-----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, f5Fmt8keo2KtW9+3oVZX+vXn3FIPSUag/xvUUlCOdYMwGZ4OwxAEp5CZQq6U1Dk8 IhTZTEsnOpdP5gHsumD5yg== 0000950147-94-000033.txt : 19940404 0000950147-94-000033.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950147-94-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL HOMES HOLDING CORP CENTRAL INDEX KEY: 0000796122 STANDARD INDUSTRIAL CLASSIFICATION: 1531 IRS NUMBER: 860554624 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-10700 FILM NUMBER: 94519288 BUSINESS ADDRESS: STREET 1: 7001 N SCOTTSDALE RD STE 2050 CITY: SCOTTSDALE STATE: AZ ZIP: 85253 BUSINESS PHONE: 6024830006 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ____________________________________________________________________________ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-14830 CONTINENTAL HOMES HOLDING CORP. (Exact name of registrant as specified in its charter) Delaware 86-0554624 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7001 N. Scottsdale Road, Suite 2050 85253 Scottsdale, Arizona (Zip Code) (Address of principal executive offices) (602) 483-0006 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class of Common Stock February 28, 1994 --------------------- ------------------ $.01 par value 6,961,970 ____________________________________________________________________________ CONTINENTAL HOMES HOLDING CORP. FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 1994 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements: Consolidated Balance Sheets as of February 28, 1994 and May 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Income for the three and nine months ended February 28, 1994 and 1993 . . . . . . . . 4 Consolidated Statements of Cash Flows for the nine months ended February 28, 1994 and 1993 . . . . . . . . . . . 5 Notes to unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) February 28, May 31, 1994 1993 ------------ ------- ASSETS (In thousands) Homebuilding: Cash $ 12,597 $ 11,552 Receivables 9,105 8,648 Homes, lots and improvements in production 187,458 142,589 Property and equipment, net 1,962 667 Prepaid expenses and other assets 9,497 7,107 Excess of cost over related net assets acquired 7,482 2,235 Investment in unconsolidated joint ventures 2,270 -- -------- -------- 230,371 172,798 -------- -------- Mortgage banking and title operations: Mortgage loans held for sale 14,614 8,825 Mortgage loans held for long-term investment, net 23,097 5,003 Other assets 1,582 899 -------- -------- 39,293 14,727 -------- -------- Total assets $269,664 $187,525 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 25,545 $ 21,059 Notes payable, senior and convertible debt 117,551 106,183 Deferred income taxes 2,007 ( 89) -------- -------- 145,103 127,153 -------- -------- Mortgage banking and title operations: Notes payable 4,530 3,500 Bonds payable 23,837 5,104 Other 1,554 218 -------- -------- 29,921 8,822 -------- -------- Total liabilities 175,024 135,975 -------- -------- Commitments and contingencies Stockholders' equity Preferred stock, $.01 par value: Authorized - 2,000,000 shares Issued - None -- -- Common stock, $.01 par value: Authorized - 20,000,000 shares Issued - 7,080,900 and 5,376,500 shares 71 54 Treasury stock, at cost - 118,930 and 187,055 shares (93) (631) Capital in excess of par value 59,244 25,033 Retained earnings 35,418 27,094 -------- -------- Total stockholders' equity 94,640 51,550 -------- -------- Total liabilities and stockholders' equity $269,664 $187,525 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated balance sheets. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Three months ended Nine months ended February 28, February 28, ------------------ ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- REVENUES Home sales $ 72,647 $ 45,442 $237,273 $144,213 Land sales 260 45 680 3,227 Mortgage banking 1,344 425 4,209 1,696 Other income, net 415 (207) 1,021 99 -------- -------- -------- -------- Total revenues 74,666 45,705 243,183 149,235 -------- -------- -------- -------- COSTS AND EXPENSES Homebuilding: Cost of home sales 59,344 36,360 193,602 116,212 Cost of land sales 291 64 718 3,399 Selling, general and administrative expenses 8,141 4,881 25,913 15,428 Interest, net 748 1,505 3,267 4,290 Mortgage banking and title operations: Selling, general and administrative expenses 1,380 394 3,408 1,144 Interest, net (26) 45 (7) (9) -------- -------- -------- -------- Total costs and expenses 69,878 43,249 226,901 140,464 -------- -------- -------- -------- Equity in loss of unconsolidated joint ventures (26) -- (58) (332) -------- -------- -------- -------- Income before income taxes 4,762 2,456 16,224 8,439 Income taxes 2,035 980 7,033 3,378 -------- -------- -------- -------- Net income $ 2,727 $ 1,476 $ 9,191 $ 5,061 ======== ======== ======== ======== Earnings per common share $ .39 $ .29 $ 1.55 $ .99 Earnings per common share assuming full dilution $ .37 $ .28 $ 1.38 $ .94 Cash dividend per share $ .05 $ .05 $ .15 $ .15 Weighted average number of shares outstanding 6,953,734 5,169,407 5,946,950 5,128,354 ========= ========= ========= ========= The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated statements. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended February 28, ----------------- 1994 1993 ---- ---- (In thousands) Cash flows from operating activities: Net income $ 9,191 $ 5,061 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,711 1,180 Increase (decrease) in deferred income taxes 241 (479) Decrease (increase) in assets Homes, lots and improvements in production (10,662) (13,426) Receivables 15,988 9,082 Prepaid expenses and other assets (2,662) 1,560 Increase in liabilities Accounts payable and other liabilities (3,859) (1,687) -------- -------- Net cash provided by operating activities 9,948 1,291 -------- -------- Cash flows from investing activities: Net additions of property and equipment (383) (105) Cash advanced to unconsolidated joint ventures -- (1,225) Cash received from unconsolidated joint ventures 2,417 -- Cash paid for Milburn Investments, Inc. and Subsidiaries, net of cash acquired (7,042) -- Cash paid for Aspen Homes (6,982) -- -------- -------- Net cash used by investing activities (11,990) (1,330) -------- -------- Cash flows from financing activities: Decrease in notes payable to financial institutions (17,511) (48,875) Retirement of bonds payable (7,101) (3,453) Sale of common stock 34,219 -- Redemption of Series A Preferred Stock (6,200) -- Issuance of 12% Senior Notes -- 71,598 Retirement of 12-3/4% Senior Notes -- (16,817) Stock options exercised 538 546 Dividends paid (867) (767) -------- -------- Net cash provided (used) by financing activities 3,087 2,232 -------- -------- Net increase in cash 1,045 2,193 Cash at beginning of period 11,552 5,070 -------- -------- Cash at end of period $ 12,597 $ 7,263 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated statements. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 5,606 $ 5,681 Income taxes $ 9,644 $ 3,650 Supplemental schedule of non-cash investing and financing activities: On July 29, 1993, the Company acquired Milburn Investments, Inc. and Subsidiaries. Non-cash consideration paid included the issuance of $6.3 million of Series A preferred stock. As a result of the acquisition, the Company recorded additional assets of $92,660,000 (primarily homes, lots and improvements in production and mortgage related assets) and liabilities of $66,590,000 (primarily notes payable to financial institutions and mortgage related debt). The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated statements. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The consolidated financial statements include the accounts of Continental Homes Holding Corp. and its subsidiaries ("Company"). In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related disclosures contained in the Company's annual report on Form 10-K for the year ended May 31, 1993, filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended February 28, 1994 are not necessarily indicative of the results to be expected for the full year. Note 2. Interest Capitalization The Company follows the practice of capitalizing for its homebuilding operations certain interest costs incurred on land under development and homes under construction. Such capitalized interest is included in cost of home sales when the units are delivered. The Company capitalized such interest in the amount of $6,016,000 and $4,283,000 and expensed as a component of cost of goods sold $5,527,000 and $4,646,000 in the nine months ended February 28, 1994 and 1993, respectively. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3. Notes Payable, Senior and Subordinated Debt Notes payable, senior and convertible debt for homebuilding consist of: February 28, May 31, 1994 1993 ------------ ------- (In thousands) 12% senior notes, due 1999, net of discount of $654 and $752 $ 74,346 $ 74,248 6-7/8% convertible subordinated notes, due 2002, net of discount of $2,795 and $3,065 32,205 31,935 Notes payable 11,000 -- -------- -------- $117,551 $106,183 ======== ======== Note 4. Interest, Net Interest, net is comprised of interest expense and interest income. The summary of the components of interest, net is as follows: Three months ended Nine months ended February 28, February 28, ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In thousands) Interest expense, homebuilding $ 805 $ 1,570 $ 3,442 $ 4,607 Interest income, homebuilding (57) (65) (175) (317) ------- ------- ------- ------- $ 748 $ 1,505 $ 3,267 $ 4,290 ======= ======= ======= ======= Interest expense, mortgage banking $ 780 $ 330 $ 2,164 $ 1,076 Interest income, mortgage banking (806) (285) (2,171) (1,085) ------- ------- ------- ------- $ (26) $ 45 $ (7) $ (9) ======= ======= ======= ======= Note 5. Acquisition of Milburn Investments, Inc. and Aspen Homes ( t h e "Acquisitions") On July 29, 1993, the Company completed the acquisition of 100% of the Common Stock of Milburn Investments, Inc. ("Milburn"), for approximately $26.3 million ("Milburn Acquisition"). The consideration consisted of approximately $20 million in cash and $6.3 million in Series A Preferred Stock issued by the Company. On November 4, 1993 the Company redeemed the Series A Preferred Stock. On January 28, 1994, the Company acquired the operations of Aspen Homes ("Aspen") for total cash consideration of $6,982,000. The following unaudited pro forma combined financial data give effect to the Milburn Acquisition as if it had occurred on the first day of each period. This pro forma information has been prepared utilizing the historical consolidated financial statements of the Company and Milburn. This information should be read in conjunction with the historical financial statements and notes CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) thereto. The pro forma financial data is provided for comparative purposes only and does not purport to be indicative of the results which would have been obtained if the Milburn Acquisition had been effected during the periods presented. The pro forma financial information is based on the purchase method of accounting for the Milburn Acquisition and reflects adjustments to record the profit of acquired inventories, amortize the non- compete agreement and the excess purchase price over the underlying value of net assets acquired, reflect the additional interest on acquisition indebtedness assumed and adjust income taxes for the pro forma adjustments. Nine Months ended February 28, ----------------- 1994 1993 ---- ---- (In thousands) Total revenues $262,429 $205,587 Net income 9,632 5,813 Earnings per common share 1.62 1.13 Earnings per common share assuming full dilution 1.43 1.05 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES ITEM 2. ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations --------------------- Homebuilding The following table sets forth, for the periods indicated, unit activity, average sales price and revenue from home sales for the Company: Quarters ended Nine months ended February 28, February 28, ---------------- ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- Units delivered 604 402 2,013 1,290 Average sales price $120,276 $113,040 $117,870 $111,793 Revenue from homes sales (000's) $ 72,647 $ 45,442 $237,273 $144,213 Percentage increase from prior year 59.9 % 32.4 % 64.5% 25.8% Change due to volume 50.3 % 29.7 % 56.0% 25.0% Change due to average sales price 9.6 % 2.7 % 8.5% .8% The volume increase in the quarter ended February 28, 1994 compared to the same period in the prior year was attributable to the Texas operations. Without Texas, the Company's unit volume was 6.2% less during the quarter than in the same quarter last year. The volume increase in the nine months ended February 28, 1994 compared to the nine months ended February 28, 1993 was attributable to the Texas operations, improved housing markets in the Phoenix and Denver areas and increased deliveries in California as a result of the Company's aggresive marketing in that location. The increase in average sales price was primarily due to deliveries in California, most of which were in the move-up market. The quarter ended February 28, 1994 results include an aggregate of 227 deliveries from Milburn and Aspen with an average sales price of $105,400 per home, resulting in incremental revenue of $23,917,000. The following table summarizes information related to the Company's backlog at the dates indicated: February 28, ------------------------------------ (Dollars in thousands) 1994 1993 ---- ---- Units Dollars Units Dollars ----- ------- ----- ------- Phoenix 678 $ 84,418 658 $ 69,703 Texas 309 33,852 -- -- Denver 94 16,837 56 8,163 California 25 6,850 28 7,139 ----- -------- ----- -------- Total backlog 1,106 $141,957 742 $ 85,005 ===== ======== ===== ======== Average price per unit $128 $115 ======== ======== The increase in backlog at February 28, 1994 in Phoenix and Denver was due to the improved housing markets in both locations, which the Company believes resulted primarily from improved economic conditions in these markets and lower mortgage interest rates. The aggregate sales value of new contracts signed increased 70% in the three months ended February 28, 1994 as a result of the Acquisitions to $94,623,000 representing 754 homes (including $32,372,000 in Texas representing 294 homes) as compared with $55,694,000 representing 501 homes for the three months ended February 28, 1993. Significant volume increases in earlier quarters resulted in the Company selling out of several subdivisions in Phoenix faster than anticipated. This resulted in fewer homes available for sale in Phoenix in the third fiscal quarter of 1994 compared to the same period in fiscal 1993. The Company will have additional new subdivisions opening in Phoenix in the fourth quarter of fiscal 1994 and the first quarter of fiscal 1995. The following table summarizes information related to cost of home sales, selling, general and administrative ("SG&A") expenses and interest, net for homebuilding:
Quarters ended February 28, Nine months ended Feburary 28, --------------------------- ------------------------------ 1994 1993 1994 1993 ---- ---- ---- ---- Dollars % Dollars % Dollars % Dollars % ------- --- ------- --- ------- --- ------- --- (Dollars in thousands) Revenue from home sales $ 72,647 100.0% $ 45,442 100.0% $237,273 100.0% $144,213 100.0% Cost of homes sales 59,344 81.7 36,360 80.0 193,602 81.6 116,212 80.6 -------- ----- -------- ----- -------- ----- -------- ----- Gross profit 13,303 18.3 9,082 20.0 43,671 18.4 28,001 19.4 SG&A expenses 8,141 11.2 4,881 10.7 25,913 10.9 15,428 10.7 -------- ----- -------- ----- -------- ----- -------- ----- Operating income from homebuilding 5,162 7.1 4,201 9.3 17,758 7.5 12,573 8.7 Interest, net 748 1.0 1,505 3.3 3,267 1.4 4,290 3.0 -------- ----- -------- ----- -------- ----- -------- ----- Pre-tax profit from homebuilding $ 4,414 6.1% $ 2,696 6.0% 14,491 6.1% $ 8,283 5.7% ======== ===== ======== ===== ======== ===== ======== =====
Gross profit from home sales was 18.3% (20.9% excluding California operations) for the three months ended February 28, 1994 compared to 20.0% (21.4% excluding California operations) for the corresponding fiscal 1993 period. For the three months ended February 28, 1994, the gross profit on the Texas deliveries was 19.2% (20.8% before purchase accounting adjustments). Gross profit from home sales was 18.4% (20.8% excluding California operations) for the nine months ended February 28, 1994 compared to 19.4% (20.8% excluding California operations) for the nine months ended February 28, 1993. The Southern California market remains very weak due to difficult economic conditions, concerns about home values and low consumer confidence. Accordingly, the Company has aggressively marketed its California homes by offering sales incentives and discounts. California's depressed market will continue to have a negative impact on the Company's earnings since volume is not sufficient to offset general and administrative expenses and interest which is expensed and not capitalized. The increase in total SG&A expenses for the quarter and nine months ended February 28, 1994 was due to higher variable marketing costs (primarily sales commissions and model furniture amortization) due to the increase in the number of homes delivered, higher salaries and higher customer service costs. In addition, the current fiscal quarter and nine months included $3,257,000 and $7,529,000, respectively of SG&A expenses from Texas and $195,000 and $455,000, respectively related to the amortization of the excess of cost over related net assets acquired. SG&A expenses for each home delivered were $13,478 and $12,142 in the third quarter of fiscal 1994 and 1993, respectively and $12,872 and $11,960 in the first nine months of fiscal 1994 and 1993, respectively. The Company capitalizes certain SG&A expenses for homebuilding. Accordingly, total SG&A costs incurred for homebuilding were $9,668,000 and $29,647,000 for the three and nine months ended February 28, 1994 compared to $4,878,000 and $15,007,000 for the corresponding fiscal 1993 periods. The Company capitalizes certain interest costs for its homebuilding operations and includes such capitalized interest in cost of home sales when the related units are delivered. Accordingly, total interest incurred by the Company was $2,960,000 and $9,458,000 for the three and nine months ended February 28, 1994 respectively compared to $3,021,000 and $8,888,000 for the three and nine months ended February 28, 1993, respectively. Interest, net for homebuilding was $748,000 and $1,505,000 for the three months ended February 28, 1994 and 1993, respectively. For the nine month period ended February 28, 1994, interest, net for homebuilding was $3,267,000 compared with $4,290,000 for the nine months ended February 28, 1993. The Company's pre-tax profit from homebuilding (excluding unconsolidated joint ventures) for the nine months ended February 28, 1994 was $14,491,000 compared to $8,283,000 for the corresponding period ended February 28, 1993. The increase in pre-tax profit was due primarily to greater deliveries in Phoenix and Milburn's results which contributed $3,529,000 of pre-tax profit. Mortgage Banking The Company's mortgage banking operations are conducted through its wholly-owned subsidiaries American Western Mortgage Company ("AWMC") in Arizona and Miltex Management, Inc. ("MMI") in Texas. The following table summarizes operating information for the Company's mortgage banking operations: Quarters ended Nine months ended February 28, February 28, ----------------- ------------------ 1994 1993 1994 1993 ---- ---- ---- ---- (Dollars in thousands) Number of loans originated 579 208 1,751 734 Loan origination fees $ 498 $ 188 $1,529 $ 639 Sale of servicing and marketing gains 760 150 2,382 798 Other revenue 86 87 298 259 ------ ------ ------ ------ Total revenues 1,344 425 4,209 1,696 General and administrative expenses 1,082 394 2,779 1,144 ------ ------ ------ ------ Operating income $ 262 $ 31 $1,430 $ 552 ====== ====== ====== ====== Revenues from mortgage banking operations increased in the quarter and nine months ended February 28, 1994 primarily due to the Acquisitions. The amounts for the quarter ended February 28, 1994 include 378 loan originations and $813,000 and $173,000 of revenues and operating income, respectively, from MMI. The Company retains a portion of the loan servicing and, at February 28, 1994, the servicing portfolio was approximately $59,037,000. Consolidated Operations Net income was $9,191,000 ($1.55 per share, $1.38 fully diluted) for the nine months ended February 28, 1994 compared to $5,061,000 ($.99 per share, $.94 fully diluted) for the period ended February 28, 1993. The nine months ended February 28, 1994 included $2,998,000 of net income from the results of Texas. Liquidity and Capital Resources ------------------------------- The Company's financing needs depend primarily upon sales volume, asset turnover, land acquisition and inventory balances. The Company has financed, and expects to continue to finance, its working capital needs through funds generated by operations and borrowings. Funds for future land acquisitions and construction costs are expected to be provided primarily by cash flows from operations and future borrowings as permitted under the 12% Senior Note Indenture. At February 28, 1994, the Company had unsecured lines of credit from two lenders for aggregate borrowings (excluding mortgage warehouse lines) of up to $15,000,000. At February 28, 1994, $6,000,000 was outstanding under these credit lines. In connection with the Milburn Acquisition, the Company assumed a $25,000,000 secured revolving line of credit. At February 28, 1994, $5,000,000 was outstanding under this credit line. The Company's revolving lines of credit bear interest at rates ranging from prime plus 1/2% to prime plus 1%. The Company believes that amounts generated from operations and such additional borrowings will provide funds adequate to finance its homebuilding activities and meet its debt service requirements. The Company does not have any significant current commitments for capital expenditures. AWMC has a warehouse line of credit for $15,000,000 which is guaranteed by the Company. In addition, MMI has a warehouse line of credit for $10,000,000. Pursuant to the warehouse lines of credit, the Company issues drafts to fund its mortgage loans. The amount represented by a draft is drawn on the warehouse line of credit when the draft is presented for payment. At February 28, 1994, no amounts were outstanding under the warehouse lines of credit and the amount of funding drafts that had not been presented for payment was $4,530,000. The Company believes that these lines are sufficient for its mortgage banking operations. On August 5, 1992, the Company completed the sale of $75,000,000 principal amount of its 12% Senior Notes due 1999. The Senior Notes were issued at 98.85% of par and are not redeemable until 1997. The Company used a portion of the net proceeds thereof to repay all amounts outstanding under its lines of credit. On September 4, 1992 the Company used $16,817,000 of these proceeds to redeem its 12-3/4% Senior Notes. On July 29, 1993 the Company acquired all of the outstanding capital stock of Milburn for approximately $26.3 million ($20 million in cash and $6.3 million of Series A Preferred Stock). On January 28, 1994, the Company acquired the operations of Aspen Homes for total cash consideration of $6,982,000. In November, the Company completed a public offering of 1,704,400 shares of Common Stock at $21.50 per share. The net proceeds of the offering (approximately $34,219,000) were used to redeem the Series A Preferred Stock and to reduce temporarily all amounts outstanding under the Company's revolving lines of credit and mortgage banking warehouse lines of credit. On March 22, 1994, the Company obtained the consent of the holders of the majority of the outstanding 12% Senior Notes to certain amendments to the Indenture, including to permit the sale of an additional $35,000,000 of Senior Notes. In connection therewith, the Company has agreed to pay a total of $1,102,020 to the holders of the outstanding Notes. The Company agreed to sell the additional Senior Notes at 107% of par and the closing is scheduled for March 31, 1994. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 4.1 First Supplemental Indenture dated as of March 22, 1994 to the Indenture dated August 1, 1992, between CHHC and First Fidelity Bank, National Association, (formerly First Fidility Bank, National Association) as Trustee. 10.1 First Modification Agreement dated as of February 25, 1994 between Bank One, Arizona, NA (formerly Valley National Bank of Arizona) and CHHC. 10.2 Modification and Extension Agreement dated as of January 31, 1994 between Bank One, Arizona, NA (formerly Valley National Bank of Arizona) and AWMC. 11 Statement of Computation of Earnings Per Share. (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended February 28, 1994. CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES SIGNATURES ---------- Pursuant to the requirements 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. CONTINENTAL HOMES HOLDING CORP. Date: March 29, 1994 By: /s/ Kenda B. Gonzales -------------------------- KENDA B. GONZALES Secretary and Treasurer (Chief Financial Officer) Date: March 29, 1994 By: /s/ Donald R. Loback -------------------------- DONALD R. LOBACK Co-Chief Executive Officer EXHIBIT INDEX ------------- Exhibit Number Description Page ------ ----------- ---- 4.1 First Supplemental Indenture dated as of March 22, 1994 to the Indenture dated August 1, 1992, between CHHC and First Fidelity Bank, National Association, (formerly Fidelity Bank, National Association) as Trustee. 10.1 First Modification Agreement dated as of February 25, 1994 between Bank One, Arizona, NA (formerly Valley National Bank of Arizona) and CHHC. 10.2 Modification and Extension Agreement dated as of January 31, 1994 between Bank One, Arizona, NA (formerly Valley National Bank of Arizona) and AWMC. 11 Statement of Computation of Earnings Per Share. EX-4.1 2 FIRST SUPPLEMENTAL INDENTURE FIRST SUPPLEMENTAL INDENTURE ---------------------------- THIS FIRST SUPPLEMENTAL INDENTURE, dated as of March 22, 1994, to the INDENTURE, dated as of August 1, 1992, between CONTINENTAL HOMES HOLDING CORP., a Delaware corporation (the "Issuer"), and FIRST FIDELITY BANK, NATIONAL ASSOCIATION (formerly Fidelity Bank, National Association), a national banking association organized and existing under the laws of the United States of America, as trustee hereunder (the "Trustee"). W I T N E S S E T H : WHEREAS, the Issuer and the Trustee have heretofore executed and delivered an Indenture dated as of August 1, 1992 (the "Indenture") providing for the issuance by the Issuer of up to $75,000,000 in principal amount of its 12% Senior Notes Due August 1, 1999 (the "Securities"); WHEREAS, the Issuer desires to amend the Indenture as set forth in this First Supplemental Indenture; WHEREAS, Section 9.02 of the Indenture provides, among other things, that, subject to certain exceptions not herein relevant, with the consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding, the Issuer and the Trustee may amend or supplement the Indenture or the Securities; WHEREAS, the Company has received consents to the amendments to the Indenture contained herein (the "Proposed Amendments") of Holders of at least a majority in aggregate principal amount of the Securities outstanding on the date hereof (the "Requisite Consents"); and WHEREAS, all things necessary to make this First Supplemental Indenture a valid agreement of the Issuer and the Trustee and a valid amendment of and supplement to the Indenture and all of the conditions and requirements set forth in Section 9.02 of the Indenture have been performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized; NOW, THEREFORE, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Securities as follows: ARTICLE 1. AMENDMENTS TO INDENTURE Section 1.1. Section 1.01 of the Indenture is hereby amended as follows: (1) The definition of "Bank Facility" shall be amended by (i) deleting the words "a commitment" in the first line thereof and inserting, in lieu thereof, the words "one or more commitments", and (ii) deleting the words "for working capital or other general corporate purposes" in the third line thereof; (2) The definition of "EBITDA" shall be amended by inserting the language ", to the extent deducted in calculating Consolidated Net Income," following the word "plus" in the second line thereof; (3) The definition of "Permitted Liens" shall be amended by (i) deleting clause (ii) thereof and replacing it in its entirety with the following language: "Liens securing a Warehouse Facility, provided that such Liens shall not extend to any assets other than the mortgages, promissory notes and other collateral that secures mortgage loans made by the Company or any of its Subsidiaries;", (ii) deleting clauses (xi) and (xii) thereof and replacing them in their entirety with the following language: "(xi) Liens with respect to Acquisition Debt; provided that such Liens do not extend to any other assets of the Company or the assets of any of the Company's other Subsidiaries; (xii) Liens securing Refinancing Debt; provided that such Liens only extend to the assets securing the Debt being refinanced, such refinanced Debt was previously secured, and such Liens do not extend to any other assets of the Company or to the assets of the Company's other Subsidiaries;"; (4) The definition of "Subsidiary" shall be amended by inserting "(i)" after "Person," in the first line thereof and inserting immediately before the period the following language: "or (ii) any partnership or joint venture at least a majority of the voting power of which is at the time directly or indirectly owned by such Person or one or more of the other Subsidiaries of that Person or a combination or successor thereof"; and (5) The definition of "Warehouse Facility" shall be deleted and replaced in its entirety with the following language: "'Warehouse Facility' means a Bank Facility to finance the making of FHA/VA and conforming conventional mortgage loans originated by the Company or any of its Subsidiaries.". Section 1.2. Section 2.02 of the Indenture is hereby amended as follows: (1) The first sentence in the fourth paragraph thereof shall be deleted and replaced in its entirety with the following language: "The Trustee shall authenticate Securities for original issue in the aggregate principal amount of up to $110,000,000, upon a written order or orders of the Company signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company."; and (2) The word "such" shall be inserted in the second sentence of the fourth paragraph thereof after the words "issue of". Section 1.3. The definition of "Permitted Debt" contained in Section 4.10 of the Indenture is hereby amended as follows: (1) The language in paragraph (b) thereof shall be deleted and replaced in its entirety with the following language: "Debt incurred under or in respect of a Bank Facility (including any guarantees related thereto) for working capital or general corporate purposes, Debt evidenced by letters of credit, and guarantees of Debt of the Great Singing Hills joint venture in excess of amounts committed on the date of the Indenture and which are Incurred after the date of the Indenture; provided that the aggregate amount of all such Debt outstanding at any time pursuant to this clause (b) may not exceed $30,000,000;"; (2) The language in paragraph (c) thereof shall be deleted and replaced in its entirety with the following language: "Debt incurred under a Warehouse Facility; provided that the amount of such Debt (including funding drafts issued thereunder) outstanding at any time pursuant to this clause (c) may not exceed $30,000,000 and the amount of such Debt (excluding funding drafts issued thereunder) may not exceed 98% of the value of the Mortgages available to be pledged to secure Debt thereunder;"; (3) The word "the" in the parenthetical in paragraph (d) thereof shall be replaced with the word "a"; and (4) The number "$500,000" in paragraph (h) thereof shall be replaced with "$5,000,000". ARTICLE 2. AMENDMENT TO FORM OF SECURITY ----------------------------- Section 2.1. The face of the security is hereby amended by adding "FIRST" immediately preceding "FIDELITY" and adding "(formerly Fidelity Bank, National Association)" immediately following "ASSOCIATION,". Section 2.2. Paragraph 1 of the reverse of the security is hereby amended by deleting "February 1, 1993" in the second sentence thereof and replacing it with "on the first of such dates following the original issuance hereof." Section 2.3. Paragraph 4 of the reverse of the security is hereby amended by adding ", as it may be supplemented or amended from time to time in accordance with the terms thereof," immediately following "August 1, 1992" in the first sentence thereof and deleting "$75,000,000" in the fourth sentence thereof and replacing it with "$110,000,000". Section 2.4. Paragraph 3 of the reverse of the security is hereby amended by adding "First" immediately preceding "Fidelity" and adding "(formerly Fidelity Bank, National Association)" immediately following "Association". Section 2.5. Paragraph 16 of the reverse of the security is hereby amended by adding "First" immediately preceding "Fidelity" and adding "(formerly Fidelity Bank, National Association)" immediately following "Association". ARTICLE 3. MISCELLANEOUS SECTION 3.1. Defined Terms. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Indenture. SECTION 3.2. Operation of Proposed Amendments. Upon the execution and delivery of this First Supplemental Indenture by the Trustee and the Issuer, the Proposed Amendments contained herein will become effective but will not become operative until after the expiration of the Consent Solicitation of the Issuer dated March 4, 1994. SECTION 3.3. Trustee. The recitals contained herein shall be taken as the statements of the Issuer, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity of this First Supplemental Indenture. The Indenture, as supplemented and amended by this First Supplemental Indenture, is in all respects hereby ratified and confirmed. SECTION 3.4. Binding Effect. This First Supplemental Indenture shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as amended herein, the terms, provisions and covenants of the Indenture shall remain in full force and effect and continue to govern the parties thereto. SECTION 3.5. Counterparts. This First Supplemental Indenture may be executed in two or more counterparts, each of which shall be deemed original and all of which together will constitute the same agreement, whether or not all parties execute each counterpart. SECTION 3.6. Governing Law. The laws of the State of New York, without regard to principles of conflicts of law, shall govern this First Supplemental Indenture and the Securities. IN WITNESS WHEREOF, the parties have caused this First Supplemental Indenture to be duly executed, all as of the date first above written. CONTINENTAL HOMES HOLDING CORP. By: /s/ Donald R. Loback ----------------------------- Name: Donald R. Loback Title: Co-Chief Executive Officer FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Howard R. Parker ------------------------------ Name: Howard R. Parker Title: Assistant Vice President EX-10.1 3 FIRST MODIFICATION AGREEMENT FIRST MODIFICATION AGREEMENT ---------------------------- DATE: February 25, 1994 ---- PARTIES: Borrower: CONTINENTAL HOMES HOLDING CORP., a Delaware corporation ------- Bank: BANK ONE, ARIZONA, NA, formerly known as The Valley National Bank of Arizona, a national banking association. RECITALS: -------- A. Bank has extended to Borrower credit ("Loan") in the principal amount of $10,000,000.00 pursuant to the Loan Agreement, dated February 25, 1993 ("Loan Agreement"), and evidenced by the Promissory Note, dated February 25, 1993 ("Note"). The unpaid principal of the Loan as of the date hereof is $3,000,000. B. The Note, the Loan Agreement, any arbitration resolution, any environmental certification and indemnity agreement, and all other agreements, documents, and instruments evidencing, securing, or otherwise relating to the Loan, are sometimes referred to individually and collectively as the "Loan Documents". Hereinafter, "Note", "Loan Agreement", and "Loan Documents" shall mean such documents as modified in the Modifications. C. Borrower has requested that Bank modify the Loan and the Loan Documents as provided herein. Bank is willing to so modify the Loan and the Loan Documents, subject to the terms and conditions herein. AGREEMENT: --------- For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows: 1. ACCURACY OF RECITALS. -------------------- Borrower acknowledges the accuracy of the Recitals. 2. MODIFICATION OF LOAN DOCUMENTS. ------------------------------ 2.1 The Loan Documents are modified as follows: 2.1.1 The term "Maturity Date" as used in the Note is hereby extended from February 25, 1994 to February 25, 1995. 2.1.2 The term "Commitment Expiration Date" as used in the Loan Agreement is hereby extended from February 25, 1994 to February 25, 1995. 2.1.3 Section 6.12.1 of the Loan Agreement is hereby amended in its entirety to provide as follows: 6.12.1 Tangible Net Worth. A minimum Tangible Net Worth in the amount of $70,000,000.00. 2.1.4 Section 6.12.3 of the Loan Agreement is hereby amended in its entirety to provide as follows: 6.12.3 Debt to Equity Ratio. A Debt to Equity Ratio of not more than 3.50 to 1.0. An Adjusted Debt to Equity Ratio of not more than 2.0 to 1.0. As used herein, "Adjusted Debt to Equity Ratio" means the ratio of Borrower's outstanding Adjusted Debt, on a consolidated basis, to Net Worth. As used herein, "Adjusted Debt" means all Debt of Borrower on a consolidated basis plus all accounts payable and other accrued expenses of Borrower on a consolidated basis, excluding Debt arising from "mortgage banking and title operations" of American Western Mortgage Company, Miltex Mortgage Company, and Travis Title, all as shown on a consolidated balance sheet of Borrower prepared in accordance with GAAP and approved by Bank. 2.1.5 Section 6.14 of the Loan Agreement is hereby modified in its entirety to provide as follows: 6.14 Compensating Balances. Borrower shall at all times maintain on deposit with Bank (i) free, collected, non-interest-bearing compensating balances in the amount of not less than $500,000.00 and (ii) such additional compensating balance deposits (which may be interest bearing) as may be necessary to cause the total deposits maintained at Bank (including amounts maintained pursuant to clause (i) of this sentence) to be equal to or greater than two-thirds of the total deposits maintained by Borrower with all financial institutions. 2.1.6 Section 6.13 of the Loan Agreement is hereby amended in its entirety to provide as follows: 6.13 Clean-Up. With respect to (i) the six-month period commencing on February 25, 1994 and ending on August 24, 1994, Borrower shall not have any Advances outstanding pursuant to this Agreement for a period of at least thirty (30) consecutive days, and (ii) the six-month period commencing on August 25, 1994 and ending on the Commitment expiration date specified in Section 1, Borrower shall not have any Advances outstanding pursuant to this Agreement for a period of at least fifteen (15) consecutive days. 2.1.7 The definition of "Permitted Debt" as set forth in Section 1 of the Loan Agreement is hereby modified to include as Permitted Debt the Debt arising pursuant to that certain Loan Agreement, dated July 28, 1993, between Milburn Investments, Inc., a Texas corporation, and Bank, in the maximum principal amount of $25,000,000.00. 2.1.8 A new paragraph 14 is hereby added to the section of the Note entitled "EVENTS OF DEFAULT" to provide as follows: 14. The occurrence of any condition or event that is a default or is designated as a default, an event of default or an Event of Default, in that certain Loan Agreement, dated July 28, 1993, between Milburn Investments, Inc., a Texas corporation, and Bank, in the maximum principal amount of $25,000,000.00. 2.2 Each of the Loan Documents is modified to provide that it shall be a default or an event of default thereunder if Borrower shall fail to comply with any of the covenants of Borrower herein or if any representation or warranty by Borrower herein or by any guarantor in any related Consent and Agreement of Guarantor(s) is materially incomplete, incorrect, or misleading as of the date hereof. 2.3 Each reference in the Loan Documents to any of the Loan Documents shall be a reference to such document as modified herein. 2.4 From and after the date hereof, the certificates required pursuant to Section 6.3.4 of the Loan Agreement shall include certifications regarding the Adjusted Debt to Equity Ratio in form satisfactory to Bank. 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL. -------------------------------------------- The Loan Documents are ratified and affirmed by Borrower and shall remain in full force and effect as modified herein. Any property or rights to or interests in property granted as security in the Loan Documents shall remain as security for the Loan and the obligations of Borrower in the Loan Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. --------------------------------------- Borrower represents and warrants to Bank: 4.1 No default or event of default under any of the Loan Documents as modified herein, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Loan Documents as modified herein has occurred and is continuing. 4.2 There has been no material adverse change in the financial condition of Borrower or any other person whose financial statement has been delivered to Bank in connection with the Loan from the most recent financial statement received by Bank. 4.3 Each and all representations and warranties of Borrower in the Loan Documents are accurate on the date hereof. 4.4 Borrower has no claims, counterclaims, defenses, or set-offs with respect to the Loan or the Loan Documents as modified herein. 4.5 The Loan Documents as modified herein are the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with their terms. 5. BORROWER COVENANTS. ----------------- Borrower covenants with Bank: 5.1 Borrower shall execute, deliver, and provide to Bank such additional agreements, documents, and instruments as reasonably required by Bank to effectuate the intent of this Agreement. 5.2 Borrower fully, finally, and forever releases and discharges Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all actions, causes of action, claims, debts, demands, liabilities, obligations, and suits, of whatever kind or nature, in law or equity of Borrower, whether now known or unknown to Borrower, (i) in respect of the Loan, the Loan Documents, or the actions or omissions of Bank in respect of the Loan or the Loan Documents and (ii) arising from events occurring prior to the date of this Agreement. 5.3 Contemporaneously with the execution and delivery of this Agreement, Borrower has paid to Bank: 5.3.1 All accrued and unpaid interest under the Note and all amounts, other than interest and principal, due and payable by Borrower under the Loan Documents as of the date hereof. 5.3.2 All the internal and external costs and expenses incurred by Bank in connection with this Agreement (including, without limitation, inside and outside attorneys). 5.3.3 An extension and modification fee of $50,000.00. 5.3.4 A documentation fee to the Bank of $500.00. 6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK. ------------------------------------------- Bank shall not be bound by this Agreement until (i) Bank has executed and delivered this Agreement, (ii) Borrower has performed all of the obligations of Borrower under this Agreement to be performed contemporaneously with the execution and delivery of this Agreement, (iii) each guarantor(s) of the Loan, if any, has executed and delivered to Bank a Consent and Agreement of Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s) have executed and delivered to Bank an arbitration resolution, an environmental questionnaire, and an environmental certification and indemnity agreement. 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. ----------------------------------------------------------------------- The Loan Documents as modified herein contain the complete understanding and agreement of Borrower and Bank in respect of the Loan and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Loan Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the parties thereto. 8. BINDING EFFECT. -------------- The Loan Documents as modified herein shall be binding upon and shall inure to the benefit of Borrower and Bank and their successors and assigns and the executors, legal administrators, personal representatives, heirs, devisees, and beneficiaries of Borrower, provided, however, Borrower may not assign any of its right or delegate any of its obligation under the Loan Documents and any purported assignment or delegation shall be void. 9. CHOICE OF LAW. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to conflicts of law principles. 10. COUNTERPART EXECUTION. --------------------- This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document. DATED as of the date first above stated. CONTINENTAL HOMES HOLDING CORP., a Delaware corporation By:/s/ Kenda B. Gonzales -------------------------------------- Name: Kenda B. Gonzales ---------------------------------- Title: Secretary and Treasurer ---------------------------------- BANK ONE, ARIZONA, NA, a national banking association By:/s/ Carol Grumley -------------------------------------- Name: Carol Grumley ---------------------------------- Title: Vice President ---------------------------------- CONSENT AND AGREEMENT OF GUARANTOR(S) ------------------------------------- With respect to the Modification Agreement, dated February 25, 1994 ("Agreement"), between Continental Homes Holding Corp., a Delaware corporation ("Borrower") and Bank One, Arizona, NA, formerly known as The Valley National Bank of Arizona, a national banking association ("Bank"), the undersigned (individually and, if more than one, collectively "Guarantor") agrees for the benefit of Bank as follows: 1. Guarantor acknowledges (i) receiving a copy of and reading the Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the effectiveness of (A) the Guaranty of Payment, dated February 25, 1993 ("Guaranty"), by the undersigned for the benefit of Bank, as modified herein, and (B) any other agreements, documents, or instruments securing or otherwise relating to the Guaranty, (including, without limitation, any arbitration resolution and any environmental certification and indemnity agreement previously executed and delivered by the undersigned), as modified herein. The Guaranty and such other agreements, documents, and instruments, as modified herein, are referred to individually and collectively as the "Guarantor Documents". 2. Guarantor consents to the modification of the Loan Documents and all other matters in the Agreement. 3. Guarantor fully, finally, and forever releases and discharges Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all actions, causes of action, claims, debts, demands, liabilities, obligations, and suits of whatever kind or nature, in law or equity, that Guarantor has or in the future may have, whether known or unknown, (i) in respect of the Loan, the Loan Documents, the Guarantor Documents, or the actions or omissions of Bank in respect of the Loan, the Loan Documents, or the Guarantor Documents and (ii) arising from events occurring prior to the date hereof. 4. Guarantor agrees that all references, if any, to the Note, the Loan Agreement, and the Loan Documents in the Guarantor Documents shall be deemed to refer to such agreements, documents, and instruments as modified by the Agreement. 5. Guarantor reaffirms the Guarantor Documents and agrees that the Guarantor Documents continue in full force and effect and remain unchanged, except as specifically modified by this Consent and Agreement of Guarantor(s). Any property or rights to or interests in property granted as security in the Guarantor Documents shall remain as security for the Guaranty and the obligations of Guarantor in the Guaranty. 6. Guarantor agrees that the Loan Documents, as modified by the Agreement, and the Guarantor Documents, as modified by this Consent and Agreement of Guarantor(s), are the legal, valid, and binding obligations of Borrower and the undersigned, respectively, enforceable in accordance with their terms against Borrower and the undersigned, respectively. 7. Guarantor agrees that Guarantor has no claims, counterclaims, defenses, or offsets with respect to the enforcement against Guarantor of the Guarantor Documents. 8. Guarantor represents and warrants that there has been no material adverse change in the financial condition of any Guarantor from the most recent financial statement received by Bank. 9. Guarantor agrees that this Consent and Agreement of Guarantor(s) may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature and acknowledgement pages may be detached from the counterparts and attached to a single copy of this Consent and Agreement of Guarantor(s) to physically form one document. DATED as of the date of the Agreement. CONTINENTAL HOMES, INC., a Delaware corporation By:/s/ Kenda B. Gonzales ---------------------------------------- Name: Kenda B. Gonzales ------------------------------------ Title: Financial Vice President ------------------------------------ CONSENT AND AGREEMENT OF GUARANTOR(S) ------------------------------------- With respect to the Modification Agreement, dated February 25, 1994 ("Agreement"), between Continental Homes Holding Corp., a Delaware corporation ("Borrower") and Bank One, Arizona, NA, formerly known as The Valley National Bank of Arizona, a national banking association ("Bank"), the undersigned (individually and, if more than one, collectively "Guarantor") agrees for the benefit of Bank as follows: 1. Guarantor acknowledges (i) receiving a copy of and reading the Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the effectiveness of (A) the Guaranty of Payment, dated February 25, 1993 ("Guaranty"), by the undersigned for the benefit of Bank, as modified herein, and (B) any other agreements, documents, or instruments securing or otherwise relating to the Guaranty, (including, without limitation, any arbitration resolution and any environmental certification and indemnity agreement previously executed and delivered by the undersigned), as modified herein. The Guaranty and such other agreements, documents, and instruments, as modified herein, are referred to individually and collectively as the "Guarantor Documents". 2. Guarantor consents to the modification of the Loan Documents and all other matters in the Agreement. 3. Guarantor fully, finally, and forever releases and discharges Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all actions, causes of action, claims, debts, demands, liabilities, obligations, and suits of whatever kind or nature, in law or equity, that Guarantor has or in the future may have, whether known or unknown, (i) in respect of the Loan, the Loan Documents, the Guarantor Documents, or the actions or omissions of Bank in respect of the Loan, the Loan Documents, or the Guarantor Documents and (ii) arising from events occurring prior to the date hereof. 4. Guarantor agrees that all references, if any, to the Note, the Loan Agreement, and the Loan Documents in the Guarantor Documents shall be deemed to refer to such agreements, documents, and instruments as modified by the Agreement. 5. Guarantor reaffirms the Guarantor Documents and agrees that the Guarantor Documents continue in full force and effect and remain unchanged, except as specifically modified by this Consent and Agreement of Guarantor(s). Any property or rights to or interests in property granted as security in the Guarantor Documents shall remain as security for the Guaranty and the obligations of Guarantor in the Guaranty. 6. Guarantor agrees that the Loan Documents, as modified by the Agreement, and the Guarantor Documents, as modified by this Consent and Agreement of Guarantor(s), are the legal, valid, and binding obligations of Borrower and the undersigned, respectively, enforceable in accordance with their terms against Borrower and the undersigned, respectively. 7. Guarantor agrees that Guarantor has no claims, counterclaims, defenses, or offsets with respect to the enforcement against Guarantor of the Guarantor Documents. 8. Guarantor represents and warrants that there has been no material adverse change in the financial condition of any Guarantor from the most recent financial statement received by Bank. 9. Guarantor agrees that this Consent and Agreement of Guarantor(s) may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature and acknowledgement pages may be detached from the counterparts and attached to a single copy of this Consent and Agreement of Guarantor(s) to physically form one document. DATED as of the date of the Agreement. CHI CONSTRUCTION COMPANY, an Arizona corporation By:/s/ Kenda B. Gonzales ---------------------------------------- Name: Kenda B. Gonzales ------------------------------------ Title: Vice President ------------------------------------ EX-10.2 4 MODIFICATION AND EXTENSION AGREEMENT MODIFICATION AND EXTENSION AGREEMENT DATE: January 31, 1994 PARTIES: Borrower: AMERICAN WESTERN MORTGAGE COMPANY, a Colorado corporation Bank: BANK ONE, ARIZONA, NA, a national banking association, formerly known as The Valley National Bank of Arizona. RECITALS: A. Bank has extended to Borrower credit ("Loan") in the principal amount of $15,000,000.00 pursuant to that certain Amended and Restated Warehousing Credit and Security Agreement, dated September 26, 1991 as amended ("Loan Agreement"), and evidenced by that certain Promissory Note, dated November 27, 1992 ("Note"). The unpaid principal of the Loan as of the date hereof is $0.00. B. The Loan is secured by, among other things, the security interest in various promissory notes and deeds of trust granted by Borrower to Bank pursuant to the Loan Agreement. The agreements, documents, and instruments securing the Loan and the Note are referred to individually and collectively as the "Security Documents". C. Bank and Borrower have executed and delivered previously the following agreements ("Modifications") modifying the terms of the Loan, the Note, the Loan Agreement, and/or the Security Documents: (i) Letter of Agreement dated May 28, 1992; (ii) Modification Agreement dated September 22, 1992; (iii) Modification Agreement dated November 27, 1992; (iv) Letter Agreement dated February 25, 1993; (v) Modification and Extension Agreement dated November 22, 1993. (The Note, the Loan Agreement, the Security Documents, any arbitration resolution, any environmental certification and indemnity agreement, and all other agreements, documents, and instruments evidencing, securing, or otherwise relating to the Loan, as modified in the Modifications, are sometimes referred to individually and collectively as the "Loan Documents". Hereinafter, "Note", "Loan Agreement", "and "Security Documents" shall mean such documents as modified in the Modifications. All other capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Loan Agreement.) D. Borrower has requested that Bank modify the Loan and the Loan Documents as provided herein. Bank is willing to so modify the Loan and the Loan Documents, subject to the terms and conditions set forth herein. AGREEMENT: For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows: 1. ACCURACY OF RECITALS. Borrower acknowledges the accuracy of the Recitals. 2. MODIFICATION OF LOAN DOCUMENTS. 2.1 The Loan Documents are modified as follows: 2.1.1 The definition of "Uncommitted Mortgage Loan" in Section 1 of the Loan Agreement is hereby modified in its entirety to provide as follows: "Uncommitted Mortgage Loan" means any Eligible Mortgage Loan which is not subject to a Purchase Commitment. The term "Uncommitted Mortgage Loan" also shall include any Eligible Mortgage Loan with respect to which a Purchase Commitment has been cancelled, or has otherwise expired or terminated for any reason. 2.1.2 The maturity date of the Loan and the Note is extended from February 1, 1994, to December 1, 1994. On the maturity date Borrower shall pay to Bank the unpaid principal, accrued and unpaid interest, and all other amounts payable by Borrower under the Loan Documents as modified herein. All commitments of Bank to make loans and advances pursuant to the Loan Documents shall expire on the maturity date as so extended. 2.1.3 In addition to all other fees, payable pursuant to the Loan Documents and this Agreement, Borrower agrees to pay a fee of $20.00 for each Pledged Mortgage to cover the costs of Bank's handling and monitoring of each Pledged Mortgage. All such fees shall be earned each month as each Advance is made and shall be payable on the first day of the following month. 2.1.4 In addition to all other fees payable pursuant to the Loan Documents and this Agreement, Borrower agrees to pay an Unused Commitment Fee of one-quarter of one percent (1/4%) per annum calculated on a monthly basis and payable monthly in arrears on the first day of each month, commencing with the first day of January, 1993, and on expiration or termination of the Commitment. For each month (or portion thereof), the Unused Commitment Fee shall be equal to (A) $15,000,000.00 minus (B) the "Average Monthly Outstandings" for the month (or portion thereof) with respect to which the Unused Commitment Fee is being computed, with the resulting number multiplied by (C) one-twelfth of the annual Unused Commitment Fee rate. As used herein, "Average Monthly Outstandings" means the sum of the outstanding principal balance of the Loan on each day during the month (or portion thereof) with respect to which the Unused Commitment Fee is being computed divided by the number of days in that month (or portion thereof). If the Unused Commitment Fee is being computed for less than a full month, the percentage used in clause (C) above shall be computed on a daily basis for the number of days for which the fee is being computed. 2.1.5 Section 2.1(b) of the Loan Agreement is hereby modified in its entirety to provide as follows: (b) Subject to the terms and conditions of this Agreement and provided no Default has occurred and is continuing, Lender agrees, from time to time during the period from the Effective Date to and including December 1, 1994 (unless such period is earlier terminated pursuant hereto), to make Advances to Borrower, provided the total aggregate principal amount outstanding at any one time of all such Advances shall not exceed Fifteen Million Dollars ($15,000,000.00) (the "Commitment"). Notwithstanding the foregoing, the amount of the Commitment and individual Advances thereunder is subject to Section 2.1(d) hereof. Within the Commitment, Borrower may borrow, repay and reborrow. 2.1.6 Section 2.1(d) of the Loan Agreement is hereby modified in its entirety to provide as follows: (d) No Advance shall exceed the following amount (the "Collateral Value") applicable to the type of Collateral at the time it is pledged: (1) An Advance made against a Committed Mortgage Loan pledged hereunder shall be in an amount equal to ninety-eight percent (98%) of the committed purchase price thereof set forth in the applicable Purchase Commitment. (2) An Advance made against an Uncommitted Mortgage Loan pledged hereunder shall be in an amount equal to ninety-six percent (96%) of the Current Market Value of the Eligible Mortgage Loan. 2.1.7 Section 2.2(e) of the Loan Agreement is hereby modified in its entirety to provide as follows: (e) At Lender's option, Advances may be made (i) by deposit to Borrower's zero balance account maintained by Borrower at Lender (which deposit will be applied to pay drafts drawn by title companies or other persons conducting the closing of the related Eligible Mortgage Loan), (ii) by wire transfer to the applicable title companies or (iii) by payment directly to Borrower (provided that Lender will not make Advances directly to Borrower in any case where Lender has permitted Borrower to retain possession of the Mortgage Note in question). As a further condition to Advances, Borrower shall present to Lender appropriate wiring instructions or such drafts, as required by Lender. 2.1.8 A new Section 2.2(f) is hereby added to the Loan Agreement to provide as follows: (f) From time to time in the sole and absolute discretion of Lender, Borrower may be permitted to cause drafts drawn on Borrower's zero balance account maintained at Lender to be presented to Lender for payment in connection with the funding of Eligible Mortgage Loans, notwithstanding that Borrower has not made an Advance Request or submitted Collateral Documents in connection with such Mortgage Loan. Lender may pay any such drafts without any further consent of or notice to Borrower and shall be entitled to assume that each draft is proper, duly authorized, and validly presented. Any payment by Lender of such draft shall be deemed to be an Advance, notwithstanding that the conditions precedent to Advances have not been satisfied. Any such Advance for which an Advance Request or Collateral Documents have not been submitted shall be due and payable in full prior to 1:00 p.m., Phoenix, Arizona time on the first Business Day after the date the related draft was presented to Lender. Notwithstanding any other provision of the Loan Documents to the contrary, Borrower hereby irrevocably authorizes Lender to withdraw from and set off against any deposit accounts maintained by Borrower or Guarantor with Lender the amount of any such Advances as due and payable; provided, however, that such right of set-off shall not apply to any deposits of escrow monies being held on behalf of mortgagors under Mortgage Loans or other third parties or accounts containing only principal and interest payments by borrowers under Mortgage Loans that are maintained in connection with Borrower's servicing of Mortgage Loans. If at any time, Lender elects, in its sole and absolute discretion, not to permit further Advances pursuant to this Section 2.2(f), Borrower shall immediately cease allowing title companies or other persons to submit such drafts except in connection with Advances for which all the conditions precedent set forth herein have been satisfied. 2.1.9 Section 2.4(a) of the Loan Agreement is hereby modified in its entirety to provide as follows: (a) The unpaid amount of each Advance shall bear interest from the date of such Advance until paid in full, at a floating rate of interest (the "Floating Rate") (computed on the basis of a 360-day year and applied to the actual number of days elapsed in each interest calculation period) which is equal to the Prime Rate plus one half of one (1/2) percent. As used herein, the term "Prime Rate" shall mean the rate of interest established and publicly announced from time to time by Bank One, Arizona, NA, as its "Prime Rate" or "Reference Rate", whether or not such rate actually is the lowest rate available to commercial borrowers or other customers of such bank. The Floating Rate will be adjusted as of the effective date of each change in the Prime Rate. 2.1.10 Section 4(a) of the Promissory Note is hereby modified in its entirety to provide as follows: (a) Absent an Event of Default hereunder or under any of the Credit Agreement Documents, each Advance made hereunder shall bear interest at the Interest Rate in effect from time to time, which rate is equal to one-half of one percent (1/2 of 1%) per annum above the Prime Rate, as such term is defined on Section 2.4 of the Credit Agreement. Throughout the term of this Note, interest shall be calculated on a 360-day year with respect to the unpaid balance of any Advance and, in all cases, shall be computed for the actual number of days in the period for which interest is charged. 2.1.11 Section 2.4(e)(2) of the Loan Agreement is hereby modified in its entirety to provide as follows: (2) The Interest Credit shall be an amount, determined on a quarterly basis, equal to (i) the amount of (A) the average daily amount of free collected compensating balances maintained by Borrower with Lender in noninterest-bearing accounts for the period in question, reduced by (B) the amount required to be maintained or deposited in reserve pursuant to Regulation D of the Federal Reserve Board, or otherwise, with respect to such compensating balances during the period in question and (C) further reduced by the portion of such compensating balances required to be maintained and/or pledged pursuant to any other loan or agreement between Borrower and Lender, multiplied by (ii) the average 90-day treasury bill auction rate (based on quotations thereof in the Lender's Investment Department) during the period in question reduced by forty (40) basis points, and (iii) with the product of (i) and (ii) further reduced by all FDIC assessments and premiums incurred by Lender and all other service charges imposed by Lender with respect to such compensating balances; provided, however, that the amount of the Interest Credit shall not be greater than one half of one percent (1/2%) per annum on the Loan amount outstanding during the period in question. An example of the computation of the Interest Credit is set forth in Exhibit D hereto. 2.1.12 Section 2.4(e)(4) of the Loan Agreement is hereby modified in its entirety to provide as follows: (4) Lender and Borrower acknowledge that the intent of this Section 2.4(e) is (i) that all Advances pursuant to this Agreement yield to Lender a minimum interest rate of Prime Rate plus one half of one percent (1/2%) per annum but against this yield Borrower will be credited an amount equal to the net value to Lender of Borrower's accounts with Lender as determined by Lender, not to exceed the limitations set forth in Section 2.4(e)(2) above and (ii) that after giving effect to the Interest Credit, interest on all Advances shall never be less than the Prime Rate. 2.1.13 A new section 2.4(e)(5) of the Loan Agreement is hereby added to the Loan Agreement to provide as follows: (5) Notwithstanding the foregoing provisions of this Section 2.4, no Interest Credit shall be earned during any period in which no Advances are outstanding under this Loan Agreement. In addition, Borrower shall not be entitled to any Interest Credit with respect to interest on Advances made pursuant to Section 2.2(f) of this Loan Agreement. 2.1.14 Sections 2.5(a), 2.6(a) and 2.6(b) of the Loan Agreement are modified by deleting "December 1, 1993" and inserting in its place "December 1, 1994" in each place said date appears therein. 2.1.15 Section 2.5(c) of the Loan Agreement is hereby modified in its entirety to provide as follows: (c) In addition, Borrower shall be obligated to pay to Lender, without the necessity of prior demand or notice from Lender, the amount of any outstanding Advance against a specific Eligible Mortgage Loan, upon the occurrence of any of the following events: (1) One Hundred and Eighty (180) days have lapsed from the date of the Advance made by Lender with respect to such Eligible Mortgage Loan; (2) Twenty (20) days have elapsed from the date such Eligible Mortgage Loan was delivered to an Investor for examination and purchase, without the purchase being made, or upon rejection of such Eligible Mortgage Loan as unsatisfactory by an Investor; (3) The Collateral Documents, upon examination by Lender, are found not to be in compliance with the requirements of this Agreement; (4) If any of the items required to be delivered pursuant to Exhibit A after an Advance are not delivered as and when required or if delivered are not in compliance with this Agreement; (5) Ten (10) Business Days have elapsed from the date a Collateral Document was delivered to Borrower for correction or completion, without being returned to Lender; (6) Such Eligible Mortgage Loan is defaulted and remains in default for a period of sixty (60) days; (7) If any of the representations and warranties set forth in Section 5.12 with respect to an Eligible Mortgage Loan are untrue or incorrect in any material respect; and (8) Upon the sale of such Eligible Mortgage Loan. Upon making such payment to Lender, so long as no Event of Default has occurred and is continuing, Borrower shall be deemed to have redeemed such Eligible Mortgage Loan from pledge, and the Collateral Documents relating thereto shall be released by Lender to Borrower or to a designated Investor. 2.1.16 Section 3.2 of the Loan Agreement is hereby modified in its entirety to provide as follows: 3.2 Valuation of Collateral. The Collateral shall be valued as set forth below at least weekly and more often at Lender's sole discretion. All valuations of individual Mortgage Loans shall be based on yields which are net of all servicing charges whether or not specified below. For purposes hereof, "Current Market Value" shall mean: (a) with respect to any Eligible Mortgage Loan that is not an FHA loan or VA loan, the current price for 30-day delivery quoted by FNMA and reported to Lender on "Telerate Systems Reports" or other source acceptable to Lender, and (b) in the case of Eligible Mortgage Loans that are FHA Loans and VA Loans, the price most recently quoted by GNMA for immediate purchase and reported to Bank on "Telerate Systems Reports" or other source acceptable to Bank. 2.1.17 Section 3.3 "Margin Call" of the Loan Agreement is hereby modified in its entirety to provide as follows: 3.3 Margin Call. The parties intend that the amount advanced and outstanding under this Agreement with respect to an Uncommitted Mortgage Loan, shall at no time exceed ninety- six percent (96%) of its then Current Market Value. If, at any time, the amount advanced with respect to an Uncommitted Mortgage Loan, is greater than ninety-six percent (96%) of its then Current Market Value, as determined in accordance with Section 3.2 hereof, then Borrower shall be required to make the payments set forth in this Section 3.3 ("Margin Call"). A Margin Call shall require Borrower to pay to Lender an amount equal to the difference between ninety-six percent (96%) of the then Current Market Value and the amount advanced with respect to such Uncommitted Mortgage Loan. Payment for each Margin Call due to Lender pursuant to this Section 3.3 shall be made by Borrower in immediately available funds within one (1) Business Day following the occurrence of such event, provided, however, if the outstanding aggregate amount of all Margin Calls is equal to or less than $25,000, then Borrower shall not be obligated to make payment for such Margin Calls unless and until the aggregate amount of all Margin Calls is greater than $25,000, at which time Borrower shall be obligated to immediately pay the entire amount of all outstanding Margin Calls. Such amounts paid by Borrower shall reduce, by a corresponding amount, the amount outstanding under the Note. 2.1.18 Section 3.4 of the Loan Agreement is hereby amended in its entirety to provide as follows: 3.4 Margin Credit. If it is determined from any valuation that ninety-six percent (96%) of the Current Market Value of any Uncommitted Mortgage Loan, as determined in accordance with Section 3.2 hereof, exceeds the amount of the Advance against such Uncommitted Mortgage Loan, such amount in excess of the Collateral Value (the "Margin Credit") shall, upon the written request of Borrower submitted pursuant to the terms of this Agreement for an Advance, be payable to Borrower as an additional Advance against such Uncommitted Mortgage Loan, but only (i) if all obligations to be observed or performed by Borrower under this Agreement are complied with and (ii) there is no Margin Call then outstanding and no other required principal payments then due pursuant to the terms of this Agreement. 2.1.19 The second sentence of Section 3.5 of the Loan Agreement is hereby amended in its entirety to provide as follows: In connection with such a redemption, the Lender will, at Borrower's request either (i) transmit or otherwise deliver the Pledged Mortgages to responsible third parties for the purpose of sale or (ii) release such Pledged Mortgages to Borrower for the prompt transmission by Borrower of such Pledged Mortgages to responsible third parties (as determined by Lender) for the purpose of sale. 2.1.20 "Exhibit A" to this Agreement is hereby substituted for Exhibit "A" to the Loan Agreement. 2.1.21 "Exhibit D" to this Agreement is hereby substituted for Exhibit "D" to the Loan Agreement. 2.1.22 In addition to the other provisions of Section 6.3 of the Loan Agreement, (i) within thirty (30) days after the end of each month, Borrower shall deliver to Bank a report in form satisfactory to Bank itemizing the Mortgage Loans of Borrower closed in such month and the Mortgage Loans of Borrower being processed for closing as of the end of such month and containing such other information as Bank may request, (ii) promptly upon the availability thereof, Borrower shall deliver to Bank copies of all reports, filings, disclosures, responses, and other materials filed with or submitted to any regulatory authority (federal, state or local) having regulatory jurisdiction over Borrower's business of making, selling, servicing or otherwise dealing in Mortgage Loans, and (iii) within thirty (30) days after the receipt thereof, Borrower shall deliver to Bank copies of all notices, reports, orders, claims and other information from any such regulatory authority to the extent relating to or affecting such business of Borrower. 2.2 Notwithstanding any other provisions of the Loan Documents and in addition to the requirements thereof, Borrower agrees that (i) the number of Pledged Mortgages that represent Mortgage Loans secured by condominiums, townhouses, zero lot line residences, or other forms of "attached" housing shall never be more than ten percent (10%) of the number of all Pledged Mortgages and (ii) the outstanding principal balance of Uncommitted Mortgage Loans shall never be more than fifteen percent (15%) of the aggregate outstanding principal balance of all Eligible Mortgage Loans. If either of the requirements of the immediately preceding sentence are not satisfied at any time, then (A) Borrower shall not be entitled to any Advances unless and until such requirements are again satisfied and (B) Borrower shall within one (1) business day after demand by Lender prepay the amount of any outstanding Advances against Eligible Mortgage Loans until such requirements are satisfied. 2.3 In addition to all of the other terms and conditions of the Loan Documents, Borrower agrees that Borrower shall not cause or permit, whether voluntarily or involuntarily, any lien, encumbrance, security interest, or other assignment to exist with respect to, or otherwise affect, any of Borrower's Servicing Rights. As used herein, "Servicing Rights" shall mean the rights of Borrower to service Mortgage Loans (including, without limitation, the right to collect payments of principal and interest, receive late charges and other payments, maintain tax and insurance impound and escrow accounts, and to otherwise administer, monitor, and act with respect to Mortgage Loans), whether or not such Mortgage Loans are owned by Borrower, together with all fees, payments, and other amounts received or receivable with respect to such loan servicing and all proceeds of such loan servicing. 2.4 Each of the Loan Documents is modified to provide that it shall be a default or an event of default thereunder if Borrower shall fail to comply with any of the covenants of Borrower herein or if any representation or warranty by Borrower herein or by any guarantor in any related Consent and Agreement of Guarantor(s) is materially incomplete, incorrect, or misleading as of the date hereof or if any "default" or "event of default" shall occur under any other Loan Document. 2.5 Each reference in the Loan Documents to any of the Loan Documents shall be a reference to such document as modified herein. 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL. --------------------------------------------- The Loan Documents are ratified and affirmed by Borrower and shall remain in full force and effect as modified herein. Any property or rights to or interests in property granted as security in the Loan Documents shall remain as security for the Loan and the obligations of Borrower in the Loan Documents. 4. BORROWER REPRESENTATIONS AND WARRANTIES. --------------------------------------- Borrower represents and warrants to Bank: 4.1 No default or event of default under any of the Loan Documents as modified herein, nor any event, that, with the giving of notice or the passage of time or both, would be a default or an event of default under the Loan Documents as modified herein has occurred and is continuing. 4.2 There has been no material adverse change in the financial condition of Borrower or any other person whose financial statement has been delivered to Bank in connection with the Loan from the most recent financial statement received by Bank. 4.3 Each and all representations and warranties of Borrower in the Loan Documents are accurate on the date hereof. 4.4 Borrower has no claims, counterclaims, defenses, or set-offs with respect to the Loan or the Loan Documents as modified herein. 4.5 The Loan Documents as modified herein are the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with their terms. 4.6 Borrower is validly existing under the laws of the State of its formation or organization and has the requisite power and authority to execute and deliver this Agreement and to perform the Loan Documents as modified herein. The execution and delivery of this Agreement and the performance of the Loan Documents as modified herein have been duly authorized by all requisite action by or on behalf of Borrower. This Agreement has been duly executed and delivered on behalf of Borrower. 5. BORROWER COVENANTS. ------------------ Borrower covenants with Bank: 5.1 Borrower shall execute, deliver, and provide to Bank such additional agreements, documents, and instruments as reasonably required by Bank to effectuate the intent of this Agreement. 5.2 Borrower fully, finally, and forever releases and discharges Bank and its successors, assigns, directors, officers, employees, agents, and representatives from any and all actions, causes of action, claims, debts, demands, liabilities, obligations, and suits, of whatever kind or nature, in law or equity, that Borrower has or in the future may have, whether known or unknown, (i) in respect of the Loan, the Loan Documents, or the actions or omissions of Bank in respect of the Loan or the Loan Documents and (ii) arising from events occurring prior to the date of this Agreement. 5.3 Contemporaneously with the execution and delivery of this Agreement, Borrower has paid to Bank: 5.3.1 All accrued and unpaid interest under the Note and all amounts, other than interest and principal, due and payable by Borrower under the Loan Documents as of the date hereof. 5.3.2 All the internal and external costs and expenses incurred by Bank in connection with this Agreement (including, without limitation, inside and outside attorneys, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 5.3.3 An extension fee of $37,500.00, which is fully earned and nonrefundable. 6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK. ------------------------------------------- Bank shall not be bound by this Agreement until each of the following shall have occurred: (i) Bank has executed and delivered this Agreement, (ii) Borrower has performed all of the obligations of Borrower under this Agreement to be performed contemporaneously with the execution and delivery of this Agreement, (iii) each guarantor(s) of the Loan, if any, has executed and delivered to Bank a Consent and Agreement of Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s) have executed and delivered to Bank an arbitration resolution, an environmental questionnaire, and an environmental certification and indemnity agreement. 7. ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. ----------------------------------------------------------- The Loan Documents as modified herein contain the entire understanding and agreement of Borrower and Bank in respect of the Loan and supersede all prior representations, warranties, agreements, arrangements, and understandings. No provision of the Loan Documents as modified herein may be changed, discharged, supplemented, terminated, or waived except in a writing signed by Bank and Borrower. 8. BINDING EFFECT. -------------- The Loan Documents as modified herein shall be binding upon, and inure to the benefit of, Borrower and Bank and their respective successors and assigns. 9. CHOICE OF LAW. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to conflicts of law principles. 10. COUNTERPART EXECUTION. --------------------- This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signature pages may be detached from the counterparts and attached to a single copy of this Agreement to physically form one document. DATED as of the date first above stated. AMERICAN WESTERN MORTGAGE COMPANY, a Colorado corporation By:/s/ Kenda B. Gonzales ----------------------------------- Name: Kenda B. Gonzales --------------------------------- Title: President -------------------------------- "Borrower" BANK ONE, ARIZONA, NA, a national banking association, formerly known as The Valley National Bank of Arizona By:/s/ Rhonda R. Williams ----------------------------------- Name: Rhonda R. Williams --------------------------------- Title: Corporate Officer -------------------------------- "Bank" State of _______________ ) ) ss. County of ______________ ) The above instrument was acknowledged before me this ____ day of ______________, 1994, by _______________________________________________ , the _____________________ of AMERICAN WESTERN MORTGAGE COMPANY, a Colorado corporation, on behalf of the corporation. My commission expires: ______________________ ______________________________ Notary Public State of _______________ ) ) ss. County of ______________ ) The above instrument was acknowledged before me this ____ day of __________, 1994, by _______________________________________________, the ______________ of BANK ONE, ARIZONA, NA, a national banking association, formerly known as The Valley National Bank of Arizona, on behalf of the association. My commission expires: ______________________ ______________________________ Notary Public EXHIBIT A --------- COLLATERAL DOCUMENTS Each Advance Request shall include the following: 1. Mortgage Note. The original Mortgage Note evidencing the indebtedness secured by the applicable Eligible Mortgage Loan, duly executed by the mortgagor to Borrower as payee. 2. Endorsement. A blank endorsement by Borrower of the Mortgage Note, duly executed by Borrower. 3. Mortgage. A copy of the Mortgage securing the Mortgage Note certified by Borrower and by the closing attorney or title company presiding at the closing to be a true and complete copy of the original which is being recorded. The certified copy of the Mortgage must be a photocopy which shows due execution by the individual(s) who has (have) executed the corresponding Mortgage Note. The Mortgage must accurately describe the Mortgage Note which it is intended to secure, and the Mortgage must be prepared in accordance with the local recording requirements. 4. Assignment. A duly executed assignment to Bank of each Mortgage, of the indebtedness secured thereby, and of all documents and rights related to each Mortgage Loan, including the right to any casualty insurance proceeds or condemnation awards. This instrument must accurately describe the Mortgage which it is intended to assign, must be in recordable form, and be otherwise satisfactory to Bank. 5. Commitment for Title Insurance. A commitment for the issuance of an ALTA title insurance loan policy in favor of Borrower and its successors and assigns, in the amount of the original principal balance of the Mortgage Loan. The interim title binder or commitment must obligate the title insurance company to issue a policy insuring that the Mortgage is a valid first lien on the premises described in the Mortgage, and containing all affirmative insurance required by the FHA, VA or the Investor with only exceptions permitted by these parties and Bank. The title binder or commitment must be countersigned by an authorized representative or agent of the applicable title insurance company. 6. Escrow Instructions; Funding Draft. A copy of Borrower's escrow instructions to the title company responsible for closing the Eligible Mortgage Loan, together with a copy of the draft to be presented by such title company in connection with such closing. 7. Appraisal; PMI. With respect to each Mortgage Loan, a copy of the appraisal (or MCC or MCRV, as applicable) and, in the case of conventional loans with a loan-to-value ratio of greater than 80% (or such other percentage above which private mortgage insurance is required pursuant to applicable laws, rules and regulations), copies of the private mortgage insurance certificates. 8. Insurance. Originals or certified copies of all fire and casualty insurance policies, in form and issued by companies reasonably satisfactory to Bank, covering the premises covered by each Mortgage, including, if required by the FHA, private mortgage insurance, or VA, insurance against flood hazards (together with a "flood letter" signed by the borrower under the applicable Mortgage Loan), or a certificate of the insurance underwriter evidencing the same, certifying that such insurance is in full force and effect. The policy must stipulate that losses are payable in favor of Borrower and its assigns. 9. Disclosure and Settlement Statements. Certified copies of all settlement statements (including, without limitation, the HUD-1) and disclosure statements required under the Federal Truth-in-Lending Act and the provisions of Regulation Z of the Federal Reserve Board, and disclosure statements required under the Real Estate Settlement Procedures Act. All disclosure statements must include all the necessary signatures of the involved parties. 10. Purchase Commitment. A certified copy of a letter or agreement executed by the applicable Approved Investor obligating the investor to purchase each Committed Mortgage Loan, together with the price at which each Committed Mortgage Loan is to be purchased and shipping instructions for the delivery of each Committed Mortgage Loan to the Approved Investor. 11. Instruction Letter. A certified copy of the instruction letter from the Borrower to the Approved Investor instructing the Approved Investor to remit the proceeds of the purchase of the Mortgage Loan directly to Bank and otherwise evidencing the transmittal of the Mortgage Loan (or copies of applicable loan documents if the originals have been transmitted to Bank) to the Approved Investor. EXHIBIT D --------- EXAMPLES Example of Interest Credit Computation A. Assumptions: 1. Period: 1/1/90 - 4/1/90 2. Average daily free collected balances for period: $2,000,000 3. Reserve requirements: $250,000 4. Average 90-day T-bill rate for period: 8% 5. FDIC Premiums: $200 6. Other Fees/Charges: $1,000 7. Balance of Loan for period: $10,000,000 B. Computation: 1. Average daily collected balances: $2,000,000 2. (Less: Reserve): (250,000) ---------- 3. Net balances: $1,750,000 4. Earnings @ 7.6% per annum (8% - .4%) for the calendar quarter in question: $33,250 5. (Less: FDIC Premiums and other charges): (1,200) ---------- $ 31,050 $10,000,000 @ 1/2 of 1% per annum for the calendar quarter in question = $ 12,500 Since Interest Credit cannot be greater than 1/2 of 1% per annum on the outstanding Loan for the period in question, the Interest Credit for the calendar quarter in question is: $ 12,500 EX-11 5 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 Continental Homes Holding Corp. Computation of Earnings Per Share (In thousands, except per share data) Three months ended Nine months ended February 28, February 28, --------------- -------------- 1994 1993 1994 1993 ---- ---- ---- ---- Fully diluted: Net income $ 2,727 $ 1,476 $ 9,191 $ 5,061 Interest expense on convertible subordinated notes, net of income taxes 401 415 1,203 1,245 ------- ------- ------- ------- $ 3,128 $ 1,891 $10,394 $ 6,306 ======= ======= ======= ======= Weighted average number of shares outstanding 6,954 5,170 5,947 5,129 Conversion of convertible subordinated notes (42.55 shares per $1,000 principal amount of notes) 1,489 1,489 1,489 1,489 Incremental shares relating to stock options exercisable 98 95 117 103 ------- ------- ------- ------- Weighted average number of shares outstanding assuming full dilution 8,541 6,754 7,553 6,721 ======= ======= ======= ======= Fully diluted net income per share $ .37 $ .28 $ 1.38 $ .94 ======= ======= ======= ======= -----END PRIVACY-ENHANCED MESSAGE-----