our firm included in these registration statements. ARTHUR ANDERSEN & CO. Dallas, Texas June 29, 1994 EX-24.B 10 3333 HOLDING CORPORATION POWERS OF ATTORNEY 1 EXHIBIT 24.B 3333 HOLDING CORPORATION 3333 HOLDING CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Holding Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Josiah O. Low, III Josiah O. Low, III Director 3333 Holding Corporation 2 3333 HOLDING CORPORATION POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Holding Corporation (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ David M. Sherer David M. Sherer Director 3333 Holding Corporation EX-2.1 11 CDC OPTION AGREEMENT 1 EXHIBIT 2.1 CENTEX DEVELOPMENT COMPANY, L.P. OPTION AGREEMENT by and between CENTEX DEVELOPMENT COMPANY, L.P. and ESTRELLA PROPERTIES, LTD. 2 TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02. Additional Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 2. OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.01. Grant of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.02. Option Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.03. Monthly Option Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.04. Option Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.05. Exercise of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 3. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.01. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 4. INVESTIGATION OF PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . 16 4.01. As Is With All Faults Conveyance . . . . . . . . . . . . . . . . . . . . 16 4.02. Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . 17 4.03. Authorization by Estrella to CDC . . . . . . . . . . . . . . . . . . . . 17 4.04. Limitations on CDC Rights . . . . . . . . . . . . . . . . . . . . . . . . 18 4.05. Right to Work Product . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 5. ESTRELLA'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 20 5.01. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 6. CDC'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 21 6.01. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 7. EFFECT OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION . . . . . . . . 21 7.01. Effect of Representations and Warranties . . . . . . . . . . . . . . . . 21 7.02. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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Page ---- ARTICLE 8. CDC'S REQUIREMENTS AND ESTRELLA'S COVENANTS . . . . . . . . . . . . . . . 22 8.01. CDC'S Pre-Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.02. Golf Course Easement . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.03. SDG&E Site Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.04. Green Belt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.05. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.06. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.07. No Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 9. ASSIGNMENT OF DEVELOPMENT RIGHTS AND OBLIGATIONS. . . . . . . . . . . . . 26 9.01. Settlement/Development Agreement . . . . . . . . . . . . . . . . . . . . 26 9.02. Tentative Tract 12895 . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9.03. Wastewater Treatment Capacity . . . . . . . . . . . . . . . . . . . . . . 27 9.04. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 9.05. Subdivision Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.06. Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.07. Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 10. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.01. Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.02. Recovery on Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.03. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.04. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.05. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.06. Commissions; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 33 10.07. Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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Page ---- 10.08. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.09. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 34 10.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.11. Confidentiality and Publicity . . . . . . . . . . . . . . . . . . . . . 34 10.12. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.13. Limitation on CDC Damages and Indemnities . . . . . . . . . . . . . . . 36 10.14. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.15. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 37 10.16. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 37 10.17. Memorandum of Option . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.18. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 38 10.19. Counterparts; Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.20. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.21. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 11. SPECIAL REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 11.01. Reference Provision . . . . . . . . . . . . . . . . . . . . . . . . . . 39 LIST OF EXHIBITS Exhibit A - Description of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Exhibit B - Grant Deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Exhibit C - Nonforeign Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Exhibit D - Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exhibit E - Estrella's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Exhibit F - Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Exhibit G - Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Exhibit H - Grant of Easement and Declaration of Covenants . . . . . . . . . . . . . . . . . 23 Exhibit I - Greenbelt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Exhibit J - Memorandum of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Exhibit K - Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit L - Letter of Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit M - Outline of Proposed Development Agreement . . . . . . . . . . . . . . . . . . . 17
iii 5 OPTION AGREEMENT THIS OPTION AGREEMENT is made as of November 3, 1988, between CENTEX DEVELOPMENT COMPANY, L.P. (hereinafter called "CDC"), a Delaware limited partnership whose sole general partner is 3333 Development Corporation, a Nevada corporation, and ESTRELLA PROPERTIES, LTD. (hereinafter called "Estrella"), a California limited partnership whose general partners are Shannon Developers, Inc., a California corporation, and Leo Fitzsimmon, an individual, and whose limited partners are Borg-Warner Equities Corporation, a Delaware corporation and Sea-Aire Properties, Inc., a California corporation. ARTICLE 1 DEFINED TERMS 1.01. Definitions. The following terms used in this Agreement, unless the context otherwise requires, shall have the meanings set forth in this Section 1.01: "Acceptable Conditions of Title" shall mean those exceptions to the title set forth in Section 3.01.4, subject to which CDC shall accept title to the Property. "Affordable Housing Site" shall mean that approximately 24.9-acre portion of the Property consisting of Lot 26 of Tract 11781, and more particularly described in Exhibit A attached hereto. "Agreement" shall mean this Option Agreement. "City" shall mean the City of San Clemente, a municipal corporation. 6 "Closing" shall mean the recordation of the Deed in accordance with the provisions of Article 3. "Closing Date" shall mean the date which is designated for closing in Section 3.01.3. "Commercial Site" shall mean that approximately 7.3-acre portion of the Property consisting of Lot 25 of Tract 11781, and more particularly described in Exhibit A attached hereto. "County" shall mean Orange County, California. "Deed" shall mean a duly executed and acknowledged grant deed, in the form attached hereto as Exhibit B, conveying the Property to CDC. "Development Area" shall mean that real property identified as the Development Area in the Settlement/Development Agreement. "Development Entitlements" shall mean all approvals, grants, permits, licenses, development allocations and subdivision maps related to development of the Property, including any applications therefor. "Effective Date" shall mean the date of the making of this Agreement as set forth on page 1 of this Agreement. "Estrella's Best Knowledge" shall mean information known to the current officers of Shannon Developers, Inc., but without any duty of such officers to conduct any independent investigation or inquiry. "Excluded Property" shall mean the following real property which is not part of the Property: (a) the Golf Course (including the hotel site), (b) Tract 10764 (as shown on map 2 7 recorded in Book 521, pages 7-9 of miscellaneous maps); Tract 10596 (as shown on map recorded in Book 531, pages 31-38), lots 1-23 and lot 27 in Tract 11781 (as shown on map recorded in book 531, pages 3-6 of miscellaneous maps) and (c) the balance of the Development Area to the extent not included within the Property. "Exercise Date" shall mean the date the Option is exercised by CDC pursuant to Section 2.05 of this Agreement. "Exercise Deposit" shall mean the sum of One Hundred Thousand Dollars ($100,000) to be delivered by CDC into escrow upon exercise of the Option pursuant to Section 2.05 of this Agreement. "Golf Course" shall mean the Shorecliffs Golf Course located in the City and described in the preliminary title report of the Company dated as of October 7, 1988, Order No. 592794-9. "Hazardous Materials" shall include, but shall not be limited to any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, substances defined as "hazardous substances," hazardous materials" or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 USC Section 9601, et seq.; the Hazardous Materials Transportation Act, 49 USC Section 1801, et seq.; the Resource Conservation and Recovery Act, 42 USC Section 6901, et seq.; those substances defined as "hazardous wastes" in California Health & Safety Code Section 25117 or as "hazardous substances" in California Health & Safety Code Section 25316; and those chemicals 3 8 known to cause cancer or reproductive toxicity, as published pursuant to the Safe Drinking Water and Toxic Enforcement Act of 1986, California Health & Safety Code Section 25249.5 et seq.; and in the regulations adopted and publications promulgated pursuant to each of the aforesaid laws. "Intermediate School Site" shall mean that approximately 14-acre portion of the Property more particularly described in Exhibit A attached hereto. "Monthly Option Fee" shall mean the sum of One Hundred Seventy-five Thousand Dollars ($175,000) to be paid monthly to Estrella to continue the Option as provided in Section 2.03. "Nonforeign Certification" shall mean a certification in the form attached hereto as Exhibit C, duly executed by Estrella under penalty of perjury, certifying that Estrella is not a "foreign person" in accordance with the provisions of Section 1445 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Option" shall mean CDC's right to purchase the Property subject to the terms and conditions of this Agreement. "Option Payment" shall mean the sum of One Million Dollars ($1,000,000) paid by CDC to Estrella pursuant to Section 2.04. "Planning Area" shall mean that approximately 1,031-acre portion of the Property more particularly described in Exhibit A attached hereto. "Property" shall mean the real property, improvements and other assets described in Section 2.01 which CDC is granted 4 9 the Option to purchase pursuant to this Agreement. In no event shall the Property include all or any part of the Excluded Property. "Purchase Price" shall mean the sum of Fifty Million Dollars ($50,000,000). "Settlement/Development Agreement" shall mean that certain Settlement/Development Agreement between Estrella and the City dated August 5, 1981, as amended by that certain First Amendment to Settlement/Development Agreement dated as of December 14, 1983 and that certain undated Second Amendment to Settlement/Development Agreement. "Specific Plan" shall mean the Forster Ranch Specific Plan prepared by Tierra Planning & Design, Inc., dated October 1985 and approved by the City on October 1, 1986. "Title Company" shall mean Chicago Title Insurance Company, 825 North Broadway, Santa Ana, California, 92701; Attn: David Butler (FAX (714) 667-0343; telephone (714) 547-7251)). "Title Policy" shall mean an ALTA 1970 Form B Extended Coverage Owner's Form title insurance policy, insuring that fee title to the Property is vested in CDC in the amount of the Purchase Price. "Title Reports" shall mean the following preliminary title reports prepared by the Title Company: (a) Order No. 592744-9, dated as of August 3, 1988, as amended by Supplemental Report dated October 26, 1988, and received November 3, 1988, for the Planning Area; 5 10 (b) Order No. 592745-9, dated as of August 3, 1988, as amended by Supplemental Report dated October 26, 1988, for the Commercial Site; (c) Order No. 592746-9, dated as of August 3, 1988, as amended by Supplemental Report dated October 26, 1988, for the Affordable Housing Site; and (d) Order No. 592770-9, dated as of September 7, 1988, as amended by Supplemental Report dated October 26, 1988, for the Intermediate School Site. "Wastewater Agreement" shall mean that certain Agreement for Construction of Wastewater Treatment Facilities dated as of October 3, 1984. "Work Product" shall mean preliminary engineering drawings, any final subdivision map for Tentative Tract 12895, the ALTA survey of the Property prepared by Madole & Associates, Inc., soils reports and other studies related to the Property which have been prepared for CDC by third party consultants. 1.02. Additional Defined Terms. To the extent capitalized terms are not defined in Section 1.01, such terms shall have the meaning otherwise ascribed to them in this Agreement. ARTICLE 2 OPTION 2.01. Grant of Option. Estrella grants to CDC the Option, during the period and subject to all of the provisions of this Agreement, to purchase all of the following property: 6 11 2.01.1 Land. The real property consisting of approximately 1,077.2 acres located in the City as more particularly described in Exhibit A attached hereto, together with all of Estrella's rights in and to (a) all privileges, rights, easements and appurtenances belonging to the real property, including without limitation, all minerals, oil, gas and other hydrocarbon substances on and under the real property, (b) all development rights, air rights, water, water rights and water stock relating to the real property and (c) all rights of Estrella in and to any streets, alleys, passages, other easements and other rights-of-way or appurtenances included in, adjacent to or used in connection with the real property, before or after the vacation thereof; 2.01.2 Improvements. All rights of Estrella in and to any and all buildings, systems, facilities, fixtures, structures, fences, parking areas, machinery, equipment, apparatus and appliances located on the real property described in Section 2.01.1; and 2.01.3 Other Assets. All rights of Estrella, if any, in and to all tangible and intangible assets of any nature relating to the Property (except as they pertain to the Excluded Property), including without limitation (a) all Development Entitlements, (b) all surveys, maps, studies, reports, test results, plans, specifications, engineering drawings and prints relating to development of the Property or construction of any improvements thereon, (c) all trade names and goodwill associated with the Property, (d) all other intangible property used by 7 12 Estrella in connection with the Property, (e) all warranties upon the improvements, to the full extent such warranties are assignable, and (f) to the extent the same are approved by CDC pursuant to the provisions of this Agreement, all claims, causes of action, contract and lease rights, agreements, utility contracts or other rights relating to the ownership, use and operation of the Property. 2.02. Option Term. The Option shall commence on the Effective Date and shall continue to and including February 28, 1989, provided CDC is not in default in payment of the Monthly Option Fee under Section 2.03. 2.03. Monthly Option Fee. Commencing on the Effective Date and on the first business day of each month thereafter until the Closing Date, but excluding the month in which the Closing Date occurs, CDC shall pay to Estrella the Monthly Option Fee. The Monthly Option Fees shall constitute consideration for the granting of the Option and shall not be credited toward the Purchase Price. If Estrella fails to receive the Monthly Option Fee on any date it is due, Estrella shall notify CDC of such fact by written notice, in which case CDC shall have the right to make such payment within two business days without being in default in payment of the Monthly Option Fee. If CDC fails to pay the Monthly Option Fee within the two business days after receipt of such notice, the Option shall terminate. The Monthly option Fee shall not be refundable to CDC if CDC fails to exercise the Option under any circumstances. 8 13 2.04. Option Payment. Upon the Effective Date, and as additional consideration for the Option, CDC shall deliver the Option Payment to Estrella and Estrella hereby directs that the payment be wired to Borg-Warner Corporation, First National Bank of Chicago, ABA No. 071000013, Account No. 53-06841, for the account of Borg-Warner Corporation. The Option Payment shall not be refundable to CDC for any reason except as provided in Section 10.12. The Option Payment shall be applied to the Purchase Price at Closing pursuant to Section 3.01.2. 2.05. Exercise of Option. The Option shall be exercised by CDC's delivery to Estrella, on or before the expiration of the Option, of written notice stating that CDC exercises the Option, and the delivery of the Exercise Deposit into escrow with Chicago Title Insurance Company, Santa Ana, California (the "Escrow") within two business days after delivery of such written notice. The Exercise Deposit shall be applied to the Purchase Price at Closing, or shall be treated as liquidated damages under Section 10.01 if the purchase and sale fails to close because of the default of CDC. If CDC fails to exercise the Option within the time allowed herein, Estrella shall be entitled to receive the Work Product and retain the Option Payment and all Monthly Option Fees, this Agreement shall immediately terminate, and the parties shall have no further obligations under this Agreement, except as provided in Sections 4.04.2, 4.05, 10.06, and 10.07. 9 14 ARTICLE 3 PURCHASE AND SALE 3.01. Purchase and Sale. Upon timely exercise of the Option by CDC, Estrella shall sell the Property to CDC, and CDC shall purchase the Property from Estrella, upon each and all of the following terms: 3.01.1 Purchase Price. The Purchase Price for the Property shall be the sum of Fifty Million Dollars ($50,000,000). 3.01.2 Manner of Payment. On the Closing Date, CDC shall pay the Purchase Price to Estrella by (a) crediting to the Purchase Price the Option Payment and applying the Exercise Deposit from the Escrow and paying the balance of the Purchase Price through the Escrow by electronic transfer of federal funds or other immediately available funds. 3.01.3 Closing Date. The Closing shall occur through the Escrow on or before the fiftieth (50th) day after exercise of the Option, but not later than March 31, 1989. 3.01.4 Condition of Title. Title to the Property shall be conveyed by Estrella on or before the Closing Date free and clear of all liens, leases, restrictions and encumbrances, except for the Acceptable Conditions of Title. The Acceptable Conditions of Title are: (a) the lien for real property taxes, supplemental taxes, and assessments not delinquent; (b) exceptions shown on the Title Report for the Planning Area, but excluding exceptions Nos. 5, 6 and 7; (c) exceptions shown on the Title Report for the Commercial Site, but excluding exceptions No. 3; (d) exceptions shown on the Title Report for the Intermediate 10 15 School Site; (e) exceptions shown on the Title Report for the Affordable Housing Site, but excluding exception 3; (f) such other matters as shall be created by or with the consent of CDC or by any persons claiming by or under CDC; and (g) that certain lease between Estrella and Rams Manufacturing, Inc., dated January 2, 1987, and (h) matters shown on the ALTA survey being prepared by Madole & Associates, Inc. Estrella's obligation to convey title shall be satisfied only by the willingness of the Title Company to issue the Title Policy showing fee title to the Property vested in CDC or its nominee, subject only to the Acceptable Conditions of Title, and the standard printed exclusions contained in the Title Policy. If Estrella is unable to convey title as required under this Section 3.01.4, then Estrella: (i) may elect to eliminate the unpermitted title exception and Estrella shall have up to 30 days for such purpose, and (ii) shall be obligated to remove any liens of a definite or ascertainable amount and pay any delinquent taxes using the proceeds of sale for such purpose. Estrella shall not be in default of this Agreement for failure to convey title in the condition required by this Section 3.01.4 unless (i) Estrella fails to pay any delinquent taxes or remove any liens against the Property as to which Estrella has agreed to apply the proceeds of sale or (ii) failure of Estrella to convey title is due to the affirmative act of Estrella, which affirmative act would result in an exception to title on the title policy to be issued at Closing, and which affirmative act occurs after the date of the Title 11 16 Reports (including supplements) applicable to the respective portions of the Property, in which case CDC shall be entitled to the remedies contained in Section 10.12. In the event of any other defects in title, CDC shall within five days after expiration of the 30 days period either terminate this Agreement and receive a return of the Exercise Deposit or accept title in the condition tendered and proceed to close the purchase and sale. In such case, CDC shall not be entitled to a return of the Option Payment or to recover damages or seek any other remedies. 3.01.5 Estrella's Deposit of Documents and Funds. Estrella shall deposit or cause to be deposited the following into Escrow before the Closing Date for delivery to CDC: (a) The Deed duly executed and acknowledged by Estrella; (b) Counterpart original of the assignment and assumption agreement, in the form attached as Exhibit D, duly executed and acknowledged by Estrella; (c) A certificate executed by Estrella in the form attached as Exhibit E representing that all representations and warranties made by Estrella under this Agreement are true and correct as of the Closing Date; 12 17 (d) A duly executed certification in the form attached as Exhibit F representing that neither Estrella, nor any party with any interest in Estrella, has or shall receive any brokerage commission or finder's fee paid or to be paid in connection with the sale of the Property to CDC; (e) A Nonforeign Certification duly executed by Estrella as of the Closing Date; and (f) The Grant of Easement and Declaration of Covenants, duly executed and acknowledged by Shorecliffs Golf Course, Inc. or its successor in interest, as required by Section 8.03. (g) Such additional documents, including written escrow instructions consistent with this Agreement, as may be reasonably required for conveyance of the Property to CDC in accordance with this Agreement. 3.01.6 CDC's Deposit of Documents and Funds. CDC shall deposit or cause to be deposited the following into Escrow for delivery to Estrella on or before the Closing Date: (a) Sums sufficient to close the purchase of the Property; (b) A certificate executed by CDC affirming that all representations and warranties made by CDC under this Agreement are true and correct as of the Closing Date; and (c) The letter of credit for $1,500,000 (hereinafter "B-W Letter of Credit") held by the City as security for certain obligations under the Settlement/Development Agreement, or in lieu thereof, a letter of credit in the amount of $1,500,000 13 18 in favor of Borg-Warner corporation which, by its terms, may be drawn on if the City makes demand upon Estrella or Shorecliffs Golf Course, Inc. to perform the obligations secured under the Settlement/Development Agreement, or if the B-W Letter of Credit is drawn on by the City. (d) Counterpart original of the assignment and assumption agreement, in the form attached as Exhibit D, duly executed and acknowledged by CDC. (e) The improvement bonds held by the City as security for Estrella's obligations under the subdivision agreement for the Affordable Housing Site and the Commercial Site, or in lieu thereof, a bond or other security reasonably satisfactory to Estrella which shall indemnify Estrella and BorgWarner Corporation if the City makes demand upon such bonds or upon Estrella to perform its obligations secured under such subdivision agreements relative to the installation of subdivision improvements in the Commercial Site and the Affordable Housing Site, and Estrella shall be responsible for maintaining bonds required by the City for other real property covered by such subdivision agreement. (f) Such additional documents, including written escrow instructions consistent with this Agreement, as may be reasonably required for conveyance of the Property in accordance with this Agreement. 3.01.7 Closing Costs and Prorations. (a) Estrella shall pay the cost of a CLTA Owner's Form title insurance policy, any documentary transfer taxes, and one-half of any escrow fees. CDC shall pay the 14 19 difference between the cost of the Title Policy and the cost of a CLTA title policy, all recording fees, and one-half of any escrow fees. All other Closing costs shall be paid in accordance with the custom of the County. (b) All real property taxes and interest on assessments, whether payable in installments or not, including without limitation all supplemental taxes for the fiscal year in which the Closing occurs, shall be prorated as of the Closing Date. It is understood that CDC shall be responsible for paying any supplemental taxes levied and assessed as a result of the sale of the Property or applicable to the period after the Closing (it being understood that Estrella shall be responsible for paying such supplemental taxes for the period before Closing). If the amount of taxes or charges applicable to any portion of the Property cannot be determined as of the Closing Date because the assessed value of the Property or the tax rate affecting the Property has not been determined or publicly announced, or portions of the Property have not yet been segregated for tax purposes, or for any other reason, then a proration shall be made based upon the Title Company's best estimate of the taxes or charges applicable to the Property and an adjustment outside of escrow shall be made between the parties upon written request of either party when the correct amount of taxes or charges becomes known. All utility charges accrued up to the Closing Date shall be paid by Estrella. 15 20 ARTICLE 4 INVESTIGATION OF PROPERTY 4.01. As Is With All Faults Conveyance. CDC acknowledges and agrees the Property is being optioned and sold by Estrella in an AS IS, WITH ALL FAULTS condition. CDC and Estrella have previously executed and entered into a non binding Letter of Intent dated July 20, 1988, attached hereto as Exhibit K, pursuant to which CDC was allowed to pursue its own independent analysis and due diligence inspection of the Property and Development Entitlements. Under said Letter of Intent CDC was granted access to the Property, Title Reports, Settlement/Development Agreement, Specific Plan, Wastewater Agreement, the proposed City Regional Circulation, Financing and Phasing Program and the Development Entitlements within the possession of Estrella. CDC was also granted access to the Property consultants including, but not limited to, Tierra Planning & Design, Madole & Associates, the attorneys for Estrella (Menke, Fahrney & Carroll), as well as the officials of the City. Estrella has, during the term of the Letter of Intent, provided to CDC certain information as to the Property, but, with the express understanding that CDC should do its own investigation and analysis and come to its own conclusions as to any such information. Estrella has also allowed CDC to take an active part relating to certain matters affecting the Property, including but not limited to: (i) Estrella has delivered a Letter of Authorization, attached hereto as Exhibit L, to the City Planning Commission which authorized CDC to submit information or applications on behalf of Estrella with respect to both the 16 21 existing 155 allocations and the pending application for allocations for the balance of the units in Tentative Tract Map 12895 and (ii) Estrella has authorized CDC to submit an Outline of Proposed Development Agreement, attached hereto as Exhibit M, to the City. 4.02. Disclaimer of warranties. Estrella makes no warranty, representation or guarantee as to CDC's ability to successfully obtain the allocations referenced in the Letter of Authorization or as to the willingness of the City to enter into a development agreement. Except for the express representations and warranties of Estrella contained in Article 5, CDC is acquiring the Property "as is" and without any warranty of Estrella, express or implied, as to the Property or fitness of any of the Property for CDC's use. EXCEPT FOR OBLIGATIONS CONTAINED IN THIS AGREEMENT OR REPRESENTATIONS CONTAINED IN ARTICLE 5, NEITHER ESTRELLA NOR ANY PERSON ACTING FOR OR WITH ESTRELLA HAS MADE OR DOES MAKE ANY STATEMENT, AFFIRMATION, REPRESENTATION OR WARRANTY UPON WHICH CDC SHOULD RELY, WHETHER EXPRESS OR IMPLIED, AS TO THE PROPERTY INCLUDING, BUT NOT LIMITED TO, ANY ITEM OF PERSONAL PROPERTY OR AS TO THE CONDITION, QUALITY, OPERATING CHARACTERISTICS OR RELIABILITY OF SUCH PROPERTY, OR AS TO ITS SUITABILITY FOR ANY GENERAL OR PARTICULAR PURPOSE, WHATSOEVER, AND ANY AND ALL WARRANTIES IMPLIED BY LAW, INCLUDING, BUT NOT LIMITED TO, ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED AND EXCLUDED. 4.03 Authorization By Estrella to CDC. Subject to the limitations contained in Section 4.04 of this Agreement, during the 17 22 term of this Agreement, provided the Monthly Option Fees are paid to Estrella and provided that the Option has not been terminated, Estrella authorizes CDC to proceed as follows: 4.03.1 CDC can proceed with its activities as outlined in the Letter of Authorization. 4.03.2 CDC can proceed with its efforts to obtain the City approval of its proposed development agreement; provided, however, the development agreement shall not adversely affect the rights of Estrella under the Settlement/Development Agreement. 4.03.3 Estrella shall allow CDC, on behalf of Estrella, to process a final subdivision map for a portion of Tentative Tract 12895 containing a total of 161 lots and permitting construction of not less than 155 market-rate single-family residences, five (5) model homes and an adjacent parking lot, and to process other final subdivision maps with respect to tentative Tract 12895. 4.03.4 CDC may proceed with further inspections, due diligence, and other activities related to Section 4.03.1 through 4.03. 4.04 Limitations on CDC Rights. While Estrella shall allow CDC, during the term of the option, to proceed as set forth in Section 4.03, Estrella's authorization to CDC is expressly subject to the following terms and conditions: 4.04.1 CDC may proceed to enter upon the Property as set forth in, and subject to, Section 10.07. 4.04.2 To the extent CDC proceeds with the activities authorized by Estrella under Sections 4.03.1 through 18 23 4.03.4 above, such activities shall be at CDC's sole cost and expense, including without limitation, the costs and expenses of the property consultants, agents, contractors and subcontractors engaged by CDC with respect to such activities. 4.04.3 In connection with CDC's activities under Sections 4.03.1 through 4.03.4, above, Estrella may be requested to enter into agreements with the City or other parties, or to undertake certain commitments or obligations which would be binding on Estrella or the Property, even if CDC does not exercise the Option and close the purchase of the Property (hereinafter called "Binding Agreements"). Estrella shall be under no obligation to enter into any Binding Agreements, even if Estrella's refusal to enter into the Binding Agreements results in CDC's inability to continue and/or successfully complete its activities under Sections 4.03.1 through 4.03.4 above; except Estrella shall not act unreasonably in refusing to enter into any Binding Agreement or unreasonably delay in doing so upon request of CDC. If requested by CDC, Estrella shall affirm in writing to third parties, including the City, its approval of the cost allocations in the traffic plan approved by the City at the City Council meeting of November 2, 1988. 4.04.4 CDC shall not record any final subdivision maps with respect to Tentative Tract Map 12895, or any portion thereof. 4.04.5 CDC shall indemnify, defend and hold Estrella harmless from and against any and all claims, losses, liabilities, damages or expenses, including but not limited to 19 24 reasonable attorneys fees and costs of defense, arising in whole or in part out of a breach by CDC of its obligations under Section 4.03 or 4.04. 4.05 Right to Work Product. As part of the consideration for the grant of option, if CDC does not exercise the option or close the purchase of the Property, it shall promptly furnish to Estrella at CDC's expense copies of the Work Product and assign to Estrella all of CDC's right, title and interest therein. ARTICLE 5 ESTRELLA'S REPRESENTATIONS AND WARRANTIES 5.01. Representations and Warranties. Estrella makes the following representations and warranties for the benefit of CDC: 5.01.1 Condemnation. Estrella has not received written notice of any actions by the City or any other governmental agency to condemn any portion of the Property by action of eminent domain. 5.01.2 Authorization. This Agreement and all other documents delivered by Estrella to CDC (a) have been or will be duly authorized, executed and delivered by Estrella, (b) are legal, valid and binding obligations of Estrella and, with respect to those documents that are instruments of conveyance, are sufficient to convey title and (c) are enforceable in accordance with their respective terms. Estrella is a limited partnership duly formed and validly existing under the laws of the State of California. 20 25 5.01.3 Hazardous Wastes. To Estrella's Best Knowledge, Estrella has not used or installed any underground tank, or used, generated, manufactured, treated, stored, placed, deposited or disposed of any Hazardous Materials on or about the Property or transported any Hazardous Materials to or from the Property and Estrella has not received any written notice from any state or federal agency concerning the violation of any laws or regulations relating to Hazardous Materials on the Property. ARTICLE 6 CDC'S REPRESENTATIONS AND WARRANTIES 6.01. Representations and Warranties. CDC represents and warrants that this Agreement and all other documents delivered by CDC to Estrella (a) have been or will be duly authorized, executed and delivered by CDC, (b) are legal, valid and binding obligations of CDC and (c) are enforceable in accordance with their respective terms. CDC is a limited partnership formed and validly existing under the laws of the State of Delaware. ARTICLE 7 EFFECT OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 7.01. Effect of Representations and Warranties. Each representation and warranty contained in Articles 5 and 6, respectively, (a) shall survive for a period of one year after the Closing Date and not merge with the delivery to CDC of the Deed, (b) is material and is being relied upon by the other party, 21 26 (c) is true in all material respects as of the Effective Date and (d) shall be true in all material respects on the Closing Date. 7.02. Indemnification. CDC and Estrella each shall indemnify, defend and hold the other party, harmless from and against any and all claims, losses, liabilities, damages, or expenses, including without limitation reasonable attorneys' fees and costs of defense, arising in whole or in part, out of the breach or untruth of any representation, warranty or covenant contained in Article 5 and Article 6 of this Agreement. ARTICLE 8 CDC's REQUIREMENTS AND ESTRELLA'S COVENANTS 8.01. CDC's Pre-Conditions. In purchasing the Property, CDC is relying on its ability to develop the Property substantially in accordance with the Specific Plan, and to obtain the approvals from the City necessary for the residential development of 2,200 units and the commercial development of 55 acres on the Property. Accordingly, CDC intends to purchase the Property if the following approvals are obtained on or before the Closing Date: 8.01.1. Final Map. City shall have approved a final subdivision map for a portion of Tentative Tract 12895 containing not less than 161 lots and such map shall be ready for immediate recording; 22 27 8.01.2. Development Allocations. The City shall have granted development allocations in sufficient quantity to permit the issuance of building permits for not less than 397 market-rate single family residences, exclusive of model homes, and, at Closing, such allocations shall be immediately transferable to CDC; 8.01.3. Development Agreement. The City and CDC shall have approved and executed a development agreement for the Property and the statutory referendum period shall have expired without initiation of a referendum; provided, however, the development agreement shall provide for termination if the purchase and sale shall fail to close as provided in this Agreement; and 8.01.4. General Plan Amendment. The City shall have amended its General Plan to the extent required to bring it into compliance with law. 8.02. Golf Course Easement. On or before the Closing Date, Estrella shall cause Shorecliffs Golf Course, Inc. (or its successor-in-interest as owner of the Golf Course) to execute and record a Grant of Easement and Declaration of Covenants in substantially the form attached hereto as Exhibit H providing for, among other things, a grant of easement in favor of CDC for construction and installation of, and access to, an enclosed box culvert storm drain across a portion of the Golf Course (which easement may be assigned to the County Flood Control District). In addition, before Closing, Estrella shall cause any beneficiary under any deed of trust encumbering the Golf Course to subordinate 23 28 to the Grant of Easement and Declaration of Covenants in form satisfactory to CDC. 8.03. SDG&E Site Relocation. Estrella shall not enter into any agreement with San Diego Gas & Electric Company ("SDG&E") relocating the substation site of SDG&E near the entrance to the Forster Ranch without the written approval of CDC, which approval shall not be unreasonably withheld or delayed. Upon Closing CDC shall assume Estrella's obligations under any such agreement. 8.04. Green Belt. Estrella, at its sole cost and expense, shall maintain the approximately 12-acre linear greenbelt (hereinafter called the "Greenbelt") described on Exhibit I attached in an attractive and healthy condition until such time as the Greenbelt is transferred to and accepted for ownership and maintenance by a homeowners association, or until Closing, whichever shall first occur. If the Greenbelt has not been conveyed to a homeowners association by Closing, then CDC shall accept title to the Greenbelt and Estrella shall have no further obligations relating thereto. Estrella shall continue its efforts to convey the Greenbelt to a homeowners association until Closing. 8.05. Alterations. Estrella shall not make any material alterations to the physical condition of the Property without CDC's prior written consent, which consent shall not be unreasonably withheld or delayed. 8.06. Cooperation. Estrella shall continue to cooperate with CDC and its agents and consultants in CDC'S: (i) investigation of the Property, (ii) efforts to negotiate with the City and other public agencies relating to development of the 24 29 Property and obtaining Development Entitlements, (iii) efforts to eliminate any title defects that may affect the Property, and (iv) efforts to work with other builders and developers in mutual resolution of any issues affecting the Property. Such cooperation shall include, but not necessarily be limited to, assisting CDC in meeting the requirements contained in Section 8.01, attending meetings with the City regarding development of the Property, providing information concerning the history and background of the Property, providing letters to the City and other public agencies in support of resolving traffic and other development impacts to the Property, assistance in obtaining approval of public agencies for the storm drain and related improvements over the Golf Course, and assistance in relocating the SDG&E substation. Notwithstanding any failure of Estrella to cooperate as provided herein, CDC expressly acknowledges and agrees that neither the term of the Option nor the time of Closing shall be extended and CDC shall have no right to refund of the option Payment or Monthly Option Fees due to its failure to cooperate and CDC's exclusive remedy for any breach of this Section 8.06, shall be to proceed under Section 10.12, but nothing herein contained shall be construed to limit the damages available. Estrella shall not be in default of its obligations under this Section 8.06 unless such failure to cooperate is in bad faith and unless it has received from CDC at least five business days' written notice of failure to cooperate and Estrella fails to cure its failure to cooperate within such five-business-day period; provided, however, that after 25 30 two such defaults have occurred and been cured, Estrella shall have no further right to cure. 8.07 No Representation or Warranty. Estrella makes no warranty, representation, or guarantee as to CDC's ability to satisfy the requirements or obtain the approvals from the City as provided in this Article 8. The failure of such requirements to be satisfied or approvals to be obtained shall not extend the term of the Option or time of Closing, and shall not give CDC any right to receive a refund of the Option Payment or Monthly Option Fees. ARTICLE 9 ASSIGNMENT OF DEVELOPMENT RIGHTS AND OBLIGATIONS 9.01. Settlement/Development Agreement. Estrella shall assign to CDC, effective as of the Closing Date, all its rights in and to the Settlement/Development Agreement and CDC shall assume Estrella's obligations thereunder; provided, however, that CDC shall not assume any obligations under Sections 305D (dedication and landscaping of park site located in Development Area), 312 (Golf Course obligations), 501.1 (dismissal of lawsuits) or any other sections of the Settlement/Development Agreement which affects only that portion of the Development Area not included within the Property and such obligations shall remain the obligations of Estrella or the owner of the Golf Course, as the case may be. 9.02. Tentative Tract 12895. Estrella shall assign to CDC, effective as of the Closing Date, all its rights in and to Tentative Tract Map 12895 and all Development Entitlements 26 31 thereunder, including, without limitation, any final subdivision maps, development allocations, building permits, and grading permits issued or initiated thereunder, and any application for any of the foregoing. 9.03. Wastewater Treatment Capacity. Estrella shall assign to CDC, effective as of the Closing Date, all its rights in and to the Wastewater Agreement including, but not limited to, the allocation of wastewater treatment capacity designated for the Forster Ranch, and CDC shall assume Estrella's obligations thereunder. 9.04. Litigation. Estrella shall assign to CDC effective as of the Closing Date, all of its rights in and to the lawsuits described in Exhibit G and, upon request of CDC, Estrella shall execute and deliver to CDC a substitution of legal counsel and such other documents as may be required by CDC to substitute itself in place of Estrella in such lawsuits and CDC shall accept such assignment. CDC shall indemnify, defend and hold Estrella harmless from and against any and all claims, damages, liabilities and expenses (including, without limitation, actual attorneys' fees and costs of defense) arising out of such litigation; provided, however, Estrella shall be liable (and CDC shall have no responsibility for) any of Estrella's attorney's fees, expert and consultant fees, or any other costs or expenses related to the lawsuits incurred before the Closing. Nothing contained in this Agreement is intended to limit Estrella's control or conduct of the litigation described in Exhibit G. 27 32 9.05. Subdivision Agreements. Estrella shall assign to CDC effective as of the Closing Date, all of its rights in and to the subdivision agreement dated August 15, 1984 between Estrella and the City to the extent it affects the Commercial Site and the Affordable Housing Site (but not as to any other real property) in force as of the Effective Date, and at Closing, CDC shall assume Estrella's obligations thereunder as to the Affordable Housing Site and the Commercial Site and substitute subdivision improvement bonds in place of those which have been posted by Estrella with respect to subdivision improvements to be made for the Commercial Site and the Affordable Housing Site, but Estrella shall maintain bonds relating to any other real property covered by such subdivision agreement. 9.06. Other Rights. Estrella shall assign to CDC, effective as of the Closing Date, all its rights in and to that certain lease dated January 2, 1987, between Estrella and Rams Manufacturing, Inc., relating to the grazing of livestock on the Property, and any Development Entitlements, except as they may pertain to Excluded Property. Upon written request of Estrella, Estrella shall give notice of termination to the lessee under such lease, as provided under Paragraph 4 of such lease. 9.07. Indemnities. CDC shall indemnify, defend, and hold Estrella harmless from and against any and all claims, damages, liabilities and expenses (including, without limitation, actual attorneys' fees and costs of defense) arising from or in any way related to CDC's failure after Closing to perform obligations it assumes under the Settlement/Development Agreement, Wastewater 28 33 Agreement, the Subdivision Agreement, or the lease and Development Entitlements referred to in Section 9.06. ARTICLE 10 GENERAL 10.01. LIQUIDATED DAMAGES. EXCEPT AS PROVIDED IN SECTION 10.02, IF CDC DEFAULTS IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, ESTRELLA, BY WRITTEN NOTICE TO CDC, SHALL MAKE DEMAND FOR PERFORMANCE, AND IF CDC SHALL FAIL TO PERFORM WITHIN FIFTEEN (15) BUSINESS DAYS AFTER RECEIPT OF SUCH DEMAND, ESTRELLA MAY TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO CDC. UPON SUCH TERMINATION, ESTRELLA SHALL BE ENTITLED TO RETAIN THE EXERCISE DEPOSIT AS LIQUIDATED DAMAGES. ESTRELLA AND CDC ACKNOWLEDGE AND AGREE THAT DETERMINING ESTRELLA'S ACTUAL DAMAGES, IN THE EVENT OF AN UNCURED DEFAULT BY CDC, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE. THEREFORE, IN THE EVENT OF AN UNCURED DEFAULT BY CDC, THE PARTIES HAVE AGREED THAT, AFTER NEGOTIATION, THE EXERCISE DEPOSIT SHALL CONSTITUTE ESTRELLA'S SOLE AND EXCLUSIVE REMEDY, AND THAT THIS SUM REPRESENTS A REASONABLE ESTIMATE OF THE ACTUAL DAMAGES ESTRELLA WOULD INCUR IN THE EVENT OF AN UNCURED MATERIAL DEFAULT BY CDC. BY INITIALING IN THE SPACES WHICH FOLLOW, ESTRELLA AND CDC SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE BY THE TERMS AND PROVISIONS OF THIS SECTION 10.01 GOVERNING LIQUIDATED DAMAGES, AND ESTRELLA WAIVES ANY RIGHT TO SPECIFICALLY ENFORCE THIS AGREEMENT. IT IS EXPRESSLY UNDERSTOOD THAT ANY PAYMENT OF LIQUIDATED DAMAGES UNDER THIS SECTION 10.01 SHALL BE IN ADDITION TO 29 34 PAYMENT TO ESTRELLA OF THE OPTION PAYMENT, THE MONTHLY OPTION FEES, AND THE WORK PRODUCT. ESTRELLA: /s/ DS CDC: /s/ J 10.02 Recovery on Indemnities. Nothing contained in Section 10.01 shall preclude or limit recovery by Estrella under the indemnity covenants of CDC as provided in Sections 4.04.5, 7.02, 9.07, 10.03, 10.06, 10.07 and 10.14 of this Agreement. 10.03. Indemnity. Estrella shall indemnify, defend and hold CDC harmless from and against any and all claims, damages, liabilities or expenses (including reasonable attorneys' fees and costs of defense) for personal injury or damage to property of others occurring on the Property before the Closing. CDC shall indemnify, defend and hold Estrella harmless from and against any and all claims, damages, liabilities or expenses (including reasonable attorneys' fees and costs of defense) for personal injury or damage to property of others occurring on the Property after the Closing. 10.04. Eminent Domain. If before Closing all or any material portion of the Property is taken by eminent domain, or any public authority having the power of eminent domain threatens to take all or any material portion of the Property, CDC shall have the right to terminate this Agreement by written notice to Estrella and recover the Exercise Deposit. If CDC does not elect to terminate this Agreement because of such taking or threatened taking, the purchase and sale shall close, CDC shall have the right 30 35 to any award made by the condemning authority, and Estrella shall immediately assign to CDC its right to such award. Estrella shall notify CDC of any action or threatened action to condemn all or any part of the Property within fifteen business days after first receiving written notice of same. For purposes of this Section 10.04, a "material" portion of the Property shall mean a taking of (a) more than ten percent (10%) of the real property, (b) a means of access to the Property, unless alternative means of access exist which in CDC's judgment are adequate to serve the Property or (c) 10% or more of the dwelling units that may be constructed on the Property or 20% or more of the buildable area of the Commercial Site. If any nonmaterial portion of the Property is taken by eminent domain before the Closing Date, CDC shall complete the purchase of the Property, and shall have the right to any award made by the condemning authority, and Estrella shall assign to CDC its right to any such award. 10.05. Notice. Every notice, demand, request, designation, consent, approval or other document or instrument delivered pursuant to this Agreement shall be in writing, and shall be either personally delivered, sent by Federal Express or other reputable overnight courier, sent by facsimile transmission with the original subsequently delivered by other means, or sent by registered or certified United States mail, postage prepaid, return receipt requested, to the address set forth below, or to such other address as a party may designate from time to time: To CDC: Centex Development Company, L.P. 5928 Pascal Court, Suite 213 Carlsbad, CA 92009 Attn: Ron Brent 31 36 Phone Number: (619) 431-9228 Facsimile: (619) 431-0721 With a copy to: Raymond G. Smerge 3333 Lee Parkway, Suite 1200 P. 0. Box 19000 Dallas, Texas 75219 Phone Number: (214) 559-6500 Facsimile: (214) 522-7568 With a copy to: McCutchen, Doyle, Brown & Enersen Three Embarcadero Center San Francisco, CA 94111 Attn: Robert E. Merritt, Jr. Phone Number: (415) 393-2000 Facsimile: (415) 393-2286 32 37 To Estrella: Estrella Properties, Ltd. 33971 Selva Road, Suite 260 Laguna Niguel, California 92677 Attn: Darrel M. Spence Phone Number: (714) 496-7770 With a copy to: Leonard M. Klehr, Esq. Klehr, Harrison, Harvey, Branzburg, Ellers & Weir 1401 Walnut Street Philadelphia, PA 19102 Phone Number: (215) 568-6060 Facsimile: (215) 568-6603 With a copy to: D. William Wagner, Esq. Sidley & Austin 2049 Century Park East, #3900 Los Angeles, CA 90067 Phone Number: (213) 556-6421 Facsimile: (213) 556-6502 With a copy to: Patrick D. Carroll Menke, Fahrney & Carroll 650 Town Center Drive, #1850 Costa Mesa, CA 92626 Phone Number: (714) 556-7111 Facsimile: (714) 566-6426 Written notices served by registered or certified mail shall be deemed delivered 48 hours after the date mailed. Other notices shall be effective upon delivery. 10.06. Commissions; Indemnity. CDC shall indemnify, defend and hold Estrella harmless from and against all claims, liability, damages and expenses (including, without limitation, actual attorneys' fees and costs of defense) for fees or other compensation claimed due to any broker, salesman or finder based on any agreement or commitment made or alleged to have been made by CDC. Estrella shall indemnify, defend and hold CDC harmless from and against all claims, liability, damages and expenses (including, without limitation, actual attorneys' fees and costs of defense) for fees or other compensation claimed due to any broker, salesman 33 38 or finder based on any agreement or commitment made or alleged to have been made by Estrella. 10.07. Right of Entry. At any time before Closing, CDC and its authorized representatives, agents, employees and contractors shall have the right to enter upon the Property for purposes of inspecting the Property, conducting tests and studies, preparing surveys and maps and all other purposes reasonably related to the proposed acquisition and development of the Property. CDC shall (a) exercise reasonable care in connection with any such entry and activities upon the Property, (b) keep the Property free of liens and (c) indemnify Estrella against any claims, damages, liabilities or expenses resulting from CDC's exercise of its rights under this Section 10.07. 10.08. Entire Agreement. This Agreement, including the exhibits attached hereto, is intended by the parties as a final expression of their agreement with respect to the subject matter contained in this Agreement and this Agreement shall supersede any prior agreements oral or written. 10.09. Amendments and Waivers. No amendment to this Agreement shall be effective unless set forth in writing signed by both parties. 10.10. Governing Law. This Agreement shall be governed by the laws of the State of California applicable to contracts made and to be performed in California. 10.11. Confidentiality and Publicity. A signed, redacted copy of this Agreement may be delivered by either party to the City and a full copy to any prospective lender of CDC and 34 39 the partners of either party. In all other respects, the parties shall at all times keep this transaction and any documents received from each other confidential, except to the extent necessary to (a) comply with applicable law and regulations or (b) carry out the obligations set forth in this Agreement. Any disclosure to third parties shall indicate that the information is confidential and should be so treated by the third party. No press release or other public disclosure shall be made by either party or any of its agents concerning this transaction without the prior written consent of CDC. 10.12 Remedies. The remedies of Estrella for a default under this Agreement by CDC are addressed in Sections 10.01 and 10.02 and these rights constitute the exclusive remedies available to Estrella. If Estrella defaults in the performance of any of its covenants or obligations under this Agreement, including breaches of any of its representations or warranties made in this Agreement, CDC shall have as its exclusive remedy the right to: (i) proceed to close the purchase and sale of the Property, in which case CDC shall be deemed to have waived all claims for damages for defaults, including breaches of representations or warranties to the extent such matters were known or disclosed to CDC at, or prior to, Closing, or seek specific performance of this Agreement if Estrella shall fail or refuse to close, provided that this remedy shall be available only on the conditions contained below in this Section 10.12; or (ii) recover the Exercise Deposit and, subject to Section 10.13, any and all damages for such default as may be available to CDC under the law, but without limiting the foregoing, if the 35 40 default consists of the failure of Estrella to close the purchase and sale or to remove any liens or delinquent taxes against the Property as provided in Section 3.01.4, or the creation of a defect in title by the affirmative act of Estrella after the dates of the Title Reports as provided in Section 3.01.4, CDC shall be entitled to a refund of the Option Payment. In order to be entitled to seek specific performance under this Agreement and to file a lis pendens with respect to the Property, CDC shall have: (i) timely exercised the Option as required in Section 2.05; (ii) deposited into Escrow before March 31, 1989, all deposits required under Section 3.01.6 (provided, however, CDC shall be entitled to withdraw such funds and documents three (3) days after tender has been made, unless Estrella shall perform by completing the sale of the Property as provided in the Agreement); and (iii) tendered waiver of all conditions for Closing, except performance of any covenants of Estrella under Sections 3.01.1, 3.01.2, 3.01.3, 3.01.5, 3.01.6, 3.01.7, Article 9, and the obligation of Estrella to pay any delinquent taxes and remove liens from the Property out of the proceeds of sale as contained in Section 3.01.4. 10.13 Limitation on CDC Damages and Indemnities. With respect to any default by Estrella under this Agreement, except the failure of Estrella to make all deposits as required by Section 3.01.5, or the creation of a defect in title by the affirmative act of Estrella after the date of the Title Report as provided in Section 3.01.4 or the failure of Estrella to remove any liens or pay delinquent taxes as provided in Section 3.01.4, CDC shall only 36 41 be entitled to recover its out-of-pocket expenses as damages. Nothing contained in Section 10.12 shall preclude or limit recovery by CDC under the indemnity covenants of Estrella as provided in Sections 7.02, 10.03, 10.06, and 10.14 of this Agreement. 10.14. Attorneys' Fees. In the event of any legal proceeding for enforcement of any of the terms or conditions of this Agreement, the prevailing party in such action, or the nondismissing party where the dismissal occurs other than by reason of a settlement, shall be entitled to recover its reasonable costs and expenses, including without limitation reasonable attorneys' fees and costs. The "prevailing party," for purposes of this Agreement, shall be deemed to be that party which obtains substantially the result sought, whether by dismissal or judgment. 10.15. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns. Neither party shall have any right to assign their interest in this Agreement, except at the Closing or except to an Affiliate. As used herein "Affiliate" shall mean an entity controlled by, or under common control with, either party, or partners of a party having at least a 20% interest in equity. 10.16. Further Assurances. CDC and Estrella each, at any time before or after Closing and at their own expense, shall execute, acknowledge and deliver any further deeds, assignments, conveyances and other assurances, documents and instruments of transfer reasonably requested by the other party, and shall take 37 42 any other action consistent with the terms of this Agreement for the purpose of carrying out the intent of this Agreement. 10.17. Memorandum of Option. A memorandum of this Agreement in the form attached hereto as Exhibit J shall be recorded in the official records of the County contemporaneously with the execution of this Agreement. 10.18. No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any person other than the parties to it and their respective permitted successors and assigns, nor is anything in this Agreement intended to relieve or discharge any obligation of any third person to any party hereto or give any third person any right of subrogation or action over against any party to this Agreement. 10.19. Counterparts; Exhibits. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The exhibits attached to this Agreement are incorporated herein and made a part hereof by this reference. 10.20. Headings. The headings used in this Agreement are for descriptive purposes only and shall not be used in the interpretation or construction of this Agreement. 10.21 Time. Time is of the essence of each and every term of this Agreement. 38 43 ARTICLE 11 SPECIAL REMEDIES 11.1 Reference Provision. 11.1.1 Each controversy, dispute or claim between the parties arising out of or relating to this Agreement, which controversy, dispute or claim is not settled in writing within thirty (30) days after the "Claim Date" (as hereinafter defined), will be settled by a reference proceeding in Orange County, California, in accordance with the provisions of Sections 638, et seq., of the California Code of Civil Procedure, or their successor sections ("CCP"), which shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding, and the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court of Orange County (the "Court"). The referee shall be a retired Judge of the Court selected by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Dates, the referee shall be promptly selected by the Presiding Judge of the Orange County Superior Court (or his representative). The referee shall be appointed to sit as a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one preemptory challenge pursuant to CCP 170.6. The referee shall: (a) be requested to set the matter 39 44 for hearing within sixty (60) days after the Claim Date; and (b) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive, and judgment shall be entered pursuant to CCP 644 in any court in the State of California having jurisdiction and be subject to review as provided in CCP 645. Any party may apply for a reference at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim (the "Claim Date"), by filing a petition for a hearing or trial. All discovery permitted by this Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon fifteen (15) days' written notice, and requests for production or inspection of documents shall be responded to within twenty (20) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee. 11.1.2 Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted, including the time and place of all hearings, the order or presentation of evidence, and all other 40 45 questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter at the trial, which payment shall be borne equally by the parties. 11.1.3 The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding which shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to findings of fact, conclusions of law, a written statement of 41 46 decision, and the right to move for a new trial or a different judgment. IN WITNESS WHEREOF, the parties have executed this Option Agreement the day and year first above set forth. ESTRELLA PROPERTIES, LTD., a California limited partnership By: Shannon Developers, Inc., a California Corporation By: /s/ DARREL SPENCE Darrel Spence, President CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership By: 3333 Development Corporation, general partner By: /s/ RAYMOND G. SMERGE Raymond G. Smerge, Agent and Attorney-In-Fact 42 EX-2.2 12 CDC ADDITIONAL INTEREST AGREEMENT 1 EXHIBIT 2.2 CENTEX DEVELOPMENT COMPANY, L.P. ADDITIONAL INTEREST AGREEMENT THIS ADDITIONAL INTEREST AGREEMENT ("Agreement"), made and entered into this 30th day of March, 1989, by and between CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership, having its principal place of business at 3333 Lee Parkway, Dallas, Texas 75219 (hereinafter referred to as "Owner") and WESTINGHOUSE CREDIT CORPORATION, a Delaware corporation, having its principal place of business at One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania 15219 (hereinafter referred to as "WCC"). W I T N E S S E T H: WHEREAS, WCC has agreed pursuant to a Construction Loan Agreement of even date herewith ("Loan Agreement") to provide financing to Owner on the terms and in the amounts set forth in the Loan Agreement (the "Loan") for the acquisition and improvement of approximately 1,077.2 acres of land located in the City of San Clemente, Orange County, California and more particularly described in Exhibit "A" hereto (the "Premises"); and WHEREAS, the Loan is evidenced by two Promissory Notes (the "Notes") from Owner and is secured by, inter alia, a Construction Deed of Trust ("Deed of Trust"), a Security Agreement ("Security Agreement") and an Assignment of Leases, Rents and Profits ("Assignment of Rents"), an Assignment of Developer's Rights ("Assignment of Developer's Rights"), Assignment of Contracts and Sales Proceeds ("Assignment of Contracts"), and Assignment of Easements and Maintenance Agreements ("Assignment of Easements"), each of even date herewith and each executed by Owner (the Loan Agreement, this Agreement, Notes, Deed of Trust, Security Agreement, Assignment of Rents, Assignment of Developer's Rights, Assignment of Contracts and Assignment of Easements are hereinafter collectively referred to as the "Loan Documents"); and WHEREAS, to induce WCC to make the Loan, Owner has agreed on the terms hereinafter stated to pay, in addition to all amounts due under the Notes, a portion of the Net Sales Proceeds (as hereinafter defined) generated by the Sale or Partial Sale of the Premises (as hereinafter defined), as additional interest. NOW, THEREFORE, in consideration of WCC making the Loan to Owner and other good and valuable consideration, the receipt, sufficiency and adequacy whereof are hereby acknowledged by Owner, the parties hereto agree as follows: 2 1. DEFINITIONS. In addition to the terms defined in the Loan Agreement or elsewhere in this Agreement, the following terms are defined below: (a) "ACCOUNTING PERIOD" refers to (i) a twelve (12) month period from October 1 of a year to September 30 of the following year, commencing with the period October 1, 1993 to September 30, 1994, and continuing with each succeeding twelve (12) month period thereafter to and including October 1, 1999 to September 30, 2000; (ii) the period April 1, 1993 to September 30, 1993; and (iii) the period October 1, 2000 to April 1, 2001. (b) "AFFILIATE": An Affiliate shall mean any Person (as defined below in this subparagraph) which is directly or indirectly controlling, controlled by or under common control with the other Person in question. A "Person" shall mean an individual, a partnership and each of its constituent partners, a trust, a corporation, an unincorporated association, or other entity or association. The term "control" as used in this subparagraph, means: (i) with respect to a Person that is a corporation, the right to the exercise, directly or indirectly, of fifty percent (50%) or more of the voting rights attributable to the shares of the controlled corporation; and (ii) with respect to a Person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person. (c) "APPLICABLE PERCENTAGE" is determined by the date on which escrow closes on a Sale or Partial Sale of the Premises by Owner, and is fifteen percent (15%) if the closing date is during Loan Months 1 through 12, zero percent (0%) if the closing date is during Loan Months 13 through 36, and twenty-five percent (25%) if the closing date is during Loan Month 37 or thereafter. (d) "APPRAISED VALUE": Appraised Value shall mean a value of the Unsold Premises (as hereinafter defined) based upon the following procedure. After WCC's election to accelerate all amounts then unpaid to WCC under the Loan Documents by virtue of an Event of Default (as defined in the Loan Agreement), WCC shall select a MAI Appraiser (the "WCC Appraiser"). The WCC Appraiser, within thirty (30) days of its selection, shall present Owner and WCC with a computation of the Appraised Value based on the fair market value of the Unsold Premises (the "WCC Appraisal"). Owner's failure to provide written notice to WCC of Owner's non-acceptance of the WCC Appraisal (such notice also to include 2 3 the name of another MAI appraiser of Owner's selection (the "Owner's Appraiser")) within fourteen (14) days of Owner's receipt of the WCC Appraisal shall be deemed to be Owner's acceptance of the WCC Appraisal. If Owner does timely provide the foregoing notice, then Owner shall present WCC within thirty (30) days of Owner's receipt of the WCC Appraisal with a computation of the Appraised Value based on the fair market value of the Unsold Premises (the "Owner's Appraisal"). Unless WCC and Owner can otherwise agree on a fair market value of the Unsold Premises, their respective Appraisers shall then mutually agree on and select a third MAI appraiser (the "Third Appraiser") within ten (10) days of being asked by either WCC or Borrower to do so. Neither the WCC Appraiser, the Owner's Appraiser nor the Third Appraiser shall have any direct or indirect financial or other business interest in Owner, WCC or any affiliate of either Owner or WCC. Within thirty (30) days of its selection (and in no event later than twenty-five (25) days prior to a scheduled foreclosure sale of WCC's Deed of Trust) the Third Appraiser shall render a statement of the Appraised Value based on the fair market value of the Premises (the "Third Appraisal"). The average of the Third Appraisal and the closer in amount to it of the WCC Appraisal or the Owner's Appraisal shall then constitute the "Appraised Value" and shall be binding on both Owner and WCC. (e) "GROSS DISBURSEMENTS" shall mean disbursements actually and necessarily made by Owner consistent with a budget approved by WCC in connection with the ownership, maintenance, improvement or sale of all or any part of the Premises. (f) "GROSS SALES PROCEEDS" shall mean all cash proceeds received in connection with a Sale of the Premises or a Partial Sale of the Premises, except as otherwise agreed to by WCC and Owner. (g) "LOAN MONTH" shall mean each consecutive calendar month throughout the term of the Loan until maturity, except that Loan Month one (1) shall be deemed to have begun March 31, 1989 and extended through April 30, 1989. (h) "NET APPRAISED VALUE" is the positive difference between Appraised Value and all amounts (including Additional Interest) then outstanding and unpaid to WCC under the Loan Documents. (i) "NET SALES PROCEEDS" shall mean Gross Sales Proceeds less (i) normal and customary closing costs and (ii) if the Sale or Partial Sale was not to an Affiliate of Owner, reasonable broker's commissions. 3 4 (j) "PARTIAL SALE OF THE PREMISES" shall mean the sale, assignment, transfer, condemnation, conveyance or other disposition, to which WCC consented, covering a portion of the Premises and any of Owner's interest therein. (k) "PARTICIPATION AMOUNT" shall mean the amount resulting from applying the Applicable Percentage to the Net Sales Proceeds. (l) "PERCENTAGE INTEREST" shall mean twenty-five percent (25%) of the Participation Amount, and shall be payable to WCC as provided by this Agreement and the other Loan Documents. The Percentage Interest to which WCC shall be entitled hereunder shall be considered additional interest under the Notes and the other Loan Documents. (m) "SALE OF THE PREMISES" shall mean the sale, assignment, transfer, condemnation, conveyance or other disposition, to which WCC consented, covering the entire Premises (or so much thereof as remaining unreleased from the lien of WCC's Deed of Trust) and all of Owner's interest therein. (n) "UNSOLD PREMISES" shall mean that portion of the Premises which has not been the subject of a Sale or Partial Sale of the Premises. 2. PAYMENT OF ADDITIONAL INTEREST. WCC will earn, upon any Sale or Partial Sale of the Premises, additional interest ("ADDITIONAL INTEREST"). Such Additional Interest shall be computed and payable to WCC as follows: (a) WCC's Additional Interest from a Sale or Partial Sale of the Premises which closes during Loan Months 1 through 48 shall be in an amount equal to WCC's Percentage Interest and paid to WCC upon the closing and from the proceeds of the sale, provided that the Additional Interest from the sale of even date herewith to Centex Real Estate Corporation ("CREC") under the contract described in subparagraph A16 of Exhibit B to the Loan Agreement will be paid to WCC at closing of the sale to CREC in approximately September of 1989 under said contract. Upon payment of Additional Interest, Owner will receive the balance of the Participation Amount relating to such Additional Interest. Provided, however, that if at the time of the closing of the sale an Event of Default under the Loan Documents exists, then the entire Participation Amount shall be applied to repayment of the Loan. 4 5 (b) Additional Interest earned by WCC from a Sale or Partial Sale of the Premises occurring in an Accounting Period, the first of which shall commence with Loan Month 49, shall be in an amount equal to WCC's Percentage Interest and paid to WCC from an advance from the Loan as provided in Section 5.1g of the Loan Agreement. Upon such payment, Owner shall receive from an advance from the Loan the balance of the Participation Amounts for such Accounting Period, as provided in Section 5.1g of the Loan Agreement. Provided, however, that in any event payments to WCC and Owner of Participation Amounts are subject to the limitation that the aggregate of the Participation Amounts payable under this Agreement to WCC and Owner respectively with respect to a given Accounting Period shall not exceed the positive difference, if any, between Net Sales Proceeds and Gross Disbursements in that Accounting Period. To the extent that the aggregate of the Participation Amounts exceeds such difference, neither WCC nor Owner shall be entitled to receive any part of such excess portion of the Participation Amounts. Provided, further, that if at the time the advance provided for in Section 5.1g of the Loan Agreement is to be made an Event of Default under the Loan Documents exists, then no Participation Amount shall be payable to either WCC or Owner and no advance for such payment shall be made. (c) To the extent that the Net Sales Proceeds from a Sale or Partial Sale of the Premises occurring in any Loan Month exceeds the then outstanding balance on the Loan (exclusive of any Additional Interest which may be due from such Sale), in addition to Additional Interest under subparagraphs 2(a) and 2(b) of this Agreement, Additional Interest in an amount equal to twenty-five percent (25%) of such excess shall be paid to WCC upon the closing and form the proceeds of the sale, and the remainder of that excess shall be paid to Owner. (d) Attached hereto as Exhibit B and incorporated by reference is a chart which is illustrative of how Additional Interest is to be paid. 3. TERMINATION. WCC shall cease to earn Additional Interest after the earlier of (a) a Sale of the Premises, or (b) March 31, 1993, if Lender provides Borrower with notice as set forth in subpart (c) of Section 5.6 of the Loan Agreement. Prior to the occurrence of the first of these events, a full repayment of all amounts then outstanding under the Loan shall not act as a termination of this Agreement. 5 6 4. PROCEDURE IF DEFAULT AND ACCELERATION OF LOAN. In the event of the occurrence of an Event of Default (as defined in the Loan Agreement) and the election by WCC to accelerate all outstanding amounts under the Loan Documents: (a) If WCC causes to be completed a judicial or non-judicial foreclosure sale of the Premises, then WCC shall also be entitled to payment of twenty-five percent (25%) of the Net Appraised Value, and upon such payment, WCC shall cease to earn any further Additional Interest; (b) If, prior to completion of a judicial or non-judicial foreclosure sale of the Premises, WCC is paid all amounts outstanding to WCC under the Loan Documents, then (i) If the Event(s) of Default was not based on an occurrence other than those set forth in subparts g, j or p of Section 7.1 of the Loan Agreement, then WCC shall cease to earn any further Additional Interest; (ii) If the Event(s) of Default was based on an occurrence other than those set forth in subparts g, j or p of Section 7.1 of the Loan Agreement, then WCC shall continue to earn Additional Interest under this Agreement through and including such time as there has been a Sale of the Premises, except that notwithstanding anything to the contrary in paragraph 2 of this Agreement, the earning, computation and payment of such Additional Interest shall be as follows: Additional Interest shall be equal to twenty-five percent (25%) of cash received by Owner from a Sale or Partial Sale of the Premises after satisfaction of current debt service and related monetary obligations under a deed of trust to which WCC subordinated the lien of its Deed of Trust pursuant to Paragraph 42 thereof, and shall be paid to WCC by Owner within ten (10) days of Owner's receipt thereof. Furthermore, in the event WCC gives Owner notice pursuant to Section 4 of the Deed of Trust to repay all amounts outstanding under the Loan, provided Owner does so within the one hundred eighty (180) day period provided for in Section 4 of the Deed of Trust, then upon such payment WCC shall cease to earn any further Additional Interest. 6 7 5. REPORTING REQUIREMENTS. (a) Owner agrees to notify WCC at least ten (10) days in advance of any proposed Sale or Partial Sale of the Premises. The written notice to WCC shall include all pertinent terms of the proposed transaction and shall include an estimate of the amount of the Additional Interest to be earned. No Sale or Partial Sale of the Premises shall take place or be entered into without the prior written consent or preapproval (as provided in Section 8.1 of the Loan Agreement) of WCC. (b) Within twenty (20) days after the end of an Accounting Period, Owner shall furnish WCC with a report, as referred to in Section 5.1g of the Loan Agreement, with such detail as WCC may reasonably require, of the Gross Sales Proceeds, Gross Disbursements and earned Additional Interest relating to that Accounting Period. (c) WCC may require Owner, from time to time hereafter, in addition to, and not in derogation of, any reporting or auditing requirements under the Loan Documents, to give WCC such other information as may be reasonably required to verify the correctness of the payments received by WCC pursuant to this Agreement. (d) Owner agrees to cooperate with WCC should WCC or its agents wish to discuss the affairs, finances and accounts of Owner, and Owner agrees to inform WCC as to the same at such reasonable times and intervals as WCC may desire. (e) The acceptance by WCC of any payments under this Agreement shall not imply WCC's approval of the computation of such payments, and such acceptance by WCC shall be without prejudice to WCC's right to an examination of Owner's books and records relating to the Premises. At WCC's option, WCC at its expense (subject to the further provisions hereof) may cause, at any reasonable time, a complete audit to be made at Owner's accounting office of Owner's entire business affairs and records relating to the Premises. If such audit shall disclose that any report furnished by Owner to WCC is false in any material respect or shall disclose an understatement or underpayment in an amount greater than five percent (5%) of the amounts actually owing to WCC hereunder and the sum of $10,000.00, then Owner shall promptly pay the full cost of the audit (which cost is not eligible to be paid or reimbursed from an advance under the Loan) and shall also pay to WCC the deficiency between the amount that has been theretofore paid by Owner and the amount actually due from Owner under this Agreement. In the event such an audit shall disclose that 7 8 Owner has over-paid WCC, WCC will promptly refund or credit to Owner the amount of any overpayment. Except for instances of fraud or concealment, no audit shall be commenced later than twelve (12) months after the end of an Accounting Period. 6.1 EVENT OF DEFAULT. The occurrence of one or more of the following events shall, at the option of WCC, constitute an "Event of Default" following the expiration of any cure or grace period provided in Section 7.1 of the Loan Agreement. (a) Owner fails to make payment to WCC of WCC's Additional Interest as provided in this Agreement; or (b) Owner fails to comply with any of the covenants, duties or obligations of Owner in this Agreement. Provided, however, that in the event that WCC subordinates the lien of its Deed of Trust as provided in Paragraph 42 of the Deed of Trust, then, in addition to the Events of Default listed above, only the following Events of Default under the Loan Agreement or any of the other Loan Documents shall be an Event of Default under this Agreement: (i) an Event of Default relating to subparagraphs 6.3c or 7.1f(i) of the Loan Agreement, or (ii) a default by Owner under the deed of trust to which WCC has subordinated not cured by Owner within any applicable grace or cure period under such deed of trust, or if WCC cured such default and Owner has not made WCC whole for such cure within the original grace or cure period. 6.2 EFFECT OF BREACH. The occurrence of an Event of Default under this Agreement shall constitute an Event of Default under each of the Loan Documents. All obligations of the Owner to WCC hereunder are intended to be secured by the Deed of Trust, the Security Agreement, the Assignment of Rents and each of the other Loan Documents securing the Notes. 7. REMEDIES. Upon the occurrence of an Event of Default hereunder, WCC has the right and may exercise any one or more of remedies provided for at law, in equity, in the Loan Agreement, or in any of the other Loan Documents. 8 9 8. MISCELLANEOUS. 8.1 MODIFICATION OF AGREEMENTS. This Agreement and the Loan Documents may not be modified, altered or amended, except by an agreement in writing signed by Owner and WCC. 8.2 ATTORNEYS' FEES AND EXPENSES. Owner shall pay WCC for all expenses incurred by WCC in connection with the enforcement of this Agreement and the collection of all sums due hereunder, including without limitation, reasonable attorneys' fees and court costs. The prevailing party shall be entitled to reasonable attorneys' fees in any litigation arising out of or related to this Agreement. 8.3 COMPLIANCE WITH LAWS. Notwithstanding any provisions in this Agreement or in any of the Loan Documents, the total liability for payments legally regarded as interest shall not exceed the maximum limits, if any, applicable to WCC as Lender and imposed by the laws of the State of California in effect on the date hereof, and payment of same in excess of the amount allowed thereby shall, as of the date of such payment, automatically be deemed to have been applied to the payment of principal of the Loan. Except as required by this subsection, Owner acknowledges that Owner and WCC have conferred specifically concerning the contingent and uncertain nature of Additional Interest, and that Owner and WCC understand and agree that Additional Interest and each element thereof payable pursuant to this Agreement are speculative in nature and both the amount and the payment thereof are dependent upon a number of contingencies which are not within WCC's control. WCC has not been guaranteed by Owner or any other party that such contingencies will occur to generate the accrual and payment of any Additional Interest. All amounts paid under this Agreement shall be deemed to have accrued on a pro rata basis each month over the entire term of the Loan commencing on the date of this Agreement, regardless of when such Additional Interest amounts were received by WCC. 8.4 NO JOINT VENTURE. WCC and Owner intend and agree that the relationship between them shall be solely that of creditor and debtor parties. Nothing contained herein or in any of the Loan Documents, including the provisions for the payment of Additional Interest, shall be deemed or construed to create a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by or between WCC and Owner. WCC shall not in any way be responsible 9 10 for the debts, losses or obligations of Owner or any other party with respect to the Premises or otherwise as a result of this Agreement. All obligations to pay real property or other taxes, assessments, insurance premiums and all other fees and charges arising from the ownership, operation or occupancy of the Premises and to perform all other agreements and contracts relating to the Premises shall be the sole responsibility of Owner. Owner, at all times consistent with the terms hereof and of the Loan Documents, shall be free to determine and follow its own policies and practices in the conduct of its business on the Premises. Owner hereby agrees to indemnify and hold WCC harmless from and against any and all liabilities, losses, injuries, costs, expenses and damages, including, without limitation, attorneys' fees and litigation costs, which WCC may suffer or incur as a result hereof and from any and all claims or demands whatsoever, whether meritorious or not, which may be instituted against WCC by reason of any alleged obligation or undertaking on WCC's part to perform or discharge any of the terms, covenants or agreements contained in any lease, agreement or contract relating to the Premises to which WCC is not a direct and express party. Should WCC incur any such liability under any such lease, agreement or contract, or under or by virtue hereof or of the Loan Documents, or in the defense of any claims or demands related thereto, the amount thereof, including costs, expenses and attorneys' fees shall constitute a part of the indebtedness secured by the Deed of Trust. 8.5 INTEREST AND LATE CHARGE ON PAST DUE PAYMENTS. Any and all payments due from Owner to WCC under this Agreement after the same are due shall bear simple interest at the Default Rate under and as defined in the Revolving Note. If any payment due from Owner to WCC under this Agreement is not received by WCC after the same is due, Owner shall pay a late charge equal to two percent (2%) of such late payment. 8.6 SUPPLEMENTAL DOCUMENTATION. At WCC's request, Owner shall execute and deliver to WCC all supplemental documentation that WCC may reasonably request, in form and substance acceptable to WCC, and pay the costs of any recording or filing of the same. 8.7 WAIVER BY WCC. WCC's failure, at any time or times hereafter, to require strict performance by Owner of any provision of this Agreement shall not waive, affect or diminish any right of WCC thereafter to demand strict compliance and performance therewith. Any suspension or waiver by WCC of an Event of Default by Owner under this Agreement or any of the Loan Documents shall not suspend, waive or affect any other Event of Default by Owner 10 11 under this Agreement or any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Owner under this Agreement or the Loan Documents shall be deemed to have been suspended or waived by WCC, unless such a suspension or waiver is by an instrument in writing signed by a duly authorized representative of WCC and directed to Owner specifying such suspension or waiver. 8.8 SEVERABILITY. To the fullest extent permitted by law, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement; provided, however, that if any material provision hereof respecting the accrual or payment of any part of the Additional Interest is held to be invalid or unenforceable, then at WCC's option and upon notice to Borrower the entire indebtedness secured by the Deed of Trust shall become due and payable within one hundred eighty (180) days after the giving of such notice. 8.9 PARTIES. This Agreement and the Loan Documents shall be binding upon Owner, its successors and assigns, and inure to the benefit of WCC, its successors and assigns. The Owner may not assign its obligations hereunder without the prior written consent of WCC. 8.10 GOVERNING LAW. This Agreement shall be interpreted, and the rights and liabilities of the parties hereto shall be governed by the laws of the State of California. 8.11 NOTICE. All notices and demands under and with respect to this Agreement shall be in writing and shall be served in the manner and on the terms specified in the Loan Agreement. 11 12 IN WITNESS WHEREOF, this Agreement has been duly executed by Owner and WCC as of the day and year first above written. CENTEX DEVELOPMENT COMPANY, L.P. ATTEST: a Delaware limited partnership By: /s/ DAVID H. MORROW By: 3333 Development Corporation, a Nevada corporation, General Partner By: /s/ HARRY J. LEONHARDT Title: Agent and Attorney in Fact WESTINGHOUSE CREDIT CORPORATION, ATTEST: a Delaware corporation By: /s/ DAVID H. MORROW By: /s/ DOUGLAS W. PHILLIPS Title: Vice President 12 EX-2.3 13 CDC CONSTRUCTION LOAN AGREEMENT 1 EXHIBIT 2.3 CENTEX DEVELOPMENT COMPANY, L.P. CONSTRUCTION LOAN AGREEMENT THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is made this 30th day of March, 1989 by and among WESTINGHOUSE CREDIT CORPORATION, a Delaware corporation, having its principal office at One Oxford Centre, 301 Grant Street, Pittsburgh, Pennsylvania 15219 (hereinafter called "Lender") and CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership, having an address at 3333 Lee Parkway, P. O. Box 19000, Dallas, Texas 75219 (hereinafter called "Borrower"). W I T N E S S E T H: WHEREAS, Borrower represents and warrants that Borrower is acquiring the fee simple of that certain real estate located in the City of San Clemente, Orange County, California, containing approximately 1,077.2 acres and legally described in Exhibit A hereof, which real estate is hereinafter referred to as the "Premises"; and WHEREAS, Borrower intends to develop the Premises with certain grading, landscaping, streets, utilities and other improvements in accordance with the Plans and Specifications (as defined hereafter), which improvements and all other improvements incidental thereto and intended to be erected or completed in connection therewith are hereinafter collectively referred to as the "Improvements"; and WHEREAS, Borrower has requested Lender to lend certain monies (the "Loan") to Borrower or to otherwise make advances in accordance with this Agreement to be used for: (i) acquisition of the Premises; (ii) payment of labor and material costs in connection with the construction of the Improvements; (iii) the payment of commitment and permit fees; and (iv) for such other purposes incidental to such development and construction as are herein provided for, including the payment of fees, costs and charges related thereto, which monies Lender has agreed to lend or advance, subject to the terms and conditions hereof; provided, however, the proceeds of the Loan shall be disbursed in accordance with the terms of this Agreement and with those certain instruments and documents as stated in Article II below, so that Lender's Construction Deed of Trust will be a first lien against the Premises (and the Improvements to be erected thereon) as insured by Chicago Title Insurance Company (hereinafter referred to as the "Title Company"). 2 NOW, THEREFORE, in consideration of the premises and of the mutual undertakings herein set forth, the parties hereto, intending to be legally bound hereby, do covenant and agree as follows: ARTICLE I - RECITALS 1.1 The foregoing preambles are made a part hereof. ARTICLE II - LOAN DOCUMENTS 2.1 ACQUISITION COST NOTE. Concurrently with the execution and delivery of this Agreement, Borrower has executed and delivered a Promissory Note (Acquisition Cost) of even date herewith in the amount of FORTY-TWO MILLION DOLLARS ($42,000,000.00) (hereinafter referred to as the "Acquisition Cost Note") to evidence and provide for the repayment of Lender's initial advance at closing for Borrower's acquisition of title to the Premises and related expenses, as more specifically provided in subparagraph 5.1b of this Agreement. This Note contains prepayment and non-recourse provisions as more fully set forth therein. 2.2 REVOLVING NOTE. Concurrently with the execution and delivery of this Agreement, Borrower has executed and delivered a Promissory Note (Revolving) of even date herewith in the amount of FORTY-TWO MILLION DOLLARS ($42,000,000.00) (hereinafter referred to as the "Revolving Note") to evidence and provide for the repayment, on the terms and conditions set forth in this Agreement, of Lender's advances at and subsequent to closing for Borrower's improvement of the Premises, related expenses, accrued and unpaid interest under the Acquisition Cost Note and the Revolving Note (said Notes hereinafter collectively referred to as the "Notes"), extension fees under the Acquisition Cost Note, the outstanding amount of the Acquisition Cost Note as of its Final Termination Date (as defined in said Note), and such amounts as may be payable to Lender or Borrower under paragraph 2(b) of the Additional Interest Agreement, all as provided for in subparagraphs c through g of paragraph 5.1 of this Agreement. This Note contains prepayment and non-recourse provisions as more fully set forth therein. 2.3 ADDITIONAL INTEREST AGREEMENT. Concurrently with the execution and delivery of this Agreement, Borrower and Lender have executed an Additional Interest Agreement of even date herewith (hereinafter referred to as the "Additional Interest Agreement") providing on the terms stated therein for the payment to Lender of additional interest from proceeds from the sale by Borrower of portions of the Premises. 2.4 CONSTRUCTION DEED OF TRUST. Concurrently with the execution and delivery of this Agreement, Borrower has executed 2 3 and delivered to Lender a Construction Deed of Trust (the "Deed of Trust") encumbering the Premises in order to secure Borrower's obligations under this Agreement, the Notes and the Additional Interest Agreement. Advances may be made under the Deed of Trust and any extensions, modifications or consolidations thereof. 2.5 ASSIGNMENT OF LEASES AND SECURITY AGREEMENT. As further security for Borrower's obligations under this Agreement, the Notes and the Additional Interest Agreement, Borrower has executed and delivered to Lender concurrently with the execution and delivery of this Agreement (a) an Assignment of Leases, Rents and Profits ("Assignment of Leases") covering rents, issues and profits from the Premises and (b) a Security Agreement ("Security Agreement") covering fixtures and personal property located on or used in connection with the Premises. 2.6 ASSIGNMENT OF DEVELOPER'S RIGHTS, OF EASEMENTS AND OF CONTRACTS AND SALES PROCEEDS. As further security for Borrower's obligations under this Agreement, the Notes and the Additional Interest Agreement, Borrower has executed and delivered to Lender concurrently with the execution and delivery of this Agreement (a) an Assignment of Developer's Rights ("Assignment of Developer's Rights"), (b) an Assignment of Easements and Maintenance Agreements ("Assignment of Easements") and (c) an Assignment of Contracts and Sales Proceeds ("Assignment of Contracts"). 2.7 LOAN DOCUMENTS. As used herein, the term "Loan Documents" shall mean, collectively, this Agreement, the Notes, the Additional Interest Agreement, the Deed of Trust, the Assignment of Leases, the Security Agreement, the Assignment of Developer's Rights, the Assignment of Easements, the Assignment of Contracts and all other documents (other than the hereinafter defined Environmental Indemnification Agreement) executed by Borrower in connection with the Loan and establishing or providing security for the Loan. 2.8 ENVIRONMENTAL INDEMNIFICATION Agreement. Borrower has executed and delivered to Lender concurrently with the execution and delivery of this Agreement an Environmental Indemnification Agreement ("Environmental Indemnification"). ARTICLE III - IMPROVEMENTS AND CONSTRUCTION 3.1 CONSTRUCTION - PLANS AND SPECIFICATIONS AND BIDS. Borrower will cause all portions and phases of the Improvements to be completed by Borrower in accordance with the final plans and specifications therefor to be prepared by a licensed and qualified engineer to be retained by Borrower (hereinafter referred to as "Borrower's Engineer"), which plans and specifications shall be incorporated herein by reference thereto, 3 4 subject to the written approval of Lender and approved by all applicable local, state and federal authorities. In addition to said plans and specifications, Borrower will prepare or cause to be prepared from time to time such additional plans, drawings and specifications as may be necessary or desirable to facilitate expeditious construction of the Improvements in accordance with said plans and specifications. All such plans and specifications referred in this Paragraph 3.1 and any such additional items are herein collectively referred to as the "Plans and Specifications." 3.2 DEVIATION; AMENDMENT. Borrower will not deviate materially nor permit any material deviation from the Plans and Specifications without the prior written consent of Lender. No revision to the Plans and Specifications, which revision is material in scope or increases the cost of construction, shall be made without the prior written consent of Lender. 3.3 GOVERNMENTAL APPROVALS. a. Prior to any advances hereunder for specific categories of work, Borrower shall have caused all governmental agencies, bureaus, districts and departments having jurisdiction over all or any part of the Premises and/or the construction of the Improvements to have issued, or committed to issue conditioned only upon payment of fees and such other conditions which may be imposed by the governmental entity, all approvals and permits which may be reasonably necessary in the opinion of the Lender in connection with the categories of work for which an advance is requested; in addition, Borrower will supply Lender with evidence of the availability of all utility and municipal services reasonably necessary in the opinion of Lender to the feasibility of the Improvements. b. Borrower shall also provide Lender with copies of any environmental impact statement, if any, prepared by Borrower and of any environmental submissions to a governmental agency, and copies of responses or opinions, if any, therefrom or thereof. 3.4 CONTRACTOR; MANAGEMENT; SUBCONTRACTS. a. Borrower will itself, or contract with licensed general contractors (such contracts referred to as the "General Contracts") to, manage the construction of the Improvements and coordinate the provision of all labor, supervision, materials, supplies, equipment and architectural and engineering services necessary to complete the Improvements in accordance with the Plans and Specifications. Borrower, itself or through its general contractor, will enter into subcontracts (the "Subcontracts") which, in the case of Subcontracts in excess of $500,000.00, shall have terms and be with subcontractors acceptable to Lender. All General Contracts and Subcontracts 4 5 shall require the completion of the relevant portion of the Improvements free from all materialmens' liens and all mechanics' liens and claims. All General Contracts, and Subcontracts in excess of $500,000.00 shall be in form and content satisfactory to Lender. Except as otherwise approved by Lender, all General Contracts, and all Subcontracts for amounts in excess of $500,000.00, shall be for a maximum fixed price, and all Subcontracts for amounts in excess of $500,000 (but no General Contract) shall be accompanied by payment and performance bonds in amounts and with sureties acceptable to Lender. All General Contracts and all Subcontracts for amounts in excess of $500,000 shall be assigned to Lender as provided in Exhibit E to this Agreement. Any change or amendment to any General Contract or Subcontract, or the change of any general contractor or subcontractor, must be submitted to Lender and Lender's Inspector (as hereinafter defined) for approval prior to acceptance or enactment; provided any change order of $10,000.00 or less in value in an individual instance (up to an aggregate of $100,000.00 in the aggregate for all construction contracts), may be carried out without the prior written consent of Lender or Lender's Inspector provided Lender and Lender's Inspector must promptly be provided with notice and copies of all such changes. Each General Contract and Subcontract shall provide for ten percent (10%) retainage in connection with interim payments; disbursement of retainages will take place as provided in Exhibit C hereto. b. A project management fee will be paid to Borrower. The amount of the fee shall be $350,000.00 per year and shall be paid monthly in equal increments. 3.5 COMMENCEMENT AND COMPLETION. Borrower will cause construction of the Improvements to be commenced and prosecuted with diligence and without delay so that: (i) All development and construction obligations of the Borrower under the Forster Ranch Development Agreement dated March , 1989 between Borrower and the City of San Clemente (the "Development Agreement") are discharged within the time periods required by the Development Agreement; (ii) All development and construction obligations of Borrower with respect to the approval by or on behalf of the City of San Clemente, County of Orange, State of California, approving the revised tentative Map of Tract No. 12895 are fully met within the time period therein provided; (iii) All development and construction obligations of the Borrower with respect to governmental approvals of Borrower's proposed improvement and development of any portion of the Premises (including without limitation approvals relating to tentative maps and final maps) are 5 6 fully met within the time periods therein provided; (iv) All development and construction obligations of the Borrower under each agreement of sale for any part of the Premises are discharged within the time periods required by such agreements; and (v) Progress on the Improvements in accordance with the Plans and Specifications shall be constructed and completed pursuant to the development schedule or a schedule to be prepared by Borrower, certified by Borrower's Engineer and approved by Lender (the "Development Schedule"). 3.6 FURTHER GOVERNMENTAL APPROVALS. Borrower has obtained approval of Tentative Map 12895 and has received allocations from the City of San Clemente for 388 units in Plan Area 2 of the Planning Area. Borrower will submit further tentative tract maps, request further allocations from the City of San Clemente and otherwise pursue development of the Premises consistent with Development Schedules which Borrower will present to Lender on or before March 31 of each year for Lender's review and approval. Such Development Schedules shall specify in general terms for the immediately following three (3) year period (a) the areas of the Premises to be improved, (b) the time schedule for such improvements, (c) the anticipated sales and timing therefor during the period and (d) such other information as Lender may reasonably require. 3.7 BUDGET. Borrower has previously submitted to Lender an initial budget of acquisition and development costs which is attached as Exhibit G and is incorporated by this reference (the "Initial Budget"). Any cost of constructing the Improvements not included in the Initial Budget must be preapproved by Lender. Additionally, commencing March 31, 1990, and annually thereafter, Borrower will submit to WCC for WCC's approval an updated budget detailing the costs of Improvements to be made during the following three (3) years and other projected costs during such three (3) year period concerning Borrower's ownership, maintenance, development and improvement of the Premises. Such further budgets shall not be inconsistent with the applicable Development Schedule, or such inconsistency shall be resolved to Lender's reasonable satisfaction, and shall not be inconsistent with the limits set forth in subparagraph 5.1h of this Agreement. Items of expense eligible for inclusion in such further budgets shall relate to Borrower's ownership, maintenance, development, improvement or sale of the Premises, and can include, unless language or context otherwise provides or requires, fees, costs and expenses which under the Loan Documents Borrower is required to pay or incur. 6 7 3.8 SOILS TESTS. Borrower shall employ an independent testing firm to provide soils compaction tests and other tests deemed necessary by Lender. The results of such tests must be satisfactory to Lender and Lender's Inspector. Borrower shall further provide Lender with a soils report from a testing firm satisfactory to Lender, describing the underlying soil conditions and such other information reasonably requested by Lender. Borrower shall further provide Lender with a soils report from a testing firm satisfactory to Lender describing any potential hazardous waste, substances, pollutants or contaminants which may be on the Premises. All tests and reports shall be furnished at Borrower's expense. ARTICLE IV - INSURANCE, TAXES AND ASSESSMENTS. 4.1 INSURANCE. a. Borrower will, at its expense, insure Borrower, the Improvements and all materials purchased for use in connection with the Improvements in such amounts, with such coverage and with such insurance carriers as may be required by Lender so as to protect the respective interests of Borrower and Lender in the Improvements and materials and so as to protect Borrower and Lender against liability in connection with the Improvements and the construction and completion thereof. Said insurance policies, whenever required by Lender, shall be issued with riders (including a mortgagee clause and such other clauses as Lender may reasonably require) covering the interests of Lender, its successors and assigns, and shall provide 30-day notice of cancellation to Lender. b. Said insurance shall include coverage for public liability (in at least $2,000,000.00 of coverage) and for hazards such as vandalism and malicious mischief. Lender must also be provided with evidence of worker's compensation insurance. Prior to commencement of construction of any of the Improvements, Borrower shall provide or cause to be provided insurance satisfactory to Lender in an amount sufficient to cover Lender's interests in the Improvements and all materials purchased for use in connection with the Improvements; Borrower must at all times avoid coinsurance liability. Said policy must be acceptable to Lender and must contain a loss payee mortgagee clause and other clauses acceptable to Lender as mortgagee on both real and personal property, and shall provide that losses covered thereby shall be payable to Lender notwithstanding any adverse act or omission of Borrower. Borrower must also provide, in an amount satisfactory to Lender, insurance coverage for flood (if in designated flood zone), hurricane, tornado and other wind-related damage. 7 8 c. Any contractor employed by Borrower shall furnish evidence satisfactory to Lender of acceptable Worker's Compensation and other insurance coverage required by Lender. d. Lender shall be under no obligation to make loans or advances hereunder until Borrower shall have submitted evidence to Lender of the insurance coverages required. 4.2 TAXES AND ASSESSMENTS; CONTEST. a. Borrower will promptly pay or cause to be paid all the annual real estate taxes, special assessments and any other tax, assessment, claim, lien or encumbrance which may at any time be or become a lien upon the Premises. The undertakings of Borrower under this Section and under Section 4.1 hereof shall be continuing obligations of Borrower during the entire period of time that any amounts loaned or advanced pursuant hereto or interest thereon remain unpaid. Borrower shall furnish to Lender paid tax receipts within thirty (30) days after the final due date on which such taxes would be delinquent or bear a late charge or penalty. Lender reserves the right to require that a monthly escrow account be established for the payment of taxes in an amount satisfactory to Lender, but only if reasonably necessary to protect Lender's security interests. Notice of any change in assessment shall be delivered to Lender. b. Borrower may in good faith contest, by proper legal proceedings, the validity of any tax, assessment, lien or encumbrance provided, (i) an Event of Default does not exist; (ii) Borrower provides Lender with security satisfactory to Lender assuring compliance with or payment of the tax, assessment, lien or encumbrance, and any additional charge, interest, penalty, expense or other payment which may arise from or be incurred as a result of such contest; (iii) such contest operates to suspend enforcement of compliance with or collection or enforcement of the tax, assessment, lien or encumbrance; (iv) such contest is maintained and prosecuted at all times with diligence; and (v) Lender is at all times kept informed in writing of all material developments as to such contest and all reasonable requests by Lender for information are fully responded to. ARTICLE V - ADVANCES - REPAYMENT 5.1 ADVANCES. a. Lender is obliged, subject to the terms and conditions herein set forth, to lend to Borrower, or advance on Borrower's behalf and for Borrower's account, a sum or sums in any event not to exceed the limitations set forth in subpart h of this Section 5.1, and subject to the provisions of Exhibits B, C and F hereof, to be used for the payment of those items set forth on the 8 9 Schedule of Estimated Costs attached hereto as Exhibit G and for the payment of such other costs incidental thereto as may be approved by Lender. Such loan shall be evidenced by the Acquisition Cost Note or the Revolving Note, as the case may be, and may be advanced by Lender to Borrower or, if reasonably necessary to protect Lender's security interests, advanced at Lender's option by Lender or through the Title Company to such persons, firms or corporations as have actually supplied labor, materials or services in connection with or incidental to such construction. b. The initial advance at closing under the Acquisition Cost Note shall be limited to the amounts as budgeted by Borrower and approved by Lender necessary to acquire title to the Premises free and clear of liens, legal expenses, and costs, including Lender's commitment fee, Lender's counsel's legal fees, and other costs related to the acquisition of its Premises or to the documentation, administration and closing of the Loan. The balance of the initial advance shall be evidenced and repaid as provided in the Revolving Note on account of items budgeted under the Revolving Note. c. Subsequent to closing, advances will be made for fees, costs and expenses, which under the Loan Documents Borrower is required to pay or incur and under Section 3.7 of this Agreement are items of expense eligible for inclusion in a budget, to the extent set forth in an approved budget, or if not so set forth, to the extent not exceeding $10,000.00 in an individual instance or $100,000.00 in the aggregate in a given fiscal year of Borrower, or otherwise approved by Lender. Additionally, subsequent to closing, advances will be made for construction costs incurred, work performed and materials in place, consistent with a budget previously approved by Lender, no more frequently than once per month (unless extraordinary circumstances dictate that an advance be made prior to the next scheduled date) based on certified contractors' draws (on forms specified by Lender, a sample of which is attached hereto as Exhibit F) as approved by Lender and Lender's Inspector. These advances (i) will be made directly to Borrower or through the Title Company or other approved disbursement agent upon receipt of an endorsement, if requested by Lender, to Lender's title policy in form and content acceptable to Lender, (ii) will be in an amount of the draw request as approved, which draw request shall be net of retainage and (iii) will be made within five (5) business days of Lender's receipt of the completed draw request package, which package shall include the written confirmation by Borrower's Engineer or Architect as to the percentage of completion and such other matters concerning which Lender customarily requires certification. Repayment of these advances shall be as provided in the Revolving Note. 9 10 d. Prior to the final disbursement of the ten percent (10%) retainage for site development work, which will be made on a contractor by contractor basis as provided in Exhibit C of this Agreement, Lender will require a certificate of completion (in form satisfactory to Lender) from Borrower and from Lender's Inspector, together with (i) evidence from the responsible local authorities that the portion of the Improvements as constructed by the contractor in issue meets the applicable contract and/or regulatory standards and (ii) if Lender has evidence that subcontractors or suppliers are not being paid, then Lender at its option may require affidavits and/or lien releases from Borrower's general contractor and all major subcontractors. e. Subsequent to closing, advances will be made to pay when due accrued interest under the Acquisition Cost Note and under the Revolving Note, and these advances shall be evidenced and repaid as provided in the Revolving Note. f. Should Borrower have effectively exercised all of the Extension Options (as that term is defined in the Acquisition Cost Note), on the Final Termination Date (as defined in the Acquisition Cost Note) of the Acquisition Cost Note, upon Borrower's election upon thirty (30) days written notice, an advance will be made to repay all sums then unpaid under the Acquisition Cost Note, and such advance shall be evidenced and repaid as provided in the Revolving Note. Extension fees for the exercise of an option also will be paid by an advance. g. Advances will be made within ten (10) days of receipt of Borrower's report in compliance with paragraph 5(b) of the Additional Interest Agreement to pay such amounts as may be payable to Lender and Borrower respectively under paragraph 2(b) of the Additional Interest Agreement with respect to the preceding Accounting Period (as defined in the Additional Interest Agreement). Such advances will be evidenced and repaid as provided in the Revolving Note. h. Notwithstanding any of the foregoing, at no time shall Lender be obligated to make an advance which would result in (i) the amount outstanding on the Loan exceeding at any one time $50,000,000.00, (ii) the amount outstanding under the Revolving Note exceeding at any one time $42,000,000.00, or (iii) the aggregate amount of advances, exclusive of that portion of the initial advance described in subparagraph 5.1b above which is to be evidenced by the Acquisition Cost Note, and also exclusive of advances made pursuant to subparagraph 5.1g, but inclusive of advances made pursuant to subparagraph 5.1f, exceeding $85,000,000.00 on a non-revolving basis. i. The Title Company will be called upon to insure the Lender against loss or damage on account of defects in, mechanic's liens upon or unmarketability of the title to the 10 11 Premises and Improvements, as well as to insure that the Deed of Trust, at the time of each disbursement, constitutes a valid first lien on said Premises and Improvements and that there exist no encumbrances, liens or other matters of record affecting title, whether inferior or superior to the Deed of Trust, except as acknowledged and accepted in writing by Lender or listed on the original title policy insuring the Deed of Trust. Therefore, and in order to facilitate the smooth and orderly disbursement of funds and the proper administration of the development loan, the Borrower agrees to promptly and fully observe and comply with all reasonable regulations, requirements and requests of the Lender and the Title Company with respect to all matters relating to the loan and the administration thereof, including but not being limited to matters of title, disbursement of advances, proof as to payment of construction bills of suppliers, laborers or subcontractors, surveys, inspections, proof of development progress, lien waivers, partial and final releases and satisfactions of liens, execution of papers, proof of costs, closings and deposits for costs. j. Notwithstanding the foregoing, Borrower may reasonably and in good faith contest any claim, lien or demand of any Construction Subcontractor provided that Borrower complies with all of the conditions for the permitted contest of taxes, assessments, liens and encumbrances specified in Section 4.2b of this Agreement. 5.2 USE OF FUNDS. a. Borrower will cause all monies borrowed or advanced pursuant hereto to be applied entirely and exclusively for the acquisition of the Premises, the development thereof and the construction of the Improvements, and for the payment of such costs incidental thereto, as may be specifically approved by Lender. b. Notwithstanding anything contained in this Agreement to the contrary, Lender shall not be required to advance any amounts to the Borrower for any building materials or other goods intended for use in, on or about the Premises (collectively "Building Materials"), which are not stored at the Premises after purchase, without the written consent of Lender and upon such conditions and additional security as Lender, in its sole discretion, may impose. The storage off the site of the Premises of any Building Materials upon which Lender has advanced to Borrower sums under this Agreement without the consent and approval of Lender shall constitute an Event of Default under this Agreement. 5.3 REPAYMENT. Borrower will repay the principal sum evidenced by the Notes, the Deed of Trust and this Agreement, together with interest on such sum and together with the charges 11 12 specified therein, herein or in the other Loan Documents, and will observe and perform all of the covenants and conditions at the times and in the manner set forth herein and in the Notes, Deed of Trust and the other Loan Documents. 5.4 REIMBURSEMENT FOR DEVELOPMENT EXPENSES. Until the Loan has been repaid in full, Lender shall receive one hundred percent (100%) of any reimbursement payable to Borrower from any source for city fees, marketing costs, landscape costs or any other costs funded by proceeds of the Loan. Borrower agrees to report on a monthly basis all reimbursements from third parties and the amount of such reimbursement. Such report shall be accompanied with a payment to Lender of all reimbursement covered by this section. All reimbursements paid to Lender shall be applied as provided in the Notes against the Loan balance until the Loan has been repaid in full. Failure by Borrower to pay the appropriate amounts of reimbursement to Lender shall constitute an Event of Default hereunder. 5.5 LENDER'S INSPECTOR; COMPLETION DEPOSIT. a. Lender shall, at Borrower's expense, employ Eckland Consultants or such other inspector approved by Lender in writing ("Lender's Inspector") for the purpose of analyzing anticipated construction costs, performing periodic inspections of the construction of the Improvements, approving the Plans and Specifications and certifying that the amount of each draw request is not in excess of the work completed. Borrower shall pay the reasonable costs incurred for the services of the Lender's Inspector. b. If at any time and from time to time, in the reasonable opinion of Lender, the estimated cost of acquisition and construction of the Premises and Improvements and all related expenses, exceeds the funds remaining in the Loan for disbursement, and Lender reasonably determines that this circumstance impairs to a material extent its security or prospects for repayment, and Lender, in its option, does not elect to increase the amount of such funds, then Borrower shall within thirty (30) days after notice from Lender either (i) deliver to Lender an unconditional irrevocable letter of credit in form and substance acceptable to Lender and issued by a bank reasonably satisfactory to Lender, or other security satisfactory to Lender, in the amount of the difference between the funds remaining in the Loan and the higher estimated cost or (ii) give Lender irrevocable notice that it will pay all amounts outstanding under the Loan, which payment will be due and payable no later than one hundred and eighty (180) days thereafter. 5.6 LOAN TERMINATION. Any further, obligation of Lender under this Agreement or the other Loan Documents to lend or otherwise advance monies to or for the benefit of Borrower, shall 12 13 terminate, and all amounts then outstanding under the Loan shall become entirely due and payable, upon the earliest of the following events: (a) April 1, 2001; (b) the closing of a Sale of the Premises (as defined in the Additional Interest Agreement); or (c) March 31, 1993, if Lender, in its sole discretion, gives Borrower one hundred twenty (120) days prior written notice. Prior to the occurrence of the first of these events, a full repayment of all amounts then outstanding under the Loan shall not act as a termination of the Loan. The termination of Lender's right to receive Additional Interest under the Additional Interest Agreement shall be as provided in that agreement. ARTICLE VI - REPRESENTATIONS AND WARRANTIES; COVENANTS 6.1 REPRESENTATIONS AND WARRANTIES. Borrower does specifically represent and warrant that as of the date of this Agreement: a. It is a duly organized, bona fide and validly existing limited partnership under the laws of the State of Delaware, is qualified to do business in the State of California, and has the full power and authority to consummate the transactions contemplated hereby and to conduct business in the State of California, and that its sole General Partner, 3333 Development Corporation, is a duly organized and validly existing corporation organized under the laws of the State of Nevada, and is qualified to do business in the State of California. b. Upon the closing of the Loan, Borrower will have good, indefeasible and merchantable title to and fee simple ownership of the Premises, all free and clear of all liens, claims, security and encumbrances except those of Lender and those reflected in the title policy issued by the Title Company. c. The Plans and Specifications to the extent required by applicable law will have been approved by all governmental agencies and authorities having jurisdiction thereof prior to commencement of construction of the Improvements, and the use of the Premises contemplated hereby will comply with all local zoning requirements, and all necessary approvals and permits have been or will be obtained at the times required by applicable law, regulation, rule or ordinance. d. To the knowledge of Borrower, or except as may have been previously disclosed by Borrower in writing to Lender, there are no actions, suits or proceedings pending or, threatened in writing against or affecting Borrower or the Premises or involving the validity or enforceability of the Deed of Trust or any other Loan Document, or the priority of the lien thereof, at law or in equity, or before or by any governmental authority, or any other matters which would substantially impair 13 14 either the ability of Borrower to pay when due any amounts which may become payable in respect to the Notes or any other Loan Document, and to the Borrower's knowledge it is not in default with respect to any order, writ, injunction, decree or demand of any court or any governmental authority. e. The consummation of the transaction contemplated and the performance of this Agreement, the Deed of Trust and the other Loan Documents will not result in any breach of, or constitute a default under any other mortgage, deed of trust, lease, bank or other loan, credit agreement or any other instrument to which the Borrower is a party. f. To the best of Borrower's knowledge, as of the date of this Agreement, the Borrower has not (i) become insolvent; (ii) voluntarily or involuntarily become the subject of a proceeding under the Bankruptcy Act as amended; (iii) sought any form of relief under the bankruptcy laws of the United States, or (iv) defaulted on any present obligation to Lender. g. No representation or warranty by Borrower in this Agreement or in any of the other Loan Documents to which it is a party, nor any statement furnished or to be furnished to Lender by Borrower pursuant hereto or thereto, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. h. No broker, other than Bear Stearns Real Estate Group, Inc., has been retained or utilized by Borrower to arrange the financing reflected in this Agreement. i. No construction, excavation or work of any sort relative to construction of the Improvements has been commenced, nor has any material to be used in the construction of the Improvements been purchased or delivered. j. To the best of Borrower's knowledge, no toxic or hazardous substances, including, without limitation, asbestos and the group of organic compounds known as polychlorinated biphenyls, have been generated, treated, stored or disposed of, or otherwise deposited in or located on the Premises, including, without limitation, the surface and subsurface waters of the Premises, nor has any activity been undertaken on the Premises which would cause a release or threatened release of hazardous waste from the Premises within the meaning of, or otherwise bring the Premises within the ambit of, the comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601 through 9657, or any similar state law or local ordinance or any other Environmental Law. To the best of Borrower's knowledge, no underground storage tanks or underground deposits are located on the Premises nor have there been any 14 15 leakage from underground storage tanks or underground deposits previously located on the Premises. 6.2 AFFIRMATIVE COVENANTS. Borrower hereby covenants that without further request or notice from Lender (unless otherwise noted) the Borrower shall: a. Promptly pay all principal and interest under the Notes and all other indebtedness in respect of the Notes, any of the Loan Documents or the Environmental Indemnification. b. Keep the Premises, including all Improvements now or hereafter situated thereon, in good condition, not commit or permit any waste thereof, make all repairs, replacements and improvements and complete and restore promptly and in good workmanlike manner any building, improvements, or other items of the Premises which may be damaged, or destroyed, and pay when due all costs incurred therefor. c. Pay or reimburse Lender, from time to time, upon demand, for all expenses relating to the Loan and its administration including, but without limiting the generality of the foregoing, all recording charges, registration taxes, recording taxes, mortgage taxes, charges of the title insurance company, charges for certified copies of instruments, all costs, including all attorneys' fees, incurred by Lender relative to the preparation and review of this Agreement, the Loan Documents, and all costs incurred in connection with any disbursement of the Loan. Such expenses shall not include travel expenses or compensation of full-time employees of Lender. d. Perform all things necessary to preserve and keep in full force and effect the existence and rights of Borrower; comply with all laws applicable to each; and conduct and operate its business in the normal course. e. Furnish to Lender as soon as available, but in no event later than one hundred twenty (120) days after Borrower's fiscal year end, its audited fiscal year-end financial statement. f. Furnish to Lender, immediately upon becoming aware of the existence of an Event of Default or any condition which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, written notice of the occurrence of any such event or the existence of any such condition. g. Keep and maintain complete and orderly books and records of account in which full, true and correct entries are made of all dealings and transactions relative to the Premises and the Improvements being constructed thereon. Such books and records shall be kept on a cash basis. 15 16 h. Permit any person designated by Lender to visit, inspect and/or audit the Premises and Improvements and the books and records of Borrower at such reasonable times and as often as Lender may reasonably request. i. Immediately notify Lender (A) of any attachment or other legal process levied against the Premises or Improvements, or the institution of any action, suit or proceeding by or against Borrower, or affecting the Premises or Improvements, or (B) any information received by Borrower relative to the Premises which may materially and adversely affect (i) Borrower's ability to pay the Notes, (ii) the value of the Premises or (iii) the rights and remedies of Lender granted and continued pursuant to the Loan Documents. j. Pay when due all obligations, lawful claims or demands with respect to the Premises and Improvements which, if unpaid, would result in, or permit the creation of, any lien or encumbrance on the Premises or Improvements, including but not limited to all lawful claims for labor, materials and supplies, and, in general, do or cause to be done everything necessary to fully preserve the rights and interests of Lender under this Agreement and the other Loan Documents, except with respect to amounts contested in good faith and with respect to which Lender is bonded or otherwise protected. Borrower shall at all times defend Lender's interest in and to the Premises, and the first priority position of said interest, against any and all claims of any person adverse to Lender. Borrower shall take all actions reasonably deemed necessary or appropriate by Lender to give effect to Lender's priority of interests contemplated by this Agreement and the other Loan Documents. k. Upon Lender's request, provide Lender with a written report setting forth the status of each agreement of sale affecting the Premises. 6.3 Negative Covenants. Borrower shall not, directly or indirectly, without the prior written consent of Lender: a. Application of Loan Proceeds. Use or apply any portion of any funds provided by Lender pursuant to the Loan Documents for any purpose other than the acquisition of the Premises, construction of the Improvements, payment of costs and expenses related thereto and payment on the Loan. b. Non-consensual Encumbrances. Hereafter suffer or allow to be sustained a non-consensual lien or encumbrance upon the Premises or Improvements, or any portion of either, unless released within sixty (60) days or contested and secured in the manner provided for in Sections 4.2b or 5.1j of this Agreement. 16 17 c. Control. Permit the transfer of any general partnership interest in Borrower. d. Sale, Modification or Encumbrance. Sell, assign, transfer, convey, mortgage, pledge, lease, materially change the intended use of (as set forth in the "Specific Plan" as that term is defined in the Development Agreement), substantially modify, or refinance without concurrently paying in full all indebtedness to WCC, including additional interest and release fees then due, or otherwise alienate or encumber the Premises, the Improvements, or any portion of either or any interest therein, whether legal or equitable, other than as expressly provided in this Agreement, provided, however, that Lender will not unreasonably withhold its consent to a request by Borrower that it be permitted to encumber the Premises with a junior lien to secure financing in addition to the maximum Loan amounts under this Agreement if such encumbrance would not unreasonably impair Lender's security or prospects for payment of all amounts to which Lender is or might become entitled under the Loan Documents. e. Assertion of Certain Defenses. Assert in any judicial proceeding the defense of lack of consideration or violation of any applicable usury laws or any similar legal or equitable defense to the validity or enforceability of this Agreement or any other Loan Document. f. Name Change. Change its name to any other name without thirty (30) days notice to Lender. g. Appointment of Management or Development Agent. Appoint or retain any agent or entity to manage and/or develop the Premises or any portion thereof, or enter into any agreement with respect to the management of the Premises. In this connection, any management agreement to which Lender may consent shall provide, unless Lender elects otherwise, for an assignment of Borrower's rights thereunder to Lender and a subordination of the management company's rights thereunder to Lender's liens with respect to the Premises and Improvements thereon, and that such assignment and subordination shall be irrevocable by Borrower and the management company. Lender agrees that it will not withhold consent except on objective grounds stated in writing to the appointment of an Affiliate of Borrower to act as management company provided said Affiliate executes a subordination of management agreement in form and content acceptable to Lender. h. Use of Lender's Name. Disclose to third parties the nature of Lender's lending relationship with Borrower or use Lender's name in any manner in any communication or dealings with third parties, ther than as required by law, for financial reporting purposes or for obtaining other financing in the due course of Borrower's business. 17 18 ARTICLE VII - DEFAULT 7.1 EVENTS OF DEFAULT The occurrence of one or more of the following events shall, at the option of the Lender upon written notice to Borrower after the expiration of any applicable cure or grace period, constitute an "Event of Default" hereunder if, in the event of a monetary default (i.e., a failure to pay sums due Lender) for which no cure period is otherwise prescribed in the Loan Documents, payment is not made by Borrower within five (5) days of its receipt of notice to pay (provided that after two (2) such notices in any twelve (12) month period no additional notices to pay need be given within such period and payment must be made by Borrower within five (5) days of the due date without further notice), or, in the event of a non-monetary default for which no cure period is otherwise prescribed in the Loan Documents, Borrower does not commence to cure within ten (10) days of its receipt of notice to cure, and does not cure the default within thirty (30) days of its receipt of notice to cure, provided, however, that if such non-monetary default is not reasonably susceptible to cure within thirty (30) days, so long as cure is diligently pursued, the defaulting party shall have sixty (60) days from its receipt of such notice to cure; provided further, however, that if Borrower in bad faith fails to give Lender written notice as required by Paragraph 6.2f, Lender may, at its option, give Borrower ten (10) days' written notice of default without opportunity to cure: a. Failure by the Borrower to make any payment required to be made by the Borrower under the Notes, the Deed of Trust, this Loan Agreement, the Environmental Indemnification or any other document relating to the Loan in accordance with the respective terms thereof (no payment which Borrower is entitled to have paid by an advance from the Loan shall be deemed to be delinquent or unpaid for the purposes of this subparagraph unless Borrower has instructed Lender not to make such payment from the proceeds of the Loan); b. Failure by the Borrower to perform or observe any other covenant or agreement contained herein, in the Deed of Trust, in any of the other Loan Documents, in the Environmental Indemnification or in any Pending Disbursements Agreement; c. (Intentionally Omitted). d. Any representation or warranty made by Borrower in this Agreement, the Deed of Trust, any of the other Loan Documents or any other documents or instruments delivered pursuant hereto shall prove incorrect in any material respect or intentionally false; 18 19 e. Time Being of the Essence, if any action agreed to be taken is not taken or carried out in a timely manner by Borrower or, upon Lender's reasonable request, evidence satisfactory to Lender that such action has been taken or carried out is not promptly presented; f. There (i) occurs a Default as defined in Section 6.02.1 of the Development Agreement, or (ii) unless a replacement permit is simultaneously issued and a copy is provided to Lender, Borrower neglects, fails or refuses to keep in full force and effect any permit or approval issued with respect to construction of the Improvements, or any notice that such permit or approval has been or will be cancelled, and such action would impair to a material extent Lender's security; g. Lender, after notice from the city of San Clemente, cures an alleged occurrence of an event which with the passage of time would have constituted a Default by Borrower under the Development Agreement; h. The conveyance or transfer of the Premises or any property encumbered by the Deed of Trust in a manner not permitted by Lender hereunder, under the Deed of Trust or under any of the other Loan Documents; i. Except as permitted by Lender in writing, the entry of any lien or encumbrance against the Premises, the Improvements or any property encumbered by the Deed of Trust; provided, that Lender agrees not to unreasonably withhold its consent to a request by Borrower that it be permitted to encumber the Premises with a junior lien to secure financing in addition to the maximum Loan amounts under this Agreement if such encumbrance would not unreasonably impair Lender's security or prospects for payment of all amounts for which Lender is or might become entitled under the Loan Documents; j. Any party shall obtain an order or decree in any court of competent jurisdiction: (i) to enjoin the construction of a material portion (as determined reasonably by Lender) of the Improvements; or (ii) to materially delay construction or completion of the same; or (iii) to enjoin or prohibit Borrower and Lender, or either of them, from carrying out a material portion (as determined reasonably by Lender) of the terms and conditions hereof, and such proceedings are not discontinued or such decree is not vacated within sixty (60) days after Lender shall have given Borrower written notice thereof; k. Borrower fails to prosecute construction of the Improvements with diligence as required by paragraph 3.5 herein; l. Borrower abandons (which is understood not to include delay caused by forces beyond Borrower's control) construction or 19 20 development of the Improvements or the Premises and such abandonment continues for a period of ten (10) days; m. Borrower allows cancellation or termination of any insurance required hereunder or under the Deed of Trust without timely replacing such insurance and notifying Lender of such replacement; n. The failure of Borrower to file all federal, state and local tax returns which are required to be filed or to pay, contest or make provisions for the payment of all taxes (including taxes of its employees withheld by it) which have or may become due pursuant to any return or otherwise; o. Any one of the following events occur with respect to Borrower: i. Its failure to pay its debts generally as they become due or entry of judgments in excess of $50,000 against it which remain unstayed or unpaid for more than sixty (60) days, or execution on any judgment so entered; ii. The voluntary filing of a petition in bankruptcy or for reorganization or for the adoption of arrangements under the Bankruptcy Code, as now or in the future amended, or an admission seeking the relief therein provided or the filing of a similar action pursuant to the laws of the State of Delaware, of the State of California or of any other state; iii. The making of an assignment for the benefit of creditors; iv. The consenting to the appointment of a receiver for all or a substantial part of Borrower's property; v. Borrower being adjudicated as bankrupt; vi. The entry of a court order which shall not be vacated, set aside or stayed within sixty (60) days from the date of entry, (i) appointing a receiver or trustee for all or a substantial part of its property, (ii) approving a petition filed against it for an arrangement in bankruptcy or for a reorganization pursuant to the Bankruptcy Code or for any other judicial modification or alteration of the rights of creditors; vii. The assumption of custody or sequestration of a court of competent jurisdiction of all or a significant part of any of the properties of Borrower, which custody or sequestration shall not be suspended or terminated within thirty (30) days from its inception; or 20 21 p. A material decline in the financial condition of Borrower which Lender in its discretion reasonably exercised and in good faith believes renders the obligations of Borrower to Lender unsafe or insecure in view of the value of the real and personal property security therefor. 7.2 REMEDIES. If one or more of the foregoing Events of Default (which is defined in Section 7.1 and includes as stated therein the expiration of any applicable cure or grace period) occur, Lender may exercise any one or more of the following remedies: a. Lender may refuse to make further advances or loans hereunder with or without demanding immediate payment by Borrower of all amounts loaned or advanced hereunder, together with interest on such amounts, and Lender may assert any or all of the rights and remedies provided herein or in the Notes, the Deed of Trust or any of the other Loan Documents; such rights or remedies may be asserted concurrently, cumulatively or successively from time to time so long as Borrower is indebted to Lender on account of any amounts loaned or advanced pursuant hereto or on account of interest due on such amounts. b. Enter upon the Premises, expel or eject Borrower and all persons claiming through or under Borrower and collect the rent, issues and profits therefrom. c. Enter upon the Premises, complete at the expense of Borrower in accordance with Plans and Specifications such Improvements as are reasonably required for economic development of the Premises and place in effect such insurance and bonds as are or may be required hereunder. The cost of such completion, insurance and bonds shall be charged to and deducted from the sum agreed to be loaned or advanced by Lender hereunder but shall be deemed to be indebtedness of Borrower evidenced by the Notes and secured by the Deed of Trust. In the event Lender exercises the option to complete said construction, Lender shall have the right to enter into any contracts Lender deems necessary or desirable for the completion of the Improvements. d. Pay or discharge any lien or claim against the Premises or any part thereof and charge the amount so paid to the sum agreed to be loaned or advanced by Lender. e. Institute such legal proceedings or other proceedings in the name of Borrower or Lender, as Lender may deem appropriate, for the purpose of protecting the Premises and Lender's interest therein. f. Do and perform such acts and deeds as Lender shall deem necessary or desirable to protect the Premises and Lender's interest therein. 21 22 g. All amounts paid under subparagraphs c, d, e and/or f of this Section 7.2 shall be deemed to be indebtedness of Borrower evidenced by the Revolving Note and secured by the Deed of Trust and other Loan Documents, and in the event such indebtedness exceeds the face amount of the Revolving Note, such excess or overage shall be added to the face amount of the Revolving Note and to the principal balance outstanding and shall bear interest at the Default Rate as provided therein and shall be secured by the Deed of Trust and may be collected as part of the debt evidenced thereby. h. Exercise any and all remedies available to it in law, in equity or provided for in any document executed in connection with this loan transaction. 7.3 REMEDIES - CUMULATIVE OR ALTERNATE a. Any Event of Default hereunder shall constitute an Event of Default under the Deed of Trust and the Notes to the same extent as though the Notes had by their terms become due and payable and payment thereof had not been made, and in such event Lender may, without liability to Borrower, assert and exercise any or all of the rights and remedies provided herein or in the Notes, the Deed of Trust, the other Loan Documents or otherwise provided by law with respect to the Notes, the Deed of Trust, this Agreement or the other Loan Documents, and such other collateral as Lender may hold as security for the indebtedness evidenced by the Notes or for the performance of Borrower's undertaking hereunder. b. No delay or failure of Lender in the exercise of any right or remedy hereunder or under the Notes, Deed of Trust or the other Loan Documents shall affect any such right or remedy, nor shall any single or partial exercise thereof preclude any further exercise thereof, and no action taken or omitted by Lender shall be deemed to be a waiver of any such right or remedy. ARTICLE VIII - PARTIAL RELEASES OF LIEN 8.1 PARTIAL RELEASES. a. Borrower may enter into binding agreements for the Sale or Partial Sale of the Premises (as those terms are defined in the Additional Interest Agreement) which are previously consented to in writing by Lender. Lender has at this time consented to three (3) Partial Sales of the Premises to Centex Real Estate Corporation ("CREC") under the agreements listed in subparagraphs A16 and A18 of Exhibit B to this Agreement. The consent of Lender to additional Partial Sales of the Premises shall be deemed to have been given if the price has been preapproved 22 23 pursuant to the following procedure and the contract documents have been preapproved by Lender. The preapproval procedure for price is as follows. By March 1 of each year, commencing March 1, 1990, Borrower will furnish to Lender its recommended pricing (on an all cash consideration basis) of lots (the selection of which lots shall not be inconsistent with the Development Schedule and the budget) to be sold to CREC during the following fiscal year of Borrower along with a market survey supporting the recommended pricing. Lender will have thirty (30) days to respond. Lack of response during that time will be deemed consent to the recommended pricing. If Lender timely gives notice of its disagreement with the recommended pricing, and Lender and Borrower cannot otherwise agree, then Lender and Borrower shall endeavor to engage a mutually acceptable MAI appraiser, whose determination of the proper recommended minimum pricing will be complied with by Borrower and deemed consented to by Lender for all Partial Sales of Premises involving such lots during the applicable fiscal year. The price list arrived at by this procedure shall be deemed part of Exhibit H. If Borrower and Lender cannot agree on a MAI appraiser, then the pricing of the lots will be the purchase price which can be obtained from a third party, who is not an Affiliate of Borrower, on a best efforts basis in an arms length transaction. Lender shall be obligated to provide partial releases of the lien of the Deed of Trust on any given portion of the Premises if and only if each of the following conditions has been fully met: (i) At the time a partial release is requested, no Event of Default hereunder, under any of the other Loan Documents, or under the Environmental Indemnification, shall exist; and no condition or event, which with the passage of time, the giving of notice, or both would constitute an Event of Default hereunder, under any of the other Loan Documents or under the Environmental Indemnification, shall exist unless such condition or event would be cured by payment of the Release Price (as hereinafter defined); (ii) Borrower has paid to Lender all of Lender's costs relating to such partial releases or made arrangements reasonably satisfactory to Lender for payment of such costs; (iii) Lender shall have received, as Additional Interest, at the closing of the sale, its Additional Interest (as defined in the Additional Interest Agreement) to the extent then payable under the Additional Interest Agreement. (iv) Lender shall have received, at closing of the sale, one hundred percent (100%) of the Adjusted Sales Proceeds (as hereinafter defined) of the portion of the Premises being conveyed (the "Release Price"), provided, however, the Release Price will never exceed the outstanding 23 24 balance of the Loan; (v) The Gross Sales Proceeds (as hereinafter defined) equals or exceeds the Minimum Sales Price plus specified lot premiums for each such unit as specified on Exhibit H attached as amended from time to time; (vi) After the requested partial release has been granted, all remaining portions of the Premises which are included within any recorded subdivision map have legal access to a public or private street, which access shall be acceptable to Lender; and (vii) Borrower has satisfied the requirements of Section 8.3 hereof. b. All Release Prices (but no Additional Interest as that term is defined in the Additional Interest Agreement) received by Lender shall be applied to repayment of the Acquisition Cost Note in the order set forth therein for application of payments so long as that Note has not been fully repaid. After the Acquisition Cost Note has been fully repaid, then Release Prices received by Lender shall be applied to repayment of the Revolving Note in the order set forth therein for application of payments. Upon the occurrence of an Event of Default, all Release Prices received by Lender shall be applied, in Lender's sole discretion as to order of payment, to any of accrued and unpaid late charges or interest, principal, costs and expenses of operating or developing the Premises, or attorneys' fees or other costs related to enforcement or collection of the foregoing. c. The term "Gross Sales Proceeds" shall mean all cash proceeds received in connection with a Sale of the Premises or a Partial Sale of the Premises, except as otherwise agreed to by Lender and Borrower. d. The term "Adjusted Sales Proceeds" shall mean Gross Sales Proceeds less (i) normal and customary closing costs, (ii) if the Sale or Partial Sale of the Premises was not to an Affiliate (as defined in the Additional Interest Agreement) of Owner, reasonable broker's commissions, and (iii) the Participation Amount (as defined in said Additional Interest Agreement) to the extent payable at the time of the Sale or Partial Sale to Lender or Borrower respectively pursuant to the Additional Interest Agreement. e. Lender acknowledges that it has irrevocably consented to the release of a portion of the Premises consisting of 161 lots pursuant to the sale referred to in Exhibit B, paragraph A, item 17, and agrees to execute promptly upon request a Partial Release and any other documents reasonably necessary to accomplish the release. 24 25 8.2 PARTIAL RELEASE PROCEDURES. Any and all Partial Releases shall be in accordance with the following procedures: a. Borrower's ten (10) days' advance written request for a Partial Release shall be given to Lender and accompanied by (i) the legal description of the portion of the Premises to be released, and (ii) information necessary to process the request for Partial Release, including the name and address of the title company, if any, to whose attention the Partial Release should be directed, numbers that should be referenced (title company order number, loan number, etc.) and the date when such Partial Release is to be made. Borrower shall also specify the name and address of the prospective purchaser and the intended use of the portion of the Premises to be released and shall supply such other documents and information concerning such Partial Release as Lender may reasonably request. b. Within five (5) days after receipt of such written request, and in accordance with and pursuant to the terms and conditions of Sections 8.1, 8.2 and 8.3 hereof, Lender shall, if appropriate, execute and deliver such Partial Release to the Title Company so specified; provided that all costs and expenses of Lender associated with such Partial Release (including, but not limited to, reasonable legal fees) shall be paid by Borrower. Borrower shall also obtain all title insurance endorsements reasonably required by Lender in connection with such Partial Release. c. The execution and delivery of such Partial Release shall not affect Borrower's obligations hereunder or under the Deed of Trust or Notes, except to the extent that the payment of the Release Price is actually received by Lender. Regardless of the time such Partial Release is executed, delivered and recorded, the payment made by Borrower to Lender in respect to such Partial Release shall be credited against the applicable Note only upon receipt by Lender of the Release Price. The Partial Release shall be delivered, in escrow, by Lender to the title company so designated, to be held, released, delivered and recorded in accordance with Lender's escrow instructions, which shall require payment, in cash, of the Release Price to Lender prior to delivery and recordation of the Partial Release. 8.3 PRIOR APPROVAL. No Partial Release shall be made, as set forth above, if such Partial Release is for a sale or other transfer occurring under an agreement not previously approved by Lender. 25 26 ARTICLE IX - MISCELLANEOUS 9.1 REIMBURSEMENT TO LENDER. Borrower hereby agrees to reimburse and fully compensate Lender upon demand by Lender for all loss, damage and expense, including out-of-pocket expenses and the reasonable fees of Lender's counsel, together with interest on the amount thereof from the date the same accrued at the Default Rate (defined in the Notes), incurred by Lender, (i) by reason of any default or defaults hereunder by Borrower not cured within any applicable cure period, (ii) by reason of the neglect by Borrower of any duty or undertaking, and (iii) in the exercise of any right or remedy hereunder. 9.2 EXPENSES TO LENDER. All items which Borrower agrees to furnish hereunder or in connection herewith will be furnished at Borrower's sole cost and expense and without cost or expense to Lender. In addition, Borrower shall pay to Lender any reasonable fees or costs incurred by Lender's Inspector in the performance of its duties hereunder. 9.3 CONDITIONS PRECEDENT TO DISBURSEMENT. Prior to the initial disbursement of any funds hereunder, the Lender shall be furnished with the documents as required by paragraph A of Exhibit B, all in form and substance satisfactory to Lender. Subsequent disbursements shall be subject to satisfaction by Borrower of the provisions of Exhibits B and C hereto and shall be in accordance with the procedures outlined in Exhibit F hereto. 9.4 LENDER - NO OBLIGATION AS TO PLANS OR SITE. Any inspection by Lender of the Plans and Specifications or of construction or of the site are made solely for the purpose of evaluation of Lender's security. The adequacy and suitability of these matters as they may apply to the Borrower and all other persons are solely the responsibility of the Borrower and Borrower's Engineer, without any liability or obligation of Lender whatsoever. 9.5 ASSIGNMENT: PLANS, SPECIFICATIONS AND CONTRACT AND ALL DOCUMENTS RELATING TO THE IMPROVEMENTS. Borrower, to the extent permitted by law, hereby makes a present assignment to the Lender, its successors and assigns of: (a) the right to possess and use all the Plans and Specifications prepared by it or for it or at its direction for the purpose of completing the Improvements, (b) all of Borrower's rights in and to each General Contract and Subcontract, agreement or subcontract pertaining to the Improvements, and (c) all of Borrower's rights under any and all permits, contracts, agreements, certificates and any other documents or agreements of any kind or nature whatsoever which are used, entered into or held by Borrower in connection with Borrower's acquisition of the Premises or the construction of the Improvements. Lender shall exercise its 26 27 rights under this assignment only in the event the Borrower fails to construct and complete the Improvements in accordance with the terms and provisions of this Agreement or defaults under this Agreement, the Notes, the Deed of Trust, any other Loan Document or any other agreement securing the indebtedness evidenced by the Notes. Borrower shall furnish to Lender prior to commencement of construction the consent of Borrower's Engineer and of each Subcontractor in substantially the form as set forth in Exhibits D and E hereof. Lender's rights with respect to this Section 9.5 shall survive the completion of the Improvements. 9.6 NOTICE. Any notice required or permitted to be given pursuant hereto, or in connection herewith, shall be in writing, and shall be either personally delivered, sent by Federal Express or other reputable overnight courier, sent by facsimile transmission with the original subsequently delivered promptly by other means, or sent by registered or certified United States mail, postage prepaid, to the addresses set forth below, or to such other addresses as either of the parties may for themselves designate in writing from time to time for the purpose of receiving notices pursuant hereto: Lender: Westinghouse Credit Corporation One Oxford Centre - 301 Grant Street Pittsburgh, Pennsylvania 15219 Attention: Vice President, Residential Real Estate Phone Number: (412) 393-3000 Facsimile: (412) 338-1460 With copy to: Poindexter & Doutre', Inc. 624 South Grand Avenue, Suite 2420 Los Angeles, California 90017 Attention: James P. Drummy, Esq. Phone Number: (213) 628-8297 Facsimile: (213) 488-9890 Borrower: Centex Development Company, L.P. 3333 Lee Parkway Dallas, Texas 75219 Attention: Raymond G. Smerge, Esq. Phone Number: (214) 559-6500 Facsimile: (214) 522-7568 With copy to: McCutchen, Doyle, Brown & Enersen Three Embarcadero Center San Francisco, California 94111 Attention: Robert E. Merritt, Jr., Esq. Thomas G. Reddy, Esq. Phone Number: (415) 393-2000 Facsimile: (415) 393-2286 27 28 Written notices served by registered or certified mail shall be deemed delivered on the third non-postal holiday after the date mailed. Other notices shall be effective upon delivery. 9.7 NO LIABILITY TO THIRD PARTIES. This Agreement shall not be construed to make the Lender liable to materialmen, contractors, craftsmen, laborers or others for goods and services delivered by them to or upon said Premises or for debts or claims accruing to the said parties against the Borrower, and it is expressly understood and agreed that, except as expressly provided for in exhibits hereto relating to assignments for security by Borrower to Lender, and then only to the extent therein provided, there are no contractual relationships, either expressed or implied, between the Lender and any materialman, subcontractor, craftsman, laborer or any person supplying work, labor or materials on the job, nor shall any third person or persons, individuals or corporate, be deemed to be beneficiaries of this Agreement, or of any term, condition or provision hereof, or on account of any action taken by Lender pursuant hereto or any assignment by Borrower contained herein. Nothing in this Agreement shall be construed to permit Lender to participate in the day-to-day management of the development of the Premises. 9.8 INDEMNIFICATION. Borrower shall at all times indemnify, defend, hold harmless and, on demand, reimburse Lender for any and all loss, damage, expenses or cost, of whatsoever kind and nature including, without limitation, cost of evidence of title, appraisal fees, documentary and expert evidence, stenographer's and publication charges, and attorneys', accountants' and other professional fees, arising out of or incurred in connection with (a) any suit, action or proceeding relative to or having any impact on Lender's interests hereunder or under any of the other Loan Documents including, without limitation, probate, bankruptcy, appellate proceedings, and foreclosure of Lender's interests therein or thereunder, (b) good faith preparation for the commencement or defense of any proceeding relating to the Loan, the Loan Documents or the Premises and/or Improvements, (c) adjustment and settlement of insurance proceeds and condemnation awards, (d) advances made by the Lender pursuant to this Agreement, (e) any Event of Default or any act or omission which would constitute an Event of Default but for the passage of time, the giving of notice or both, or any other breach of this Agreement or any other Loan Document, including a breach of any representation or warranty hereunder or thereunder, (f) any costs incurred by Lender in connection with enforcing the obligations of Borrower under this Agreement or under any other Loan Document or in connection with collecting the Indebtedness or preserving Lender's collateral, (g) retaking, holding, preparing and selling the Premises, or (h) any of the transactions contemplated by this Agreement or the other Loan Documents, whether or not caused by Lender's negligence. The sum of such expenditures shall be due and 28 29 payable on demand, shall bear interest from the date of such demand at the Default Rate (as that term is used in the Notes) and shall be secured by the Deed of Trust and the other Loan Documents. Notwithstanding the foregoing, Borrower shall have no liability under this subparagraph to indemnify Lender from any liability caused solely by the Lender's gross negligence or intentional act. 9.9 RELIANCE AND SEVERABILITY. All covenants, agreements, representations and warranties made herein, and in the Deed of Trust, in the Notes and in any other of the Loan Documents, instruments or certificates executed in connection herewith shall be deemed to have been and are material and relied upon by Lender, notwithstanding any investigation by Lender on its behalf. No provisions contained in this Agreement which are contrary to, prohibited by or invalid under applicable laws or regulations shall be applicable, and they shall be deemed omitted herefrom and shall not invalidate the remaining provisions hereof. 9.10 ATTACHMENTS. The exhibits attached to this Agreement are incorporated herein and deemed a part hereof as if fully recited in this Agreement prior to the place of execution hereof. 9.11 CAPTIONS. The paragraph captions contained herein are for convenience only and in no way limit or alter the terms and conditions hereof. 9.12 LAW GOVERNING AND AMENDMENTS. This Agreement shall be construed and governed by and enforced, insofar as possible, in accordance with the laws of the State of California. This Agreement may be amended only in writing executed by both of the parties hereto. 9.13 SUCCESSORS AND ASSIGNS. The words "Lender" and "Borrower" shall include singular or plural, individual or corporate, and their respective heirs, executors, administrators, legal representatives, successors and assigns, as the case may be. In the event the Borrower is two or more individuals or other entities, all the obligations and liabilities hereunder shall be joint and several. 9.14 COMPLIANCE WITH FEDERAL RESERVE SYSTEM REGULATIONS. Borrower represents and warrants that no part of the proceeds of any borrowing hereunder will be used to purchase or carry any securities subject to the margin requirements of Regulation G of the Federal Reserve System or to extend credit to others for the purpose of purchasing or carrying any margin stock. Borrower further represents and warrants that it is not engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any such margin stock. If requested by Lender, Borrower will furnish 29 30 to Lender a statement in conformity with the requirements of the Federal Reserve System. The provisions of this Paragraph 9.14 shall survive release of the Deed of Trust, the repayment of the Loan, and completion of construction of the Improvements. 9.15 FIRPTA CERTIFICATION. Under penalties of perjury, the person ("Affiant") executing this Agreement on behalf of the Borrower hereby certifies on behalf of the Borrower as follows: a. That Borrower is not a foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Internal Revenue Code of 1954, as amended (the "IRC"), and Income Tax Regulations promulgated thereunder, all pursuant to the requirements of Section 1445 of the IRC and the regulations promulgated thereunder. b. That Borrower does accordingly make and deliver this Certification for the express purpose of inducing the Lender to make the subject Loan in accordance with the terms and conditions of this Agreement, and Borrower hereby represents that Borrower has read and understands Sections 1445 and 7701 of the IRC and the regulations promulgated under these sections and declares that Borrower is not a foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the IRC and the Income Tax Regulations, and Lender is not required to withhold any tax as a result of the sale, foreclosure or other disposition by Borrower of the property of Borrower. c. That Borrower understands and acknowledges that Lender is relying and will rely upon the certification contained in this Section 9.15 in refraining from withholding ten percent (10%) of any amount which may ultimately be realized by Borrower. d. Borrower's United States Taxpayer Identification Number is 75-2168471. e. That Borrower understands and acknowledges that the certification may be disclosed to the Internal Revenue Service by Lender and that any false statement contained herein could be punished by fine, imprisonment, or both. f. That Affiant hereby acknowledges that Affiant has examined the certification contained in this Section 9.15 and, under penalties or perjury, declares that to the best of Affiant's knowledge and belief, it is true, correct and complete, and Affiant further represents and declares that Affiant has the authority to sign this certification on behalf of Borrower. The provisions of this Section 9.15 shall survive release of the Deed of Trust, the repayment of the Loan, and completion of construction of the Improvements. 30 31 9.16 LENDER'S CONSENTS. Except as language otherwise provides or context otherwise requires, all consents and approvals of Lender necessary under this Agreement and the other Loan Documents will not be withheld unreasonably. 9.17 SUBORDINATION TO SUBDIVISION MAPS. At Borrower's request, Lender agrees to sign, as Lender, and to subordinate its rights under the Loan Documents to any subdivision map or development agreement concerning the Premises, or easements, rights of way, restrictive covenants or similar documents required under such subdivision maps or development agreements, the terms of which subdivision map, development agreement or other document or instrument are not inconsistent with the intended use of the Premises as set forth in the Specific Plan. 9.18 RELEASED PREMISES. Unless the context otherwise requires, the term "Premises" does not include at a point in time that portion thereof previously released from the lien of the Deed of Trust. 9.19 LOAN AGREEMENT CONTROLS. In the event of an inconsistency between the Loan Agreement and any of the other Loan Documents, the Loan Agreement controls. 9.20 COOPERATION. Lender agrees to provide all consents or approvals reasonably requested by Borrower in connection with governmental approvals necessary for the construction of the Improvement. 9.21 FUNDING OF EXPENSES. Notwithstanding language such as "at Borrower's expense," "at Borrower's sole expense," and the like, unless otherwise expressly provided herein or in any of the other Loan Documents or for fraud, misappropriation and the like, any expenses imposed on Borrower under any of the Loan Documents, including reimbursement of any of Lender's expenses in connection with the Loan Documents on the Premises, may be funded from an advance or advances under the Revolving Note, subject to the limitations in Section 5.1h of the Loan Agreement. ARTICLE X - NON-RECOURSE 10.1 Lender agrees that: (i) in the event of a foreclosure under the Deed of Trust, Lender shall not seek or enforce a deficiency judgment against Borrower or its General Partner; and (ii) in the event a suit is brought on the Notes or any of the other Loan Documents, any judgment obtained in such suit shall be enforced only against the property and interests encumbered by the Deed of Trust and other Loan Documents, and any other property or collateral which hereafter may be given to secure the Notes. Nothing contained herein shall be deemed to be a release of the lien of the Deed of Trust or, except as specifically limited hereby, a release or waiver of any of Lender's rights or 31 32 remedies provided in any Loan Document or in any other document or agreement now or hereafter entered into between Borrower and Lender. This paragraph shall not be deemed to be a release or waiver of any claim, warranty, covenant, or cause of action not expressly set forth in the first sentence of this paragraph, including without limitation, a claim based on fraud or misrepresentation, or a cause of action for waste, misappropriation or intentional impairment of the collateral securing this Note. Nothing contained in this paragraph shall limit or affect Lender's rights with respect to Borrower's obligations under the Environmental Indemnification Agreement. WITNESS the due execution hereof the date and year first above written. ATTEST: WESTINGHOUSE CREDIT CORPORATION, a Delaware corporation By: /s/ DAVID H. MORROW By: /s/ DOUGLAS W. PHILLIPS Title: Vice President CENTEX DEVELOPMENT COMPANY, L.P. ATTEST: a Delaware limited partnership By: /s/ RAY GLAZE By: 3333 Development Corporation, a Nevada corporation, General Partner By: /s/ HARRY J. LEONHARDT Title: Agent and Attorney in Fact 32 EX-2.4 14 CDC FORSTER RANCH DEVELOPMENT AGREEMENT 1 EXHIBIT 2.4 CENTEX DEVELOPMENT COMPANY, L.P. FORSTER RANCH DEVELOPMENT AGREEMENT BY AND BETWEEN CITY OF SAN CLEMENTE AND CENTEX DEVELOPMENT COMPANY, L. P. 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.02 Additional Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 2. DEVELOPMENT OF THE PROPERTY . . . . . . . . . . . . . . . . . . . . . . 9 2.01 Development of the Property . . . . . . . . . . . . . . . . . . . . . . 9 2.01.1 CDC's Right to Develop . . . . . . . . . . . . . . . . . . . . 9 2.01.2 Police Power . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.01.3 State and Federal Laws . . . . . . . . . . . . . . . . . . . . 10 2.02 Permitted Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.03 Density and Intensity of Use . . . . . . . . . . . . . . . . . . . . . . 11 2.04 Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05 Revised Tentative Map 12895 . . . . . . . . . . . . . . . . . . . . . . . 11 2.05.1 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 11 2.05.2 Development Allocations . . . . . . . . . . . . . . . . . . . . 14 2.06 Measure B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.06.1 Stipulated Judgment . . . . . . . . . . . . . . . . . . . . . . 14 2.06.2 Changes to Measure B . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 3. OBLIGATIONS OF CDC . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.01 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.02 Storm Drain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.02.1 Construction and Maintenance . . . . . . . . . . . . . . . . . . 16 3.02.2 Plans and Specifications . . . . . . . . . . . . . . . . . . . . 20 3.02.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.02.4 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 (a) Letters of credit . . . . . . . . . . . . . . . . . . . . 22 (b) Construction funding . . . . . . . . . . . . . . . . . . . 25 3.02.5 Waiver of Fees . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.02.6 Master Plan Facilities Reimbursement Agreement . . . . . . . . . . . . . . . . . . . . 29 3.03 Traffic Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.04 Affordable Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.05 Park Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (i) Baseball Park and Phase 1 Park Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 34 (ii) Subsequent Phases of Improvements . . . . . . . . . . . . . . . 36 (iii) Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.06 Development Fees and Taxes . . . . . . . . . . . . . . . . . . . . . . . 38 3.06.1 Planned Drainage Facilities Fee . . . . . . . . . . . . . . . . 38 3.06.2 Sanitary Sewer Connection Fees . . . . . . . . . . . . . . . . . 39 3.06.3 Park Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.06.4 Other Fees, Charges, and Taxes . . . . . . . . . . . . . . . . . 40 3.07 Reservoir . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.08 Option to City to Acquire Civic Center Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.08.1 Determination of Boundaries . . . . . . . . . . . . . . . . . . 41 3.08.2 Option Fee and Purchase Price . . . . . . . . . . . . . . . . . 42 3.08.3 Option Period . . . . . . . . . . . . . . . . . . . . . . . . . 42
-i- 3 3.08.4 Manner of Exercise of Option . . . . . . . . . . . . . . . . . . 43 3.08.5 Condition of Title . . . . . . . . . . . . . . . . . . . . . . . 44 3.08.6 Escrow Fees and Closing Costs . . . . . . . . . . . . . . . . . . 45 3.08.7 Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.08.8 Physical Condition of the Civic Center Site . . . . . . . . . . . . . . . . . . . . . . . 46 3.08.9 Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . . 48 3.08.10 Wastewater Treatment Capacity . . . . . . . . . . . . . . . . . 48 ARTICLE 4. IMPLEMENTATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.01 Processing and Approvals . . . . . . . . . . . . . . . . . . . . . . . . 49 4.02 Conditions of Approval Regarding Specific Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 4.03 Tentative Map Extensions . . . . . . . . . . . . . . . . . . . . . . . . 51 4.04 Other Governmental Permits . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 5. AMENDMENT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE 6. ANNUAL REVIEW; DEFAULT; TERMINATION . . . . . . . . . . . . . . . . . . . 52 6.01 Annual Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6.02 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 6.02.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 6.02.2 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . 54 6.02.3 No Obligation to Develop . . . . . . . . . . . . . . . . . . . . 54 6.02.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.01 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.02 Settlement/Development Agreement . . . . . . . . . . . . . . . . . . . . 56 7.03 Transfer of Property . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.04 Mortgagee Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.04.1 Definition of Mortgagee . . . . . . . . . . . . . . . . . . . . 57 7.04.2 Default Rights . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.05 Cascadita Landslide . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.06 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.07 Parties In Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.08 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.09 Cooperation in the Event of Legal Challenge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.10 Entire Agreement; Recordation . . . . . . . . . . . . . . . . . . . . . . 62 7.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.12 Successors and Assigns; Survival of Representations, Warranties, and Indemnity Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 63 7.13 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 7.14 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 7.15 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 64 7.16 Reasonableness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
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EXHIBITS -------- A Map of the Forster Ranch B Legal Description of the Golf Course C Land Use Parameters D Legal Description of the Property D-1 Map of the Property E Storm Drain Concept Plan F Stipulation for Judgment G Draft Forster Ranch Park Site Master Plan H Description of Portion of Site Within Which Civic Center Site Can Be Located
-iii- 5 FORSTER RANCH DEVELOPMENT AGREEMENT THIS DEVELOPMENT AGREEMENT is entered into as of March 31, 1989, by and between the CITY OF SAN CLEMENTE, a municipal corporation ("City"), and CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership ("CDC"). R E C I T A L S: A. To strengthen the public planning process, encourage private participation in comprehensive planning and reduce the economic risk of development, the Legislature of the State of California adopted the Development Agreement Statute. The Development Agreement Statute authorizes City to enter into an agreement with any individual or entity having a legal or equitable interest in real property in order to establish development rights for such property. B. Pursuant to an Option Agreement dated as of November 3, 1988, CDC has acquired the right to purchase the "Property" (defined below) from "Estrella" (defined below). The Property is part of a larger parcel of land known as the "Forster Ranch" (defined below). C. In the late 1970's, disputes arose between Estrella and City regarding the intensity and timing of Forster Ranch development, and the nature and extent of the fees, -1- 6 dedications, improvements, and other conditions required or imposed by City with respect to such development. With reference to these disputes, Estrella filed three separate lawsuits against City and various officials and employees of city. The parties settled these lawsuits, with minor exceptions, pursuant to the "Settlement/Development Agreement" (defined below). D. The Settlement/Development Agreement permits construction of a total of 3,359 residential dwelling units on the Forster Ranch, establishes prescribed time periods for City action on certain development approval applications, proscribes certain city actions, subject to other terms and conditions of the Settlement/Development Agreement, which actions would render development of the Property "infeasible," and imposes other restrictions on City's exercise of its discretionary authority with respect to development of the Forster Ranch. The Settlement/Development Agreement also sets forth Estrella's obligations with respect to annexation fees, drainage fees and facilities, sewer connection fees, parkland dedication and in-lieu fees, certain street improvements, provision of affordable housing, and other matters pertaining to the development of the Forster Ranch. E. On October 1, 1986, the City Council of the City of San Clemente adopted its Resolution No. 86-101 amending Specific Plans 80-3 and 80-7 for the "Development Area" -2- 7 (defined below) and approving Specific Plan 83-1 for the "Planning Area" (defined below) (collectively, the "Forster Ranch Specific Plan"). An environmental impact report for the Forster Ranch Specific Plan (EIR No. 84-01) was prepared in accordance with the provisions of the California Environmental Quality Act ("CEQA") and certified by City as adequate and complete pursuant to Resolution No. 86-99 on October 1, 1986. F. On April 20, 1988, the City Council adopted its Resolution No. 88-28 approving Tentative Tract Map 12895 and Site Plan Review 87-17, which provide for the subdivision of approximately 99 acres of the Property into 397 lots (including 389 single-family residential lots) and development thereof, subject to the conditions set forth in such resolution. G. Estrella has filed two lawsuits against City which are now pending and are described as follows: Estrella Properties, Ltd. v. City of San Clemente, Orange County Superior Court Case No. 49-04-07. Estrella Properties, Ltd. v. City of San Clemente, et al., "United States District Court Case No. CV 86-3345 IH(Kx). In these lawsuits, Estrella seeks a ruling that "Measure B" (defined below) is either null and void or is not applicable to the Forster Ranch because the Settlement Development Agreement precedes the adoption of Measure B. CDC has represented to City that Estrella has agreed to -3- 8 assign all of its interests in these lawsuits to CDC as of the "Closing Date" (defined below). H. CDC has further represented to City that Estrella has agreed to assign to CDC at the Closing Date all of Estrella's right, title, and interest under those certain agreements relating to the Property to which Estrella and City are parties which are referenced in Article 9 of the November 3, 1988, Option Agreement between Estrella and CDC, including without limitation the Settlement/Development Agreement and the Agreement For Construction Of Wastewater Treatment Facilities dated on or about October 3, 1984. I. City and CDC desire to enter into this Agreement to supersede those provisions of the Settlement/Development Agreement which have been executed or which are no longer needed, to provide CDC with certain assurances with respect to its future development rights concerning the Property, to provide for the development of park and storm drain improvements, to provide City with an option to acquire a portion of the Property for use as a future civic center site, and otherwise to enhance the public health, safety, and welfare of the residents of the City of San Clemente and foster certainty and efficiency in the planning of future development of the Property. NOW, THEREFORE, the parties agree as follows: -4- 9 ARTICLE 1 DEFINED TERMS 1.01 Definitions. The following terms used in this Agreement, unless the context otherwise requires, shall have the meanings set forth in this Section 1.01: "Affordable Housing" shall mean equal numbers of Low, Moderate I, and Moderate II units as defined in the Housing Element of the General Plan of the City. "CDC" shall mean Centex Development Company, L.P., a Delaware limited partnership, whose sole general partner is 3333 Development Corporation, a Nevada corporation, and any successors and assigns to the rights or obligations of Centex Development Company, L.P., under this Agreement, as provided herein. "Closing Date" shall mean the date on which the grant deed or deeds is/are recorded conveying the Property from Estrella to CDC. "Development Agreement Statute" shall mean Article 2.5 (commencing with Section 65864) of Chapter 4 of Division 1 of Title 7 of the California Government Code, as the same may be amended from time to time. "District" shall mean the Orange County Flood Control District. "Effective Date" shall mean the thirtieth day after the City Council adopts an ordinance approving this Agreement. -5- 10 "Estrella" shall mean Estrella Properties, Ltd., a California limited partnership, and any successors and assigns (other than CDC and successors and assigns of CDC) to the rights of Estrella Properties, Ltd., under the Settlement/Development Agreement or with respect to the Property. "Forster Ranch" shall mean the approximately 1,774-acre area of the City more particularly depicted in the "Map of the Forster Ranch" attached hereto as Exhibit A. The Forster Ranch consists of the "Development Area" and the "Planning Area," as shown in the Specific Plan described below. "Golf Course" shall mean the Shorecliffs Golf Course located in the City. A legal description of the Golf Course is attached hereto as Exhibit B. "Land Use Parameters" shall mean the development parameters governing development of the Property as described in Exhibit C to this Agreement. "Litigation" shall mean the two lawsuits described in Recital G above. "Measure B" shall mean that certain growth control initiative adopted by City voters in 1986 and adopted by the City Council on March 5, 1986, as Ordinance No. 922, as amended by Ordinance No. 931 adopted on September 17, 1986, by Ordinance No. 953 adopted on December 17, 1987, by Ordinance No. 991 adopted on February 1, 1989, and as may be further amended from time to time by the City Council -6- 11 pursuant to Section 10 of Ordinance No. 922, provided that such amendment is not inconsistent with any of the express provisions contained in this Agreement. "Property" shall mean the real property in the City consisting of an approximately 1,077.2 acre portion of the Forster Ranch, as more particularly described in the legal description attached hereto as Exhibit D. The Property includes the so-called "Planning Area" (1,031 acres, more or less), Lot 25 in Tract 11781, Lot 26 in Tract 11781, and 14 acres, more or less, in Lot 35 of Tract 10417, which are depicted on the "Map of the Property" attached hereto as Exhibit D-1. "RCFPP" shall mean the Regional Circulation, Financing and Phasing Program of the City which is being processed by City as of the Effective Date of this Agreement, as the same may be amended from time to time, provided that the RCFPP, including any amendments thereto, shall not be applied to the Property to the extent it is not consistent with the express provisions contained in this Agreement. "Settlement/Development Agreement" shall mean that certain Settlement/Development Agreement by and between Estrella and City dated August 5, 1981, as amended by that certain First Amendment to Settlement/Development Agreement dated December 14, 1983, and that certain Second Amendment to Settlement/Development Agreement by and among Estrella, City, -7- 12 and Shorecliffs which was approved by the City on July 20, 1988. "Shorecliffs" shall mean Shorecliffs Golf Course, Inc., a California corporation, and any successor and assign to the right, title, and interest of Shorecliffs Golf Course, Inc., in and to the Golf Course or any portion thereof, excepting only the owner of the Storm Drain and the owner of any easement, license, right-of-way, or similar property interest relating to use of the Golf Course for flood control and storm drain purposes. "Specific Plan" shall mean the Forster Ranch Specific Plan prepared by Tierra Planning & Design, Inc., dated October 1985 and approved by City on October 1, 1986, including all conditions of approval (and any mitigation measures required pursuant to such conditions). "Revised Tentative Map 12895" shall mean that certain tentative map revising Tentative Tract Map 12895, an application for which was filed with the City on or about January 17, 1989, as the same may be approved by the Council of City after City's approval of this Agreement, including all conditions of approval (and any mitigaticn measures required pursuant to such conditions). 1.02 Additional Defined Terms. To the extent capitalized terms are not defined in Section 1.01, such terms shall have the meaning otherwise ascribed to them in Agreement. -8- 13 ARTICLE 2 DEVELOPMENT OF THE PROPERTY 2.01 Development of the Property. 2.01.1 CDC's Right to Develop. During the term of this Agreement, CDC shall have the vested right to develop the Property in accordance with and subject to the terms and conditions set forth or referenced in this Agreement. 2.01.2 Police Power. Except as otherwise expressly provided herein, the City shall have the right to exercise its lawful police power authority to regulate development of the Property, including without limitation the adoption or application to the Property of laws, rules, regulations, and policies in effect at the Effective Date and laws, rules, regulations, and policies adopted or approved after the Effective Date. Without CDC's prior written consent, no City ordinance, resolution, or other rule, regulation, or policy adopted after the Effective Date, whether by action of the City Council, by initiative, or otherwise, shall apply to the Property if and to the extent that the same is inconsistent with any of the express provisions of this Agreement. Nothing contained herein is intended to prevent the City from applying to the Property any subsequently adopted City ordinances, resolutions, or other rules, regulations, or policies which are not inconsistent with the express provisions of this Agreement -9- 14 (including without limitation Sections 2.01.3 and 2.05 below). 2.01.3 State and Federal Laws. By entering into this Agreement, CDC does not waive the benefit or protection of any rights it may have under applicable state or federal laws or regulations that may apply to the development of the Property from time to time, including without limitation any laws applying the laws in effect at a given time in processing land use applications such as Government Code Sections 66474.2 and 66498.1 through 66498.9, except to the extent that applying such laws and regulations to the Property would be inconsistent with any of the express provisions of this Agreement. In the event that state or federal laws or regulations, enacted after the Effective Date, prevent or preclude compliance with one or more provisions of this Agreement, such provisions of this Agreement shall be modified or suspended as may be necessary to comply with such state or federal laws or regulations. 2.02 Permitted Uses. The permitted uses of tne Property, the density or intensity of use, the maximum height and size of proposed buildings, and provisions for reservation or dedication of land for public purposes shall be as set forth in this Agreement, including without limitation the Land Use Parameters. It is specifically understood that the City reserves the right after the Effective Date to amend the Specific Plan and other City -10- 15 laws, rules, regulations, and policies applicable to the Property under procedures provided by law and such amendment or amendments shall be binding on the Property except to the extent that the same conflict with the express provisions of this Agreement. 2.03 Density and Intensity of Use. The maximum permitted density and intensity of residential development on the Property will be 1,762 market rate residential units and a number of multi-family Affordable Housing units equal to 174 plus 15% of all market rate residential units constructed on the Property. The City shall not reduce this maximum permitted density without CDC's prior written consent, which CDC may grant or withhold in its sole discretion. In addition, City shall permit commercial, industrial, and/or mixed use development on a minimum of 57 gross acres contained in the Planning Area and commercial development of Lot 25 in Tract 11781. 2.04 Zoning. The zoning of the Property throughout the term of this Agreement shall be kept consistent with the permitted uses of the Property as set forth or referenced in Sections 2.02 and 2.03, including such changes to such permitted uses as are allowed in accordance with this Agreement. 2.05 Revised Tentative Map 12395. 2.05.1 Applicable Law. The City laws, rules, regulations, and official policies governing design, -11- 16 improvement, development, and construction on the land described in Revised Tentative Map 12895, and all on-site and off-site improvements and appurtenances constructed in connection therewith, shall be those City laws, rules, regulations, and official policies in force on the Effective Date of this Agreement, except as follows: (i) Section 2.01.3 shall prevail over this Section 2.05 to the extent of any inconsistency. (ii) CDC shall comply with the most recently adopted provisions of the Uniform Building, Plumbing, Mechanical, Electrical, Fire, and other uniform codes (including any generally applicable local amendments thereto) in effect at the time development actually takes place. (iii) The City reserves the right to require CDC to comply with all conditions previously imposed on the original tentative tract map for Tract 12895 and accompanying site plan which are applicable to the revised project; provided, however, that CDC reserves the right to argue that Condition 43, which relates to Estrella's performance of certain obligations on the Forster Ranch -12- 17 off of the Property being acquired by CDC, should not be applied to CDC. (iv) To the extent that CDC revises the project from what already has been reviewed and approved by City, City reserves the right to impose additional or modified conditions or requirements to the extent reasonably related to such revisions. (v) CDC shall be required to pay all city development and building fees, charges, assessments, and taxes in existence on the Effective Date at the rates in effect at the time such fees, charges, assessments, and taxes become due, including any increases adopted or imposed after the Effective Date. (vi) CDC shall be required to pay City's applicable RCFPP fee and beach parking fee for Tract 12895 at the rate in effect at the time such fees become due, notwithstanding that such fees are not in existence as of the Effective Date, but otherwise CDC shall not be obligated to pay any new City fee, charge, assessment or tax which is not in effect as of the -13- 18 Effective Date as a condition to CDC's right to develop or build Tract 12895. 2.05.2 Development Allocations. The 155 development allocations issued by the City for residential construction on the tentative map for Tract 12895 approved by the City on April 20, 1988, shall not be reallocated to another developer or otherwise revoked or withdrawn from CDC prior to June 1, 1991, due to any failure of CDC to commence construction before that date. 2.06 Measure B. 2.06.1 Stipulated Judgment. CDC and City agree to enter into a stipulation for Judgment with respect to Orange County Superior Court Case No. 49-04-07 in substantially the form set forth in Exhibit F to this Agreement. Within thirty (30) days following the Closing Date, CDC and City shall present the stipulation to the Court for execution and entry of judgment. In the event the Court requires modifications to the stipulation, the parties agree to cooperate in effectuating such modification provided the same do not materially impair the rights of either party hereunder. Within fifteen (15) days after judqment is entered in Case No. 49-04-07, CDC shall dismiss with prejudice United States District Court Case No. CV 86-3345 IH (Kx). CDC and City agree to bear their respective costs and attorney's fees with respect to the Litigation. Notwithstanding the stipulated judgment and dismissal -14- 19 referenced herein, in the event Measure B is repealed (by action of the City's voters) or a final, nonappealable judgment is entered by a court of competent jurisdiction (as a result of litigation pursued by a third party) declaring that Measure B is invalid or enjoining its enforcement, Measure B shall not apply to the Property. If for any reason any court determines that the Settlement/ Development Agreement precludes application of Measure B to development of the Property prior to the entry of Judgment in Orange County Superior Court Case No. 49-04-07 or United States District Court Case No. CV 86-3345 IH (Kx), CDC shall waive the benefit of such ruling. CDC agrees that from and after the Effective Date, and except as specifically set forth in the preceding paragraph, it will not participate in, finance, or otherwise promote any litigation which seeks a judicial determination that Measure B is invalid, either on its face or as applied to all or any portion of the Property, or which seeks tc enjoin the enforcement of Measure B. During the term of this Agreement, and without limiting or restricting CDC's rights under Section 2.01 above, City agrees that no amendment to Measure B and no new City ordinance, resolution, rule, regulation, or official policy shall apply to the Property if and to the extent that the same either (i) reduces the number of residential building permits that City can approve or issue in any year -15- 20 below the number now authorized by Measure B (i.e., 500, as the same may be adjusted in accordance with Section 4.B of Measure B), or (ii) further reduces or restricts the exemptions set forth in Section 2 of Measure B. In any case, if within two years from the Effective Date Measure B is repealed or declared invalid through the issuance of a final, nonappealable Judgment entered by a court of competent jurisdiction, the term of this Agreement shall then change from fifteen years to ten years. 2.06.2 Changes to Measure B. If any change is made to Measure B on or after the Effective Date, other than a change allowed under the above definition of Measure B, such change will not be binding upon the Property without the prior written consent of CDC. ARTICLE 3 OBLIGATIONS OF CDC 3.01 General. CDC shall construct the public improvements, dedicate the property, and pay the fees set forth in this Article 3. 3.02 Storm Drain. 3.02.1 Construction and Maintenance. CDC shall construct a reinforced concrete enclosed box culvert storm drain (the "Storm Drain") from the downstream side of Calle Nuevo across the Golf Course to the site of the proposed District inlet facility, all as shown on the concept plan -16- 21 attached hereto as Exhibit E. The Storm Drain shall be designed to meet all standards and criteria of the District for accepting the dedication of the completed facility for full ownership and maintenance purposes. CDC has represented to City that Estrella has agreed to cause Shorecliffs to enter into an agreement with CDC prior to the Closing Date which agreement will provide, inter alia, that: (i) Shorecliffs will give a nonexclusive easement to CDC for the construction, maintenance, and repair of the Storm Drain on, under, and across the Golf Course; (ii) after CDC's completion of construction of the Storm Drain, Shorecliffs shall restore or landscape the portion of the Golf Course through which the Storm Drain has been constructed; (iii) Shorecliffs shall maintain the Storm Drain until dedication of the Storm Drain is accepted by the District or City; and (iv) Shorecliffs, at its sole expense, shall maintain the Golf Course in a reasonable manner and condition and keep the Golf Course open for public play, both for two years after the date that the Storm Drain has been completed, as provided herein. In addition, at or prior to the Closing Date, CDC shall exercise best efforts to cause Shorecliffs to agree (i) that the easement granted to CDC pursuant to clause (i) of the preceding sentence shall include all temporary and permanent easements which may reasonably be required by the District (in accordance with the District's standard forms) -17- 22 for acceptance of the Storm Drain for full ownership and maintenance purposes, that CDC may assign said easements to District, and that CDC may assign said easements to City in the event that the District fails or refuses for any reason to accept said assignment; (ii) to grant the necessary easements or rights-of-way (in accordance with the District's standard forms) to permit the use of portions of the Golf Course as a retention basin or basins in the event of storm water runoff in the Prima Deshecha Drainage Basin exceeding the carrying capacity of the Storm Drain, all without any charge to or liability of the District or City, as the case may be; (iii) if the District does not accept Shorecliffs' offer of dedication of the Storm Drain within ninety (90) days following the satisfactory completion of construction thereof, City shall have the right, but not the obligation, at any time thereafter to accept the same for full ownership and maintenance purposes, provided the following conditions are satisfied: a. The Storm Drain has been completed in accord with the plans and specifications described in Section 3.02.2 below; b. CDC agrees to indemnify, defend, and hold City harmless from all claims arising from defective design or construction by CDC of the Storm Drain other than defects caused by -18- 23 City-imposed changes to the plans and specifications; and c. CDC assigns to City its rights under any agreement it may have with the District relative to the District's obligation to accept the Storm Drain; and (iv) to make City a third party beneficiary with the right to enforce all of Shorecliffs' obligations referenced in this Section 3.02.1, including the right, if Shorecliffs fails to maintain the Storm Drain prior to the District's or City's acceptance of Shorecliffs' offer of dedication, to declare the Golf Course property a public nuisance, to enter onto the Golf Course to perform the maintenance necessary to abate the nuisance, and to recover the costs of such maintenance in the same manner permitted for recovery of the costs of abating nuisances, including filing and enforcing a lien against the Golf Course, and with City's rights to be memorialized in a document recorded against the Golf Course and running with the land in favor of City, in a form reasonably acceptable to the City Attorney. Notwithstanding any other provision of this Agreement to the contrary, all of City's obligations under this Agreement shall be conditioned and contingent upon CDC's obtaining such agreement from Shorecliffs. If CDC fails to timely obtain such agreement, City shall have the right to terminate this Agreement upon thirty (30) days' written -19- 24 notice to CDC; provided, however, that if City notifies CDC of its intent to terminate this Agreement and CDC obtains Shorecliffs' agreement to such matters, this Agreement shall continue in force and effect. In the event this Agreement is terminated pursuant to this Section 3.02.1, neither party shall have any rights or obligations hereunder. 3.02.2 Plans and Specifications. CDC shall prepare and submit to City and the District plans and specifications for all portions of the Storm Drain within ninety (90) working days after CDC receives from the District all criteria it needs to prepare such plans and specifications. CDC will use due diligence to obtain such criteria from the District on or before March 31, 1989. CDC shall cooperate with both City staff and the District and their consultants to provide full information regarding the design and construction of the Storm Drain, and shall exercise reasonable diligence in processing the plans and specifications. City shall cooperate and consult with CDC regarding the processing and approval of the plans and specifications, subject to its rights to independently evaluate engineering design and feasibility. City shall review and comment upon the proposed plans and specifications and return the same to CDC. Thereafter, CDC shall revise the plans and specifications to conform to the reasonable requirements of City and the District and then resubmit the plans and specifications to -20- 25 City and the District within thirty (30) days of receipt of comments from each agency. If CDC makes any material change in the plans and specifications after final approval by City or the District, CDC will resubmit the amended plans and specifications in the same manner as outlined above. City shall review all submissions and resubmissions of the plans and specifications in an expedited manner, and its approval of the same will not be unreasonably withheld or delayed. To the extent required by law, CDC shall also submit the necessary applications for permits to construct the Storm Drain to the United States Army Corps of Engineers, the California Department of Fish & Game, the California Coastal Commission, and any other governmental agencies with jurisdiction over the project. Such applications shall be filed as soon as practicable after the Closing Date. CDC shall use due diligence in processing such permit applications. City shall provide reasonable assistance to CDC in obtaining such permit approvals, provided CDC shall advance or promptly reimburse City for any out-of-pocket costs (excluding staff time) City incurs in providing such assistance. 3.02.3 Construction. CDC shall commence construction of the Storm Drain as soon as weather permits after the plans and specifications are approved and all required governmental permits are issued, and thereafter CDC -21- 26 shall diligently prosecute such construction to completion. The phrase "as weather permits" means that construction shall commence within thirty (30) days after the plans and specifications are approved and all required governmental permits are issued, provided that CDC shall not be required to commence construction earlier than April 1 nor later than July 1, and if construction cannot be commenced prior to July 1, the commencement date shall be no later than the following April 1. CDC shall complete construction of the Storm Drain within six (6) months following commencement, subject to Section 6.02.2 herein. CDC shall construct the Storm Drain in a manner that minimizes interference with the on-going operation of the Golf Course to the extent reasonably practicable. 3.02.4 Funding. Except as provided below, CDC shall have the sole obligation to fund the planning, design, engineering, construction, supervision, inspection, and all other costs associated with the design and construction of the Storm Drain. (a) Letters of credit. As security for its obligation to plan, design, engineer, construct, supervise, and inspect the Storm Drain, CDC, no later than the Closing Date, shall deliver to City an irrevocable direct-pay letter of credit in favor of City, in a form acceptable to the City Attorney, and drawn on a financial institution acceptable to City, in the amount of $1,500,000. Upon receipt of such -22- 27 letter of credit, City shall return to Estrella its $1,500,000 letter of credit which was submitted to City pursuant to Section 3.c.(i) of the Second Amendment to the Settlement/Development Agreement. Further, prior to CDC obtaining any building permit regarding the Property, it shall post a new irrevocable direct-pay letter of credit ("Box Culvert Letter of Credit") in favor of City, in a form acceptable to the City Attorney, and issued by a financial institution acceptable to City, in an amount equal to the difference between the "City Funds" (defined below) and the estimated cost of the box culvert as reasonably determined by an engineering firm engaged by CDC and approved by City ("Estimated Cost"). Upon delivery to City of the Box Culvert Letter of Credit, City shall immediately return to CDC its $1,500,000 letter of credit. The $1,500,000 Letter of Credit and the Box Culvert Letter of Credit shall provide for direct payment to the City upon the receipt by the issuing bank of a written statement from the City Manager or designee that CDC has defaulted under this Agreement by failing to timely commence, proceed with, or complete construction of the Storm Drain pursuant to this Agreement and that the amount of the City's demand on the letter of credit has been determined by the City to be the amount necessary to complete the work. City will deliver to CDC a copy of any such written notice to the -23- 28 issuing bank five working days prior to presenting such notice to the issuing bank. Upon written request by CDC to City (not more frequently than monthly) accompanied by such documentation as may be reasonably required by the City Engineer which proves that portions of the Storm Drain construction work have been satisfactorily completed and subcontractors have been paid therefor, City shall permit a reduction of the Box Culvert Letter of Credit or, at CDC's option, the substitution of a smaller letter of credit (otherwise in the same form), provided that the remaining balance secured by the reduced or substituted letter of credit shall be not less than 125% of the then-estimated cost to complete the project less the then-unexpended balance of the "City Funds" referenced in paragraph (b) below. In the event the funds obtained by City from either letter of credit (less the amount of the City Funds) are insufficient to enable City to complete construction of the Storm Drain project as provided herein, as reasonably determined by City, CDC shall pay the additional amount required by City for such purpose within ten (10) days after City provides written notice to CDC with documentation itemizing the need for the additional funds. Within five (5) days after construction is completed and accepted and the period for filing any lien claims with respect to the Storm Drain construction has expired (or, if any claims are filed, within five (5) days after CDC posts a bond with the District or City, as -24- 29 applicable, in an amount sufficient to satisfy such claims), city shall promptly refund to CDC any funds advanced or paid by CDC for the storm Drain which are not needed for this purpose and/or release or return the letter of credit to the extent that there is any balance thereon. (b) Construction funding. Simultaneously with the delivery of the Box Culvert Letter of Credit by CDC to City, City shall contribute to the cost of constructing the Storm Drain by depositing into a mutually agreeable escrow account the sum of $887,830.34 (the amount previously collected by the City from storm drain fees and deposited into the Master Plan Drainage Account for the Prima Deshecha Canada, including interest thereon through July 1, 1987, which amount was previously committed to the Storm Drain project under Section 3.c.(ii) of the Second Amendment to the Settlement/Development Agreement), plus all interest accumulated on such amount from July 1, 1987, to the date such funds are deposited into the escrow account (the "City Funds"). The escrow account shall be administered pursuant to escrow instructions letter which shall incorporate the following terms and conditions and otherwise be reasonably acceptable as to form by both parties. The terms and conditions of the escrow shall be as follows: (i) CDC shall be responsible for paying all fees and expenses of the escrow agent. -25- 30 (ii) CDC shall be entitled to all interest generated on the funds in the escrow account from the time of deposit until the funds in the account have been disbursed. (iii) Periodically during the course of constructing the Storm Drain, CDC shall be entitled to submit written statements to City and the escrow agent requesting progress payments upon the satisfactory completion of portions of the work. CDC will not submit more than one statement in any thirty day period. Each such statement shall be accompanied by a certified statement signed by a mutually agreed upon consulting engineer retained by CDC to verify the extent of the work performed and the compliance of the work with the approved plans. City shall request the District to verify whether the certified statement submitted by CDC's consulting engineer is acceptable and, if it is, shall so notify the escrow agent. If the District declines to assume this responsibility, the City Engineer shall do so. The approval of -26- 31 the City Engineer shall not be unreasonably withheld or delayed. If the City Engineer is responsible for reviewing such statements, approvals or disapprovals shall be given within fifteen (15) working days after delivery of each certified statement from CDC's consulting engineer, together with whatever supporting information may be reasonably requested by the City Engineer, and if the written request for approval contains a bold-face warning on the first page that if no reply is received within fifteen (15) working days after approval, approval will be deemed to have been given, and if no response from the City Engineer is received by CDC within such time, approval will be deemed to have been given. Upon approval either by the District or City, the City Engineer shall promptly so notify the escrow agent. Any disapproval of the City Engineer shall be in writing and shall state the reasons therefor in detail. No approval shall be deemed a waiver by the City (or the District) of -27- 32 any claims or rights against CDC if it is later discovered that the work has not in fact been completed according to the approved plans or in a workmanlike manner. (iv) Upon receipt of notice from the District or the City Engineer, as applicable, that the work described in the request for payment has been satisfactorily completed, the escrow agent shall make a progress payment to CDC from the City Funds in an amount equal to a percentage of the estimated cost of that portion of the work which has been certified and approved as substantially complete less a retention of 10%. The percentage will be determined by dividing the amount of the City Funds by the amount of Estimated Cost, as the Estimated Cost may be adjusted from time to time. The escrow agent shall be instructed to pay to CDC the balance of the funds in the escrow account, including the 10% retention, five (5) days after all three of the following conditions have been satisfied: (a) a notice of completion has been -28- 33 recorded for the entire storm Drain, (b) the District (or the City, if applicable) has certified in writing that the storm Drain has been satisfactorily completed, and (c) the time for filing lien claims or stop notices has expired (or a sufficient sun is withheld or a bond is posted by CDC with the District or City, as applicable, to satisfy any claims that are pending). 3.02.5 Waiver of Fees. City shall waive all fees and charges which would otherwise be imposed on CDC in connection with its construction of the Storm Drain, but CDC shall reimburse City for all out-of-pocket costs incurred by City in reviewing plans and inspecting the work performed by CDC. 3.02.6 Master Plan Facilities Reimbursement Agreement. CDC shall cause Estrella to assign to CDC at the Closing Date all of Estrella's right, title, and interest under the Master Plan Facilities Reimbursement Agreement between Estrella and City dated December 21, 1983, and the provisions of paragraph 1 of said agreement (which relate in part to the Storm Drain) shall be terminated at such time. 3.03 Traffic Improvements. CDC shall dedicate land, construct improvements, and/or pay fees as required to comply with the RCFPP, and shall otherwise be bound by the same. -29- 34 CDC shall have the right to construct the traffic improvements located on the Property which are subject to the RCFPP, subject to city's reasonable approval which shall not be unreasonably withheld. If City desires to have any of such improvements constructed prior to the time that CDC is prepared to proceed, City shall have the right to do so. 3.04 Affordable Housing. CDC shall construct multifamily Affordable Housing units in an amount equal to the sum of 174 plus 15% times the number of market rate residential units constructed on the Property. The City will not require a mix of rental units and for-sale units on the same Affordable Housing site. 3.05 Park Improvements. As of the Effective Date, City is processing a Master Plan for the approximately 22-acre City park site which is located adjacent to the elementary school and proposed intermediate school site in the "Development Area" of the Forster Ranch (as defined in the Specific Plan) (hereinafter the "Forster Ranch Park Site") A copy of the draft Master Plan as recommended for approval by the City's Parks and Recreation Commission is attached hereto as Exhibit G. City shall exercise reasonable diligence to complete and approve the Forster Ranch Park Site Master Plan as soon as possible after the Effective Date. CDC agrees to contribute the sum of Three Million Dollars ($3,000,000), calculated as of the Effective Date of this Agreement and to be increased as provided hereinbelow, -30- 35 to the cost of planning, designing, and constructing improvements to the Forster Ranch Park Site in accordance with the City's approved Master Plan, as the same may be revised by City (after consulting with CDC) from time to time consistent with this Agreement. If the Capistrano Unified School District ("CUSD") acquires the approximately 14-acre parcel adjacent to the elementary school site which is a portion of Lot 35 of Tract 10417 (the "Intermediate School Site"), City may elect to require that a portion of CDC's contribution be expended on said property for the construction of the "Baseball Park" (as defined below), as shown on Exhibit G hereto; otherwise, the Baseball Park shall be constructed on the Forster Ranch Park Site. The unexpended portion of CDC's $3 million contribution shall be increased on each January 1 after the Effective Date during the term of this Agreement until the funds are actually expended or paid to the City in accordance with increases during the preceding year in the California Construction Cost Index published by the California Department of Transportation ("CalTrans") (or, in the event such index or publication is discontinued, another comparable index to be agreed upon by the parties); provided, however, that in no event shall the inflation factor for any calendar year commencing in 1990 and continuing through the term of this Agreement exceed the percentage derived by dividing the number of building permits for market-rate residential units -31- 36 issued for the Property in the preceding year by 1762 (the maximum number of market-rate residential units permitted hereunder). The plans and specifications for each improvement to be funded by CDC shall be prepared by a licensed and qualified landscape (or other qualified) architect selected and retained by CDC after consultation with the City and subject to City's reasonable approval with regard to (i) the identity of the architect, (ii) the scope of work, (iii) the schedule of performance, and (iv) the contract price. The architect shall be required to coordinate the preparation of the plans and specifications with City staff at all times to assure compliance with all City standards. CDC shall construct or cause to be constructed each of the park improvements through a licensed and responsible contractor selected and retained by CDC after consultation with City and subject to City's reasonable approval with regard to (i) the identity of the contractor and any subcontractors, (ii) the plans and specifications, (iii) the schedule of performance, (iv) the contract price, and (v) all change orders above a cumulative amount in excess of ten percent (10%) of the original approved contract price. It is understood and agreed that CDC may enter into contracts with contractors performing other work for CDC beyond this scope of this Section 3.05. In such event, CDC shall require each proposed contractor to separately bid the -32- 37 portion of its work within the scope of this Section 3.05 from the portion of its work outside the scope of this section 3.05, and City shall have the right to approve a fair and reasonable allocation of costs. In all circumstances, CDC agrees to act reasonably to have any work performed for CDC within the scope of this Section 3.05 completed at a reasonable cost, subject to the parties' mutual objective of having such work performed by contractors with a reputation for high quality, experience, and reliability. In no event shall CDC receive credit toward its financial contribution under this Section 3.05 for any management or developer's fee, overhead, staff time, or profit, by whatever name called. During the course of CDC's expenditure of funds eligible to be credited toward its financial contribution under this Section 3.05, but not more frequently than quarterly, CDC shall submit to the City Manager (or the City Manager's designee) an itemized statement, with such supporting information as the City Manager or his/her designee may reasonably require, documenting all of CDC's costs eligible to be credited under this Section 3.05. In lieu of any other obligations hereunder, CDC shall have the option to pay to City the funds required to be expended by CDC on or before the dates such expenditures are otherwise required to be made and, in such event, City agrees to deposit said funds in an interest-bearing special fund -33- 38 with interest earned to be credited to the fund and to exercise reasonable diligence to expend such funds solely for the planning, design, and construction of improvements to the Forster Ranch Park Site (and, if the Baseball Park is constructed on the adjacent 14-acre CUSD site, that property) in accordance with the approved Master Plan. CDC shall make its financial contribution to the Forster Ranch Park Site park improvements at the following times: (i) Baseball Park and Phase 1 Park Improvements. CDC shall commence construction of the Baseball Park and "Phase 1 Park Improvements" (as defined below) no later than six (6) months after CDC commences grading in the area included in the first final map under Revised Tentative Map 12895, provided that if CUSD has not acquired the Intermediate School Site by that time, or CUSD has not approved the construction of the Baseball Park on the Intermediate School Site, or CUSD and City have not entered into a joint use agreement for the Baseball Park, City may elect either to have CDC defer construction of the Baseball Park until such conditions are satisfied or to amend the Forster Ranch -34- 39 Park Site Master Plan to include the Baseball Park and thereafter to have CDC construct the Baseball Park thereon. Once construction is commenced, it shall be diligently pursued to completion, and the construction contract(s) shall provide for a completion date for all improvements, including landscaping, no later than one hundred eighty (180) days thereafter. As used herein, the term "Baseball Park" shall mean the field and such related improvements approved as a part of the Forster Ranch Park Site Master Plan. As used herein, the term "Phase 1 Park Improvements" shall mean the following for the entire Forster Ranch Park Site (including the Baseball Park to the extent applicable and not provided for in the preceding sentence): finish grading (except for any buildings or other structures not included in Phase 1), installation of irrigation systems, full grass and landscaping improvements, restroom facilities, benches, picnic tables, barbeque grills, -35- 40 lighting, and parking lot and driveway paving and striping. In no event shall CDC be required to expend more than Six Hundred Seventy Thousand Dollars ($670,000.00) for the Baseball Park and Phase 1 Park Improvements (with such principal sum to be inflated as provided in the third paragraph of this Section 3.05). (ii) Subsequent Phases of Improvements. After the Baseball Park and the Phase 1 Park Improvements are completed, CDC shall not be required to make any further contribution to the cost of planning, designing, or constructing improvements on the Forster Ranch Park Site until the issuance of the three hundred and ninetieth (390th) building permit for a market-rate residential unit on the Property. Thereafter, upon the issuance of the 390th and all additional residential building permits for market-rate units on the Property, CDC shall expend or deposit into an escrow or trust approved by City additional funds for park improvements in an amount equal to -36- 41 $1,697.01 per unit, adjusted for inflation as provided herein. Such funds shall be allocated to park improvements designated on the Master Plan for the Forster Ranch Park Site, as the same may be amended by City from time to time in accordance with this Agreement, in the order determined by City. In the event the amount required to be expended by CDC as provided in this subparagraph (ii) is at any time less than the amount reasonably determined by the parties to be necessary to fund the next park improvement desired by City, the funds shall be deposited into an escrow or trust account. The escrow or trust account shall be an interest-bearing account with interest earnings to be utilized for the same purpose as the principal, but interest earnings shall not be credited against future expenditure obligations by CDC hereunder. CDC shall pay all costs for establishing and administering the escrow or trust account. -37- 42 (iii) Prepayment. CDC shall have the right, but not the obligation, from time to time to expend more than the minimum amounts required hereunder, and in such event the excess shall, at the option of CDC, be credited against its next required expenditure. 3.06 Development Fees and Taxes. CDC's obligations to pay certain described fees and taxes relating to development of the Property are limited as set forth in Sections 3.06.1 through 3.06.3 below. 3.06.1 Planned Drainage Facilities Fee. Construction of the Storm Drain under Section 3.02 shall constitute full and complete satisfaction of any obligation of CDC to pay Planned Drainage Facilities Fees or other drainage-related fees or otherwise mitigate any downstream drainage impacts which may be caused by development of that portion of the Property within the Prima Deshecha Drainage Basin. Nothing in this Section 3.06.1 is intended to limit or restrict City's authority to require CDC to construct storm drainage improvements on the Property required to satisfy applicable (City requirements and nothing contained herein is intended to limit or restrict City's authority with regard to CDC's obligation to pay fees, construct improvements, or both for that portion of the Property located outside the Prima Deshecha Drainage Basin. -38- 43 3.06.2 Sanitary Sewer Connection Fees. City acknowledges that pursuant to Section 8.4 of that certain Agreement for Construction of Wastewater Treatment Facilities dated October 3, 1984, the formation of an assessment district including the Property, the sale of assessment district bonds to finance the refurbishment and expansion of the City wastewater treatment facility and related improvements, the levy of assessments on the separate parcels comprising the Property, and the timely payment of such assessments shall constitute full and complete satisfaction of any obligation of CDC to pay any sanitary sewer connection fees or other fees for construction of and connection to such treatment facility, and of any obligation of CDC to construct any reclaimed water facilities on the Property (except under Section 8.6 of the October 3, 1984, agreement). Notwithstanding the foregoing, CDC acknowledges that if additional wastewater facility improvements are required in the future which are of benefit to the Property, or if any additional assessment must be imposed to complete the facilities covered by the October 3, 1984, Agreement for Construction of Wastewater Treatment Facilities, CDC will be obligated to pay its proportional share for the same. Nothing in this Agreement is intended to limit or restrict City's authority to impose sewer service charges on persons using City's wastewater treatment facilities. -39- 44 3.06.3 Park Fees. CDC's obligation to pay any open space, park or recreation fee with respect to development of the Property shall be deemed satisfied by the previous dedications of parks and open space by Estrella to City and by CDC's timely compliance with its obligations under Section 3.05 of this Agreement. Nothing in this Agreement shall be construed to limit City's authority to include any portion of the Property in an assessment district (including without limitation a district formed pursuant to the Landscaping and Lighting Act of 1972) or a community facilities district (including without limitation a district formed pursuant to the Mello-Roos Community Facilities Act of 1982) for the purpose of levying assessments or imposing taxes for the maintenance and operation of open space, parks, recreation areas, street lighting, or median landscaping, nor as a waiver by CDC of any right of protest or election with respect thereto. 3.06.4 Other Fees, Charges, and Taxes. Except as expressly specifically set forth in Sections 2.05.1(vi) and 3.06.1 through 3.06.3, inclusive, of this Agreement, nothing set forth herein is intended or shall be construed to limit or restrict City's authority to impose new fees, charges, assessments, or taxes for the development of the Property or to increase any existing fees, charges, assessments, or taxes, and nothing set forth herein is intended or shall be construed to limit or restrict whatever right CDC might -40- 45 otherwise have to challenge any fee, charge, assessment, or tax not in effect as of the Effective Date. 3.07 Reservoir. CDC shall construct, at its sole cost and expense, an approximately 3,000,000 gallon water storage facility near Camino Vera Cruz and a water distribution system for the Property, all as set forth more fully in the City-approved Forster Ranch Master Water Plan prepared by Lowry and Associates dated June 1982 and supplemented by Madole and Associates' Forster Ranch Water Master Plan dated June 10, 1983. Upon completion of construction of the reservoir and the trunk line water distribution system to City's reasonable satisfaction, CDC shall offer to dedicate such facilities to City (with all necessary easements and rights-of-way) and City shall accept such offer of dedication. 3.08 Option to City to Acquire Civic Center Site. Contingent upon the Closing, CDC grants to City and City accepts from CDC an option to acquire an approximately 7-acre site in Planning Area 15 (as depicted in the Specific Plan) on the southwest side of the future extension of Avenida La Pata (hereinafter the "Civic Center Site"), subject to the terms and conditions set forth in this Section 3.08. 3.08.1 Determination of Boundaries. The Civic Center Site shall be located entirely within the portion of the Property designated in Exhibit H to this Agreement. The -41- 46 precise size and configuration of the Civic Center Site shall be as reasonably determined by City, provided that the size of the Civic Center Site shall not exceed seven (7) buildable acres of land area without CDC's consent and the configuration of the Civic Center Site shall not deprive any other legal lot within the balance of the Property of legal access to a public street or road. City shall be responsible for the cost of any boundary survey required to precisely designate the Civic Center Site. City shall, at its sole expense, satisfy all requirements of the Subdivision Map Act and City's local subdivision ordinance arising in connection with the creation of the Civic Center Site as a legal lot. 3.08.2 Option Fee and Purchase Price. CDC's granting of the option referenced in this Section 3.08 shall be in consideration of City's performance of its obligations set forth in this Agreement. City shall not be required to pay any option fee or consideration or purchase price for the Civic Center Site, other than the miscellaneous costs and expenses related to the conveyance which are City's responsibility as specifically set forth in this Section 3.08. 3.08.3 Option Period. City shall have the right to exercise its option to acquire the Civic Center Site at any time during the term of this Agreement commencing with the date that is four (4) years after the Effective Date, provided, however, that, subject to Section 3.08.9 below, if -42- 47 at any time after the fourth anniversary of the Effective Date CDC determines in its sole discretion that City's unexercised option is adversely affecting CDC's plans for the use, development, or sale of any of the property included within Exhibit H to this Agreement, CDC shall have the right to provide written notice to City that the option must be exercised by City (if at all) within one (1) year of City's receipt of such notice and if City does not exercise the option within said one (1) year period, the option shall automatically terminate at that time, unless CDC agrees in writing to extend the option for an additional period of time, which extension CDC may grant or withhold in its sole discretion. 3.08.4 Manner of Exercise of Option. City shall exercise its option to acquire the Civic Center Site by delivering to CDC written notice of City's intention to do so. Within ten (10) days after City delivers such notice to CDC, City and CDC shall open an escrow for the conveyance with a title company selected by CDC and subject to City's reasonable approval. The escrow instructions for the conveyance shall be consistent with this Section 3.08. City and CDC agree to execute such additional instructions as may be reasonably required by the escrow agent in order to accomplish the purposes of this Section 3.08 and close the escrow; provided, however, that in the event of any conflicts between the standard printed form escrow instructions of the -43- 48 escrow agent and the provisions of this Section 3.08, the provisions of this Section 3.08 shall prevail. 3.08.5 Condition of Title. CDC shall convey title to the Civic Center Site by grant deed. CDC shall convey and City shall accept fee simple merchantable title to the Civic Center Site free and clear of all recorded and unrecorded monetary liens. CDC further agrees to convey the Civic Center Site free and clear of all recorded and unrecorded non-monetary lions, encumbrances, easements, leases, covenants, conditions, restrictions, and other exceptions to or defects in title (collectively, "Title Exceptions"), excepting only (i) those Title Exceptions City determines in its reasonable discretion do not interfere with City's planned development and use of the Civic Center Site, (ii) Title Exceptions existing at the Closing, and (iii) Title Exceptions created after the Closing which are not a result of any act or omission by CDC. CDC represents to City that as of the Effective Date CDC has no knowledge of the existence of any unrecorded Title Exceptions which may affect the Civic Center Site other than as may have been disclosed in writing to City prior to the Effective Date. At CDC's option, the grant deed conveying the Civic Center Site to City shall contain a power of termination meeting the requirements of Chapter 5 (commencing with Section 885.010) of Title 5 of Part 2 of Division 2. of the California Civil Code exercisable by CDC as to any portion of -44- 49 the Civic Center Site that is used for purposes other than construction, maintenance, and operation of public uses (including without limitation a city hall, community center, library, police station, fire station, and related landscaped open areas). 3.08.6 Escrow Fees and Closing Costs. City shall pay all of the escrow fees and closing costs incurred for the conveyance of the Civic Center Site, except that CDC shall pay any property taxes and assessments (which shall be prorated at close of escrow), or cause a reallocation of same to some or all of the balance of the Property, and all costs required to place title in the condition referenced in the first paragraph of Section 3.08.5. If City desires to obtain a policy of title insurance, City shall pay the premium therefor. CDC and City hereby warrant and represent to one another that neither party has engaged the services of a broker or finder in this transaction, and each agrees to indemnify, defend, and hold the other harmless from and against any claims, liabilities, or losses arising out of a breach of such warranty and representation. 3.08.7 Right of Entry. Between the Effective Date of this Agreement and the close of escrow or earlier termination of City's option to acquire the Civic Center Site, CDC hereby grants to City and its authorized agents a non-exclusive irrevocable license to enter onto the Civic Center Site and adjacent portions of the Property for the -45- 50 purpose of conducting soils tests and engineering and boundary surveys and other investigations related to city's intended use of the Civic Center Site, provided that City shall notify CDC in writing prior to such entry. City agrees to indemnify, defend, and hold harmless CDC and the Property from and against any and all claims, liabilities, and losses arising from City's activities, including those of its agents and contractors, as provided for under this Section 3.08.7, including but not limited to mechanic's liens. City agrees to bear all costs in connection with such work. 3.08.8 Physical Condition of the Civic Center Site. CDC shall be responsible for rough grading the Civic Center Site to within a tolerance of +/- one foot, in accordance with the rough grading plan to be prepared and approved as set forth in this Section 3.08.8. Upon City's written request (which request may occur prior or subsequent to City's exercise of its option as provided herein), CDC shall prepare a rough grading plan for the Civic Center Site reflecting a "sheet graded" configuration. Said rough grading plan shall be prepared in cooperation with City and shall be submitted to and approved by City. Subject to the next paragraph hereinbelow, CDC shall commence rough grading on the Civic Center Site within thirty (30) days after the later of the following dates: (i) the date that City exercises its option to acquire the Civic -46- 51 Center Site, and (ii) the date that City approves the rough grading plan for the Civic Center Site. Once grading is commenced, it shall be diligently pursued to completion and, except in the event of a delay entitling CDC to an extension of time to perform under Section 6.02.2 of this Agreement, the grading shall be completed within sixty (60) days after it is commenced. CDC shall comply with all applicable City ordinances in connection with such grading. Notwithstanding the foregoing, in the event that the Civic Center Site is located adjacent to Planning Area 1 of the Rancho San Clemente property and at the time the grading would otherwise be required to commence hereunder, City has not yet acquired the adjacent property in Rancho San Clemente Planning Area 1 which City needs to acquire to create a complete civic center complex, CDC's obligation to commence rough grading the Civic Center Site shall be extended for a reasonable period of time to avoid the need for extensive corrective grading operations off of the Property. City's election to close escrow on the Civic Center Site prior to CDC's completion of rough grading shall not be deemed a waiver of City's right to require such rough grading to be performed at a later date, including, if the grading is to be deferred until City acquires adjacent property in Rancho San Clemente Planning Area 1, at the time such adjacent property is acquired. -47- 52 CDC warrants and represents (which warranty and representation shall survive the close of escrow) that it has no actual knowledge of the presence of any hazardous or toxic substances or materials within the portion of the Property designated on Exhibit H to this Agreement. CDC shall indemnify, defend, and hold City harmless from any claims, liabilities, or losses incurred by City arising out of CDC's violation of this limited warranty and representation. Otherwise, CDC makes no warranty, express or implied, regarding the physical condition of the Civic Center Site and, except for CDC's obligation to deliver the Civic Center Site in a. rough graded condition in accordance with the approved grading plan, as referenced herein, City shall accept the Civic Center Site in an "as is" physical condition. 3.08.9 Close of Escrow. Escrow shall close sixty (60) days after the opening of escrow; provided, however, that City shall have the right to extend the closing date to a date not later than fifteen (15) days after CDC satisfactorily completes the rough grading of the Civic Center Site in accordance with Section 3.08.8 herein, and in the event such an extension is made, the Option Period referenced in Section 3.08.3 shall be extended until the escrow is closed. 3.08.10 Wastewater Treatment Capacity. City agrees that the Property shall not be assessed for any -48- 53 wastewater treatment capacity used for the Civic Center Site (after City acquires the same), and that the wastewater treatment capacity for the Civic Center Site shall be allocated to the City's share, rather than Estrella's, CDC'S, or the Property's share, under Article IX of the October 3, 1984, Agreement for Construction of Wastewater Treatment Facilities. ARTICLE 4 IMPLEMENTATION 4.01 Processing and Approvals. During the term of this Agreement, City shall process all of CDC's applications for development projects on the Property (including without limitation general plans, specific plans, zone changes, tentative tract maps, site plan reviews, conditional use permits, and variances) within the times set forth in the Permit Streamlining Act (Chapter 4.5 (commencing with Section 65920) of Division 1 of Title 7 of the California Government Code), the Subdivision Map Act (Division 2 (commencing with Section 66410) of Title 7 of the California Government Code), and other applicable provisions of law, as the same may be amended from time to time. In addition, to the extent City can do so with its limited resources and without illegally discriminating against other applicants, City shall exercise reasonable diligence to expedite the processing of CDC's permit applications for development projects on the Property -49- 54 in shorter periods of time. In no event shall City disapprove, condition, or delay the processing of any development project proposed by CDC on the Property for reasons inconsistent with the express provisions of this Agreement. With respect to applications by CDC for tentative subdivision maps for portions of the Property, City agrees that CDC may file and process vesting tentative maps in accordance with Chapter 4.5 (commencing with Section 66498.1) of Division 2 of Title 7 of the California Government Code and the applicable provisions of City's subdivision ordinance, as the same may be amended from time to time. With respect to meeting any requirements of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code) ("CEQA"), CDC shall provide all information required of it and pay for any necessary studies and reports, and City shall process such matters in accordance with the preceding paragraph and, to the extent permitted by CEQA, shall use and adopt existing environmental reports and studies without requiring new or supplemental environmental documentation. If City is unable to timely process any of CDC's permit applications for development projects, upon request by CDC, City will consider engaging outside consultants to aid in such processing, provided that CDC shall be required to -50- 55 advance all charges to be incurred by City for such outside consultants. 4.02 Conditions of Approval Regarding Specific Plan. With respect to the Conditions of Approval for the Specific Plan, City acknowledges that Conditions 13 (Back Country Trails Study) and 34 (Beach Parking Study), except the last sentence, have been satisfied, and Condition 2 (water reclamation) is not applicable to the Property as now proposed for development in accordance with the Specific Plan. City further acknowledges that Condition 8 (update of Water, Sewer, and Drainage Master Plans) shall be limited to necessary updating of existing plan(s). City acknowledges that Condition 10 (Traffic Study), 28 (freeway interchange), and 29 (Avenida La Pata extension) will be implemented by way of CDC's compliance with the RCFPP. 4.03 Tentative Map Extensions. If final maps are not recorded for all the property comprising Revised Tentative Map 12895 before such tentative map would otherwise expire, the term of such tentative map shall be extended for the term of this Agreement. 4.04 Other Governmental Permits. Provided that CDC will pay the reasonable cost of such cooperation, after City has approved the development of any portion of the Property, City shall cooperate with CDC in its efforts to obtain such additional permits and approvals as may be required by any other governmental or quasi-governmental agencies having -51- 56 jurisdiction over the Property which permits and approvals are consistent with City's approval and which are consistent with applicable regulatory requirements. ARTICLE 5 AMENDMENT OF AGREEMENT This Agreement may not be amended except by a writing executed by City and CDC, after City has complied with any public notice and hearing requirements which may be a prerequisite to such amendment. ARTICLE 6 ANNUAL REVIEW; DEFAULT; TERMINATION 6.01 Annual Review. City shall review the good faith compliance of CDC with the terms of this Agreement at the first City Council meeting of February 1990 and at the same time each year thereafter during the term of this Agreement (the "Annual Review"). The Annual Review shall be conducted in accordance with Article 6 of City's regulations for consideration of development agreements approved by Resolution No. 46-81 on June 17, 1981, as the same may be amended from time to time. City shall provide CDC, at least ten (10) business days before the Annual Review, with a copy of all final public staff reports and, to the extent practical, related exhibits, as well as any proposed determinations concerning CDC's performance under this -52- 57 Agreement. At the conclusion of the Annual Review meeting, City shall make written findings and determinations, on the basis of substantial evidence, whether CDC has complied in good faith with the terms and conditions of this Agreement. If City finds and determines that CDC has not complied with such terms and conditions, City shall provide CDC with written notice and an opportunity to cure as set forth in Section 6.02.1, and if CDC fails to cure the default within the time period provided therein, City may terminate or modify this Agreement by giving CDC notice of its intention to do so in the manner set forth in Government Code Sections 65867 and 65868, as the same may be amended from time to time. In no event shall City's failure to conduct a timely Annual Review or failure to notify CDC of any default under this Agreement be deemed a waiver of City's rights with respect to such default. Nothing set forth in this Section 6.01 is intended to limit City's rights to pursue any of its remedies under Section 6.02 outside the Annual Review process. 6.02 Default. 6.02.1 Default. Neither party shall be in default of this Agreement unless it receives written notice of an event of default from the non-defaulting party and the defaulting party fails to cure such event of default within thirty (30) days after such written notice, or if such event of default requires more than thirty (30) days to cure, such -53- 58 additional period as may be appropriate, provided the defaulting party diligently prosecutes such cure to completion. Such notice shall specify the nature of the alleged default and the manner in which the default may be satisfactorily cured. If the defaulting party fails to cure the event of default as provided herein, the non-defaulting party may pursue the remedies set forth in Section 6.02.4. 6.02.2 Force Majeure. If any performance by CDC or the City under this Agreement is delayed because of war, strike, walkout, flood, earthquake, fire, casualty, act of God, or other cause not within the reasonable control of CDC or the City, as the case may be, the time to perform shall be automatically extended by the period of such delay. In no event shall adverse market or financial conditions or financial ability of a party constitute an event of force majeure extending the times for such party's performance hereunder. In addition, in no event shall the term of this Agreement set forth in Section 7.01 herein be extended by an event of force majeure. 6.02.3 No Obligation to Develop. It is understood that CDC's development of the Property depends on a number of factors including, but not necessarily limited to, the housing market, the availability of financing, and the general economic climate of the area. Nothing in this Agreement shall be construed as requiring CDC to develop the -54- 59 Property, and any failure to develop the Property shall not be deemed a default of CDC under this Agreement. 6.02.4 Remedies. In the event of a material default, either party may institute legal action to cure, correct, or remedy such default, enjoin any threatened or attempted violation, or enforce the terms of this Agreement by specific performance. Furthermore, City, in addition to or as an alternative to exercising the remedies set forth in this Section 6.02.4, in the event of a material default by CDC, may terminate or modify this Agreement in accordance with Section 6.01 or give notice of its intent to terminate or modify this Agreement pursuant to the Development Agreement Statute, in which latter event the matter shall be scheduled for consideration by the City Council at a noticed public hearing within thirty (30) calendar days after delivery of such notice of intent to terminate in the manner set forth in Government Code Sections 65865, 65867, and 65868, as the same may be amended from time to time. In no event shall CDC have the right to sue City for damages arising out of City's default under this Agreement, the parties agreeing that declaratory and injunctive relief, mandate, and specific performance shall be CDC's sole and exclusive judicial remedies. 6.03 Termination. If title to the Property has not vested in CDC on or before March 31, 1989, either party shall have the right to terminate this Agreement upon thirty (30) -55- 60 days' written notice to the other; provided, however, that if either party notifies the other of its intent to terminate this Agreement and CDC acquires title to the Property before the expiration of the 30-day period, the Agreement shall continue in force and effect. In the event this Agreement is terminated pursuant to this Section 6.03, neither party shall have any rights or obligations hereunder. ARTICLE 7 MISCELLANEOUS 7.01 Term. The term of this Agreement shall commence on the Effective Date, and shall expire on the earliest of the following dates: (i) the 15th anniversary of the Effective Date; (ii) the applicable date set forth in the last sentence of Section 2.06.1; (iii) the applicable date set forth in the last paragraph of Section 3.02.1; and (iv) the applicable date set forth in Section 6.03. 7.02 Settlement/Development Agreement. This Agreement supersedes the Settlement/Development Agreement with respect to the Property, and City and CDC mutually agree that notwithstanding any provision in the Settlement/Development Agreement to the contrary, neither City nor CDC shall have any obligations under the Settlement/Development Agreement. 7.03 Transfer of Property. If all or any of the Property is transferred by CDC to any person or entity (the "Transferred Property"), the transferee shall succeed to all -56- 61 of CDC's rights under this Agreement as they affect the right to proceed with development of the Transferred Property, and the transferee shall automatically assume all obligations of CDC hereunder which relate to the Transferred Property. Furthermore, unless CDC is released in writing by City, a transfer of all or any part of the Property to any other person or entity shall not release CDC from any obligation hereunder. Individual home buyers shall have no rights or obligations hereunder. In the event CDC or the owner of the Transferred Property develops or attempts to develop or use its portion of the Property in a manner inconsistent with the terms of this Agreement, such default shall not constitute a default by the owner of any other portion of the Property hereunder (including but not limited to CDC) and shall not entitle City to terminate or modify this Agreement with respect to such other portion of the Property. Except as expressly provided herein, this Agreement shall run with the land and be binding upon, and inure to the benefit of, all of the successors and assigns of CDC with respect to all or any portion of the Property. 7.04 Mortgagee Rights. 7.04.1 Definition of Mortgagee. As used in this Agreement, "Mortgagee" shall include the holder of any mortgage or the beneficiary of any deed of trust covering all or part of the Property or any successor or assignee of any -57- 62 such mortgage holder or beneficiary, provided such mortgage holder or beneficiary has delivered written notice to the City stating its desire to receive notices of default under this Section 7.04. 7.04.2 Default Rights. City shall notify any Mortgagee of any event of default by CDC under this Agreement and shall provide any such Mortgagee the same opportunity to cure such event of default as is provided to CDC under this Agreement. Failure to so notify any Mortgagee shall incur no liability as to City, provided that this Agreement shall not be terminated by City as to any Mortgagee to whom notice is given and which cures any default by CDC involving the payment of money within sixty (60) days after the notice of default or, as to defaults requiring title or possession of the Property (or portion thereof) to effectuate such cure, if (i) the Mortgagee agrees in writing, within ninety (90) days after the written notice of default, to perform all CDC's obligations under this Agreement conditioned upon such Mortgagee's acquisition of the Property or portion thereof by foreclosure (including a trustee's sale) or by a deed in lieu of foreclosure, and (ii) the Mortgagee commences foreclosure proceedings to reacquire title to the Property or portion thereof within said ninety (90) days and thereafter diligently pursues such foreclosure to completion, and (iii) the Mortgagee promptly and diligently cures such default after obtaining title or possession. Subject to the -58- 63 foregoing, in the event any Mortgagee records a notice of default as to its mortgage or deed of trust, City shall consent to the assignment of all of CDC's rights and obligations under this Agreement to the Mortgagee or to any purchaser of CDC's interest at a foreclosure or trustee's sale and CDC shall remain liable for such obligations unless released by City in accordance with Section 7.03. 7.05 Cascadita Landslide. City acknowledges and agrees that CDC shall not be obligated to make any contribution or otherwise bear any portion of the cost of the repair of the Cascadita landslide based upon CDC's acquisition, ownership, or development of the Property or its construction of the Storm Drain. 7.06 Notice. Every notice, demand, request, designation, consent, approval, or other document or instrument delivered pursuant to this Agreement shall be in writing, and shall be either personally delivered, sent by Federal Express or other reputable overnight courier, sent by facsimile transmission with the original subsequently delivered by other means, or sent by registered or certified United States mail, postage prepaid, return receipt requested, to the addresses set forth below, or to such other address as a party may designate from time to time: To CDC: Centex Development Company, L.P. San Clemente, CA 92672 Attn: Ronald M. Brent -59- 64 With cc to: Raymond G. Smerge Post Office Box 19000 3333 Lee Parkway, Suite 1200 Dallas, TX 75219 Telephone: (214) 559-6530 FAX: (214) 522-7568 To City: City of San Clemente City Hall, 100 Avenida Presidio San Clemente, CA 92672 Attn: City Manager Telephone: (714) 361-8322 With cc to: Jeffrey M. Oderman, Esq. Rutan & Tucker 611 Anton Blvd., Suite 1400 Costa Mesa, CA 92626 Telephone: (714) 641-5100 FAX: (714) 546-9035 Written notices served by registered or certified mail shall be deemed delivered forty-eight (48) hours after the date mailed. Other notices shall be effective upon delivery. 7.07 Parties In Interest. This Agreement and all of its terms, conditions, and provisions are entered into only for the benefit of the parties executing this Agreement (and any successors in interest), and not for the benefit of any other individual or entity. 7.08 No Partnership. The parties to this Agreement renounce the existence of any form of joint venture or partnership between them and agree that nothing contained in this Agreement or in any document executed in connection with this Agreement shall be construed as making the parties joint venturers or partners. 7.09 Cooperation in the Event of Legal Challenge. In the event of any legal action instituted by any third party -60- 65 challenging the validity or enforceability of any provision of this Agreement, the parties hereby agree to cooperate in defending said action as set forth in this Section 7.09. City shall have the right to defend such action. City shall have no obligation to defend any such action, except that if CDC timely provides City with written notice that CDC has elected to defend the action City shall not allow any default or judgment to be taken against it and shall not enter into any settlement or compromise of any claim which has the effect, directly or indirectly, of prohibiting, preventing, delaying, or further conditioning or impairing CDC's rights hereunder. In addition, if CDC elects to defend the action City shall provide reasonable assistance to CDC, such assistance to include (i) making available upon reasonable notice, and at no cost to CDC, City officials and employees who are or may be witnesses in such action, and (ii) provision of other information within the custody or control of City that is relevant to the subject matter of the action. CDC shall have the right, but not the obligation, to defend any such action. If CDC defends any such action, it shall indemnify, defend, and hold harmless City from and against any claims, losses, or liabilities assessed or awarded against City by way of judgment, settlement, or stipulation. If CDC does not defend any such action, CDC shall have no responsibility for the payment or defense of -61- 66 any claims, losses, or liabilities incurred by or filed against City. 7.10 Entire Agreement; Recordation. This Agreement consists of sixty-five (65) pages and nine (9) exhibits, which constitute the entire understanding and agreement of the parties. This Agreement integrates all of the terms and conditions mentioned herein or incidental hereto, and supersedes all negotiations or previous agreements between the parties with respect to all or any part of the subject matter hereof. All waivers of the provisions of this Agreement shall be in writing and signed by the appropriate authorities of City and CDC. This Agreement shall be recorded against the Property, at CDC's expense, at the Closing immediately following recordation of the grant deed or deeds conveying the Property to CDC and prior to any monetary lien, or any other encumbrance, covenant, or restriction, which lien, encumbrance, covenant, or restriction is placed on the Property at Closing. 7.11 Severability. If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions of this Agreement shall continue in full force and effect, unless the rights and obligations of one or both parties have been materially altered or abridged by such holding. -62- 67 7.12 Successors and Assigns; Survival of Representations, Warranties, and Indemnity Obligations. This Agreement shall bind and inure to the benefit of the successors and assigns of the parties hereto. Any representations and warranties made by a party in this Agreement and any indemnity obligations of a party which are set forth herein shall survive the Closing, the close of escrow referenced in Section 3.08 (as applicable), and the termination of this Agreement. 7.13 Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of California. 7.14 Attorney's Fees. In the event of any legal action for enforcement of any of the terms or conditions of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and expenses, including without limitation reasonable attorney's fees and costs. Attorney's fees shall include attorney's fees on any appeal, and in addition a party entitled to attorney's fees shall be entitled to all other reasonable costs for investigating such action, taking depositions and discovery, and all other necessary costs incurred in the litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to a final judgment. -63- 68 7.15 Estoppel Certificates. Upon written request of either party directed to the other, the party requested shall promptly furnish to the other (at the expense of the requesting party) a written statement certifying that (a) this Agreement, subject to any amendments that may have been duly adopted, is in full force and effect and binding on the parties in accordance with its terms, and (b) to the best of the certifying party's knowledge, the other party is not in default under this Agreement (except to the extent any defaults are known to exist in which case they shall be listed). Any third party shall be entitled to rely on the certificate. 7.16 Reasonableness. Each of the parties, and their agents, employees, attorneys, and consultants, shall act reasonably in exercising any rights or taking any actions pursuant to this Agreement. -64- 69 IN WITNESS WHEREOF, the parties have entered into this Development Agreement as of the date first written above. CITY OF SAN CLEMENTE, a municipal corporation By /s/ BRIAN J. RICE Mayor ATTEST: /s/ MEJINA ERWAY City Clerk APPROVED AS TO FORM: By JOHNNY M. ODERMAN City Attorney CENTEX DEVELOPMENT COMPANY, L.P., a Delaware limited partnership By: Centex Real Estate Corporation, Managing Agent By /s/ RONALD M. BRENT Ronald M. Brent, Division Vice President -65- 70 IN WITNESS WHEREOF, the parties have entered into this Development Agreement as of the date first written above. CITY OF SAN CLEMENTE, a municipal corporation By /s/ BRIAN J. RICE Mayor ATTEST: (Public Agency Form of Acknowledgement) STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS. CITY OF SAN CLEMENTE ) On this 29 day of March, in the year 1989, before me, Brian J. Rice personally appeared, known to me to be Mayor of the City of San Clemente (name of the public corporation, agency, or political subdivision) and known to me to be the person who executed the within instrument on behalf of said public corporation, agency, or political subdivision, and acknowledged to me that such municipality (public corporation, agency, or political subdivision) executed the same. /s/ MEJINA ERWAY City Clerk STATE OF CALIFORNIA ) ) SS. COUNTY OF ORANGE ) On March 16, 1989, before me, the undersigned, a Notary Public in and for said State, personally appeared Ronald M. Brent, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as Division Vice President, on behalf of Centex Real Estate Corporation, the corporation therein named, and acknowledged to me that said corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors, said corporation being known to me to be the Managing Agent of Centex Dev. Co., L.P., the limited partnership that executed the within instrument, and acknowledged to me that such corporation executed the same as such agent and that such partnership executed the same. WITNESS my hand and official seal. (Official Seal) VINCY VAN VALKENBURG Signature /s/ VINCY VAN VALKENBURG NOTARY PUBLIC - CALIFORNIA CONTRA COSTA COUNTY My Comm. Expires Sept 25, 1992 (This area for official notarial seal) EX-23.C 15 CDC--CONSENT OF INDEP. PUBLIC ACCOUNTANTS 1 EXHIBIT 23.C CENTEX DEVELOPMENT COMPANY, L.P. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the previously filed registration statements on Form S-8 (numbers 33-44575; 33-29174; 2-95271; 2-51637; 2-54043; 2-59535; 2-68747; 2-78831) of our report dated May 11, 1994, included in 3333 Holding Corporation and Subsidiary and Centex Development Company, L.P. Form 10-K for the year ended March 31, 1994, and to all references to our firm included in these registration statements. ARTHUR ANDERSEN & CO. Dallas, Texas June 29, 1994 EX-24.C 16 CDC POWERS OF ATTORNEY 1 EXHIBIT 24.C CENTEX DEVELOPMENT COMPANY, L.P. CENTEX DEVELOPMENT COMPANY, L.P. POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Development Corporation, as the general partner of Centex Development Company, L.P. (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ Josiah O. Low, III Josiah O. Low, III Director 3333 Development Corporation General Partner of Centex Development Company, L.P. 2 CENTEX DEVELOPMENT COMPANY, L.P. POWER OF ATTORNEY THE UNDERSIGNED hereby constitutes and appoints J. Stephen Bilheimer as the undersigned's true and lawful agent and attorney-in-fact (the "Attorney-in-Fact"), with full power and authority in the name and on behalf of the undersigned, in his capacity as a Director of 3333 Development Corporation, as the general partner of Centex Development Company, L.P. (the "Company"), to execute and file with the Securities and Exchange Commission the Company's Annual Report on Form 10-K for the Company's fiscal year ended March 31, 1994, together with any and all amendments thereto. This Power of Attorney and all authority granted and conferred hereby shall continue indefinitely and, unless waived by the Attorney-in-Fact, may not be revoked until the Attorney-in-Fact has received five days' written notice of such revocation. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 28th day of June, 1994. /s/ David M. Sherer David M. Sherer Director 3333 Development Corporation General Partner of Centex Development Company, L.P. -----END PRIVACY-ENHANCED MESSAGE-----