-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IwL9vtW8U/WTIK9ltw1MM11iFsYaZwm8Xd1xccIp11g3KhTnkJNHJB2PhviNblkc 2GCr8HzVTG0OYLobzuiyiw== 0000950147-96-000014.txt : 19960116 0000950147-96-000014.hdr.sgml : 19960116 ACCESSION NUMBER: 0000950147-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL HOMES HOLDING CORP CENTRAL INDEX KEY: 0000796122 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 860554624 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10700 FILM NUMBER: 96503226 BUSINESS ADDRESS: STREET 1: 7001 N SCOTTSDALE RD STE 2050 CITY: SCOTTSDALE STATE: AZ ZIP: 85253 BUSINESS PHONE: 6024830006 MAIL ADDRESS: STREET 1: 7001 N SCOTTSDALE ROAD STREET 2: SUITE 2050 CITY: SCOTTSDALE STATE: AZ ZIP: 85253 10-Q 1 FORM 10-Q 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 November 30, 1995 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 December 29, 1995 --------------------- ----------------- $.01 per value 6,958,910 - -------------------------------------------------------------------------------- CONTINENTAL HOMES HOLDING CORP. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1995 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements: Consolidated Balance Sheets as of November 30, 1995 and May 31, 1995.................................................3 Consolidated Statements of Income for the three and six months ended November 30, 1995 and 1994......................4 Consolidated Statements of Cash Flows for the six months ended November 30, 1995 and 1994..........................5 Notes to unaudited Consolidated Financial Statements.......................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................................14 2 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) November 30, May 31, 1995 1995 ------------ ------- ASSETS (In thousands) Homebuilding: Cash and cash equivalents $ 18,745 $ 12,848 Receivables 8,674 10,108 Homes, lots and improvements in production 309,735 291,331 Property and equipment, net 2,472 2,456 Prepaid expenses and other assets 23,533 20,516 Excess of cost over related net assets acquired 12,382 13,400 --------- --------- 375,541 350,659 --------- --------- Mortgage banking: Mortgage loans held for sale 17,756 17,593 Mortgage loans held for long-term investment, net 17,066 17,783 Other assets 931 798 --------- --------- 35,753 36,174 --------- --------- Total assets $ 411,294 $ 386,833 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Homebuilding: Accounts payable and other liabilities $ 47,019 $ 39,405 Notes payable, senior and convertible debt 216,267 198,814 Deferred income taxes 2,742 2,048 --------- --------- 266,028 240,267 --------- --------- Mortgage banking: Notes payable 6,379 16,072 Bonds payable 17,217 17,939 Other 1,114 2,076 --------- --------- 24,710 36,087 --------- --------- Total liabilities 290,738 276,354 --------- --------- 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 shares 71 71 Treasury stock, at cost - 130,685 and 156,130 shares (361) (591) Capital in excess of par value 59,610 59,610 Retained earnings 61,236 51,389 --------- --------- Total stockholders' equity 120,556 110,479 --------- --------- Total liabilities and stockholders' equity $ 411,294 $ 386,833 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated balance sheets. 3 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
Three months ended Six months ended November 30, November 30, ------------------ ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- REVENUES Home sales $ 135,384 $ 96,170 $ 268,330 $ 201,270 Land sales 506 -- 11,267 -- Mortgage banking and title operations 2,481 1,617 4,946 3,483 Other income (loss), net (6) 155 106 232 ----------- ----------- ----------- ----------- Total revenues 138,365 97,942 284,649 204,985 ----------- ----------- ----------- ----------- COSTS AND EXPENSES Homebuilding: Cost of home sales 110,431 79,027 218,857 164,644 Cost of land sales 498 75 11,329 150 Selling, general and administrative expenses 15,072 10,687 30,028 21,805 Interest, net 1,305 1,308 2,454 2,246 Mortgage banking and title operations: Selling, general and administrative expenses 1,652 1,302 3,255 2,741 Interest, net (21) (116) 34 (289) ----------- ----------- ----------- ----------- Total costs and expenses 128,937 92,283 265,957 191,297 ----------- ----------- ----------- ----------- Income before income taxes 9,428 5,659 18,692 13,688 Income taxes 4,113 2,567 8,153 6,080 ----------- ----------- ----------- ----------- Net income $ 5,315 $ 3,092 $ 10,539 $ 7,608 =========== =========== =========== =========== Earnings per common share $ .77 $ .44 $ 1.52 $ 1.09 Earnings per common share assuming full dilution $ .64 $ .41 $ 1.30 $ .99 Cash dividends per share $ .05 $ .05 $ .10 $ .10 Weighted average number of shares outstanding 6,946,666 6,963,341 6,937,117 6,963,054 =========== =========== =========== =========== The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated statements.
4 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended November 30, ----------------- 1995 1994 ---- ---- (In thousands) Cash flows from operating activities: Net income $ 10,539 $ 7,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,649 1,325 Increase (decrease) in deferred income taxes 694 (637) Decrease (increase) in assets Homes, lots and improvements in production (18,404) (45,590) Receivables 2,066 10,512 Prepaid expenses and other assets (894) (6,544) Increase (decrease) in liabilities Accounts payable and other liabilities 6,652 (2,006) -------- -------- Net cash provided (used) by operating activities 2,302 (35,332) -------- -------- Cash flows from investing activities: Net additions of property and equipment (371) (310) Cash paid for Heftler Realty Co., net of cash acquired -- (15,498) -------- -------- Net cash used by investing activities (371) (15,808) -------- -------- Cash flows from financing activities: Increase (decrease) in notes payable to financial institutions (34,008) 38,296 Retirement of bonds payable (789) (2,315) Retirement of Convertible Subordinated Notes (33,250) -- Issuance of Convertible Subordinated Notes 72,475 -- Stock options exercised 230 46 Dividends paid (692) (701) -------- -------- Net cash provided by financing activities 3,966 35,326 -------- -------- Net increase (decrease) in cash 5,897 (15,814) Cash at beginning of period 12,848 28,809 -------- -------- Cash at end of period $ 18,745 $ 12,995 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 4,029 $ 3,502 Income taxes $ 6,495 $ 7,218 Supplemental schedule of non-cash investing and financing activities: On November 18, 1994, the Company acquired Heftler Realty Co. As a result of the acquisition, the Company recorded additional assets of $51,116,000 (primarily homes, lots and improvements in production) and liabilities of $22,616,000 (primarily notes payable to financial institutions). The accompanying notes to consolidated financial statements are an integral part of these unaudited consolidated statements. 5 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, 1995, filed with the Securities and Exchange Commission. The results of operations for the three and six months ended November 30, 1995 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 $8,101,000 and $6,211,000 and expensed as a component of cost of goods sold $7,594,000 and $4,806,000 in the six months ended November 30, 1995 and 1994, respectively. 6 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3. Notes Payable, Senior and Convertible Subordinated Debt Notes payable, senior and convertible subordinated debt for homebuilding consist of: November 30, May 31, 1995 1995 ------------ ------- (In thousands) 12% senior notes, due 1999, net of premium of $1,267 and $1,430 $ 111,267 $ 111,430 6-7/8% convertible subordinated notes, due 2002, net of discount of $-0- and $2,705 (1) 32,655 6-7/8% convertible subordinated notes, due 2002 75,000 -- Notes payable 30,000 54,729 --------- --------- $ 216,267 $ 198,814 ========= ========= - ----------------- (1) On November 30, 1995 the Company deposited funds with the trustee in satisfaction of the 6-7/8% convertible subordinated notes, due 2002. The notes were redeemed on December 11, 1995. In connection with the redemption of the notes, the Company will record, in the third quarter of fiscal 1996, an extraordinary loss, net of taxes of approximately $859,000 due to the write-off of unamortized discount and debt issuance costs. Note 4. Interest, Net The summary of the components of interest, net is as follows: Three months ended Six months ended November 30, November 30, ------------------- ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands) Interest expense, homebuilding ................. $ 1,427 $ 1,367 $ 2,661 $ 2,454 Interest income, homebuilding ................. (122) (59) (207) (208) ------- ------- ------- ------- $ 1,305 $ 1,308 $ 2,454 $ 2,246 ======= ======= ======= ======= Interest expense, mortgage banking ...................... $ 644 $ 532 $ 1,368 $ 1,048 Interest income, mortgage banking ...................... (665) (648) (1,334) (1,337) ------- ------- ------- ------- $ (21) $ (116) $ 34 $ (289) ======= ======= ======= ======= Note 5. Acquisition of Heftler Realty Co. (the "Acquisition") On November 18, 1994, the Company completed the acquisition of 100% of the Common Stock of Heftler Realty Co. ("Heftler"), a Miami, Florida homebuilder, for $29.2 million in cash. The acquisition was accounted for by the purchase method with the 7 results of operations of Heftler included beginning November 1, 1994. The excess of cost over related net assets acquired is being amortized over ten years using the straight-line method. The following unaudited pro forma combined financial data give effect to the Aquisition as if it had occurred on the first day of the period. This pro forma information has been prepared utilizing the historical consolidated financial statements of the Company and Heftler. The pro forma financial data is provided for comparative purposes only and does not purport to be indicative of the results which would have been obtained if the Acquisition had been effected during the period presented. The pro forma financial information is based on the purchase method of accounting for the Acquisition and reflects adjustments to record the profit of acquired inventories, amortize the excess purchase price over the underlying value of net assets acquired, record the additional interest on acquisition indebtedness assumed and adjust income taxes for the pro forma adjustments. Six months ended November 30, 1994 ----------------- (In thousands, except per share data) Total revenues $219,263 Net income 7,283 Earnings per common share 1.05 Earnings per common share assuming full dilution .95 8 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 Six months ended November 30, November 30, --------------- ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- Units delivered 1,028 734 2,057 1,560 Average sales price $ 131,696 $ 131,022 $ 130,447 $ 129,019 Revenue from homes sales (000's) $ 135,384 $ 96,170 $ 268,330 $ 201,270 Percentage increase from prior year 40.8% 9.7% 33.3% 22.3% Change due to volume 40.1% (.5)% 31.9% 10.7% Change due to average sales price .7% 10.2% 1.4% 11.6% The volume increase in the quarter and six months ended November 30, 1995 compared to the same periods during fiscal 1995 resulted from improved sales in each market during the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996. The Company believes that relatively low interest rates and the economic strength in certain of its markets contributed to improved sales. The following table summarizes information related to the Company's backlog at the dates indicated: November 30, ------------------------------------------- (Dollars in thousands) 1995 1994 ---- ---- Units Dollars Units Dollars Phoenix 937 $117,972 617 $ 80,021 Texas 421 46,539 278 30,157 South Florida 116 16,738 109 14,991 Denver 130 27,284 91 16,644 Southern California 88 21,401 50 14,096 -------- -------- -------- -------- Total backlog 1,692 $229,934 1,145 $155,909 ======== ======== ======== ======== Average price per unit $ 136 $ 136 ======== ======== The increase in backlog at November 30, 1995 resulted from improved sales in each individual market during the six months ended November 30, 1995. The aggregate sales value of new contracts signed increased 56% in the six months ended November 30, 1995 as a result of the aforementioned improved sales to $294,769,000 representing 2,256 homes (including $14,317,000 in South Florida representing 103 homes) as compared with $188,771,000 representing 1,437 homes (including $1,133,000 in South Florida representing 7 homes) for the six months ended November 30, 1994. Sales in South Florida were included from November 1, 1994. 9 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 November 30, Six months ended November 30, --------------------------- ----------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Dollars % Dollars % Dollars % Dollars % ------- ---- ------- ---- ------- ---- ------- ---- (Dollars in thousands) Revenue from home sales $135,384 100.0% $ 96,170 100.0% $268,330 100.0% $201,270 100.0% Cost of home sales 110,431 81.6 79,027 82.2 218,857 81.6 164,644 81.8 -------- ----- -------- ----- -------- ----- -------- ----- Gross profit from home sales 24,953 18.4 17,143 17.8 49,473 18.4 36,626 18.2 SG&A expenses 15,072 11.1 10,687 11.1 30,028 11.2 21,805 10.8 -------- ----- -------- ----- -------- ----- -------- ----- Operating income from homebuilding 9,881 7.3 6,456 6.7 19,445 7.2 14,821 7.4 Interest, net 1,305 1.0 1,308 1.4 2,454 .9 2,246 1.1 -------- ----- -------- ----- -------- ----- -------- ----- Pre-tax profit from homebuilding $ 8,576 6.3% $ 5,148 5.3% $ 16,991 6.3% $ 12,575 6.3% ======== ===== ======== ===== ======== ===== ======== =====
Gross profit from homes sales was 18.4% for the three months ended November 30, 1995 compared to 17.8% for the corresponding fiscal 1995 period. Gross profit from home sales was 18.4% for the six months ended November 30, 1995 compared to 18.2% for the six months ended November 30, 1994. In connection with the acquisitions in Texas and South Florida, the Company capitalized a portion of the purchase price and includes such capitalized purchase price in the cost of homes sales when the related units are delivered (purchase accounting adjustments). Gross profits from home sales, exclusive of purchase accounting adjustments were 18.5% and 18.5% for the quarter and six months ended November 30, 1995, respectively, compared to 18.4% and 18.7% for the quarter and six months ended November 30, 1994, respectively. The increase in total SG&A expense for the quarter and six months ended November 30, 1995 compared to the quarter and six months ended November 30, 1994 was due to the addition of the South Florida operations during the second quarter of fiscal 1995. The first six months of fiscal 1996 included $1,485,000 of SG&A expenses from South Florida compared with $362,000 during the first six months of fiscal 1995. Additionally, the Company experienced higher variable marketing costs (sales commissions, advertising and model furniture amortization) due to the increase in the number of homes delivered, higher salaries, and higher customer service costs. SG&A expenses for each home delivered were $14,661 and $14,560 in the second quarter of fiscal 1996 and 1995, respectively and $14,598 and $13,978 in the first six months of fiscal 1996 and 1995, respectively. The Company capitalizes certain SG&A expenses for homebuilding. Accordingly, total SG&A costs incurred for homebuilding were $16,861,000 and $33,841,000 for the three and six months ended November 30, 1995 compared to $12,057,000 and $24,717,000 for the corresponding fiscal 1995 period. 10 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 $5,447,000 and $10,762,000 for the three and six months ended November 30, 1995 respectively compared to $4,356,000 and $8,665,000 for the three and six months ended November 30, 1994, respectively. Interest, net for homebuilding was $1,305,000 and $1,308,000 for the three months ended November 30, 1995 and 1994, respectively. For the six month period ended November 30, 1995, interest, net for homebuilding was $2,454,000 compared with $2,246,000 for the six months ended November 30, 1994. The increase in interest incurred for the quarter and the six months ended November 30, 1995 compared to the same periods of the previous year, was due to higher debt levels which resulted primarily from the Heftler acquisition. The Company's pre-tax profit from homebuilding for the six months ended November 30, 1995 was $16,991,000 compared to $12,575,000 for the corresponding period ended November 30, 1994. Pre-tax profit increased in the first six months of fiscal 1996 due primarily to improved results in Texas and Southern California partially offset by a decline in Phoenix results and the negative impact from the inclusion of South Florida results. South Florida's pre-tax loss was caused by weather related delays in the opening of a new subdivision and delays in the municipalities issuing permits. These delays resulted in fewer deliveries from South Florida through October 1995. Mortgage Banking The Company's mortgage banking operations are conducted through its wholly-owned subsidiary CH Mortgage Company ("CHMC"). The following table summarizes operating information for the Company's mortgage banking operations: Quarters ended Six months ended November 30, November 30, -------------- ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- (Dollars in thousands) Number of loans originated 685 468 1,361 1,016 Loan origination fees $ 641 $ 448 $ 1,286 $ 965 Sale of servicing and marketing gains 1,225 645 2,478 1,445 Other revenue 44 156 205 319 ------- ------- ------- ------- Total revenues 1,910 1,249 3,969 2,729 General and administrative expenses 1,261 1,090 2,696 2,291 ------- ------- ------- ------- Operating income from mortgage banking 649 159 1,273 438 Interest, net (21) (116) 38 (289) ------- ------- ------- ------- Pre-Tax profit from mortgage banking $ 670 $ 275 $ 1,235 $ 727 ======= ======= ======= ======= 11 Revenues and general and administrative expenses from mortgage banking increased in the quarter and six months ended November 30, 1995 primarily as a result of an increase in the percentage of Phoenix and Texas homebuyers utilizing the Company's mortgage banking operations. Additionally, revenues increased due to higher servicing release premiums received on the sale of servicing. The Company sold approximately $47,705,000 in servicing rights from the servicing portfolio, which amount represents the majority of the portfolio, in January 1996. Consolidated Operations Net income was $10,539,000 ($1.52 per share, $1.30 fully diluted) for the six months ended November 30, 1995 compared to $7,608,000 ($1.09 per share, $.99 fully diluted) for the period ended November 30, 1994. 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 November 30, 1995, the Company had unsecured lines of credit from two lenders for aggregate borrowings (excluding mortgage warehouse lines) of up to $20,000,000, guaranteed a $10,000,000 secured line of credit for one of its subsidiaries and, subject to available collateral, a $5,000,000 revolving purchase money line. Additionally, the Company assumed $55 million of credit facilities ($15 million of which are unsecured) in connection with the Texas and Florida acquisitions. At November 30, 1995, there was $30,000,000 outstanding in the aggregate under these credit lines. The Company's revolving lines of credit bear interest at rates ranging from LIBOR plus 2-1/4% 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. CHMC has a warehouse line of credit for $25,000,000 which is guaranteed by the Company. Pursuant to the warehouse line of credit, the Company issues drafts to fund its mortgage loans. The amount represented by a draft is drawn on the warehouse line of credit when the draft is presented for payment. At November 30, 1995, the amount outstanding under the warehouse line of credit and the amount of funding drafts that had not been presented for payment was $6,379,000. The Company believes that this line is sufficient for its mortgage banking operations. On November 18, 1994, the Company acquired all of the outstanding capital stock of Heftler for $29.2 million in cash. 12 On September 19, 1995, the Company entered into an agreement with Kathleen and Robert Wade (the "Wades"), former Co-Chief Executive Officer and President, respectively, whereby the Company has a right to buy and the Wades have the right to sell, from now until January 19, 1996, up to 488,000 shares of the Wades' Continental Homes Holding Corp. Common Stock at $20.50 per share. In January 1996, the Company agreed to allow the Wades to sell a portion of the 488,000 shares at a price per share above $20.50 and to cancel the Company's rights to buy such shares. In consideration therefore, the Wades agreed to cancel their right to sell such shares to the Company and to deliver to the Company 50% of the excess over $20.50 received by the Wades for each share sold. On November 10, 1995, the Company completed the sale of $75,000,000 principal amount of its 6-7/8% Convertible Subordinated Notes due November 2002. On December 5, 1995 the Company sold an additional $11,250,000 of such notes. The net proceeds were used as follows: (i) approximately $33,250,000 was used to redeem the Company's 6-7/8% Convertible Subordinated Notes due March 2002, (ii) approximately $33,156,000 was used to reduce temporarily outstanding amounts under certain of the Company's revolving lines of credit which were incurred for working capital purposes, and (iii) approximately $6,631,000 was used to reduce temporarily outstanding amounts under the Company's warehouse line of credit. In connection with the redemption of the notes, the Company will record, in the third quarter of fiscal 1996, an extraordinary loss, net of taxes of approximately $859,000 due to the write-off of unamortized discount and debt issuance costs. The Convertible Notes are immediately convertible into shares of the Company's common stock at a rate of 42.105 shares for each $1,000 principal amount of Convertible Notes. 13 CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 4.1 Indenture dated as of November 1, 1995 between the Company and Manufacturers and Traders Trust Company, as Trustee. 10.1 Modification Agreement dated as of December 1, 1995 between Bank One, Arizona NA ("BOAZ") and CHMC. 10.2 Amended and Restated Replacement Revolving Line of Credit Promissory Note by CHMC in favor of BOAZ in the principal amount of $25,000,000. 10.3 Sixth Modification Agreement dated November 26, 1995 between BOAZ and Milburn Investments, Inc. 10.4 Amended and Restated Loan Agreement dated November 30, 1995 between BOAZ and the Company. 10.5 Amended and Restated Promissory Note dated November 30, 1995 by the Company in favor of BOAZ in the principal amount of $15,000,000. 11.0 Statement Re Computation of Per Share Earnings. 27.0 Financial Data Schedule. (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended November 30, 1995. 14 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: January 11, 1996 By: /s/ Kenda B. Gonzales --------------------- KENDA B. GONZALES Chief Financial Officer, Secretary and Treasurer Date: January 11, 1996 By: /s/ Donald R. Loback -------------------- DONALD R. LOBACK Chief Executive Officer 15 EXHIBIT INDEX Exhibit Number Description Page (a) Exhibits: 4.1 Indenture dated as of November 1, 1995 between the Company and Manufacturers and Traders Trust Company, as Trustee. 10.1 Modification Agreement dated as of December 1, 1995 between Bank One, Arizona NA ("BOAZ") and CHMC. 10.2 Amended and Restated Replacement Revolving Line of Credit Promissory Note by CHMC in favor of BOAZ in the principal amount of $25,000,000. 10.3 Sixth Modification Agreement dated November 26, 1995 between BOAZ and Milburn Investments, Inc. 10.4 Amended and Restated Loan Agreement dated November 30, 1995 between BOAZ and the Company. 10.5 Amended and Restated Promissory Note dated November 30, 1995 by the Company in favor of BOAZ in the principal amount of $15,000,000. 11.0 Statement Re Computation of Per Share Earnings. 27.0 Financial Data Schedule. 16 EX-4.1 2 INDENTURE EXHIBIT 4.1 --------------------------------------------------------------- CONTINENTAL HOMES HOLDING CORP. AND MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee ------------ Indenture Dated as of November 1, 1995 ------------ $86,250,000 6 7/8% CONVERTIBLE SUBORDINATED NOTES DUE 2002 --------------------------------------------------------------- 17 CROSS-REFERENCE TABLE TIA Indenture Section Section 310(a)(1)....................................... 7.10 (a)(2)...................................... 7.10 (a)(3)...................................... N.A. (a)(4)...................................... N.A. (b) ...................................... 7.08; 7.10; 12.02 (c) ...................................... N.A. 311(a) ....................................... 7.11 (b) ...................................... 7.11 (c) ...................................... N.A. 312(a) ....................................... 2.05 (b) ...................................... 12.03 (c) ...................................... 12.03 313(a) ....................................... 7.06 (b)(1)...................................... N.A. (b)(2)...................................... N.A. (c) ...................................... 7.06; 12.02 (d) ...................................... 7.06 314(a) ....................................... 4.03; 12.02 (b) ...................................... N.A. (c)(1)...................................... 12.04 (c)(2)...................................... 12.04 (c)(3)...................................... N.A. (d) ...................................... N.A. (e) ...................................... 12.05 (f) ...................................... N.A. 315(a) ....................................... 7.01(b) (b) ...................................... 7.05; 12.02 (c) ...................................... 7.01(a) (d) ...................................... 7.01(c) (e) ...................................... 6.11 316(a)(last sentence)........................... 2.09 (a)(1)(A)................................... 6.05 (a)(1)(B)................................... 6.04 (a)(2)...................................... N.A. (b) ...................................... 6.07 (c) ...................................... N.A. 317(a)(1)....................................... 6.08 (a)(2)...................................... 6.09 (b) ...................................... 2.04 318(a) ....................................... 12.01 - ------------- N.A. means Not Applicable. This cross-reference table does not constitute a part of the Indenture. TABLE OF CONTENTS Section Page 18 ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE 1.01. Definitions ............................................................................ 1 1.02. Other Definitions ............................................................................ 3 1.03. Incorporation by Reference of Trust Indenture Act......................................................................... 4 1.04. Rules of Construction ............................................................................ 5 ARTICLE 2 THE SECURITIES 2.01. Form and Dating ............................................................................ 5 2.02. Execution and Authentication ............................................................................ 6 2.03. Registrar, Paying Agent and Conversion Agent ............................................................................ 7 2.04. Paying Agent to Hold Money in Trust ............................................................................ 7 2.05. Securityholder Lists ............................................................................ 8 2.06. Transfer and Exchange ............................................................................ 8 2.07. Replacement Securities ............................................................................ 8 2.08. Outstanding Securities ............................................................................ 9 2.09. Securities Held by the Company or an Affiliate ............................................................................ 9 2.10. Temporary Securities ............................................................................ 10 2.11. Cancellation ............................................................................ 10 2.12. Defaulted Interest ............................................................................ 10 ARTICLE 3 REDEMPTION 3.01. Notices to Trustee and DTC ............................................................................ 11 3.02. Selection of Securities to be Redeemed ............................................................................ 11 3.03. Notice of Redemption ............................................................................ 11 3.04. Effect of Notice of Redemption ............................................................................ 12 3.05. Deposit of Redemption Price 19 ............................................................................ 12 3.06. Securities Redeemed in Part ............................................................................ 13 ARTICLE 4 COVENANTS 4.01. Payment of Securities ............................................................................ 13 4.02. Maintenance of Office or Agency ............................................................................ 13 4.03. SEC Reports ............................................................................ 14 4.04. Compliance Certificate ............................................................................ 14 4.05. Stay, Extension and Usury Laws ............................................................................ 15 4.06. Corporate Existence ............................................................................ 15 4.07. Notice of Default ............................................................................ 15 4.08. Change in Control ............................................................................ 15 ARTICLE 5 SUCCESSORS 5.01. When Company May Merge, etc. ............................................................................ 19 5.02. Successor Substituted ............................................................................ 20 ARTICLE 6 DEFAULTS AND REMEDIES 6.01. Events of Default ............................................................................ 20 6.02. Acceleration ............................................................................ 22 6.03. Other Remedies ............................................................................ 23 6.04. Waiver of Past Defaults ............................................................................ 23 6.05. Control by Majority ............................................................................ 23 6.06. Limitation on Suits ............................................................................ 23 6.07. Rights of Holders to Receive Payment ............................................................................ 24 6.08. Collection Suit by Trustee ............................................................................ 24 6.09. Trustee May File Proofs of Claim ............................................................................ 24 6.10. Priorities ............................................................................ 25 20 6.11. Undertaking for Costs ............................................................................ 25 ARTICLE 7 TRUSTEE 7.01. Duties of Trustee ............................................................................ 26 7.02. Rights of Trustee ............................................................................ 27 7.03. Individual Rights of Trustee ............................................................................ 27 7.04. Trustee's Disclaimer ............................................................................ 28 7.05. Notice of Defaults ............................................................................ 28 7.06. Reports by Trustee to Holders ............................................................................ 28 7.07. Compensation and Indemnity ............................................................................ 28 7.08. Replacement of Trustee ............................................................................ 29 7.09. Successor Trustee by Merger, etc. ............................................................................ 30 7.10. Eligibility; Disqualification ............................................................................ 30 7.11. Preferential Collection of Claims Against Company ............................................................................ 31 ARTICLE 8 DISCHARGE OF INDENTURE 8.01. Termination of Company's Obligations ............................................................................ 31 8.02. Application of Trust Money ............................................................................ 32 8.03. Repayment to Company ............................................................................ 32 8.04. Reinstatement ............................................................................ 33 ARTICLE 9 AMENDMENTS 9.01. Without Consent of Holders ............................................................................ 33 9.02. With Consent of Holders ............................................................................ 34 9.03. Compliance with Trust Indenture Act ............................................................................ 35 9.04. Revocation and Effect of Consents ............................................................................ 35 9.05. Notation on or Exchange of Securities ............................................................................ 35 21 9.06. Trustee Protected ............................................................................ 36 ARTICLE 10 CONVERSION 10.01. Conversion Privilege ............................................................................ 36 10.02. Conversion Procedure ............................................................................ 36 10.03. Fractional Shares ............................................................................ 37 10.04. Taxes on Conversion ............................................................................ 38 10.05. Company to Provide Stock ............................................................................ 38 10.06. Adjustment for Change in Capital Stock ............................................................................ 38 10.07. Adjustment for Shares Issued Below Market Price ............................................................................ 39 10.08. Adjustment for Other Distributions ............................................................................ 42 10.09. Adjustment for Cash Distributions ............................................................................ 43 10.10. Adjustment for Tender Offers ............................................................................ 44 10.11. Voluntary Adjustment ............................................................................ 45 10.12. Current Market Price ............................................................................ 45 10.13. When Adjustment May be Deferred ............................................................................ 45 10.14. When No Adjustment Required ............................................................................ 45 10.15. Notice of Adjustment ............................................................................ 46 10.16. Notice of Certain Transactions ............................................................................ 46 10.17. Reorganization of the Company ............................................................................ 47 10.18. Rights and Warrants ............................................................................ 47 10.19. Company Determination Final ............................................................................ 48 10.20. Trustee's Disclaimer ............................................................................ 48 ARTICLE 11 SUBORDINATION 11.01. Agreement to Subordinate ............................................................................ 48 11.02. Certain Definitions ............................................................................ 49 22 11.03. Liquidation; Dissolution; Bankruptcy ............................................................................ 49 11.04. Company Not to Make Payments with Respect to Securities in Certain Circumstances ............................................................................ 50 11.05. Acceleration of Securities ............................................................................ 51 11.06. When Distribution Must be Paid Over ............................................................................ 51 11.07. Notice by Company ............................................................................ 51 11.08. Subrogation ............................................................................ 52 11.09. Subordination May Not be Impaired by Company ............................................................................ 52 11.10. Distribution or Notice to Representative ............................................................................ 52 11.11. Rights of Trustee and Paying Agent ............................................................................ 52 11.12. Officers' Certificate ............................................................................ 53 11.13. Obligation of Company Unconditional ............................................................................ 53 ARTICLE 12 MISCELLANEOUS 12.01. Trust Indenture Act Controls ............................................................................ 54 12.02. Notices ............................................................................ 54 12.03. Communication by Holders with Other Holders ............................................................................ 55 12.04. Certificate and Opinion as to Conditions Precedent ............................................................................ 56 12.05. Statements Required in Certificate or Opinion ............................................................................ 56 12.06. Rules by Trustee and Agents ............................................................................ 57 12.07. Legal Holidays ............................................................................ 57 12.08. No Recourse Against Others ............................................................................ 57 12.09. Duplicate Originals ............................................................................ 57 12.10. Governing Law ............................................................................ 57 12.11. No Adverse Interpretation of Other Agreements ............................................................................ 57 12.12. Successors 23 ............................................................................ 58 12.13. Separability ............................................................................ 58 12.14. Table of Contents, Headings, etc. ............................................................................ 58 SIGNATURES ............................................................................ 59 EXHIBIT A-FORM OF SECURITY ............................................................................ A-1 24 INDENTURE dated as of November 1, 1995, between CONTINENTAL HOMES HOLDING CORP., a Delaware corporation (the "Company"), and MANUFACTURERS AND TRADERS TRUST COMPANY, a duly organized and existing banking corporation organized under the laws of the State of New York, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 6 7/8% Convertible Subordinated Notes due 2002 (the "Securities"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Affiliate" means any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For this purpose, "control" shall mean the power to direct the management and policies of a person through the ownership of securities, by contract or otherwise. "Agent" means any Registrar, Paying Agent, Conversion Agent or co-Registrar. "Board of Directors" means the Board of Directors of the Company or any committee of the Board authorized to act for it hereunder. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of the Company and all warrants or options to acquire such capital stock. "Common Stock" means the Common Stock, par value $.01 per share, of the Company or any security into which the Common Stock may be converted. "Company" means the party named as such above and any other obligor until a successor replaces it pursuant to the applicable provision hereof and thereafter means such successor. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 or such other address as the Trustee may give notice of to the Company. "DTC" means The Depositary Trust Company. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "High and Low Sale Prices" of the Common Stock on any trading day means the average of the high and low sale price of the Common Stock as reported on the Composite Tape for New York Stock Exchange-Listed Stocks (or if not listed or admitted to trading on the New York Stock Exchange, then on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, then as reported by the National Association of Securities Dealers, Inc., through NASDAQ or a similar organization if NASDAQ is no longer reporting information) on such trading day or if no such sale takes place on such day, the average of the highest bid and lowest asked prices regular way on the New York Stock Exchange (or if not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, the average of the highest bid and lowest asked prices as reported by the National Association of Securities Dealers, Inc., through NASDAQ or a similar organization if NASDAQ is no longer reporting information) on such trading day. If on such trading day the Common Stock is not quoted by any such organization, the fair market value of such Common Stock on such day, as determined by the Board of Directors, shall be used. "Holder" or "Securityholder" means a person in whose name a Security is registered on the Registrar's books. "Indenture" means this Indenture as amended from time to time. "Officer" means the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel for the Company or other counsel reasonably acceptable to the Trustee. "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "principal" of a debt security means the principal of the security plus the premium, if any, on the security. "SEC" means the Securities and Exchange Commission. "Securities" means the Securities described above issued under this Indenture. "subsidiary" means (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more subsidiaries thereof or (ii) any other person (other than a corporation) in which the Company, one or more subsidiaries thereof or the Company and one or more subsidiaries thereof, directly or indirectly, at the date of determination thereof have at least majority ownership interest. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code {{ 77aaa-77bbbb), as in effect on the date of this Indenture, except as provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it and thereafter means the successor. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer its corporate trust matters. SECTION 1.02. Other Definitions. Term Defined in Section "Bankruptcy Law" ......................... 6.01 "business day" ........................... 12.07 "Change in Control" ...................... 4.08 "Conversion Agent" ....................... 2.03 "Conversion Price ........................ 4.08 "Conversion Shares" ...................... 10.18 "Custodian" .............................. 6.01 "Distribution Date" ...................... 10.18 "Event of Default" ....................... 6.01 "Exchange Act" ........................... 4.03 "Expiration Time" ........................ 10.10 "Legal Holiday ........................... 12.07 "Management Group" ....................... 4.08 "NASDAQ" ................................. 10.03 "NMS" .................................... 10.03 "Offer" .................................. 10.10 "Paying Agent" ........................... 2.03 "Purchased Shares" ....................... 10.10 "Registrar ............................... 2.03 "Representative" ......................... 11.02 "Repurchase Date" ........................ 4.08 "Repurchase Price" ....................... 4.08 "Repurchase Right" ....................... 4.08 "Repurchase Right Notice" ................ 4.08 "Senior Indebtedness" .................... 11.02 "U.S. Government Obligations" ............ 8.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act._____________________ Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the form set forth in Exhibit A, which is incorporated in and forms a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. SECTION 2.02. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of up to $75,000,000, upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company; provided that if such order directs the issuance of $75,000,000 in aggregate principal amount of Securities, the Trustee shall, upon a second written order dated not later than December 6, 1995, authenticate additional Securities for original issue not to exceed $11,250,000 in aggregate principal amount as specified in the second order to cover over-allotments, if any. Each order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed the amount of Securities issued pursuant to this paragraph except as provided in Section 2.07. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar, Paying Agent and Conversion Agent.__________ The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint or change one or more co-registrars, one or more additional paying agents and one or more additional conversion agents without notice and may act in any such capacity on its own behalf. The term "Paying Agent" includes any additional paying agent; the term "Conversion Agent" includes any additional conversion agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Paying Agent, Registrar and Conversion Agent. SECTION 2.04. Paying Agent to Hold Money in Trust._______________________ Each Paying Agent shall hold in trust for the benefit of the Securityholders or the Trustee all moneys held by such Paying Agent for the payment of principal of or interest on the Securities, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, such Paying Agent shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold as a separate trust fund all money held by it as Paying Agent. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. Where Securities are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange if the requirements of Section 8-401(1) of the New York Uniform Commercial Code are met. To permit registrations of transfer and exchanges, the Trustee shall authenticate Securities at the Registrar's request. The Company or the Trustee, as the case may be, shall not be required (a) to issue, authenticate, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.02 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption, in whole or in part, except the unredeemed portion of Securities being redeemed in part. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer, registration of transfer or exchange of Securities, other than exchanges pursuant to Section 2.10, 3.06, 9.05 or 10.02 not involving any transfer. SECTION 2.07. Replacement Securities. If the Holder of a Security claims that the Security has been mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the New York Uniform Commercial Code are met and, in the case of a mutilated Security, such mutilated Security is surrendered to the Trustee. If required by the Trustee or the Company, an indemnity bond must be sufficient in the judgment of both to protect the Company, the Trustee, or any Agent from any loss which any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. In case any such mutilated, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security when due. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. Securities outstanding at any time are all the Securities authenticated by the Trustee except for those converted, those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or one of its subsidiaries or Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it, or a court holds, that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds on a redemption date, repurchase date or maturity date money sufficient to pay Securities payable on that date, then on and after that date, such Securities shall be deemed to be no longer outstanding and interest on them shall cease to accrue. SECTION 2.09. Securities Held by the Company or an Affiliate. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or a subsidiary or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee actually knows are so owned shall be so disregarded. SECTION 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, payment or conversion. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, conversion or cancellation and may destroy cancelled Securities and deliver a certificate of any such destruction to the Company. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation or that any Securityholder has converted pursuant to Article 10. SECTION 2.12. Defaulted Interest. If and to the extent the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent not prohibited by applicable statute or case law, interest payable on the defaulted interest. It may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix such record date and payment date. At least 15 days before the record date, the Company shall mail to Securityholders a notice that states the record date, payment date and amount of interest to be paid. ARTICLE 3 REDEMPTION SECTION 3.01. Notices to Trustee and DTC. If the Company wants to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee at least 20 days prior to the redemption date (unless a shorter notice period shall be satisfactory to the Trustee) of the redemption date and the principal amount of Securities to be redeemed. If the Company wants to redeem Securities pursuant to paragraph 5 of the Securities and DTC is a Securityholder, the Company shall notify DTC at least 30 days prior to the redemption date if the operational arrangements of DTC in effect at the time of any such redemption require such notice period. SECTION 3.02. Selection of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot or such other method as the Trustee shall deem fair and equitable, but in any event, in such manner as complies with applicable legal and stock exchange requirements. The Trustee shall make the selection from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them it selects shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. Notice of Redemption. At least 15 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the principal amount thereof to be redeemed and shall state: (1) the redemption date; (2) the redemption price (including the amount of accrued and unpaid interest to be paid on the Securities called for redemption); (3) the then current conversion rate; (4) the name and address of the Paying Agent and Conversion Agent; (5) that the right to convert Securities called for redemption shall terminate at the close of business on the second business day before the redemption date; (6) that Holders who want to convert Securities must satisfy the requirements in paragraph 8 of the Securities; (7) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (8) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and (9) the CUSIP number of the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. SECTION 3.04. Effect of Notice of Redemption. Once a notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price and, on and after such date (unless the Company shall default in the payment of the redemption price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to the redemption date. SECTION 3.05. Deposit of Redemption Price. On or before 10:00 a.m. on the redemption date, the Company shall deposit with the Paying Agent money in funds immediately available on the redemption date sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Paying Agent shall return to the Company, as soon as practicable, any money not required for that purpose because of conversion of Securities. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. If any Security selected for partial redemption is converted in part, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities. The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities. Principal and interest shall be considered paid on the date due if the Paying Agent holds on that date money sufficient to pay all principal and interest then due. The Company shall pay interest on overdue principal at the rate borne by the Securities. The Company shall pay interest on overdue installments of interest at the same rate to the extent not prohibited by applicable statute or case law. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee in the Borough of Manhattan, the City of New York, an agency of the Company in accordance with Section 2.03. SECTION 4.03. SEC Reports. The Company shall file with the Trustee within 15 days after it files them with the SEC copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company also shall comply with the other provisions of TIA { 314(a). So long as the Securities remain outstanding, the Company shall cause its annual reports to shareholders and any other financial reports furnished by it to shareholders generally to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. SECTION 4.04. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating whether or not the signatories know of any Default by the Company in performing any of its obligations under this Indenture or the Securities. If they do know of any such Default, the certificate shall describe the Default and its status. SECTION 4.05. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.06. Corporate Existence. Subject to Article 5, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each subsidiary in accordance with the respective organizational documents of each subsidiary and the rights (charter and statutory), licenses and franchises to the Company and its subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any subsidiary, if in the judgment of the Board of Directors of the Company, (i) such preservation or existence is not material to the conduct of business of the Company and (ii) the loss of such right, license or franchise or the dissolution of such subsidiary does not have a material adverse impact on the Holders. SECTION 4.07. Notice of Default. In the event that any Default under Section 6.01 hereof shall occur, the Company will give prompt written notice of such Default to the Trustee. SECTION 4.08. Change in Control. (a) In the event that there shall occur a Change in Control (as defined below) of the Company, each Holder of a Security shall have the right (the "Repurchase Right") upon receipt of a Repurchase Right Notice (as defined below), at such Holder's option, to require the Company to repurchase any Security of such Holder or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 days after the date of the Repurchase Right Notice, or, if such 45th day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, unless otherwise required by applicable law, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the Repurchase Date (the "Repurchase Price"). The right to require the repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8. (b) Within 30 days after the occurrence of a Change in Control, the Company, or, at the request of the Company, the Trustee, shall give notice of the occurrence of the Change in Control and of the Repurchase Right set forth herein to each Holder (the "Repurchase Right Notice"). The Company shall also deliver a copy of the Repurchase Right Notice to the Trustee. Any such notice shall contain all instructions and materials necessary to enable such Holders to deliver Securities pursuant to the Repurchase Right including, without limitation, the following: (1) the Repurchase Date; (2) the date by which the Repurchase Right must be exercised; (3) the Repurchase Price; (4) that Securities are to be surrendered for payment of the Repurchase Price; (5) that the exercise of the Repurchase Right is irrevocable, except that Holders who elect to exercise the Repurchase Right will retain the right to convert Securities submitted for repurchase until the close of business on the second business day before the Repurchase Date; and (6) the then existing Conversion Rate for conversion of Securities, the date on which the right to convert the principal of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion. (c) To exercise a Repurchase Right, a Holder shall deliver to the Company (if it is acting as its own Paying Agent) or to a Paying Agent designated by the Company for such purpose in the notice referred to above on or before the 30th day after the date of the Repurchase Right Notice, or, if such day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of Securities (or portions thereof) to be repurchased, a statement that an election to exercise the Repurchase Right is being made thereby and (ii) the Securities with respect to which the Repurchase Right is being exercised, duly endorsed for transfer to the Company, and the Holder of such Securities shall be entitled to receive from the Company (if it is acting as its own Paying Agent) or such Paying Agent a nontransferable receipt of deposit evidencing such deposit. Such written notice shall be irrevocable, except as provided in Section 4.08(b) above. If the Repurchase Date is between a regular record date for the payment of interest and the next succeeding interest payment date, any Security to be repurchased must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount to be repurchased (unless such Security shall have been called for redemption, in which case no such payment shall be required), and the interest on the principal amount of the Security being repurchased will be paid on such next succeeding interest payment date to the registered holder of such Security on the immediately preceding record date. A Security repurchased on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Security being repurchased will be paid on such interest payment date to the registered holder of such Security on the immediately preceding record date. (d) In the event a Repurchase Right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the applicable Repurchase Price with respect to the Securities as to which the Repurchase Right shall have been exercised to the Holder on the Repurchase Date. (e) Prior to a Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust in accordance with Section 2.04) an amount of money sufficient to pay the Repurchase Price payable in respect of all of the Securities which are to be repurchased on that date. If any Security submitted for repurchase is converted prior to the repurchase thereof, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security shall be paid to the Company on its request, or, if then held by the Company, shall be discharged from such trust. (f) Both the notice of the Company and the notice of the Holder having been given as specified in this Section 4.08, the Securities so to be repurchased shall, on the Repurchase Date, become due and payable at the Repurchase Price applicable thereto and from and after such date (unless the Company shall default in the payment of the Repurchase Price) such Securities shall cease to bear interest. Upon surrender of any such Security for repurchase in accordance with said notice, such Security shall be paid by the Company at the Repurchase Price. If any Security shall not be paid upon surrender thereof for repurchase, the principal and premium, if any, shall, until paid, bear interest from the Repurchase Date at the rate borne by such Security. (g) Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to this Section 4.08 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without any service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, of the same tenor and in aggregate principal amount equal to and in exchange for the portion of the principal of such Security not submitted for repurchase. (h) If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. (i) As used in this Section 4.08: A "Change in Control" of the Company shall be deemed to have occurred at such time as any person, together with its affiliates or associates, other than the Management Group (as defined below) is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote in elections of directors; provided that a Change in Control shall not be deemed to have occurred if either (i) the last sale price of the Common Stock for any five trading days during the ten trading days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price in effect on the day of the Change in Control or (ii) all of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Change in Control consists of shares of common stock traded on a national securities exchange or through NASDAQ or another comparable quotation system. "Beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the execution of this Indenture, promulgated by the Securities and Exchange Commission under the Exchange Act. The "Management Group" shall consist of the executive officers of the Company as of the date hereof, members of their immediate families, certain trusts for their benefit, and legal representatives of, or heirs, beneficiaries or legatees receiving Common Stock under, any such person's estate. "Conversion Price" shall be deemed to equal $1,000 divided by the conversion rate on the date of calculation. ARTICLE 5 SUCCESSORS SECTION 5.01. When Company May Merge, etc. The Company shall not consolidate with or merge into, or directly or indirectly transfer or lease all or substantially all of its assets to, any person unless: (1) the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale or conveyance shall have been made, is a person organized and existing under the laws of the United States, any State thereof or the District of Columbia; (2) the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale or conveyance shall have been made, assumes by supplemental indenture all the obligations of the Company under the Securities and this Indenture; and (3) immediately after giving effect to such transaction no Default or Event of Default exists. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. SECTION 5.02. Successor Substituted. Upon any consolidation or merger or transfer or lease of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor person formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. When the successor corporation assumes all obligations of the Company hereunder, all obligations of the predecessor corporation shall terminate. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on any Security when the same becomes due and payable and the default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article 11 hereof; (2) the Company defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon acceleration or otherwise, whether or not such payment shall be prohibited by the provisions of Article 11 hereof; (3) the Company fails to comply with any of its other agreements in the Securities or this Indenture and the default continues for the period and after the notice specified below; (4) an event of default shall have occurred and be continuing under any security or other evidence of indebtedness of the Company or any of its subsidiaries whether such indebtedness now exists or shall be created hereafter, which event of default results in an acceleration of a principal amount of such indebtedness which, together with any such other indebtedness so accelerated, aggregates more than $10,000,000, and such acceleration is not waived or rescinded or such indebtedness, paid or discharged within a period and after the notice specified below; (5) a final judgment or judgments for the payment of money in excess of $10,000,000 in the aggregate are rendered against the Company and such judgment or judgments remain unstayed, unsatisfied or undischarged for the period and after the notice specified below; (6) the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case, (B) appoints a Custodian of the Company for all or substantially all of its property, or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. A default under clause (3), (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the Securities notify the Company of the default and the Company does not cure the default within 60 days with respect to clause (3) or (5), and within 30 days with respect to clause (4), after receipt of the notice. The notice must specify the default, demand that it be remedied and state that the notice is a "Notice of Default". If the Holders of 25% in principal amount of the outstanding Securities request the Trustee to give such notice on their behalf, the Trustee shall do so. The Trustee shall not be deemed to have notice of any Default hereunder unless it shall have actual knowledge of such Default or it shall have received written notice thereof making specific reference to such Default as a Default. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued interest on all the Securities to be due and payable. Upon such declaration such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(6) or (7) occurs, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. SECTION 6.03. Other Remedies. Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.07 and 9.02, the Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences. When a Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. Except as provided in Section 6.07, a Securityholder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to institute proceedings in respect of such Event of Default; (3) such Holder or Holders offer to the Trustee reasonable indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to bring suit for the enforcement of the right to convert the Security shall not be impaired or affected without the consent of the Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, any predecessor Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of the Securities any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of the Securities in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to holders of Senior Indebtedness to the extent required by Article 11; Third: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Fourth: to the Company. The Trustee may fix a record date and payment date for any payment by it to Securityholders pursuant to this Section. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit other than the Trustee of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error ofjudgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Certificate or Opinion. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate thereof with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities; it shall not be accountable for the Company's use of the proceeds from the Securities; and it shall not be responsible for any statement in the Securities other than its certificate of authentication. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and if it is actually known to the Trustee or the Trustee has received written notice thereof, the Trustee shall mail to each Securityholder a notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. If required by TIA { 313(a), within 60 days after each May 1 beginning with May 1, 1996, the Trustee shall mail to each Securityholder as required by TIA { 313(c) a brief report dated as of such date that complies with TIA { 313(a). The Trustee also shall comply with TIA { 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed by the Trustee with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its services as shall be agreed upon in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any loss or liability (including the fees and expenses of counsel) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Company need not pay for any settlement made without its consent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnification. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through the Trustee's negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. SECTION 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA { 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA { 310(b). SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA { 311(a), excluding any creditor relationship listed in TIA { 311(b). A Trustee who has resigned or been removed shall be subject to TIA { 311(a) to the extent indicated. ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations. The Company may terminate all of its obligations under this Indenture if all Securities previously authenticated and delivered (other than mutilated, destroyed, lost or stolen Securities which have been replaced or paid) have been delivered to the Trustee for cancellation or if: (1) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption; (2) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations sufficient to pay principal of and interest on the Securities to maturity or redemption, as the case may be. Immediately after making the deposit, the Company shall give notice of such event to the Securityholders; (3) the Company has paid or caused to be paid all sums then payable by the Company to the Trustee hereunder as of the date of such deposit; and (4) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. The Company may make the deposit only during the one-year period and only if Article 11 permits it. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 7.07, 7.08 and 8.03, and in Article 10, shall survive until the Securities are no longer outstanding. Thereafter the Company's obligations in Sections 7.07 and 8.03 shall survive. After a deposit pursuant to this Section 8.01, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal or interest on the Securities, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. "U.S. Government Obligations" means direct non- callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. SECTION 8.02. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to the subordination provisions of Article 11. SECTION 8.03. Repayment to Company. The Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once in a newspaper of general circulation in The City of New York or cause to be mailed to each Holder, notice stating that such money remains and that, after a date specified therein, which shall not be less than 30 days form the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Securityholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. SECTION 8.04. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01; provided, however, that if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders. The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to or the consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Sections 5.01 and 10.17; (3) to provide for uncertificated Securities in addition to certificated Securities; or (4) to make any change that does not materially adversely affect the rights of any Securityholder. SECTION 9.02. With Consent of Holders. The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. Subject to Section 6.07, the Holders of a majority in principal amount of the Securities then outstanding may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any Securityholder. However, without the consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or change the time for payment of interest on any Security; (3) reduce the principal of or change the fixed maturity of any Security (including, without limitation, the optional redemption provisions, but excluding Section 4.08); (4) waive a default in the payment of principal of or interest on any Security; (5) make any Security payable in money other than that stated in the Security; (6) make any change in Section 6.04, Section 6.07 or Section 9.02; or (7) make any change that adversely affects the right to convert any Security, including decreasing the conversion rate of any Security (except as such rate may be decreased pursuant to the provisions of Article Ten hereof). Promptly after an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing the amendment. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Securityholder. After an amendment, supplement or waiver becomes effective with respect to the Securities, it shall bind every Securityholder unless it makes a change described in any of clauses (1) through (7) of Section 9.02. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and, provided that notice of such amendment, supplement or waiver is reflected on a Security that evidences the same debt as the consenting Holder's Security, every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 9.05. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.06. Trustee Protected. The Trustee need not sign any amendment, supplement or waiver authorized pursuant to this Article that adversely affects the Trustee's rights. The Trustee shall be entitled to receive and rely upon an Opinion of Counsel and an Officers' Certificate that any supplemental indenture complies with the Indenture. ARTICLE 10 CONVERSION SECTION 10.01. Conversion Privilege. A Holder of a Security may convert it into Common Stock at any time during the period stated in paragraph 8 of the Securities. The initial conversion rate is stated in paragraph 8 of the Securities. The conversion rate is subject to adjustment in accordance with Sections 10.06 through 10.14. A Holder may convert a portion of a Security if the portion is $1,000 or integral multiples thereof. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of it. SECTION 10.02. Conversion Procedure. To convert a Security a Holder must satisfy the requirements in paragraph 8 of the Securities. The date on which the Holder satisfies all those requirements is the conversion date. As soon as practicable, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of full shares of Common Stock issuable upon the conversion and a check in lieu of any fractional share. The person in whose name the certificate is registered shall be treated as a stockholder of record on and after the conversion date. If any Security is converted between the record date for the payment of interest and the next succeeding interest payment date, such Security must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted (unless such Security shall have been called for redemption, in which case no such payment shall be required). A Security converted on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Security being converted will be paid on such interest payment date to the registered Holder of such Security on the immediately preceding record date. Subject to the aforesaid right of the registered Holder to receive interest, no payment or adjustment will be made on conversion for interest accrued on the converted Security or for dividends on the Common Stock issued upon conversion. If a Holder converts more than one Security at the same time, the number of full shares issuable upon the conversion shall be based on the total principal amount of the Securities converted. Upon surrender of a Security that is converted in part the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unconverted portion of the Security surrendered. If the last day on which a Security may be converted is a Legal Holiday in a place where a Conversion Agent is located, the Security may be surrendered to that Conversion Agent on the next succeeding day that is not a Legal Holiday. SECTION 10.03. Fractional Shares. The Company will not issue a fractional share of Common Stock upon conversion of a Security. Instead the Company will deliver its check for the market value of a fractional share. The market value of a fraction of a share is determined as follows: Multiply the market price of a full share by the fraction and round the result to the nearest cent. The market price of a share of Common Stock for the purposes of Section 10.03 is the last reported sale price of a share of Common Stock on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or on the National Association of Securities Dealers National Market System ("NMS") on the business day next preceding the date of conversion, or, if the Common Stock is not then listed on an exchange, the closing sale price (or the quoted closing bid price if there were no sales) as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") on the business day next preceding the date of conversion. In the absence of one or more such quotations, the Board of Directors shall determine the current market price on the basis of such quotations as it considers appropriate. SECTION 10.04. Taxes on Conversion. If a Holder of a Security converts it, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than the Holder's name. SECTION 10.05. Company to Provide Stock. The Company shall reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of all of the Securities. All shares of Common Stock which may be issued upon conversion of the Securities shall be validly issued, fully paid and non-assessable. The Company will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities and will endeavor to list such shares on each national securities exchange on which the Common Stock is listed. SECTION 10.06. Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Capital Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; or (4) issues by reclassification of its Common Stock any shares of its Capital Stock, then the conversion privilege and the conversion rate in effect immediately prior to such action shall be adjusted so that the Holder of a Security thereafter converted may receive the number of shares of Capital Stock of the Company which he would have owned immediately following such action if he had converted the Security immediately prior to such action. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment a Holder of a Security may, upon conversion, receive shares of two or more classes of Capital Stock of the Company, the Board of Directors shall determine the allocation of the adjusted conversion rate between or among the classes of Capital Stock. After such allocation, the conversion privilege and the conversion rate of each class of Capital Stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Article 10. SECTION 10.07. Adjustment for Shares Issued Below Market Price. If the Company issues to all holders of Common Stock shares of Common Stock or rights, options or warrants to subscribe for or purchase shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock, or rights, options or warrants to subscribe for or purchase such convertible or exchangeable securities (excluding shares of Common Stock, rights, options, warrants therefor or convertible or exchangeable securities or rights, options, or warrants therefor issued in transactions described in Section 10.06) at a Price Per Share (as defined and determined according to the formula given below) lower than the current market price (see Section 10.12) on the date of such issuance, the conversion rate shall be adjusted in accordance with the following formula: AC = CC x O + N______ O + (N x R) M where: AC = the adjusted conversion rate. CC = the then current conversion rate. O = the number of shares of Common Stock outstanding immediately prior to such issuance. N = the "Number of Shares," which (i) in the case of shares of Common Stock is the number of shares issued; (ii) in the case of rights, options or warrants to subscribe for or purchase shares of Common Stock or of securities convertible into or exchangeable for shares of Common Stock, is the maximum number of shares of Common Stock initially issuable upon exercise, conversion or exchange thereof; and (iii) in the case of rights, options or warrants to subscribe for or purchase convertible or exchangeable securities, is the maximum number of shares of Common Stock initially issuable upon the conversion or exchange of the convertible or exchangeable securities issuable upon the exercise of such rights, options or warrants. R = the proceeds received or receivable by the Company, which (i) in the case of shares of Common Stock is the total amount received or receivable by the Company in consideration for the sale and issuance of the shares; (ii) in the case of rights, options or warrants to subscribe for or purchase shares of Common Stock or of securities convertible into or exchangeable for shares of Common Stock, is the total amount received or receivable by the Company in consideration for the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the minimum aggregate amount of additional consideration, other than the convertible or exchangeable securities, payable to the Company upon exercise, conversion or exchange thereof; and (iii) in the case of rights, options or warrants to subscribe for or purchase convertible or exchangeable securities, is the total amount received or receivable by the Company in consideration for the sale and issuance of such rights, options or warrants, plus the minimum aggregate consideration payable to the Company upon the exercise thereof, plus the minimum aggregate amount of additional consideration, other than the convertible or exchangeable securities, payable upon the conversion or exchange of the convertible or exchangeable securities; provided that in each case the proceeds received or receivable by the Company shall be deemed to be the amount of gross cash proceeds without deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or any expenses incurred in connection therewith. M = the current market price per share of Common Stock (see Section 10.12) on the date of issue of the shares of Common Stock or the rights, options or warrants to subscribe for or purchase shares of Common Stock or the securities convertible into or exchangeable for shares of Common Stock or the rights, options or warrants to subscribe for or purchase convertible or exchangeable securities. "Price Per Share" shall be defined and determined according to the following formula: P = R N where: P = Price Per Share. R and N have the meanings assigned above. If the Company shall issue shares of Common Stock or rights, options, warrants or convertible or exchangeable securities for a consideration consisting, in whole or in part, of property other than cash, the amount of such consideration shall be determined in good faith by the Board of Directors whose determination shall be conclusive and evidenced by a resolution of the Board of Directors filed with the Trustee. The adjustment shall be made successively whenever any such additional shares of Common Stock or such rights, options, warrants or convertible or exchangeable securities are issued, and shall become effective immediately after the date of issue of such shares, rights, options, warrants or convertible or exchangeable securities; provided, however, that if any such rights, options or warrants issued by the Company as described in this Section 10.07 are only exercisable upon the occurrence of certain triggering events, then the conversion rate will not be adjusted as provided in this Section 10.07 until such triggering events occur. To the extent that such rights, options or warrants expire unexercised or to the extent any convertible or exchangeable securities are redeemed by the Company or otherwise cease to be convertible or exchangeable into shares of Common Stock, the conversion rate shall be readjusted to the conversion rate which would be in effect had the adjustment made upon the date of issuance of such rights, options, warrants or convertible or exchangeable securities been made upon the basis of the issuance of rights, options or warrants to subscribe for or purchase only the number of shares of Common Stock as to which such rights, options or warrants were actually exercised and the number of shares of Common Stock that were actually issued upon the conversion or exchange of the convertible or exchangeable securities. SECTION 10.08. Adjustment for Other Distributions. If the Company distributes to all holders of Common Stock evidences of indebtedness, shares of Capital Stock other than Common Stock, cash or other assets (including securities, but other than (x) dividends or distributions exclusively in cash or (y) any dividend or distribution for which an adjustment is required to be made in accordance with Section 10.06 or 10.07), the conversion rate shall be adjusted in accordance with the following formula: AC = CC x __(O x M)__ (O x M) - F where: AC = the adjusted conversion rate. CC = the then current conversion rate. O = the number of shares of Common Stock outstanding on the record date mentioned below. M = the current market price per share of Common Stock (see Section 10.12) on the record date mentioned below. F = the fair market value on the record date mentioned below of the evidences of indebtedness, assets, securities or cash distributed. The Board of Directors shall determine the fair market value. The adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution. SECTION 10.09. Adjustment for Cash Distributions. If the Company distributes to all holders of Common Stock cash (excluding any cash portion of distributions for which an adjustment is required to be made in accordance with Section 10.08) in an aggregate amount that, combined together with (i) all other such all-cash distributions made within the preceding 12 months for which no adjustment has been made and (ii) any cash and the fair market value of other consideration paid or payable in respect of any tender offer (as defined in Rule 13e-4 under the Exchange Act) by the Company or any of its Subsidiaries for Common Stock concluded within the preceding 12 months for which no adjustment has been made, exceeds 20% of the Company's market capitalization (the product of the then current market price per share of the Common Stock (see Section 10.12) times the number of shares of Common Stock then outstanding) on the record date mentioned below, the conversion rate shall be adjusted in accordance with the following formula: AC = CC x M M - C where: AC = the adjusted conversion rate. CC = the then current conversion rate. M = the current market price per share of Common Stock (see Section 10.12) on the record date mentioned below. C = the amount of cash distributed applicable to one share of Common Stock. Notwithstanding the foregoing, in the event that the cash so distributed applicable to one share of Common Stock equals or exceeds such current market price per share of Common Stock, or such current market price per share exceeds such amount of cash by less than $0.10 per share, the conversion rate shall not be adjusted pursuant to this Section 10.09. The adjustment shall become effective immediately after the record date for the determination of the stockholders entitled to receive such distribution. SECTION 10.10. Adjustment for Tender Offers. If the Company or any of its Subsidiaries completes a tender offer (as defined in Rule 13e-4 under the Exchange Act) for all or any portion of the Common Stock (any such tender offer being referred to as an "Offer") that involves an aggregate consideration having a fair market value as of the expiration of such Offer (the "Expiration Time") that, together with (i) any cash and the fair market value of any other consideration payable in respect of any other Offer which expired within the 12 months preceding the Expiration Time, for which no conversion rate adjustment has been made, and (ii) the aggregate amount of any all-cash distributions referred to in Section 10.09 to all holders of Common Stock within the 12 months preceding the expiration of such Offer for which no conversion rate adjustment pursuant to such Section 10.09 has been made, exceeds 20% of the Company's market capitalization (the product of the then current market price per share (see Section 10.12) of the Common Stock at the Expiration Time times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time), the conversion rate shall be increased in accordance with the following formula: AC = CC x M x (O - P) (M x O) - F where: AC = the adjusted conversion rate. CC = the then current conversion rate. M = the current market price per share of Common Stock (see Section 10.12) at the Expiration Time. O = the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time. F = the fair market value of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the Offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted being referred to as the "Purchased Shares"). The Board of Directors shall determine the fair market value. P = Purchased Shares. The adjustment shall become effective immediately prior to the opening of business on the day following the Expiration Time. SECTION 10.11. Voluntary Adjustment. The Company at any time may increase the conversion rate, temporarily or otherwise, by any amount but in no event shall such conversion rate result in the issuance of Common Stock at a price less than the par value of the Common Stock at the time such increase is made. SECTION 10.12. Current Market Price. In Sections 10.07, 10.08, 10.09 and 10.10, the current market price per share of Common Stock on any date is the average of the last reported sale prices of a share of Common Stock on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or on the NMS, or, if the Common Stock is not then listed on an exchange or on the NMS, the closing sale prices (or the quoted closing bid prices if there were no sales) as reported by NASDAQ for 30 consecutive trading days commencing 45 trading days before the date in question. In the absence of one or more such quotations, the Board of Directors shall determine the current market price on the basis of such quotations as it considers appropriate. SECTION 10.13. When Adjustment May be Deferred. No adjustment in the conversion rate need be made unless the adjustment would require a change of at least 1% in the conversion rate. Any adjustments that are not made due to the immediately preceding sentence shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. SECTION 10.14. When No Adjustment Required. Except as set forth in Section 10.07, no adjustment in the conversion rate shall be made because the Company issues, in exchange for cash, property or services, shares of Common Stock, or any securities convertible into shares of Common Stock, or securities carrying the right to purchase shares of Common Stock or such convertible securities. No adjustment in the conversion rate need be made for rights to purchase or the sale of Common Stock pursuant to a Company plan providing for reinvestment of dividends or interest. No adjustment in the conversion rate need be made for a change in the par value of the Common Stock. No adjustment need be made for a transaction referred to in Section 10.06, 10.07, 10.08, 10.09 or 10.10 if Security- holders are to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in such transaction. SECTION 10.15. Notice of Adjustment. Whenever the conversion rate is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment. The Company shall file with the Trustee an Officers' Certificate or a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct, absent manifest error. SECTION 10.16. Notice of Certain Transactions. If: (1) the Company proposes to take any action that would require an adjustment in the conversion rate, (2) the Company proposes to take any action that would require a supplemental indenture pursuant to Section 10.17, or (3) there is a proposed liquidation or dissolution of the Company, the Company shall mail to Securityholders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 10.17. Reorganization of the Company. If the Company is a party to a transaction subject to Section 5.01 or a merger which reclassifies or changes its outstanding Common Stock, the successor corporation shall enter into a supplemental indenture which shall provide that the Holder of a Security may convert it into the kind and amount of securities, cash or other assets which he would have owned immediately after the consolidation, merger, transfer or lease if he had converted the Security immediately before the effective date of the transaction. The supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practical to the adjustments provided for in this Article 10. The successor Company shall mail to Securityholders a notice briefly describing the supplemental indenture. If this Section applies, Sections 10.06, 10.07, 10.08, 10.09 and 10.10 do not apply. SECTION 10.18. Rights and Warrants. If the Company distributes pro rata to all holders of Common Stock rights or warrants (other than those referred to in Section 10.07 above), so long as any such rights or warrants have not expired or been redeemed by the Company, the Company shall make proper provision so that the Holder of any Security surrendered for conversion will be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion (the "Conversion Shares"), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of Common Stock of rights or warrants of separate certificates evidencing such rights or warrants (the "Distribution Date"), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to the rights or warrants, and (ii) if such conversion occurs after such Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which the principal amount of such Security so converted was convertible immediately prior to such Distribution Date would have been entitled on such Distribution Date in accordance with the terms and provisions of and applicable to the rights or warrants. SECTION 10.19. Company Determination Final. Any determination that the Board of Directors must make pursuant to this Article 10 is conclusive, absent manifest error. SECTION 10.20. Trustee's Disclaimer. The Trustee has no duty to determine when an adjustment under this Article 10 or under the terms of the Securities should be made, how it should be made or what it should be. The Trustee has no duty to determine whether any provisions of a supplemental indenture under Section 10.17 are correct. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article 10. Each Conversion Agent other than the Company shall have the same protection under this Section 10.20 as the Trustee. ARTICLE 11 SUBORDINATION SECTION 11.01. Agreement to Subordinate. The Company agrees, and each Securityholder by accepting a Security agrees, that the indebtedness evidenced by the Securities and the payment of principal thereof and interest thereon are subordinated in right of payment, to the extent and in the manner provided in this Article 11, to the prior payment in full of all Senior Indebtedness and that the subordination is for the benefit of the holders of Senior Indebtedness. Money and securities held in trust pursuant to Article 8 are not subject to the subordination provisions of this Article 11. SECTION 11.02. Certain Definitions. "Representative" means the indenture trustee or other trustee, agent or representative for an issue of Senior Indebtedness. "Senior Indebtedness" means the principal of (and premium, if any) and interest on (a) any and all indebtedness and obligations of the Company (including indebtedness of others guaranteed by the Company) other than the Securities, whether or not contingent and whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which (i) is for money borrowed; (ii) is evidenced by any bond, note, debenture or similar instrument; (iii) represents the unpaid balance on the purchase price of any property, business or asset of any kind; (iv) is an obligation of the Company as lessee under any and all leases of property, equipment or other assets required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles; (v) is a reimbursement obligation of the Company with respect to letters of credit; (vi) are obligations of the Company with respect to interest swap obligations and foreign exchange agreements; or (vii) are obligations of others secured by a lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of the Company are subject, whether or not the obligations secured thereby shall have been assumed by the Company or shall otherwise be the Company's legal liability and (b) any deferrals, amendments, renewals, extensions, modifications and refundings of any indebtedness or obligations of the types referred to above; provided that Senior Indebtedness shall not include (i) the Securities; (ii) the Company's 6 7/8% Convertible Subordinated Notes due 2002; (iii) any indebtedness or obligation of the Company which, by its terms or the terms of the instrument creating or evidencing it, is not superior in right of payment to the Securities; (iv) any indebtedness or obligation of the Company to any of its subsidiaries and (v) any indebtedness or obligation incurred by the Company in connection with the purchase of assets, materials or services in the ordinary course of business and which constitutes a trade payable. SECTION 11.03. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Indebtedness shall be entitled to receive payment in full of the principal of and interest to the date of payment on the Senior Indebtedness before Securityholders shall be entitled to receive any payment of principal of or interest on Securities; and (2) until the Senior Indebtedness is paid in full, any distribution to which Securityholders would be entitled but for this Article 11 shall be made to holders of Senior Indebtedness as their interests may appear, except the Securityholders may receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities. SECTION 11.04. Company Not to Make Payments with Respect to Securities in Certain Circumstances. Except for payment in or distribution of securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities, the Company shall not make any payment with respect to the principal of or interest on any of the Securities, or make any other payment with respect to the purchase or other acquisition of any of the Securities: (a) if there shall have occurred a default in the payment of the principal of or interest on any Senior Indebtedness; or (b) if there shall exist at the time of such payment, or such payment would create, an event of default (or an event which, with the giving of notice or the passage of time or both, would become an event of default) with respect to any Senior Indebtedness which would permit the holders (or any specified proportion of such holders) of such Senior Indebtedness to accelerate the maturity thereof, and if notification of such default or event of default has been given to the Company by a holder of such Senior Indebtedness or by a trustee, agent or Representative for an issue of Senior Indebtedness; unless and until, in each case, whether described in clause (a) or clause (b), such default or event of default shall have been cured or waived in the manner required by the instrument relating to such Senior Indebtedness or shall otherwise have ceased to exist. Regardless of anything to the contrary herein, nothing shall prevent (a) any payment by the Trustee to the Securityholders of amounts deposited with it pursuant to Article Eight or (b) any payment by the Trustee or the Paying Agent as permitted by Section 11.11. SECTION 11.05. Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration. SECTION 11.06. When Distribution Must be Paid Over. In the event that the Company shall make any payment to the Trustee of the principal of or interest on the Securities at a time when such payment is prohibited by Section 11.03 or 11.04, such payment shall be held by the Trustee, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their Representative or the trustee under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. If a distribution is made to Securityholders that because of this Article 11 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. SECTION 11.07. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent in writing of any facts known to the Company that would cause a payment of principal of or interest on Securities to violate this Article 11. SECTION 11.08. Subrogation. After all Senior Indebtedness is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Security-holders have been applied to the payment of Senior Indebtedness. A distribution made under this Article 11 to holders of Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on Senior Indebtedness. SECTION 11.09. Subordination May Not be Impaired by Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 11.10. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. SECTION 11.11. Rights of Trustee and Paying Agent. The Trustee or Paying Agent may continue to make payments on the Securities until it receives written notice of facts that would cause a payment of principal of or interest on the Securities to violate this Article 11. Only the Company, a Representative or a holder of an issue of Senior Indebtedness that has no Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness (or a Representative on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a Representative on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person who is a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 11, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article 11, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment or until such time as the Trustee shall be otherwise satisfied as to the right of such person to receive such payment. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holder if it shall mistakenly pay over or distribute to Securityholders or the Company or any other person money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise. SECTION 11.12. Officers' Certificate. If there occurs an event referred to in Section 11.03 or 11.04, the Company shall promptly give to the Trustee an Officers' Certificate (on which the Trustee may conclusively rely) identifying all holders of Senior Indebtedness or their Representatives and the principal amount of Senior Indebtedness then outstanding held by each such holder and stating the reasons why such Officers' Certificate is being delivered to the Trustee. SECTION 11.13. Obligation of Company Unconditional. Nothing contained in this Article 11 or elsewhere in this Indenture or in any Security is intended to or shall impair, as between the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 11 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Article 11, the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders of the Securities shall be entitled to rely upon any order or decree by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the Trustee or the Holders of the Securities, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11. Nothing contained in this Article 11 or elsewhere in this Indenture or in any Security is intended to or shall affect the obligation of the Company to make, or prevent the Company from making, at ay time except during the pendency of any dissolution, winding up, liquidation or reorganization proceeding, and except during the continuance of any default specified in Section 11.04 (not cured or waived), payments at any time of the principal or of interest on the Securities. ARTICLE 12 MISCELLANEOUS SECTION 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 12.02. Notices. Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person, mailed by first-class mail or by express delivery to the other's address stated in this Section 12.02. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Securityholder shall be mailed by first-class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications shall be in writing. The Company's address is: Continental Homes Holding Corp. 7001 N. Scottsdale Road Suite 2050 Scottsdale, Arizona 85252 Attention: Corporate Secretary The Trustee's address is: Manufacturers and Traders Trust Company One M&T Plaza Buffalo, New York 14203 Attention: Corporate Trust Department SECTION 12.03. Communication by Holders with Other Holders. Securityholders may communicate pursuant to TIA { 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA { 312(c). SECTION 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each signer of an Officers' Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an Officers' Certificate as to factual matters if such signer reasonably and in good faith believes in the accuracy of the document relied upon. SECTION 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Conversion Agent may make reasonable rules and set reasonable requirements for their respective functions. SECTION 12.07. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in The City of New York, in the State of New York or in the city in which the Trustee administers its corporate trust business. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on that payment for the intervening period. A "business day" is a day other than a Legal Holiday. SECTION 12.08. No Recourse Against Others. All liability described in the Securities of any director, officer, employee or stockholder, as such, of the Company is waived and released. SECTION 12.09. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.10. Governing Law. The laws of the State of New York, without regard to principles of conflicts of law, shall govern this Indenture and the Securities. SECTION 12.11. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.12. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.13. Separability. In case any provision in this Indenture or in the Securities shall be valid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto. SECTION 12.14. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. CONTINENTAL HOMES HOLDING CORP. By: /s/ Donald R. Loback ------------------------------------------- Donald R. Loback Title: Chief Executive Officer MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee By: /s/ Russell T. Whitley -------------------------------------------- Russell T. Whitley Title: Assistant Vice President EXHIBIT A REGISTERED [Face of Security] REGISTERED NUMBER DOLLARS CONTINENTAL HOMES HOLDING CORP. 6 7/8% CONVERTIBLE SUBORDINATED NOTE DUE 2002 CONTINENTAL HOMES HOLDING CORP., a Delaware corporation (herein called the "Company"), for value received, hereby promises to pay to or registered assigns, the principal sum of Dollars on November 1, 2002, and to pay interest thereon as provided on the reverse hereof, until the principal hereof is paid or duly provided for. Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 The provisions on the back of this certificate are incorporated as if set forth on the face hereof. IN WITNESS WHEREOF, CONTINENTAL HOMES HOLDING CORP. has caused this instrument to be duly signed under its corporate seal. [SEAL] CONTINENTAL HOMES HOLDING CORP. By: [Title] By: [Title] TRUSTEES'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Manufacturers and Traders Trust Company, as Trustee By: ______________________________ Signatory Dated: ___________________ [REVERSE OF SECURITY] CONTINENTAL HOMES HOLDING CORP. 6 7/8% CONVERTIBLE SUBORDINATED NOTE DUE 2002 1. Interest. Continental Homes Holding Corp., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually on May 1 and November 1 of each year, commencing May 1, 1996. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance of the Securities set forth on the face of this Security. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company must pay principal, premium, if any, and interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Paying Agent, Registrar, Conversion Agent. Initially, Manufacturers and Traders Trust Company (the "Trustee") will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar, Conversion Agent or co-registrar without notice. The Company may act in any such capacity. 4. Indenture. The Company issued the Securities under an Indenture dated as of November 1, 1995 (the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code {{ 77aaa-77bbbb) (the "Act"), as in effect on the date of the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of such terms. The Securities are general unsecured subordinated obligations of the Company limited to $86,250,000 aggregate principal amount (except for Securities issued in substitution for destroyed, mutilated, lost or stolen Securities). Terms used herein which are defined in the Indenture have the meanings assigned to them in the Indenture. 5. Optional Redemption. The Securities may be redeemed on at least 15 and not more than 60 days' notice at the option of the Company on or after November 1, 1998, in whole at any time or in part from time to time, at the redemption prices (expressed as a percentage of principal amount) set forth below for the 12-month period beginning November 1 of the following years, in each case together with accrued and unpaid interest to the redemption date: Year Redemption Price 1998 103.438 % 1999 102.292 % 2000 101.146 % 2001 100.000 % 2002 100.000 % 6. Notice of Redemption. Notice of redemption will be mailed at least 15 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. 7. Change in Control. In the event of a Change in Control (as hereinafter defined) with respect to the Company, then each Holder of the Securities shall have the right, at the Holder's option, to require the Company to repurchase such Holder's Securities including any portion thereof which is $1,000 or any integral multiple thereof on the date (the "Repurchase Date") that is 45 days after the date of the Repurchase Right Notice at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the Repurchase Date (the "Repurchase Price"). On or before the 30th day after the occurrence of a Change in Control, the Company is obligated to give notice of the occurrence of such Change in Control, and of the date before which a Holder must notify the Company of such Holder's intention to exercise the redemption option, the procedure which such Holder must follow to exercise such right. To exercise the redemption option, the Holder of a Security must deliver on or before the 30th day after the date of the Repurchase Right Notice, written notice to the Company of the Holder's exercise of such option together with the Security or Securities with respect to which the option is being exercised, duly endorsed for transfer. Exercise of the redemption option by the Holder of a Security will be irrevocable, except that a Holder who submits such Security will retain the right to convert such Security into Common Stock until the close of business on the second business day prior to the Repurchase Date. If the Repurchase Date falls between any interest payment record date and the next succeeding interest payment date, Securities must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive on such interest payment date. If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. A "Change in Control" of the Company shall be deemed to have occurred at such time as any person, together with its affiliates or associates, other than the Management Group (as defined in the Indenture) is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote in elections of directors, provided that a Change in Control shall not be deemed to have occurred if either (i) the last sale price of the Common Stock for any five trading days during the ten trading days immediately preceding the Change in Control is at least equal to 105% of the Conversion Price (as defined in the Indenture) in effect on the day of the Change in Control or (ii) all of the consideration (excluding cash payments for fractional shares) in the transaction or transactions constituting the Change in Control consists of shares of common stock traded on a national securities exchange or through NASDAQ or another comparable quotation system. 8. Conversion. A Holder of a Security may convert it into Common Stock of the Company at any time before the close of business on November 1, 2002, or, if the Security is called for redemption, the Holder may convert it at any time before the close of business on the second business day before the date fixed for redemption. The initial conversion rate is 42.105 shares of Common Stock per $1,000 principal amount of the Securities, subject to adjustment under certain circumstances. The Company will deliver a check in lieu of any fractional share. On conversion no payment or adjustment for interest accrued on the Securities will be made nor for dividends on the Common Stock issued on conversion. If any Security is converted between the record date for the payment of interest and the next succeeding interest payment date, such Security must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted (unless such Security shall have been called for redemption, in which case no such payment shall be required). A Security converted on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Security being converted will be paid on such interest payment date to the registered holder of such Security on the immediately preceding record date. To convert a Security a Holder must (1) complete and sign the conversion notice on the back of the Security, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Registrar or Conversion Agent and (4) pay any transfer or similar tax if required. A Holder may convert a portion of a Security if the portion is $1,000 or a whole multiple of $1,000. 9. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). Each Holder by accepting a Security agrees to such subordination and authorizes the Trustee to give it effect. 10. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge shall be made for any such registration or transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption in whole or in part. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 11. Persons Deemed Owners. The registered Holder of a Security may be treated as its owner for all purposes. 12. Merger or Consolidation. The Company may not consolidate with, or merge into, or directly or indirectly transfer or lease all or substantially all of its assets to, another person unless: the person is a corporation; such corporation assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture; and giving effect to the transaction, no Default or Event of Default (as defined in the Indenture) shall exist. 13. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of at least a majority in principal amount of the Securities outstanding; and any existing default may be waived with the consent of the Holders of a majority in principal amount of the Securities. Without the consent of any Securityholder, the Indenture or the Securities may be amended to cure any ambiguity, omission, defect or inconsistency or to provide for uncertificated Securities in addition to certificated Securities, to comply with Sections 5.01 and 10.17 of the Indenture or to make any change that does not materially adversely affect the rights of any Securityholder. 14. Defaults and Remedies. An Event of Default is: default for 30 days in payment of interest on the Securities; default in payment of principal on the Securities when due; failure by the Company for 60 days after notice to it to comply with any of its other agreements in the Indenture or the Securities; acceleration prior to maturity of other indebtedness in excess of an aggregate of $10,000,000 which is not rescinded or annulled within 30 days after notice; the rendering of a final judgment or judgments against the Company in excess of $10,000,000, which is not discharged, satisfied or stayed within a period of 60 days after notice; and certain events of bankruptcy or insolvency. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive a Default and its consequences. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 15. Trustee Dealings with Company. Manufacturers and Traders Trust Company, the Trustee under the Indenture, or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 16. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and releases are part of the consideration for the issue of the Securities. 17. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenant by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: Continental Homes Holding Corp., 7001 N. Scottsdale Road, Suite 2050, Scottsdale, Arizona 85253, Attention: Corporate Secretary. ASSIGNMENT FORM CONVERSION NOTICE To assign this Security, fill To convert this Security in the form below: into Common Stock of the Company, check the box: I or we assign and transfer _____ this Security to: /____/ ------------------ To convert only part of this Security, state the (Insert Assignee's Soc. amount (must be in Sec. or Tax I.D. No.) multiples of $1,000): $ __________________________ If you want the stock certificate made out in __________________________ another person's name, fill in the form below: __________________________ __________________________ (Insert other person's (Print or type assignee's Soc. Sec. or Tax I.D. name, address and zip code) no.) and irrevocably appoint ___ ___________________ agent to transfer this Security on the books of the Company. The agent may substitute another (Print or type other to act for him. person's name, address and zip code) Date: __________________ Signature(s):_________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to Section 4.08 of the Indenture, check the box: ____ /___/ If you want to elect to have only part of this Security repurchased by the Company pursuant to Section 4.08 of the Indenture, state the amount: $ ----------------------------------- (in an integral multiple of $1,000) Date: ______________________ Signature(s): _________________ - ------------------------------- (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: __________________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) EX-10.1 3 MODIFICATION AGREEMENT MODIFICATION AGREEMENT EXHIBIT 10.1 DATE: December 1, 1995 PARTIES: Borrower: CH MORTGAGE COMPANY, a Colorado corporation formerly known as American Western Mortgage Company. Bank: BANK ONE, ARIZONA, NA, a national banking association. RECITALS: A. Bank has extended to Borrower credit ("Loan") in the principal amount of $25,000,000.00 pursuant to the Amended and Restated Mortgage Warehousing Credit and Security Agreement, dated July 1, 1995 ("Credit Agreement"), and evidenced by the Replacement Revolving Line of Credit Promissory Note, dated July 1, 1995 ("Note"). The unpaid principal of the Loan as of the date hereof is $0. B. The Loan is secured by, among other things, the collateral described in the Credit Agreement (the agreements, documents, and instruments securing the Loan and the Note are referred to individually and collectively as the "Security Documents") (The Note, the Credit 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 are sometimes referred to individually and collectively as the "Loan Documents"). 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 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, effective as of December 1, 1995, as follows: 2.1.1 The definition of Floating Rate, as set forth in Section 1.1 of the Credit Agreement, is hereby deleted 2.1.2 The "Maturity Date", as defined in Section 1.1 of the Credit Agreement, is hereby changed from December 1, 1995 to December 1, 1996. 2.1.3 Section 2.4(d) of the Credit Agreement is hereby amended as follows: (a) The phrase "Floating Rate" is deleted and the phrase "Prime Rate" is substituted therefor. (b) The following sentences are hereby added thereto, immediately after the first sentence: Interest at the Default Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. The Default Rate will change on each day that the Prime Rate changes. 2.1.4 Section 2.4(e)(ii) of the Credit Agreement is hereby deleted. 2.1.5 Section 2.4(e)(iii) of the Credit Agreement is hereby deleted. 2.1.6 The following phrase is hereby added at the end of the last sentence of Paragraph 3.7 of the Credit Agreement: "except that Bank shall be responsible to pay the cost of shipping the Collateral Documents from Bank to an Approved Bailee pursuant to the terms of an Approved Bailee Agreement." 2.1.7 Section A(3) of Exhibit A to the Credit Agreement is hereby modified by inserting the phrase "If required by Bank" at the beginning of each of the first two (2) sentences thereof. 2.1.8 Exhibit B to the Credit Agreement is hereby amended in its entirety to mean that document attached hereto as Exhibit B. 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. 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 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, processing, filing, and recording costs, expenses, and fees). 5.3.3 A Commitment Fee of one-eighth of one percent (.125%) per annum of the Commitment amount (i.e., $31,250.00). 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. CH MORTGAGE COMPANY, a Colorado corporation formerly known as American Western Mortgage Company By: /s/ Julie E. Collins --------------------------------------- Name: Julie E. Collins ------------------------------------ Title: Vice President ----------------------------------- BORROWER BANK ONE, ARIZONA, NA, a national banking association By: /s/ Rhonda R. Williams -------------------------------------- Name: Rhonda R. Williams ------------------------------------ Title: Assistant Vice President ------------------------------------ BANK EX-10.2 4 PROMISSORY NOTE EXHIBIT 10.2 AMENDED AND RESTATED REPLACEMENT REVOLVING LINE OF CREDIT PROMISSORY NOTE Phoenix, Arizona $25,000,000.00 December 1, 1995 1. PROMISE TO PAY. For value received, CH MORTGAGE COMPANY, a Colorado corporation formerly known as American Western Mortgage Company ("Maker"), promises to pay to the order of BANK ONE, ARIZONA, NA at its office at 241 North Central Avenue, Phoenix, Arizona 85004, or at such other place as the holder hereof may from time to time designate in writing, the principal sum of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or so much thereof as shall from time to time be disbursed and outstanding under that certain Amended and Restated Mortgage Warehousing Credit and Security Agreement (as it may be amended, modified, extended, and renewed and replaced from time to time, the "Credit Agreement") dated July 1, 1995 herewith between Maker and the payee named above, together with accrued interest from the date of disbursement on the unpaid principal at the applicable rate as set forth in Section 4. The payee named above shall have no obligation to make any Advances hereunder except in accordance with the Credit Agreement. This note (as it may be amended, modified, extended, and renewed from time to time, the "Note") is issued pursuant to, entitled to the benefits of, and referred to as the "Note" in the Credit Agreement. In the event of any inconsistency between the provisions of this Note and the provisions of the Credit Agreement, the Credit Agreement shall control. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement. 2. MATURITY DATE. Absent the occurrence of an Event of Default hereunder or under any of the Credit Agreement, this Note, and other documents evidencing or securing the loans contemplated by the Credit Agreement (collectively the "Credit Agreement Documents"), the unpaid principal balance hereof, together with all unpaid interest accrued thereon, and all other amounts payable by Maker under the terms of the Credit Agreement Documents, shall be due and payable on December 1, 1996 (the "Maturity Date"). If the Maturity Date should fall (whether by acceleration or otherwise) on a day that is not a Business Day, payment of the outstanding principal shall be made on the next succeeding Business Day and such extension of time shall be included in computing the interest included in such payment. 3. PREPAYMENT. PREPAYMENT. Maker may prepay the outstanding principal balance hereof in whole or in part at any time prior to the Maturity Date without penalty or premium as stated in such notice by Maker. 4. PAYMENTS. (a) Absent an Event of Default hereunder or under any of the Credit Agreement Documents, each Advance made hereunder shall bear interest from the date advanced at the applicable rate from time to time ("Interest Rate") as follows: (i) To the extent Maker shall elect as provided in this Note and to the extent not otherwise provided in this Note, interest shall accrue on the unpaid principal of an Advance at the Fixed Rate. Interest at the Fixed Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. (ii) Except to the extent that Advances bear interest at the Fixed Rate, as defined herein, pursuant to this Note, interest shall accrue on the unpaid principal of all Advances at the Average Libor Rate, calculated during each calendar month (or partial month). Interest at the Libor Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. As used in this Note: "Average Libor Rate" means the mathematical average of the Libor Rate in effect during the applicable period of time to which the calculation relates. "Balance Calculation Period" means the period covered by Maker's monthly account analysis statement prepared by the payee hereof and used by the payee hereof to determine Maker's Compensating Balances. "Balances Deficiency" has the meaning set forth in Section (f) below. "Balances Deficiency Fee" has the meaning set forth in Section (f) below. "Business Day" means a day of the year on which banks are not required or authorized to close in Phoenix, Arizona, and, with respect to a Libor Advance, a day on which dealings are carried on in the London interbank market. "Compensating Balances" means the value to the payee hereof (net of all service charges, all reserve requirements, FDIC insurance assessments and other costs, fees, expenses and amounts incurred by the payee hereof on account of such balances) of Maker's average daily, free, collected, non-interest bearing compensating balances maintained at Bank One, Arizona, NA, as determined by the payee hereof and set forth on Maker's monthly account analysis statement prepared by the payee hereof. In determining free, collected, non-interest bearing compensating balances, there shall be subtracted any uncollected or returned checks, and there shall be no adjustment for reserve requirements, FDIC insurance assessments or other costs incurred by the payee hereof on account of such balances. "Fixed Rate" means the rate of three percent (3%) per annum. "Fixed Rate Advance" means an Advance that bears or is requested to bear interest at the Fixed Rate. "Libor Advance" means an Advance that bears or is requested to bear interest at the Libor Rate. "Libor Rate" means the rate per annum equal to the sum of (i) one and three-quarters percent (1.75%) per annum, and (ii) the per annum rate of interest determined by the holder hereof, based on Telerate System reports or such other source as may be selected by the holder hereof, to be the "London Interbank Offered Rate" at which deposits in United States dollars are offered by major banks in London, England, for a 30-day interest period. "Prime Rate" means the rate per annum most recently announced by Bank One, Arizona, NA, or its successors, in Phoenix, Arizona, as its " prime rate," as in effect from time to time. The Prime Rate is not necessarily the best or lowest rate offered by said bank, and said bank may lend to its customers at rates that are at, above, or below, the Prime Rate. "Regulatory Change" means any change effective after the date of this Note in United States federal, state, or foreign law, regulations, or rules or the adoption or making after such date of any interpretation, directive, or request applying to a class of banks including the holder hereof, of or under any United States federal, state, or foreign law, regulation or rule (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. (b) If Maker desires that any Advances are to bear interest at the Fixed Rate, Maker shall deliver notice thereof to the holder at least one (1) Business Day prior to the first day of the Balance Calculation Period (i.e., the first day of a calendar month), which notice shall specify the amount of Advances that are to bear interest at the Fixed Rate. If Maker elects to have interest accrue on any Advances at the Fixed Rate, then the unpaid amount of such Advances shall bear interest from and including the first day of such Balance Calculation Period. Maker may on any Business Day, upon written notice to and received by the holder hereof not later than 12:00 p.m. (Phoenix, Arizona local time) on the first Business Day prior to the date of the proposed conversion, convert any Advance of one type into an Advance of the other type; provided, however, that any conversion of a Fixed Rate Advance to a Libor Advance shall only be made on the last day of the applicable Balance Calculation Period. Each such notice of a conversion shall specify the date of such conversion and the Advance(s) to be converted, and any conversion of a Libor Advance to a Fixed Rate Advance shall comply with subparagraph (b) above. (c) Notwithstanding any provision of the Credit Agreement Documents to the contrary, the holder hereof shall be entitled to fund and maintain its funding of all or any part of any Advance in any manner it sees fit. If, due to any Regulatory Change, there shall be any increase in the cost to the holder hereof of agreeing to make or making, funding, or maintaining Libor Advances (including, without limitation, any increase in any applicable reserve requirement), then Maker shall from time to time, upon demand by the holder hereof, pay to the holder hereof such amounts as the holder hereof may reasonably determine to be necessary to compensate the holder hereof for any additional costs that the holder hereof reasonably determines are attributable to such Regulatory Change and the holder hereof will notify the Maker of any Regulatory Change that will entitle the holder hereof to compensation pursuant to this paragraph as promptly as practicable, but in any event within 90 days after the holder hereof obtains knowledge thereof; provided, however, that if the holder hereof fails to give such notice within 90 days after it obtains knowledge of such a Regulatory Change, the holder hereof shall, with respect to compensation payable in respect of any costs resulting from such Regulatory Change, only be entitled to payment for costs incurred from and after the date that the holder hereof does give such notice. the holder hereof will furnish to Maker a certificate setting forth in reasonable detail the basis for the amount of each request by the holder hereof for compensation under this paragraph. Determinations by the holder hereof of the amounts required to compensate the holder hereof shall be conclusive, absent manifest error. the holder hereof shall be entitled to compensation in connection with any Regulatory Change only for costs actually incurred by the holder hereof. Notwithstanding any provision of the Credit Agreement Documents, if the holder hereof shall notify Maker that as a result of a Regulatory Change it is unlawful for the holder hereof to make Advances at the Libor Rate, or to fund or maintain Libor Rate Advances, (i) the obligations of the holder hereof to make Advances at the Libor Rate and to convert Advances to the Libor Rate shall be suspended until the holder hereof shall notify Maker that the circumstances causing such suspension no longer exist, and (ii) in the event such Regulatory Change makes the maintenance of Advances at the Libor Rate unlawful, Maker shall forthwith prepay in full all Advances then outstanding, together with interest accrued thereon and all amounts in connection with such prepayment specified in the paragraph in this Note titled "PREPAYMENT," unless Maker, within five (5) Business Days of notice from the holder hereof, (i) converts all Libor Rate Advances then outstanding into Fixed Rate Advances pursuant to the conversion procedures in this Note, and pays all amounts in connection with such prepayments or conversions specified in the paragraph in this Note titled "PREPAYMENT," and (ii) enters into an agreement with Holder setting forth an alternative interest rate to be used pursuant to this Note. Notwithstanding any other provision of the Credit Agreement Documents, if prior to the commencement of any Interest Period, the holder hereof shall determine (i) that United States dollar deposits in the amount of any Libor Advance to be outstanding during such Interest Period are not readily available to the holder hereof in the London interbank market, or (ii) by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Libor Rate for such Interest Period in the manner prescribed above in the definition of "Libor Rate," then the holder hereof shall promptly give notice thereof to Maker, Maker shall forthwith prepay in full all Advances then outstanding, together with interest accrued thereon and all amounts in connection with such prepayment specified in the paragraph in this Note titled "PREPAYMENT," unless Maker, within five (5) Business Days of notice from the holder hereof, (i) converts all Libor Rate Advances then outstanding into Fixed Rate Advances pursuant to the conversion procedures in this Note, and pays all amounts in connection with such prepayments or conversions specified in the paragraph in this Note titled "PREPAYMENT," and (ii) enters into an agreement with Holder setting forth an alternative interest rate to be used pursuant to this Note. (d) During any Balance Calculation Period where interest is accruing on any Advances at the Fixed Rate, if the average daily Compensating Balances maintained by Maker with Bank One, Arizona, NA are less than an amount equal to the average daily aggregate unpaid principal balance of all Fixed Rate Advances during such Balance Calculation Period (such deficiency being referred to herein as the "Balances Deficiency"), Maker will pay to the payee hereof a fee (the "Balances Deficiency Fee") for said Balance Calculation Period on the Balances Deficiency at a per annum rate equal to the Average Libor Rate during such Balance Calculation Period minus one and one-quarter percent (1.25%) (computed on the basis of a 360-day year and applied to the actual number of days elapsed during the Balance Calculation Period). Any Balances Deficiency Fee payable hereunder shall be due and payable monthly after each Balance Calculation Period within two (2) Business Days after receipt by Maker from the payee hereof of a statement therefor containing the calculations made to determine such Balances Deficiency Fee, which statement shall be conclusive absent manifest error. (e) All payments of principal and interest and other amounts due hereunder shall be made (i) without deduction of any present and future taxes, levies, imposts, deductions, charges or withholdings, which amounts shall be paid by Maker, and (ii) without any other set off. Maker will pay the amounts necessary such that the gross amount of the principal and interest and other amounts received by the holder hereof is not less than that required by this Note. (f) Interest hereunder shall be payable by Maker to the holder hereof on the first (1st) day of each and every month during the term of this Note commencing with the first (1st) day of the first month following the date hereof. If any payment of interest to be made by Maker hereunder shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing the interest in such payment. (g) Payments of principal shall be due as provided in the Credit Agreement. 5. LAWFUL MONEY. Principal and interest are payable in lawful money of the United States of America. 6. APPLICATION OF PAYMENTS/LATE CHARGE. (a) Absent the occurrence of an Event of Default hereunder or under any of the other Credit Agreement Documents, any payments received by the holder hereof pursuant to the terms hereof shall be applied in the manner set forth in the Credit Agreement or, if not so set forth, in such order as the holder hereof may, in its sole discretion, elect. Any payments received by the holder hereof after the occurrence of an Event of Default hereunder or under any of the Credit Agreement Documents shall be applied in such order as the holder hereof may, in its sole discretion, elect. (b) If any payment of interest is not received by the holder hereof within fifteen (15) days of the due date thereof, then in addition to the remedies conferred upon the holder pursuant to Section 9 hereof and the other Credit Agreement Documents, a late charge of four percent (4%) of the amount due and unpaid will be added to the delinquent amount to compensate the holder hereof for the expense of handling the delinquency for such payment; provided, however, that the obligation to pay a late charge shall be subject to the provisions hereof limiting the charging, collection, and receipt of interest to the Maximum Rate. 7. SECURITY AND GUARANTY. This Note is secured by and is entitled to the benefits of the Credit Agreement. The provisions of the Credit Agreement are incorporated herein by reference as if set forth in full, and this Note is subject to all of the covenants and conditions contained in the Credit Agreement. This Note is guaranteed by the Guaranty. 8. EVENT OF DEFAULT. The occurrence of any of the following shall be deemed to be an event of default ("Event of Default") hereunder: (a) Failure of Maker to make a payment of principal or interest within fifteen (15) days of the due date thereof or failure of Maker to make any other payment or perform any obligation hereunder; or (b) The occurrence of an Event of Default under any of the other Credit Agreement Documents. 9. REMEDIES. Upon the occurrence of an Event of Default, the entire balance of principal together with all accrued interest thereon, and all other amounts payable by Maker under the Credit Agreement Documents shall, at the option of the holder hereof and without demand or notice, immediately become due and payable. Upon the occurrence of an Event of Default (and so long as such Event of Default shall continue), the entire balance of principal hereof, together with all accrued interest thereon, all other amounts due under the Credit Agreement Documents, and any judgment for such principal, interest, and other amounts, at the option of the holder hereof, shall bear interest equal to the lesser of (i) the Default Rate; or (ii) the Maximum Rate. No delay or omission on the part of the holder hereof in exercising any right under this Note or under any of the other Credit Agreement Documents hereof shall operate as a waiver of such right. The remedies of the holder hereof, as provided in this Note and in the Credit Agreement or any other instrument securing this Note, shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of the holder hereof, and may be exercised as often as occasion therefor shall arise. 10. WAIVER. Maker, endorsers, guarantors, and sureties of this Note hereby waive diligence, demand for payment, presentment for payment, protest, notice of nonpayment, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, and notice of nonpayment, and all other notices or demands of any kind and expressly agree that, without in any way affecting the liability of Maker, endorsers, guarantors, or sureties, the holder hereof may extend any maturity date or the time for payment of any installment due hereunder, otherwise modify the Credit Agreement Documents, accept additional security, release any Person liable, and release any security or guaranty. Maker, endorsers, guarantors, and sureties waive, to the full extent permitted by law, the right to plead any and all statutes of limitations as a defense. 11. CHANGE, DISCHARGE, TERMINATION, OR WAIVER. No provision of this Note may be changed, discharged, terminated, or waived except in a writing signed by the party against whom enforcement of the change, discharge, termination, or waiver is sought. No failure on the part of the holder hereof to exercise and no delay by the holder hereof in exercising any right or remedy under this Note or under the law shall operate as a waiver thereof. 12. ATTORNEYS' FEES. If this Note is not paid when due or if any Event of Default occurs, Maker promises to pay all costs of enforcement and collection and preparation therefor, including but not limited to, reasonable attorneys' fees, whether or not any action or proceeding is brought to enforce the provisions hereof (including, without limitation, all such costs incurred in connection with any bankruptcy, receivership, or other court proceedings (whether at the trial or appellate level)). 13. SEVERABILITY. If any provision of this Note is unenforceable, the enforceability of the other provisions shall not be affected and they shall remain in full force and effect. 14. INTEREST RATE LIMITATION. Maker hereby agrees to pay an effective rate of interest that is the sum of the interest rate provided for herein, together with any additional rate of interest resulting from any other charges of interest or in the nature of interest paid or to be paid in connection with the Credit Agreement, including without limitation, any fees to be paid by Maker pursuant to the provisions of the Credit Agreement Documents; provided, however, that in no event shall the amounts payable herein exceed the Maximum Rate. 15. NUMBER AND GENDER. In this Note the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa. 16. HEADINGS. Headings at the beginning of each numbered section of this Note are intended solely for convenience and are not part of this Note. 17. CHOICE OF LAW. This Note shall be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to conflict of laws principles. 18. INTEGRATION. The Credit Agreement Documents contain the complete understanding and agreement of the holder hereof and Maker and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. 19. BINDING EFFECT. The Credit Agreement Documents will be binding upon, and inure to the benefit of, the holder hereof, Maker, and their respective successors and assigns. Maker may not delegate its obligations under the Credit Agreement Documents. 20. TIME OF THE ESSENCE. Time is of the essence with regard to each provision of the Credit Agreement Documents as to which time is a factor. 21. RELATIONSHIP. The relationship of the parties hereto is that of borrower and lender and it is expressly understood and agreed that nothing contained in this Note or in the Credit Agreement shall be interpreted or construed to make Maker and Payee partners, joint venturers or participants in any other legal relationship except for borrower and lender. 22. SAVINGS CLAUSE. This Note and all of the other Credit Agreement Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable usury laws. If any provision hereof or of any of the other Credit Agreement Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the application of such provision to any other person or circumstance nor the remainder of the instrument in which such provision is contained shall be affected thereby and shall be enforced to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of the holder hereof to at all times comply with the usury and other applicable laws now or hereafter governing the interest payable on the indebtedness evidenced by this Note. If the applicable law is ever revised, repealed or judicially interpreted so as to render usurious any amount called for under this Note or under any of the other Credit Agreement Documents, or contracted for, charged, taken, reserved or received with respect to the indebtedness evidence by this Note, or if the holder's exercise of the option to accelerate the maturity of this Note, or if any prepayment by Maker results in Maker having paid any interest in excess of that permitted by law, then it is the express intent of Maker and the holder hereof that all excess amount theretofore collected by Holder be credited on the principal balance of this Note (or, if this Note and all other indebtedness arising under or pursuant to the other Credit Agreement Documents have been paid in full, refunded to Maker), and the provisions of this Note and the other Credit Agreement Documents immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid, or agreed to be paid, by Maker for the use, forbearance, detention, taking, charging, receiving or reserving of the indebtedness of Maker to the holder hereof under this Note or arising under or pursuant to the other Credit Agreement Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to such indebtedness for so long as such indebtedness is outstanding. To the extent federal law permits the holder hereof to contract for, charge or receive a greater amount of interest, the holder hereof will rely on federal law, for the purpose of determining the Maximum Rate. Notwithstanding anything to the contrary contained herein or in any of the other Credit Agreement Documents, it is not the intention of the holder hereof to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration. If the laws of the State of Texas are ever deemed to govern this Note notwithstanding the parties' expressed intent to the contrary, the parties agree that TEX. REV. CIV. STAT. ANN. art 5069 Ch. 15 (which regulated certain revolving loan accounts and revolving tri-party accounts) shall in no event apply to this Note. Further, to the extent that TEX. REV. CIV. STAT. ANN. art 5069-1.04, as amended, is applicable to this Note, the "indicated rate ceiling" specified in such article is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply. 23. NOTICES. Notices under this Note will be given in the manner set forth in the Credit Agreement. 24. REPLACEMENT NOTE. This Note is a replacement of that Replacement Promissory Note dated July 1, 1995 in the principal amount of $25,000,000.00 made by Maker and payable to the holder hereof. CH MORTGAGE COMPANY, a Colorado corporation formerly known as American Western Mortgage Company By: /s/ Julie E. Collins -------------------------------------- Name: Julie E. Collins ------------------------------------ Title: Vice President ----------------------------------- "Maker" EX-10.3 5 SIXTH MODIFICATION AGREEMENT SIXTH MODIFICATION AGREEMENT EXHIBIT 10.3 DATE: November 26, 1995 PARTIES: Borrower: MILBURN INVESTMENTS, INC., a Texas corporation. Bank: BANK ONE, ARIZONA, NA, a national banking association. RECITALS: A. Bank has extended to Borrower credit ("Loan") in the principal amount of $25,000,000.00 pursuant to the Amended and Restated Loan Agreement, dated October 28, 1994 ("Loan Agreement"), and evidenced by the Replacement Promissory Note, dated October 28, 1994 ("Note"). The unpaid principal of the Loan as of the date hereof is $0. B. The Loan is secured by, among other things, various Deeds of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statements ("Deeds of Trust"), by Borrower, as trustor, for the benefit of Bank, as beneficiary, recorded in records of Bell, Travis, and Williamson Counties, Texas (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: First Modification Agreement, dated December 8, 1994, Second Modification Agreement, dated March 15, 1995, Third Modification Agreement, dated May 19, 1995, Fourth Modification Agreement, dated July 28, 1995, and Fifth Modification Agreement, dated September 26, 1995. (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", "Deed of Trusts" and "Security Documents" shall mean such documents as modified in the Modifications.) 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 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 Conversion Date of the Loan and the Note is changed from November 26, 1995 to November 15, 1997. 2.1.2 Section 6.22.1 of the Loan Agreement is hereby modified in its entirety to read as follows: Tangible Net Worth in an amount not less than $23,000,000.00 as of May 31, 1995, and increasing thereafter during each fiscal quarter (with the first such fiscal quarter commencing June 1, 1995) by an amount equal to twenty-five percent (25%) of Borrower's net profit after tax, as shown on Borrower's quarterly financial statements delivered to Bank pursuant to Section 6.3.1.2 for the immediately preceding fiscal quarter. 2.1.3 Section 6.22.2 of the Loan Agreement is hereby modified in its entirety to read as follows: A Debt to Tangible Net Worth Ratio of not more than 1.70 to 1. 2.1.4 Section 6.22.3 of the Loan Agreement is hereby modified in its entirety to read as follows: A Debt to Net Worth Ratio of not more than 1.25 to 1. 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. 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 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, appraisal, appraisal review, processing, title, filing, and recording costs, expenses, and fees). 5.3.3 Loan commitment fees as follows: (a) A commitment fee of one-half of one percent (.5%) per annum of $15,000,000.00 of the Commitment Amount (i.e., $25,000.00), for the time period from July 28, 1995 until November 26, 1995. (b) A commitment fee of one-half of one percent (.50%) per annum of the remaining $10,000,000.00 of the Commitment Amount (i.e., $16,666.00), for the time period from July 28, 1995 until November 26, 1995. (c) A commitment fee of one-half of one percent (.5%) per annum of $15,000,000.00 of the Commitment Amount (i.e., $71,875.00), for the time period from November 26, 1995 until November 15, 1996. Borrower shall pay a commitment fee in the amount of $75,000.00 on or before November 15, 1996. (d) A commitment fee of one-quarter of one percent (.25%) per annum of the remaining $10,000,000.00 of the Commitment Amount (i.e., $23,959.00), for the time period from November 26, 1995 until November 15, 1996. Borrower shall pay a commitment fee in the amount of $25,000.00 on or before November 15, 1996. 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. MILBURN INVESTMENTS, INC., a Texas corporation By: /s/ Kenda B. Gonzales -------------------------------------- Name: Kenda B. Gonzales ------------------------------------ Title: Treasurer ----------------------------------- BORROWER BANK ONE, ARIZONA, NA, a national banking association By: /s/ Rhonda R. Williams -------------------------------------- Name: Rhonda R. Williams ------------------------------------ Title: Assistant Vice President ----------------------------------- BANK EX-10.4 6 AMENDED AND RESTATED LOAN AGREEMENT AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.4 ----------------------------------- DATE: November 30, 1995 PARTIES: Borrower: CONTINENTAL HOMES HOLDING CORP., a Delaware corporation. Borrower 7001 North Scottsdale Road Address: Suite 2050 Scottsdale, Arizona 85253 Bank: BANK ONE, ARIZONA, NA, a national banking association formerly known as THE VALLEY NATIONAL BANK OF ARIZONA. Bank Address: Western Region Real Estate P.O. Box 29542 Phoenix, Arizona 85038 Attention: Dept. A-383 AGREEMENT: For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows: 1. SCHEDULE OF TERMS. 2. Commitment Amount: $15,000,000.00. 3.1.1.; 3.2 Commitment Expiration Date: November 30, 1996. 3.2 and 5.1.6 Purpose of Advances: Working capital and general corporate purposes to be applied (i) to pay costs and expenses incurred in the ordinary course of Borrower's primary lines of business consisting of the acquisition, development and subdivision of land for residential purposes and the construction and sale of residential dwellings to the general public; (ii) to pay interest due under the Note, the Unused Commitment Fee and the Commitment Fee; (iii) to pay amounts due under the Set Aside Agreement; or (iv) to pay amounts due to be reimbursed to Bank for letters of credit issued pursuant to this Agreement. Advances shall not be available for purposes not described above. 3.6.1. Commitment Fee: $75,000.00. 3.6.2 Unused Commitment Fee Rate: 1/4% per annum. 2. DEFINITIONS. In this Agreement, the following terms shall have the following meanings: "Acquisition Debt" means (i) Debt or Preferred Stock of any Person existing at the time such Person becomes a Subsidiary of Borrower, including but not limited to Debt or Preferred Stock incurred or created in connection with, or in contemplation of, such Person becoming a Subsidiary of Borrower (but excluding Debt of such Person which is extinguished, retired or repaid in connection with such Person becoming a Subsidiary of Borrower), (ii) Debt incurred or created by any Subsidiary of Borrower in connection with the transaction or series of transactions pursuant to which such Person became a Subsidiary of Borrower or (iii) Debt incurred or created by any Subsidiary of Borrower in connection with the acquisition of substantially all of the assets of an operating unit or business of another Person, provided that, in the case of Debt incurred or created pursuant to clause (ii) or (iii) hereof, such Subsidiary had no other prior assets or operations prior to such acquisition, transaction or series of transactions other than Credit Extensions/Contributions permitted by Section 7.9 or made by a Person other than Borrower or any of its Subsidiaries. "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 CHMC and Travis Title, and excluding the indebtedness of Borrower evidenced by the Convertible Notes and the Subordinated Notes, all as shown on a consolidated balance sheet of Borrower prepared in accordance with GAAP and approved by Bank. "Adjusted Debt to Net Worth Ratio" of any Person means the ratio of all of such Person's then outstanding Adjusted Debt, on a consolidated basis, excluding Mortgage Debt, to Net Worth at the end of the fiscal quarter ended immediately preceding the date of determination. "Advance" means an advance under the Commitment. "Affiliate" of any Person means (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person and (ii) any other Person that beneficially owns at least 10% of the voting common stock of such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" means this Loan Agreement as it may be amended, modified, extended, renewed, restated, or supplemented from time to time. "Approvals and Permits" means each and all approvals, authorizations, bonds, consents, certificates, franchises, licenses, permits, registrations, qualifications, and other actions and rights granted by or filings with any Persons necessary, appropriate, or desirable for ownership or lease by Borrower of its assets and property or for the conduct of the business and operations of Borrower. "Bank Facility" means, collectively, one or more commitments from one or more banks or other lending institutions to lend funds together with any and all agreements, documents and instruments from time to time delivered in connection therewith as such commitment or any such agreements, documents or instruments may be in effect or amended, amended and restated, renewed, extended, restructured, supplemented or otherwise modified from time to time and any credit agreement, loan agreement, note purchase agreement, indenture or other agreement, document or instrument refinancing, refunding or otherwise replacing such Bank Facility, whether or not with the same agent, trustee, representative lenders or holders, and, subject to the proviso to the next succeeding sentence, irrespective of any changes in the terms and conditions thereof. Without limiting the generality of the foregoing, the term "Bank Facility" shall include any amendment, amendment and restatement, renewal, extension, restructuring, supplement or modification to any Bank Facility and all refundings, refinancings and replacements of any Bank Facility, including any agreement (i) extending the maturity of any Debt incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, provided that such borrowers and issuers include one or more of Borrower and its Subsidiaries and their respective successors and assigns, (iii) increasing the amount of Debt incurred thereunder or available to be borrowed thereunder, provided that on the date thereof such Debt would not be prohibited by clause (b) of the definition of Permitted Debt, or (iv) otherwise altering the terms and conditions thereof in a manner not prohibited by the terms of this Agreement. "Beneficial Owner" means as defined in Rule 13d-3, as in effect on the date of the execution of this Agreement, promulgated by the Commission under the Exchange Act. "Borrower Loan Documents" means the Loan Documents executed or delivered by Borrower from time to time. "Business Day" means a day of the year on which banks are not required or authorized to close in Phoenix, Arizona. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of capital stock of such Person and all warrants or options to acquire such capital stock. "Carlsbad Property" means the 417 acres owned by the Carlsbad Subsidiary in Carlsbad, California, located in San Diego County. "Carlsbad Subsidiary" means Rancho Carillo, Inc., a Delaware corporation and a Subsidiary of Borrower. "CHI" means Continental Homes, Inc., a Delaware corporation and a Subsidiary of Borrower. "CHICC" means CHI Construction Company, an Arizona corporation and a Subsidiary of CHI. "Change in Control" means that any Person, together with its Affiliates or associates, is or becomes the Beneficial Owner, directly or indirectly, through a purchase, merger or other acquisition transaction, of shares of capital stock of Borrower entitling such person to exercise in excess of 50% of the total voting power of all shares of capital stock of Borrower entitled to vote in elections of directors. "CHMC" means CH Mortgage Company, a Colorado corporation formerly known as American Western Mortgage Company and a Subsidiary of CHI. "Collateral" means the property, interests in property, and rights to property securing any or all Obligations from time to time. "Commission" means The Securities and Exchange Commission. "Commitment" means the agreement of Bank in Sections 3.1 and 3.2 to issue Letters of Credit and to make Advances pursuant to the terms and conditions in the Letter of Credit Agreements and herein. "Commitment Amount" has the meaning specified in Section 1. "Consolidated Interest Expense" of any Person means, for any period, the aggregate amount of interest which, in accordance with GAAP, would be included on an income statement for such Person and its Subsidiaries on a consolidated basis, whether expensed directly, or included as a component of cost of goods sold, or allocated to joint ventures or otherwise (including, but not limited to, imputed interest included on capitalized lease obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other non-cash interest expense), excluding interest expense related to such Person's mortgage banking operations, plus the product of (x) the sum of (i) cash dividends paid on any Preferred Stock of such Person plus (ii) cash dividends, the principal amount of any debt securities issued as a dividend, the liquidation value of any Preferred Stock issued as a dividend and the fair market value (as determined by such Person's board of directors in good faith) of any other non-cash dividends, in each case, paid on any Preferred Stock of any Subsidiary of such Person (other than a wholly-owned Subsidiary), times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective aggregate federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Incurred" of any Person means, for any period, (a) the aggregate amount of interest which, in accordance with GAAP, would be included on an income statement for such Person and its Subsidiaries on a consolidated basis, whether expensed directly, or included as a component of cost of goods sold, or allocated to joint ventures or otherwise (including, but not limited to, imputed interest included on capitalized lease obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount or premium, if any, and all other non-cash interest expense), excluding interest expense related to such Person's mortgage banking operations, plus or minus, without duplication, (b) the difference between capitalized interest for such period and the interest component of cost of goods sold for such period, plus (c) the product of (x) the sum of (i) cash dividends paid on any Preferred Stock of such Person plus (ii) cash dividends, the principal amount of any debt securities issued as a dividend, the liquidation value of any Preferred Stock issued as a dividend and the fair market value (as determined by such Person's board of directors in good faith) of any other non-cash dividends, in each case, paid on any Preferred Stock of any Subsidiary of such Person (other than a wholly-owned Subsidiary), times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective aggregate federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Net Income" of any Person, for any period, means the net income (loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis, in accordance with GAAP, provided that, without duplication, (i) the net income of any Person, other than a Subsidiary which is consolidated with such Person, in which such Person or any of its Subsidiaries has a joint interest with a third party shall be included only to the extent of the amount of dividends or distributions actually paid in cash to such Person or a Subsidiary during such period, (ii) the net income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iii) the net income of any Subsidiary of such Person shall be excluded to the extent such Subsidiary is prohibited, directly or indirectly, from distributing such net income or any portion thereof to such Person and (iv) all extraordinary gains and losses (after taxes) that would be included on an income statement for such Person on a consolidated basis for such period shall be excluded. "Consolidated Non-cash Charges" of any Person means, for any period, the aggregate depreciation, amortization and other non-cash charges (other than reserves or expenses established in anticipation of future cash requirements such as reserves for taxes and uncollectible accounts) of such Person and its Subsidiaries, on a consolidated basis, for such period, as determined in accordance with GAAP, provided that Consolidated Non-cash Charges shall exclude (i) any charges that are not included for the purpose of determining Consolidated Net Income, (ii) any charges that are included for the purpose of determining Consolidated Interest Expense or Consolidated Tax Expense and (iii) any charges representing capitalized selling, general and administrative expenses that are expensed during such period as cost of goods sold. "Consolidated Tax Expense" of any Person means, for any period, the aggregate of the tax expense of such Person and its Subsidiaries for such period, determined on a consolidated basis, in accordance with GAAP. "Convertible Notes" means Borrower's $35,000,000.00 6-7/8% Convertible Subordinated Notes due 2002, issued in connection with the Convertible Notes Indenture. "Convertible Notes Indenture" means that certain Indenture, dated March 15, 1992, between Borrower and Manufacturers and Traders Trust Company, as trustee, with respect to the Convertible Notes. "Coverage Ratio" of any Person means the ratio of such Person's EBITDA to its Consolidated Interest Incurred for the four fiscal quarters ending immediately prior to the date of determination. Notwithstanding clause (ii) of the definition of Consolidated Net Income, if the Debt which is being Incurred is Acquisition Debt, the Coverage Ratio shall be determined after giving effect to both the Consolidated Interest Incurred related to the Incurrence of such Acquisition Debt and the EBITDA (x) of the Person becoming a Subsidiary of such Person or (y) in the case of an acquisition of assets that constitute substantially all of an operating unit or business, relating to the assets being acquired by such Person. "Credit Extensions/Contributions" means any direct or indirect advance, loan or other extension of credit or capital contribution to, or any purchase or acquisition of capital stock, bonds, notes, debentures or other securities issued or owned by, any other Person, including, without limitation, payments by Borrower or any of its Subsidiaries to a Person other than Borrower or any of its Subsidiaries in connection with an acquisition in which Acquisition Debt is Incurred. "Debt" means, as to any Person, without duplication, (a) any indebtedness of such Person for borrowed money, (b) all indebtedness of such Person evidenced by bonds, debentures, notes, letters of credit, drafts or similar instruments, (c) all indebtedness of such Person to pay the deferred purchase price of property or services, but not including accounts payable and accrued expenses arising in the ordinary course of business, (d) all capitalized lease obligations of such Person, (e) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person or guaranteed by such Person, (f) Redeemable Stock, and (g) all Debt of others guaranteed by such Person. The amount of Debt of any Person at any date pursuant to clauses (a)-(d) and (f) above shall be as would appear as a liability upon a balance sheet of such Person prepared on a consolidated basis in accordance with GAAP. "EBITDA" for any Person, for any period, means, without duplication, the Consolidated Net Income of such Person plus, to the extent deducted in calculating Consolidated Net Income, the sum of (a) Consolidated Tax Expense, (b) Consolidated Interest Expense and (c) Consolidated Non-cash Charges. "ERISA" means the Employee Retirement Income Security Act of 1974 and the regulations and published interpretations thereunder, as in effect from time to time. "Event of Default" has the meaning specified in the Note and the other Loan Documents. "Exchange Act" means The Securities Exchange Act of 1934, as amended. "Existing Debt" means all of the Debt of Borrower and its Subsidiaries that is outstanding on the date of this Agreement and listed on Schedule I hereto. "GAAP" means generally accepted accounting principles consistently applied. "Governmental Authority" means any government, any court, and any agency, authority, body, bureau, department, or instrumentality of any government. "Guaranty" or "Guaranties" means individually and collectively, the payment guaranties of Guarantors of even date herewith. "Guarantors" means both of the following: CHICC and CHI. "Incur," "Incurred," "Incurring," "Incurrence" means with respect to any Person, that such Person has directly or indirectly created, incurred, assumed, guaranteed, or otherwise become liable for any Debt or other obligation. "Indenture" means that certain Indenture, dated as of August 1, 1992 between Borrower and Fidelity Bank, National Association, as Trustee, with respect to the Public Notes, as amended by that First Supplemental Indenture dated March 22, 1994. "Intangible Assets" of any Person means such Person's goodwill, patents, trademarks, copyrights, and all other items which would be treated as intangibles on the consolidated balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP. "Letter of Credit Agreement" means Bank's standard form Application and Agreement for Commercial Letter of Credit, Bank's standard form Application for Standby Letter of Credit and Standby Letter of Credit Agreement, or other standard application and agreement for letters of credit in use by Bank from time to time. "Letters of Credit" means the letters of credit in Bank's standard form from time to time issued pursuant to Section 3.1. "Lien or Encumbrance" and "Liens and Encumbrances" mean, respectively, each and all of the following: (i) any lease or other right to use; (ii) any assignment as security, conditional sale, grant in trust, lien, mortgage, pledge, security interest, title retention arrangement, other encumbrance, or other interest or right securing the payment of money or the performance of any other liability or obligation, whether voluntarily or involuntarily created and whether arising by agreement, document, or instrument, under any law, ordinance, regulation, or rule (federal, state, or local), or otherwise; and (iii) any option, right of first refusal, other right to acquire, or other interest or right. "Liquidity" means with respect to any Person, the amount of that Person's unencumbered cash and unencumbered cash equivalents (including amounts on deposit with Bank pursuant to Section 6.14 hereof) as determined in accordance with GAAP, plus, in the case of Borrower, (i) the portion of the Commitment Amount that is undisbursed and available for disbursement at the time of each determination of Liquidity, (ii) the amount of the Warehouse Facility that is undisbursed and available for disbursement at the time of each determination of Liquidity, and (iii) the amount of other Bank Facilities that is undisbursed and available for disbursement at the time of each determination of Liquidity. "Loan Documents" means this Agreement, the Note, the Letter of Credit Agreements executed and delivered by Borrower in connection with the Letters of Credit from time to time, the Set Aside Agreement, and any other agreements, documents, or instruments from time to time evidencing, guarantying, securing, or otherwise relating to the Note, as they may be amended, modified, extended, renewed, or supplemented from time to time. "Loan Party" means Borrower, the Guarantors, and each other Person that from time to time is or becomes obligated to Bank under any Loan Document or grants any Collateral. "Material Adverse Change" means any change in the assets, business, financial condition, operations, prospects, or results of operations of any Loan Party or any other event or condition that in the reasonable opinion of Bank (i) could affect the likelihood of performance by any Loan Party of any of the Obligations, (ii) could affect the ability of any Loan Party to perform any of the Obligations, (iii) could affect the legality, validity, or binding nature of any of the Obligations or any Lien or Encumbrance securing any of the Obligations, or (iv) could affect the priority of any Lien or Encumbrance securing any of the Obligations. "Mortgage Debt" means such mortgage banking debt as would be listed on the consolidated balance sheet of Borrower prepared in accordance with GAAP. "Net Worth" of any Person means, at any date, the aggregate of capital, surplus and retained earnings of such Person as would be shown on a consolidated balance sheet of such Person prepared in accordance with GAAP, adjusted to exclude (to the extent included) investments by such Person and its Subsidiaries in joint ventures and the amount of equity attributable to Affiliates other than Subsidiaries of such Person, and, solely for purposes of determining Borrower's compliance with the covenant set forth in Section 6.12.3, adjusted to include (to the extent excluded), in Borrower's case, the indebtedness of Borrower evidenced by the Convertible Notes and the Subordinated Notes. "Non-Recourse Debt" means Debt or other obligations to the extent that the liability for such Debt or other obligations does not extend to Borrower or any of its Subsidiaries (other than the Subsidiary incurring such Debt or which holds title to any property securing such Debt) for any deficiency, including liability by reason of any agreement by Borrower or any of its Subsidiaries to maintain the financial condition of, keep-well or otherwise support the credit of the Subsidiary incurring such Debt. "Note" means the Amended and Restated Promissory Note, dated of even date herewith, of Borrower payable to Bank, as it may be amended, modified, extended, renewed, restated, or supplemented from time to time. "Obligations" means the obligations of the Loan Parties under the Loan Documents (including, without limitation, the obligation to pay Reimbursement Amounts and amounts under the Set Aside Agreement). "Permitted Debt" means: (a) Debt evidenced by the Public Notes; (b) Debt Incurred under or in respect of this Agreement or any other Bank Facility (including any guarantees related thereto) for working capital or general corporate purposes, Debt evidenced by letters of credit (including letters of credit issued pursuant to this Agreement), 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; (c) Debt Incurred by CHMC under the Warehouse Facility; (d) Debt of Borrower to any of its Subsidiaries or of any Subsidiary of Borrower to Borrower or to any other Subsidiary of Borrower, provided that such Debt is evidenced by a promissory note that is not pledged to any Person (other than to secure the Obligations); (e) Existing Debt (without duplication of Debt indicated under clauses (a)-(d) above) of Borrower and its Subsidiaries; (f) Non-Recourse Debt Incurred by the Carlsbad Subsidiary in an amount not to exceed $18,000,000 at any time outstanding; (g) Debt in respect of performance, completion, guarantee, surety and similar bonds or banker's acceptances provided by Borrower or any of its Subsidiaries in the ordinary course of business; (h) Purchase Money Obligations incurred in the ordinary course of business in an amount not exceeding $5,000,000.00 at any time outstanding; (i) Acquisition Debt of a Subsidiary of Borrower which, if Incurred by Borrower, would be permitted pursuant to Section 7.5.2 hereof; (j) Refinancing Debt; and (k) Debt evidenced by the Convertible Notes and the Subordinated Notes. "Permitted Exceptions" with respect to Borrower and its Subsidiaries means (i) Liens and Encumbrances securing the Obligations; (ii) Liens and Encumbrances securing the Warehouse Facility, provided that such Liens and Encumbrances shall not extend to any assets other than the mortgages, promissory notes and other collateral that secures mortgage loans made by CHMC; (iii) Liens and Encumbrances on assets of Borrower or any Subsidiary of Borrower securing the Bank Facility; provided that the Liens and Encumbrances granted in respect of the Bank Facility shall not extend to assets having a book value in the aggregate in excess of two times the amount committed under the Bank Facility; (iv) Liens and Encumbrances securing Non-Recourse Debt incurred by the Carlsbad Subsidiary; provided that such Liens shall not extend to any assets of Borrower or any of its Subsidiaries other than the Carlsbad Subsidiary; (v) Liens and Encumbrances for taxes, assessments or governmental charges or claims that either (a) are not yet delinquent or (b) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP; (vi) statutory Liens and Encumbrances of landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other Liens and Encumbrances imposed by law and arising in the ordinary course of business; (vii) Liens and Encumbrances (other than any Lien or Encumbrance imposed by ERISA) deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (viii) Liens and Encumbrances incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, progress payments, government contracts and other obligations of like nature (exclusive of obligations for the payment of borrowed money), in each case, incurred in the ordinary course of business; (ix) attachment or judgment Liens and Encumbrances not giving rise to an Event of Default or Unmatured Event of Default; (x) easements, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary conduct of the business of Borrower or any of its Subsidiaries; (xi) leases or subleases granted to others not materially interfering with the ordinary conduct of the business of Borrower or any of its Subsidiaries; (xii) Liens and Encumbrances with respect to Acquisition Debt; provided that such Liens and Encumbrances do not extend to any other assets of Borrower or the assets of any of Borrower's other Subsidiaries; (xiii) Liens securing Refinancing Debt; provided that such Liens only extend to the assets securing the Debt being refinanced, and such refinanced Debt was previously secured and such Liens and Encumbrances do not extend to any other assets of Borrower or to the assets of Borrower's other Subsidiaries; (xiv) Liens securing Purchase Money Obligations (including capitalized lease obligations); (xv) Liens existing on the date of this Agreement; and (xvi) any contract to sell an asset provided such sale is otherwise permitted under this Agreement (and the foregoing shall not constitute a consent of Bank to a sale or obligate Bank to consent to a sale). "Permitted Payments" means, with respect to Borrower or any of its Subsidiaries, (i) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock in exchange for (including any exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares), or out of the proceeds of a substantially concurrent issue and sale (other than to a Subsidiary) of, shares of Capital Stock (other than Redeemable Stock) of Borrower, provided that the proceeds of any such issuance and sale of shares of capital stock of Borrower shall not be included in determination of amounts available for Restricted Payments, (ii) any dividend or other distribution on any shares of its Capital Stock payable by a Subsidiary to Borrower or another of its Subsidiaries, or (iii) any wages or other compensation paid by Borrower or any of its Subsidiaries to their employees. "Person" means any individual, corporation, partnership, association, trust or other entity or organization, including a government or political subdivision or agency or instrumentality thereof. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's preferred or preference stock whether now outstanding or issued after the date of this Agreement, and including, without limitation, all classes and series of preferred or preference stock. "Public Notes" means Borrower's $110,000,000.00 12% Senior Notes due 1999. "Purchase Money Obligations" means Debt of any Person secured by Liens (i) on property purchased, acquired, or constructed by such Person or its Subsidiaries after the date of the Indenture and used in the ordinary course of business by such Person and (ii) securing the payment of all or any part of the purchase price or construction cost of such assets and limited to the property so acquired and improvements thereof; provided that such Debt is incurred no later than 90 days after the acquisition of such property or completion of such construction or improvements. "Redeemable Stock" means, with respect to any Person, any class or series of Capital Stock of such Person that is redeemable at the option of the holder (except pursuant to a change in control provision that does not (i) cause such Capital Stock to become redeemable in circumstances which would not constitute a Change in Control and (ii) require Borrower to pay the redemption price therefor prior to the repayment in full of all Obligations, the expiration of all Letters of Credit, and the expiration of the Commitment), or is subject to mandatory redemption or otherwise matures prior to the final stated maturity of the Public Notes. "Refinancing Debt" means Debt that refunds, refinances or extends the Public Notes, Existing Debt (other than Existing Debt repaid with the net proceeds of Advances pursuant to this Agreement) or other Debt incurred by Borrower or its Subsidiaries pursuant to the terms of the Indenture and this Agreement, but only to the extent that (i) the Refinancing Debt is subordinated to the Obligations and the Public Notes to the same extent as the Debt being refunded, refinanced or extended, if at all, (ii) the Refinancing Debt is scheduled to mature either (a) no earlier than the Debt being refunded, refinanced or extended, or (b) after the maturity date of the Public Notes, (iii) the portion, if any, of the Refinancing Debt that is scheduled to mature on or prior to the maturity date of the Public Notes has a Weighted Average Life to Maturity at the time such Refinancing Debt is Incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Debt being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Public Notes, (iv) the obligor of such Refinancing Debt shall be Borrower or the same obligor as the Debt being refunded, refinanced or extended, and (v) the gross proceeds of such Refinancing Debt is an amount that is equal to or less than the aggregate principal amount then outstanding under the Debt being refunded, refinanced or extended. "Reimbursement Amount" means the amount Borrower is obligated to pay to Bank under a Letter of Credit Agreement in respect of a draft drawn or drawn and accepted under the respective Letter of Credit, which amount shall be the amount of the draft or acceptance and all costs, expenses, fees, and other amounts then payable by Borrower to Bank under the Letter of Credit Agreements. "Restricted Payments" means, with respect to any Person (i) any dividend or other distribution on any shares of such Person's Capital Stock (except dividends or distributions in additional shares of Capital Stock other than Redeemable Stock), (ii) any payment on account of the purchase, redemption or other acquisition of (a) any shares of such Person's Capital Stock or (b) any option, warrant or other right to acquire shares of such Person's Capital Stock, (iii) any Credit Extensions/Contributions to Affiliates Incurred after the date of the Indenture; provided, that for purposes of this provision an individual shall not be deemed to be an Affiliate of Borrower or any of its Subsidiaries solely because such individual is employed by Borrower or any of its Subsidiaries or, (iv) any principal payment, redemption, repurchase, defeasance or other acquisition or retirement (other than the retirement of any Subordinated Notes upon conversion of such of the Subordinated Notes pursuant to the terms of the Subordinated Notes Indenture), prior to scheduled principal payment or scheduled maturity, of Debt of Borrower or its Subsidiaries which is subordinated in right of payment to the Public Notes and the Note, provided, however, that with respect to Borrower and its Subsidiaries, Restricted Payments shall not include (a) any payment described in clause (i), (ii) or (iii) above made to Borrower or any of its Subsidiaries (other than the Carlsbad Subsidiary (in the case of clause (iii)) or any of its Subsidiaries which has liability in respect of Acquisition Debt) by Borrower or any of its Subsidiaries, or (b) any underwritten call of the Subordinated Notes or other Debt of Borrower which is convertible into Capital Stock (other than Redeemable Stock) but only to the extent Borrower is not required to make any redemption or principal payments in respect of Debt subject to such underwritten call (other than redemption and principal payments which are covered by the net proceeds received by Borrower from a concurrent sale of Capital Stock (other than Redeemable Stock) to the underwriters effecting such underwritten call). "Set Aside Agreement" has the meaning set forth in Section 3.5. "Set Aside Amount" has the meaning set forth in Section 3.5. "Standard Number of Days" means the standard number of days established by Bank from time to time to allow for delivery to Bank of drafts drawn under Letters of Credit presented to financial institutions other than Bank for delivery to Bank. Bank may change such number of days at any time and from time to time in its absolute and sole discretion without notice to Borrower and may have a different number of days for commercial letters of credit and standby letters of credit. "Subordinated Notes" means Borrower's $86,250,000.00 6-7/8% Convertible Subordinated Notes due 2002, issued in connection with the Subordinated Notes Indenture. "Subordinated Notes Indenture" means that certain Indenture dated November 1, 1995 between Borrower and Manufacturers and Traders Trust Company, as trustee, with respect to the Subordinated Notes. "Subsidiary" and "Subsidiaries" mean, with respect to any Person, (i) any corporation of which a majority of the capital stock having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is at the time directly or indirectly owned by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, 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. "Tangible Net Worth" of any Person means such Person's Net Worth less such Person's Intangible Assets. "Unmatured Event of Default" means any condition or event that with notice, passage of time, or both would be an Event of Default. "Warehouse Facility" means the Second Amended and Restated Warehousing Credit and Security Agreement dated as of July 1, 1995 between Bank and CHMC, as the same may be amended, modified, extended, renewed, restated and supplemented from time to time. "Weighted Average Life to Maturity" means, when applied to any Debt or portion thereof, if applicable, at any date, the number of years obtained by dividing (i) the then outstanding principal amount of such Debt or portion thereof, if applicable, into (ii) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. 3. LETTERS OF CREDIT AND LOAN FACILITY. 3.1 Letters of Credit. 3.1.1 Issuance of Letters of Credit. Subject to the terms and conditions of this Agreement and the Letter of Credit Agreements and subject to the policies, procedures, and requirements of Bank in effect from time to time for issuance of Letters of Credit (including, without limitation, payment of letter of credit fees), Bank agrees to issue, from time to time on or before the Commitment expiration date specified in Section 1, Letters of Credit upon request by and for the account of Borrower, provided that as to each requested Letter of Credit Borrower has delivered to Bank a completed and executed Letter of Credit Agreement, and provided further that the date that is the Standard Number of Days after the last date for payment of drafts drawn or drawn and accepted under a requested Letter of Credit is before the Commitment expiration date specified in Section 1. Each reference in this Agreement to "issue" or "issuance" or other forms of such words in relation to Letters of Credit shall also include any extension or renewal of a Letter of Credit. Upon occurrence of an Event of Default or an Unmatured Event of Default, Bank, in its absolute and sole discretion and without notice, may suspend the commitment to issue Letters of Credit. In addition, upon occurrence of an Event of Default, Bank, in its absolute and sole discretion and without notice, may terminate the commitment to issue Letters of Credit. 3.1.2 Issuance Procedure. To obtain a Letter of Credit, Borrower shall complete and execute a Letter of Credit Agreement and submit it to the letter of credit department of Bank and to the address of Bank specified on the first page of this Agreement. In no event shall Bank have any obligation to act upon an oral request for a Letter of Credit or any request that otherwise does not conform to Bank's policies and procedures. Upon receipt of a completed and executed Letter of Credit Agreement, Bank will process the application in accordance with the policies, procedures, and requirements of Bank then in effect. If the application meets the requirements of Bank and is within the policies of Bank then in effect, Bank will issue the requested Letter of Credit; provided, however, that unless otherwise agreed by Bank in its sole and absolute discretion Borrower shall be entitled to request that Bank issue Letters of Credit only in connection with, and as security for, the construction of offsite improvements by Borrower for residential subdivisions being developed by Borrower in the ordinary course of Borrower's business. 3.1.3 Reimbursement of Bank for Payment of Drafts Drawn or Drawn and Accepted Under Letters of Credit. The obligation of Borrower to reimburse Bank for payment by Bank of drafts drawn or drawn and accepted under a Letter of Credit shall be as provided in the respective Letter of Credit Agreement. Bank will notify Borrower of payment by Bank of a draft drawn or drawn and accepted under a Letter of Credit and of the respective Reimbursement Amount and will give Borrower the election (i) to pay the Reimbursement Amount pursuant to the respective Letter of Credit Agreement or (ii) to pay the Reimbursement Amount by Bank making an Advance subject to the terms and conditions of this Agreement and applying the proceeds of the Advance to pay the Reimbursement Amount. If Borrower does not communicate to Bank its election within two Business Days after notification by Bank of payment of the draft or acceptance, Borrower shall be deemed to have elected to pay the Reimbursement Amount by Bank making an Advance hereunder, provided that if the terms and conditions in this Agreement for an Advance hereunder are not satisfied, Borrower shall be deemed to have elected to pay the Reimbursement Amount pursuant to the Letter of Credit Agreement. Each Advance to pay a Reimbursement Amount will be dated the date that Bank pays the respective draft or acceptance and will accrue interest from and after such date. If Borrower is to pay the Reimbursement Amount pursuant to the Letter of Credit Agreement, Borrower shall also pay to Bank interest on the Reimbursement Amount from and including the date Bank pays the respective draft or acceptance at the Interest Rate (as defined in the Note) until the Reimbursement Amount and such interest are paid in full, provided that if Borrower fails to pay the Reimbursement Amount and accrued interest thereon within five (5) days after notification by Bank to Borrower of payment of the respective draft or acceptance, interest thereafter will accrue at the Default Rate (as such term is defined in the Note). Such interest shall be computed on the basis of a 360-day year and accrue on a daily basis for the actual number of days elapsed. Notwithstanding the above, if Borrower elects or is deemed to have elected to pay the Reimbursement Amount pursuant to the Letter of Credit Agreement and fails to pay the Reimbursement Amount and interest thereon within five (5) days after notification by Bank to Borrower, Bank, in its absolute and sole discretion and without notice to Borrower and regardless of whether the terms and conditions in this Agreement for Advances are satisfied, may make an Advance under this Agreement in the amount of the Reimbursement Amount and accrued interest thereon and apply the proceeds of such Advance to pay the Reimbursement Amount and accrued interest. 3.2 Loan Facility. Subject to the terms and conditions of this Agreement, Bank agrees to make Advances to Borrower from time to time on or before the Commitment expiration date specified in Section 1. Proceeds of Advances may be used only to pay Reimbursement Amounts due to Bank under Letter of Credit Agreements, amounts due to Bank under the Set Aside Agreement, and for any other purposes described in Section 1. Advances shall be on a revolving basis. Advances prepaid may be re-borrowed subject to the terms and the conditions herein. Although the outstanding principal of the Note may be zero from time to time, the Loan Documents shall remain in full force and effect until the Commitment terminates, all Letters of Credit have expired or are drawn in full, all drafts drawn or drawn and accepted under all Letters of Credit have been paid in full, and all Obligations are paid and performed in full. Upon occurrence of an Event of Default, an Unmatured Event of Default or the violation of any of the financial covenants set forth in Section 6.12.1, 6.12.2 or 6.12.3 hereof (regardless of whether such violation otherwise is an Event of Default or Unmatured Event of Default), Bank, in its absolute and sole discretion and without notice, may suspend the commitment to make Advances. In addition, upon the occurrence of an Event of Default, Bank, in its absolute and sole discretion and without notice, may terminate the commitment to make Advances. The obligation of Borrower to repay Advances is evidenced by the Note. 3.3 Requests for Letters of Credit and Advances. Letters of Credit may be issued and Advances may be made, in accordance with the terms hereof, by Bank at the written request of the Person or Persons designated in a signature authorization form delivered to Bank from time to time by Borrower. Such Person or Persons are hereby authorized by Borrower to request Letters of Credit and Advances, to execute and deliver Letter of Credit Agreements, and to direct disposition of the proceeds of Advances until written notice of the revocation of such authority is received from Borrower by Bank and Bank has had a reasonable time to act upon such notice. Bank shall have no duty to monitor for Borrower or to report to Borrower the use of Letters of Credit or proceeds of Advances. Advances shall be disbursed by Bank into an account of Borrower with Bank, provided, however, that Advances to pay Reimbursement Amounts shall be paid to Bank. 3.4 Limit on Letters of Credit and Advances. Anything in the Loan Documents to the contrary notwithstanding, the sum from time to time of (i) the aggregate amount of outstanding and undrawn Letters of Credit, (ii) the aggregate amount of outstanding and unpaid drafts drawn and accepted under Letters of Credit, (iii) the aggregate amount of unpaid Reimbursement Amounts, (iv) the Set Aside Amount less any portion of the Set Aside Amount that has been advanced by Bank pursuant to this Agreement and thereafter repaid by Borrower, and (v) the amount of outstanding and unpaid Advances shall not exceed the Commitment Amount. In addition, anything in the Loan Documents to the contrary notwithstanding, the sum from time to time of the amounts described in clauses (i), (ii), (iii) and (iv) of the immediately preceding sentence shall not exceed ten percent (10%) of the Commitment Amount. 3.5 Set Aside Agreement. Borrower and Bank have entered into (or may enter into after execution hereof) a Set Aside Agreement (the "Set Aside Agreement") in connection with a loan from Bank to Surprise Village North L.L.C. and Continental Traditions L.L.C., which loan relates to certain real property located in Surprise, Arizona. Pursuant to the terms of the Set Aside Agreement, Borrower agreed to "set aside" a portion of the Commitment Amount in the sum of $1,500,000.00 (the "Set Aside Amount") for purposes of paying certain release prices as more fully described therein. Bank, from time to time in its sole and absolute discretion and without notice to Borrower and regardless of whether the terms and conditions in this Agreement for Advances are satisfied, may make an Advance under this Agreement in the amount owed under the Set Aside Agreement and apply the proceeds of such Advance to pay such amount. 3.6 Fees. As additional consideration for the Commitment, Borrower agrees to pay to Bank the following fees, which shall be earned by Bank on the date due under the Loan Documents and shall be non-refundable to Borrower: 3.6.1 Commitment Fee. A fee for the Commitment in the amount set forth in Section 1, payable on or before the date hereof. 3.6.2 Unused Commitment Fee. An unused commitment fee computed at the rate per annum set forth in Section 1 on the unused portion of the Commitment Amount, calculated from the date hereof and payable monthly in arrears. For each month (or portion thereof), the unused commitment fee shall be equal to (a) the Commitment Amount 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 (1/12th) of the annual fee. As used herein, "average monthly outstandings" means the sum of the outstanding amount of the Advances on each day during the month (or portion thereof for which the fee is being computed) 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. 3.6.3 Attorneys' Costs, Expenses, and Fees. Attorneys' costs, expenses, and fees for Bank's counsel in the amount specified by Bank, payable on or before the date hereof. 4. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE COMMITMENT. 4.1 Conditions Precedent to Closing and Commitment. This Agreement and the Commitment shall become effective only upon satisfaction of the following conditions precedent, as determined by Bank in its absolute and sole discretion: 4.1.1 Representations and Warranties Accurate. The representations and warranties by each Loan Party in the Loan Documents are correct on and as of the date of this Agreement as though made on and as of such date. 4.1.2 No Event of Default or Unmatured Event of Default. No condition or event has occurred that is an Event of Default or an Unmatured Event of Default. 4.1.3 No Material Adverse Change. No Material Adverse Change has occurred. 4.1.4 Receipt of Documents. Bank has received the following duly executed by the parties thereto and in form and substance satisfactory to Bank in its absolute and sole discretion. 4.1.4.1 Loan Documents. The Loan Documents. 4.1.4.2 Corporate or Partnership Documents. If any Loan Party is a corporation, limited liability company, or a partnership, certified copies of (a) resolutions of its board of directors, members, or partners, as the case may be, authorizing such Loan Party to execute, deliver, and perform pursuant to its Loan Documents and to grant to Bank the Liens and Encumbrances provided in the Loan Documents and certifying the names and signatures of the officers or partners, as the case may be, of such Loan Party authorized to execute the Loan Documents on behalf of such Loan Party, (b) the certificate of incorporation and bylaws, articles of organization, limited liability company operating agreement, or partnership agreement, as the case may be, of such Loan Party, (c) a certificate of good standing as a corporation, limited liability company, or limited partnership, as the case may be, from such Loan Party's State of organization, and if not Arizona, a certificate of qualification as a foreign corporation, limited liability company, or limited partnership, as the case may be, authorized to transact business in the State of Arizona, from the State of Arizona. 4.1.5 Completion of Filings. Bank has received evidence of the completion of all filings to establish or maintain the perfection and the priority of the Liens and Encumbrances granted in the Loan Documents. 4.1.6 Payment of Costs, Expenses, and Fees. All costs, expenses, and fees to be paid by the Loan Parties on or before the effectiveness of this Agreement shall have been paid in full. 4.1.7 Opinion Letter. Bank has received a favorable opinion from Borrower's in-house counsel in form and substance satisfactory to Bank and its counsel. 4.1.8 Financial Statements. Bank has received financial statements including, without limitation, a balance sheet, cash flow statement and income statement, of Borrower and each other Loan Party (or consolidated statements reflecting such information with respect to Borrower and the other Loan Parties), certified by Borrower and each other Loan Party. 4.1.9 Commitment Fee. Borrower has paid the Commitment Fee. 4.1.10 Other Items. Bank has received such other items or documents as Bank may require. 4.2 Conditions Precedent to Advances and the Issuance of Letters of Credit. Bank's obligation to make Advances or to issue Letters of Credit shall become effective only upon satisfaction by Borrower, at Borrower's sole cost and expense, of the conditions precedent set forth in Section 4.1 and the following conditions precedent with respect to each Advance or Letter of Credit. 4.2.1 Representations and Warranties. The representations and warranties by the Loan Parties in the Loan Documents are correct on and as of the date of each Advance or the date of issuance of each Letter of Credit, as applicable, as though made on and as of such date and after giving effect to such Advance or issuance. 4.2.2 No Event of Default or Unmatured Event of Default: Compliance with Certain Financial Covenants. No condition or event has occurred that is an Event of Default or an Unmatured Event of Default both before and after giving effect to such Advance or issuance. Borrower is in compliance with the financial covenants set forth in Section 6.12.1, 6.12.2 and 6.12.3 hereof both before and after giving effect to such Advance or issuance. 4.2.3 No Material Adverse Change. No Material Adverse Change has occurred. 4.2.4 Draw Request. With respect to any Advance, Bank has received a draw request in the form of Exhibit A hereto from Borrower, not less than one (1) Business Day prior to the date for which such Advance is requested, specifying the amount of the Advance requested and supported by such documentation as Bank may require. 4.2.5 Letters of Credit. With respect to any Letter of Credit, Borrower shall have complied with the terms and conditions of Section 3 hereof. 4.2.6 Other Items. Bank has received such other items or documents as Bank may require. Borrower hereby authorizes Bank, and Bank reserves the right in its absolute and sole discretion, to verify any documents and information submitted to Bank in connection with this Agreement. Bank may elect, in its absolute and sole discretion, to waive any of the foregoing conditions precedent. Any such waiver shall be effective only if (i) it is in writing executed by Bank, (ii) it specifically identifies the condition precedent, and (iii) it states whether the condition precedent is waived as a requirement of the effectiveness of this Agreement, the effectiveness of the Commitment, and/or as a requirement for a particular Advance or Letter of Credit. Any such waiver shall be limited to the condition(s) precedent specifically described therein and the requirements therein. Delay or failure by Bank to insist on satisfaction of any condition of an Advance or issuance of a Letter of Credit shall not be a waiver of such condition precedent or any other .condition precedent. If Borrower is unable to satisfy any condition precedent of an Advance or a Letter of Credit, the making of the Advance or issuance of the Letter of Credit shall not preclude Bank from thereafter declaring the condition or event causing such inability to be an Event of Default. 5. BORROWER REPRESENTATIONS AND WARRANTIES. 5.1 Closing Representations and Warranties. Borrower represents and warrants to Bank as of the date of this Agreement: 5.1.1 Corporate, Limited Liability Company, or Partnership Existence and Authorization. If Borrower is a corporation, a limited liability company, or a partnership, Borrower is validly existing, and in the case of a corporation or limited liability company is in good standing, under the laws of the jurisdiction of its formation or organization and has the requisite power and authority to execute, deliver, and perform Borrower Loan Documents. The execution, delivery, and performance by Borrower of Borrower Loan Documents have been duly authorized by all requisite action by or on behalf of Borrower and will not conflict with, or result in a violation of or a default under, the certificate of incorporation and bylaws, the limited liability company operating agreement, or the partnership agreement of Borrower, as the case may be. If Borrower is not formed or organized under the laws of the State of Arizona, Borrower is qualified to do business as a foreign corporation, limited liability company, or partnership, as the case may be, and in the case of a corporation or limited liability company is in good standing, under the law of the State of Arizona. 5.1.2 No Approvals. No approval, authorization, bond, consent, certificate, franchise, license, permit, registration, qualification, or other action or grant by or filing with any Person is required in connection with the execution, delivery, or performance by Borrower of Borrower Loan Documents. 5.1.3 No Conflicts. The execution, delivery, and performance by Borrower of Borrower Loan Documents will not conflict with, or result in a violation of or a default under: any applicable law, ordinance, regulation, or rule (federal, state, or local); any judgment, order, or decree of any arbitrator, other private adjudicator, or Governmental Authority to which Borrower is a party or by which Borrower or any of the assets or property of Borrower is bound; any of the Approvals or Permits; or any agreement, document, or instrument to which Borrower is a party or by which Borrower or any of the assets or property of Borrower is bound (including, without limitation, any agreement, document or instrument in connection with the Public Notes, the Convertible Notes, the Subordinated Notes, any Bank Facility and any other Existing Indebtedness). This Agreement and the Commitment constitute a "Bank Facility" as that term is defined in the Indenture; the Obligations constitute "Permitted Debt" as that term is defined in the Indenture; the Obligations rank pari passu with the Public Notes and are senior to the Convertible Notes and the Subordinated Notes. 5.1.4 Execution and Delivery and Binding Nature of Borrower Loan Documents. The Borrower Loan Documents have been duly executed and delivered by or on behalf of Borrower. The Borrower Loan Documents are legal, valid, and binding obligations of Borrower, enforceable in accordance with their terms against Borrower, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization, or similar laws and by equitable principles of general application. 5.1.5 Accurate Information. All information in any loan application, financial statement, certificate, or other document and all other information delivered by or on behalf of Borrower to Bank in obtaining the Commitment is correct and complete, and there are no omissions therefrom that result in any such information being incomplete, incorrect, or misleading as of the date thereof. There has been no Material Adverse Change as to Borrower since the date of such information. All financial statements heretofore delivered to Bank by Borrower were prepared in accordance with the requirements set forth in this Agreement and accurately present the financial condition and results of operations of Borrower as at the dates thereof and for the periods covered thereby. 5.1.6 Purpose of Advances. The purpose of the Advances is as set forth in Section 1. 5.1.7 Legal Proceedings: Hearings, Inquiries, and Investigations. Except as disclosed to Bank in writing prior to the date of this Agreement, (i) no legal proceeding is pending or, to best knowledge of Borrower, threatened before any arbitrator, other private adjudicator, or Governmental Authority to which Borrower is a party or by which Borrower or any assets or property of Borrower may be bound or affected that if resolved adversely to Borrower could result in a Material Adverse Change, and to the best knowledge of Borrower, there exist no facts that would form any basis for any of the foregoing, and (ii) no hearing, inquiry, or investigation relating to Borrower or any assets or property of Borrower is pending or, to the best knowledge of Borrower, threatened by any Governmental Authority. 5.1.8 No Event of Default or Unmatured Event of Default. No Event of Default and no Unmatured Event of Default has occurred and is continuing. No event of default or event which with notice or lapse of time or both would become an event of default has occurred or is continuing with respect to the Public Notes, the Convertible Notes, the Subordinated Notes, any Bank Facility, or any other Debt of Borrower. 5.1.9 Approvals and Permits: Assets and Property. Borrower has obtained and there are in full force and effect all Approvals and Permits. Borrower owns or leases all assets and property necessary for conduct of the business and operations of Borrower. Such assets and property are not subject to any Liens and Encumbrances, other than Permitted Exceptions. 5.1.10 Taxes. Borrower has filed or caused to be filed all tax returns (federal, state, and local) required to be filed by Borrower and has paid all taxes and other amounts shown thereon to be due (including, without limitation, any interest and penalties). 5.1.11 ERISA. Borrower is in compliance with ERISA. No Reportable Event or Prohibited Transaction (as defined in ERISA) or termination of any plan has occurred and no notice of termination has been filed with respect to any plan established or maintained by Borrower and subject to ERISA. Borrower has not incurred any material funding deficiency within the meaning of ERISA or any material liability to the Pension Benefit Guaranty Corporation in connection with any such plan established or maintained by Borrower. Borrower is not a party to any Multiemployer Plan (as defined in ERISA). 5.1.12 Environmental Matters. The information in any environmental questionnaire delivered to Bank is accurate and complete with no material omissions therefrom as of the date thereof. To the best knowledge of Borrower after due investigation, Borrower is in compliance in all material respects with all environmental, all health, and all safety laws, ordinances, regulations, and rules (federal, state, and local) applicable to Borrower, the assets or property of Borrower, the business or operations of Borrower, or the products or services of Borrower. Borrower does not have any material existing or contingent liability in connection with any disposal, generation, manufacture, processing, production, release, storage, transportation, treatment, or use of any hazardous or toxic substance or waste. 5.1.13 Investment Company Act. Borrower is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.1.14 Margin Securities. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of Advances will be used to purchase or carry any margin stock or extend credit to others for the purpose of purchasing or carrying margin stock or for any purpose that -violates or is inconsistent with Regulation X of the Board of Governors. 5.2 Representations and Warranties Upon Requests for Advances or Letters of Credit. Each request for an Advance or a Letter of Credit shall be a representation and warranty by Borrower to Bank that the representations and warranties in this Section 5 are correct and complete as of the date of the Advance or the issuance of the Letter of Credit and that the conditions precedent in Section 4 are satisfied as of the date of the Advance or the issuance of the Letter of Credit. 5.3 Representations and Warranties Upon Delivery of Financial Statements, Documents and Other Information. Each delivery by Borrower to Bank of financial statements, other documents, or information after the date of this Agreement (including, without limitation, documents and information delivered in obtaining an Advance or Letter of Credit) shall be a representation and warranty that such financial statements, other documents, or information is correct and complete, that there are no omissions therefrom that result in such financial statements, other documents, or information being incomplete, incorrect, or misleading as of the date thereof, and that such financial statements accurately present the financial condition and results of operations of Borrower as at the dates thereof and for the periods covered thereby. 6. BORROWER AFFIRMATIVE COVENANTS. Until the Commitment terminates in full, until all Letters of Credit expire or are drawn in full until all drafts drawn or drawn and accepted under Letters of Credit are paid in full, and until the Obligations are paid and performed in full, Borrower agrees that, unless Bank otherwise agrees in writing in Bank's absolute and sole discretion: 6.1 Corporate, Limited Liability Company, or Partnership Existence. If Borrower is a corporation, a limited liability company, or a partnership, Borrower shall continue to be validly existing, and in the case of a corporation or a limited liability company in good standing, under the law of the jurisdiction of its organization or formation. If Borrower is not formed or organized under the laws of the State of Arizona, Borrower shall continue to be qualified to do business as a foreign corporation, limited liability company, or partnership, as the case may be, and in the case of a corporation or limited liability company to be in good standing, under the law of the State of Arizona. 6.2 Books and Records; Access By Bank. Borrower will maintain a single, standard, modern system of accounting (including, without limitation, a single, complete, and accurate set of books and records of its assets, business, financial condition, operations, property, prospects, and results of operations) in accordance with good accounting practices. During business hours Borrower will give representatives of Bank access to all assets, books, documents, property, and records of Borrower and will permit such representatives to inspect such assets and property and to audit, copy, examine, and make excerpts from such books, documents, and records. 6.3 Information and Statements. Borrower shall furnish to Bank: 6.3.1 Monthly Financial Statements. As soon as available and in any event within thirty (30) days after the end of each calendar month, a balance sheet, statements of income and, at Bank's request, reconciliation of net worth of Borrower and each Guarantor for the immediately preceding month, all in reasonable detail and certified by the chief financial officers of Borrower, and each Guarantor, subject, however, to year-end audit adjustments. 6.3.2 Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each of the first three quarters in each fiscal year, unaudited consolidated financial statements of Borrower and its Subsidiaries (including, without limitation, cash flow reports), as contained in its Form 10-Q quarterly reports to the Commission for the relevant three, six and nine month periods. 6.3.3 Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower, (i) the consolidated (and, if required by Bank, the consolidating) financial statements of Borrower and its Subsidiaries as contained in its Form 10-K annual report to the Commission, and (ii) copies of the consolidated (and, if required by Bank, the consolidating) balance sheet of Borrower and its Subsidiaries as of the end of such fiscal year, and statements of income and retained earnings and a statement of cash flow of Borrower for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year of Borrower, all in reasonable detail, prepared in accordance with GAAP, which financial statements shall be audited by independent certified public accountants satisfactory to Bank, and accompanied by an unqualified opinion of such accountants with respect to such financial statements. As soon as available and in any event within ten (10) days prior to the beginning of each fiscal year, Borrower shall furnish to Bank a budget, and cash flow projection for that fiscal year. 6.3.4 Officer's Certificate. Together with each delivery of financial statements pursuant to Sections 6.3.1 through 6.3.3 above, an officer's certificate of Borrower and each Guarantor stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and conditions of Borrower and each Guarantor during the accounting period covered by such financial statements, and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as of the date of the officer's certificate, of any Event of Default or Unmatured Event of Default or, if any Event of Default or Unmatured Event of Default existed or exists, specifying the nature and period of the existence thereof and what action Borrower has taken, is taking, and proposes to take with respect thereto. Together with each quarterly financial statement required pursuant to Section 6.3.2, Borrower shall provide an officer's certificate in the form of Exhibit B hereto with respect to compliance with the financial and other covenants set forth in any documents relating to the Public Notes, any documents relating to any Bank Facility, or this Agreement. 6.3.5 Filings, Etc. As and when filed, copies of all regular or periodic financial and other reports, if any, which Borrower or any Guarantor shall file with the Commission or any other Governmental Authority. 6.3.6 Sales Reports. As soon as available and in any event at least once each month, sales, inventory and backlog reports on each homebuilding Subsidiary of Borrower. 6.3.7 Required Backup. Upon request by Bank from time to time, "consolidating" statements and other detail required by Bank with respect to any of the financial statements described in Sections 6.3.1 through 6.3.3 above. 6.3.8 Other Information. Such other information concerning Borrower and the assets, business, financial condition, operations, property, prospects, and results of operations of Borrower as Bank reasonably requests from time to time. 6.4 Law; Judgments; Material Agreements; Approvals and Permits. Borrower shall comply with all laws, ordinances, regulations, and rules (federal, state, and local) and all judgments, orders, and decrees of any arbitrator, other private adjudicator, or Government Authority relating to Borrower or the assets, business, operations, or property of Borrower. Borrower shall comply in all material respects with all material agreements, documents, and instruments to which Borrower is a party or by which Borrower or any of the assets or property of Borrower is bound or affected. Borrower shall obtain and maintain in full force and effect all Approvals and Permits and shall comply with all conditions and requirements of all Approvals and Permits. 6.5 Taxes and Other Indebtedness. Borrower will pay and discharge (i) before delinquency all taxes, assessments, and governmental charges or levies imposed upon it, upon its income or profits, or upon any of its assets or property (except to the extent permitted to be contested pursuant to clause (v) of the definition of Permitted Exceptions), (ii) when due all lawful claims (including, without limitation, claims for labor, materials, and supplies), that, if unpaid, might become a Lien or Encumbrance upon any of its assets or property, and (iii) when due all its other Debt. 6.6 Assets and Property. Borrower will maintain, keep, and preserve all of its assets and property (tangible and intangible) necessary or useful in the proper conduct of its business and operations in good working order and condition, ordinary wear and tear excepted. 6.7 Insurance. In addition to any insurance required under any of the other Loan Documents, Borrower shall maintain workmen's compensation insurance, product and public liability insurance, insurance on its assets and property now or hereafter owned, and such other forms of insurance as is customary in the industry of Borrower, against such casualties, risks, and contingencies, in such amounts, and with such insurance companies as are satisfactory to Bank, in its reasonable discretion. Borrower shall deliver to Bank from time to time as Bank may request, schedules setting forth all insurance then in effect and copies of policies. 6.8 Environmental Laws. Without limiting the generality of Section 6.4, Borrower shall comply with all environmental, all health, and all safety laws, ordinances, regulations, and rules (federal, state, local, and foreign) applicable to Borrower, the business or operations of Borrower, the assets or property of Borrower, or the products or services of Borrower. Borrower shall not dispose of, generate, manufacture, process, produce, release, transport, or treat or otherwise store or use any hazardous or toxic substances or wastes. Borrower shall notify Bank immediately of any environmental inquiry or claim from any Governmental Authority or other Person relating to Borrower or any assets, property, business, operations, product, or service of Borrower. 6.9 ERISA. Borrower will fund each Defined Benefit Plan and Defined Contribution Plan (as such terms are defined in ERISA) so that there is never an Accumulated Funding Deficiency (as defined in Section 412 of the Internal Revenue Code of 1986, as amended). 6.10 Further Assurances. Borrower shall promptly execute, acknowledge, and deliver and, as appropriate, cause to be duly filed and recorded such additional agreements, documents, and instruments and do or cause to be done such other acts as Bank may reasonably request from time to time to better assure, perfect, preserve, and protect the interest of Bank in the Collateral and the rights and remedies of Bank under the Loan Documents. 6.11 Costs and Expenses of Borrower's Performance of Covenants and Satisfaction of Conditions. Borrower will perform all of its obligations and satisfy all conditions under the Loan Documents at its sole cost and expense. 6.12 Financial Covenants. Except as otherwise noted, all financial computations shall be made in accordance with GAAP. Until the Commitment terminates in full, until all Letters of Credit expire or are drawn in full, until all drafts drawn or drawn and accepted under Letters of Credit are paid in full, and until the Obligations are paid and performed in full, Borrower agrees that, unless Bank otherwise agrees in writing in Bank's absolute and sole discretion, as of the end of each quarterly fiscal period, Borrower shall maintain: 6.12.1 Tangible Net Worth. A minimum Tangible Net Worth in the amount of $90,000,000.00. 6.12.2 Liquidity. A minimum Liquidity of $5,000,000.00. 6.12.3 Adjusted Debt to Net Worth Ratio. An Adjusted Debt to Net Worth Ratio of not more than 1.50 to 1. 6.13 Clean-Up. With respect to (i) the six-month period commencing on November 30, 1995 and ending on May 31, 1996, Borrower shall not have any Advances outstanding pursuant to this Agreement for a period of at least fifteen (15) or thirty (30) consecutive days, (as elected by Borrower) and (ii) the period commencing on June 1, 1996 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 thirty (30) or fifteen (15) consecutive days (as elected by Borrower, such that the period elected by Borrower in clause (ii) is different than the period elected by Borrower in Clause (i)). 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. 6.15 Appraisals. Bank shall have the right, which Bank may exercise from time to time, to obtain appraisals of Borrower's real estate assets. All such appraisals shall be in form and reflect values satisfactory to Bank. Borrower shall cooperate in any such appraisals and Borrower shall pay all costs and expenses, including appraisal and appraisal review fees incurred or charged by Bank in connection therewith; provided that Borrower shall be obligated to pay such costs and expenses only if and to the extent such appraisals are required (i) by the consistent application of Bank's internal policies and procedures that are generally applicable to secured or unsecured loans made by Bank to Persons engaged in businesses similar to that of Borrower, (ii) by applicable laws, rules and regulations or (iii) in connection with the exercise of Bank's rights under Section 8 hereof. 7. BORROWER NEGATIVE COVENANTS. Until the Commitment terminates in full, until all Letters of Credit expire or are drawn in full, until all drafts drawn or drawn and accepted under Letters of Credit are paid in full, and until the Obligations are paid and performed in full, Borrower agrees that, unless Bank otherwise agrees in Bank's absolute and sole discretion: 7.1 Corporate, Limited Liability Company, and Partnership Restrictions. If Borrower, or any Subsidiary, is a corporation, a limited liability company, or a partnership, Borrower shall not and, except for sales of stock in the Carlsbad Subsidiary, shall not permit any Subsidiary to, issue any capital stock or other securities of or any limited liability company interest or partnership interest in Borrower, or any Subsidiary, or grant any option (except in connection with employee stock option plans), right-of-first-refusal, warrant, or other right to purchase any capital stock or other securities of or any limited liability company interest or partnership interest in Borrower or any Subsidiary. Borrower shall not be dissolved or liquidated and shall not permit any Subsidiary to be dissolved or liquidated. Borrower shall not, and shall not permit any Subsidiary to, amend, modify, restate, supplement, or terminate its certificate of incorporation or bylaws, its limited liability company operating agreement, or its partnership agreement, as the case may be. Borrower shall not, and shall not permit any Subsidiary to, reorganize itself or consolidate with or merge into any other corporation or permit any other corporation to be merged into Borrower. Any provision of this Section 7.1 to the contrary notwithstanding, this Section 7.1 shall not restrict or limit the issuance of Common Stock that is authorized but unissued as of the date hereof or held in treasury as of the date hereof if and to the extent such issuance is made in satisfaction of Borrower's obligation to permit conversion of the Convertible Notes to Common Stock pursuant to the terms of such notes. Provisions of this Agreement other than this Section 7.1 that appear to contemplate or refer to sales or issuances of capital stock or other securities, but do not expressly authorize such sales or issuances, shall not be deemed to be consent of Bank to any such sales or issuances. 7.2 Change in or Reacquisition of Ownership Interests in Borrower. Borrower will not suffer to occur or exist, whether occurring voluntarily or involuntarily, after the date of this Agreement any change in the legal or beneficial ownership of any capital stock of any Subsidiary (except for sales of stock in the Carlsbad Subsidiary), without the prior written consent of Bank in its absolute and sole discretion. 7.3 Name, Fiscal Year, Accounting Method, and Lines of Business. Borrower shall not change its name, fiscal year, or method of accounting. Borrower shall not directly or indirectly, engage in any business other than the line(s) of business in which Borrower is engaged on the date of this Agreement, discontinue any existing line(s) of business, or substantially alter its method of doing business. 7.4 Acquisition of All or Substantially All Assets. Borrower shall not, and shall not permit any Subsidiary to, acquire by purchase, lease, or otherwise all or substantially all the assets of any other Person. 7.5 Limitation on Debt. 7.5.1 General Prohibition. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, Incur any Debt except Permitted Debt. No Permitted Debt shall contain any terms or conditions that would conflict with or be violated by any of Bank's rights hereunder, including without limitations, Bank's rights pursuant to Section 8 hereof. 7.5.2 Additional Debt Allowed. Notwithstanding Section 7.5.1 hereof, and subject to the immediately succeeding paragraph, Borrower may Incur Debt if, at the time such Debt is so Incurred and after giving effect thereto and the application of the proceeds therefrom, each of the following is true: (i) Borrower has a Coverage Ratio of not less than 2.2 to 1.0; (ii) Borrower is in compliance with Section 6.12 hereof and (iii) no Event of Default or Unmatured Event of Default has occurred. Borrower shall not Incur any Debt (other than the Obligations and Permitted Debt) that is pari passu with the Public Notes or the Obligations or requires any principal payment, redemption payment or sinking fund payment thereon, in whole or in part, to be made prior to or at the final stated maturity of the Public Notes or the Obligations; provided that entering into an agreement that requires Borrower to make an offer to purchase outstanding Debt upon the occurrence of certain specified events shall not be deemed to be restricted by this paragraph. For purposes of this Section 7.5, any waiver, extension or continuation of any or all mandatory prepayments or installment payments or the maturity date of any of the Debt Incurred pursuant to this Section 7.5 shall not be or be deemed to be the Incurrence of Debt by Borrower. 7.6 Limitations on Liens and Encumbrances. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien or Encumbrance upon or with respect to any assets of Borrower or any such Subsidiary, whether now owned or hereafter acquired, or on any income or profits therefrom; provided that the foregoing shall not prohibit Permitted Exceptions. 7.7 Limitations on Sales, Transfers, etc. Borrower will not, directly or indirectly, and will not permit any of its Subsidiaries to, sell, assign, transfer or otherwise dispose of any Capital Stock of any Subsidiary or sell, assign, transfer or otherwise dispose of any assets of Borrower or any Subsidiary except for (i) sales or issuance of stock expressly permitted pursuant to Section 7.1 hereof, (ii) sales of assets in the ordinary course of business of any Subsidiary, and (iii) sales to Borrower or a wholly-owned Subsidiary of Borrower (except as such sales may be prohibited by the next sentence). Borrower will not, directly or indirectly, permit the Carlsbad subsidiary to sell, assign, transfer or otherwise dispose of all or a portion of the Carlsbad Property to Borrower or any of its Subsidiaries (other than the Carlsbad Subsidiary). 7.8 Limitation on Operating Losses. Borrower shall not cause or permit (i) Borrower's Consolidated Net Income to be less than zero in each of two consecutive fiscal quarters, and (ii) Borrower's Consolidated Net Income to be a loss of greater than $2,500,000 in any fiscal quarter. For the purpose of determining Consolidated Net Income in this Section 7.8, Borrower shall not be required to include losses to the extent resulting from adjustments to the net realizable value of assets required pursuant to GAAP. 7.9 Limitation on Restricted Payments. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment, if, after giving effect thereto: (a) an Event of Default or an Unmatured Event of Default shall have occurred and be continuing, or (b) the aggregate amount of all Restricted Payments (giving effect to Restricted Payments that are Credit Extensions/Contributions only to the extent then outstanding) made by Borrower and its Subsidiaries (the amount expended or distributed for such purposes, if other than in cash, to be determined in good faith by the board of directors of Borrower) from and after the date hereof shall exceed the sum of: (i) the aggregate of 50% of the Consolidated Net Income of Borrower accrued for the period (taken as one accounting period) commencing with February 1, 1993 to and including the first full month ended immediately prior to the date of such calculation (or, in the event Consolidated Net Income is a deficit, then minus 100% of such deficit), (ii) the aggregate net cash proceeds received by Borrower for the period (taken as one accounting period) commencing with February 1, 1993 to and including the first full month ended immediately prior to the date of such calculation from the issuance or sale (other than to a Subsidiary of Borrower) of its Capital Stock (other than Redeemable Stock), including the principal amount of any Subordinated Notes or other convertible securities issued for cash that are converted to Capital Stock from and after the date of this Agreement, and options, warrants and rights to purchase its Capital Stock (other than Redeemable Stock), (iii) amounts received by Borrower or any of its Subsidiaries representing a return of capital or Credit Extensions/Contributions made to the Great Singing Hills joint venture outstanding on the date of the Indenture and (iv) $8,780,953. The foregoing clauses (a) and (b) will not prevent (i) Permitted Payments, (ii) the payment of any dividend within 60 days after the date of its declaration if such dividend could have been made on the date of its declaration in compliance with the foregoing provisions, and (iii) the repurchase or redemption of shares of Capital Stock from any officer, director or employee of Borrower or its Subsidiaries whose employment has been terminated or who has died or become disabled in an aggregate amount not to exceed $500,000 per annum; provided that amounts paid pursuant to clause (iii) shall reduce amounts available for future Restricted Payments. 8. SECURITY. 8.1 Bank's Right to Demand Security. Upon the occurrence of any Event of Default, Bank shall have all of the rights and remedies provided pursuant to the Note, the other Loan Documents and applicable law. Without limiting the foregoing, upon the occurrence of an Event of Default resulting from a violation of the covenants set forth in Sections 6.12.1. 6.12.2, 6.12.3, 6.13. 6.14 or 7.8 hereof or the Events of Default set forth in paragraphs 9 or 13 in the definition of such term in the Note, Bank may, in its sole and absolute discretion, and in addition to its other rights and remedies, demand (a "Security Demand") and accept Collateral as security for the Obligations, which security shall be on such terms and conditions as Bank may elect in its sole and absolute discretion, and Borrower shall provide such security and comply with such requirements, subject only to the limitation on such security set forth in the definition of "Permitted Liens" in the Indenture. Without limiting the foregoing, the terms and conditions upon which Bank will require and accept such Collateral may include the following: 8.1.1 Type of Collateral. Any such Collateral shall consist of real property and improvements owned by Borrower or a Subsidiary of Borrower and not subject to Liens and Encumbrances (except as approved by Bank). Within five (5) Business Days after the giving of a Security Demand, Borrower shall provide Bank with a listing of all such real property and improvements and Bank shall have the right to select the Collateral from such list in the following order of preference (i) homes under construction located in the metropolitan Phoenix, Arizona area, (ii) improved single family lots located in the metropolitan Phoenix, Arizona area, (iii) lots under development located in the metropolitan Phoenix, Arizona area, (iv) vacant land located in the metropolitan Phoenix, Arizona area, (v) real estate located elsewhere in Arizona, (vi) real estate located in Colorado, and (vii) real estate located in California. Except as set forth in Section 8.1, Bank shall be entitled to select the quantity of such property to be provided as Collateral. 8.1.2 Appraisals. Bank shall receive and approve such appraisals or other evidence of the value of such property as Bank may require in its sole and absolute discretion. 8.1.3 Environmental Questionnaire. An environmental questionnaire and disclosure statement completed and signed by Borrower and CHI and/or CHICC covering the current and former condition and uses of such property and adjacent property, and, if required by Bank, followed by such environmental site assessments and investigations that Bank my require, all of which shall be acceptable to Bank in its sole and absolute discretion. 8.1.4 Security Documents. Borrower and such Subsidiaries shall execute such deeds of trust, security agreements and other security documents and instruments as Bank may require in its sole and absolute discretion. 8.1.5 Other Documents. Borrower and such Subsidiaries shall executed and deliver such other documents and instruments, and perform such other acts, as Bank may require in its sole and absolute discretion. 8.1.6 Title Insurance. Bank shall receive such title insurance policies and endorsements thereto with respect to such deeds of trust as Bank may require in its sole and absolute discretion, which title insurance policies shall contain only those exceptions and limitations as shall be acceptable to Bank. 8.1.7 No Defaults. No other Event of Default or Unmatured Event of Default shall have occurred and be continuing. 8.1.8 Attorney Opinions. Bank shall receive such opinions of in-house counsel for Borrower as Bank may request in its sole and absolute discretion, including, without limitation, opinions that the execution and delivery of such deeds of trust and other security documents does not conflict with, violate, or cause a default under, the terms and conditions of any agreement, document, instrument, or indenture to which Borrower or any Subsidiary is a party or by which it is bound or affected, and that the transfer of such security to Bank does not constitute a voidable preference or fraudulent conveyance under applicable state or federal law. 8.1.9 Cost and Expenses. Borrower shall pay all of Bank's costs and expenses in connection with the foregoing including, without limitation, appraisal fees, appraisal review fees, recording fees, title insurance fees, escrow fees, and attorneys' fees. 8.2 Effect of Security. Borrower's compliance with Section 8.1 shall not waive any Event of Default or Unmatured Event of Default or otherwise be deemed to modify or release any of Borrower's obligations hereunder, except to the extent such waiver, release or modification is expressly set forth in a written agreement signed by Bank and in form and content satisfactory to Bank in its sole and absolute discretion. 9. BANK'S OBLIGATIONS TO BORROWER ONLY. The obligations of Bank under this Agreement are for the benefit of Borrower only. No other Person shall have any rights hereunder or be a third-party beneficiary hereof. 10. PROVISIONS IN THE NOTE GOVERN THIS AGREEMENT. This Agreement is subject to certain terms and provisions in the Note, to which reference is made for a statement of such terms and provisions. 11. 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. 12. ARBITRATION. (a) Binding Arbitration. Bank and Borrower hereby agree that all controversies and claims arising directly or indirectly out of this Agreement and the Loan Documents, shall at the written request of any party be arbitrated pursuant to the applicable rules of the American Arbitration Association. The arbitration shall occur in the State of Arizona. Judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction. The Federal Arbitration Act shall apply to the construction and interpretation of this arbitration agreement. (b) Arbitration Panel. A single arbitrator shall have the power to render a maximum award of one hundred thousand dollars. When any party files a claim in excess of this amount, the arbitration decision shall be made by the majority vote of three arbitrators. No arbitrator shall have the power to restrain any act of any party. (c) Provisional Remedies: Self Help And Foreclosure. No provision of subparagraph (a) shall limit the right of any party to exercise self help remedies, to foreclose against any real or personal property collateral, or to obtain any provisional or ancillary remedies (including but not limited to injunctive relief or the appointment off a receiver) from a court of competent jurisdiction. At Bank's option, it may enforce its right under a mortgage by judicial foreclosure, and under a deed of trust either by exercise of power of sale or by judicial foreclosure. The institution and maintenance of any remedy permitted above shall not constitute a waiver of the rights to submit any controversy or claim to arbitration. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding. 13. AMENDED AND RESTATED. This Agreement amends and restates in its entirety that Loan Agreement between Borrower and Bank dated February 25, 1993, as thereafter amended, providing for a loan by Bank to Borrower in the amount of $10,000,000.00. All outstanding advances under said loan agreement shall be deemed outstanding Advances under this Agreement and the Note. DATED as of the date first above stated. 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: Assistant Vice President ------------------------------------ CONTINENTAL HOMES HOLDING CORP., a Delaware corporation By: /s/ Kenda B. Gonzales -------------------------------------- Name: Kenda B. Gonzales ------------------------------------ Title: Senior Vice President ----------------------------------- EX-10.5 7 AMENDED AND RESTATED PROMISSORY NOTE AMENDED AND RESTATED PROMISSORY NOTE EXHIBIT 10.5 ------------------------------------ Principal Amount: $15,000,000.00 Date: November 30, 1995 Bank One Center, Phoenix , Arizona. - ---------------------------------------------- (Office) (City) PROMISE TO PAY AND INTEREST. For value received, the undersigned ("Borrower"), promises to pay to BANK ONE, ARIZONA, NA, a national banking association formerly known as The Valley National Bank of Arizona, or order ("Bank") at its above office, or at such other place as Bank may designate in writing, in lawful money of the United States of America, the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), or such lesser amount as shall have been disbursed and is unpaid as shown on the records of Bank which shall be conclusive as to such amount, with interest thereon from the date advanced at the applicable rate from time to time ("Interest Rate") from time to time on each advance ("Advance") under the Loan Agreement (as hereafter defined), from the date advanced as follows: (a) Except to the extent that an Advance bears interest at the Fixed Rate, as defined herein, pursuant to this Note, interest shall accrue on the unpaid principal of each Advance at the Variable Rate. Interest at the Variable Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. (b) To the extent Borrower shall elect as provided in this Note and to the extent not otherwise provided in this Note, interest shall accrue on the unpaid principal of an Advance at the Fixed Rate. Interest at the Fixed Rate shall be computed on the basis of a 360 day year and accrue on a daily basis for the actual number of days elapsed. As used in this Note: "Applicable Spread" means, on any date, the applicable spread set forth below, based upon the ratings ("Ratings") issued by Standard & Poor's (Claim Paying Ability) and Moody's (Financial Strength) and applicable on such date to the Public Notes: Rating Fixed Rate Variable S&P/Moody's Spread Rate Spread ----------- ------ ----------- BBB- or above/Baa3 or above 1.25% 0% BB+/Ba1 1.50% 0% BB/Ba2 1.75% 0% BB-/Ba3 2.00% .25% B+/B1 2.25% .25% B or below/B2 or below 2.50% .25% The Applicable Spread shall be the amount set forth in the above table that is opposite the lower of said Moody's and Standard & Poor's Ratings for the type of Advance; provided, however, (i) if more than one rating level exists between the Ratings of the two agencies on the date of determination, the Applicable Spread shall be the number set forth above that is opposite the Rating that is one level below the highest of the two Ratings; (ii) if either rating agency shall not have in effect a Rating with respect to the Public Notes for a reason related to the creditworthiness of Borrower or to any act or failure on the part of Borrower, the Applicable Spread shall be determined by reference to the single Rating that shall be in effect or, if no Rating shall be in effect from either agency, by reference to the last category described in the foregoing table; (iii) if any Rating shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Spread shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall no longer have in effect a rating for the Public Notes and Clause (ii) above shall not be applicable, Borrower and Bank shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. "Business Day" means a day of the year on which banks are not required or authorized to close in Phoenix, Arizona, and, with respect to a Fixed Rate Advance, a day on which dealings are carried on in the London interbank market. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors to the Federal Reserve System, as in effect from time to time. "Eurodollar Rate Reserve Percentage" for the Interest Period for each Fixed Rate Advance means the reserve percentage applicable two (2) Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental, or other marginal reserve requirement) for a member bank of the Federal Reserve System in San Francisco with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities which includes deposits by reference to which the Interest Rate on Fixed Rate Advances is determined) having a term equal to such Interest Period. "Fixed Rate" means the rate per annum equal to the sum of (i) the Applicable Spread (on a per annum basis), and (ii) the rate per annum obtained by dividing (A) the rate of interest determined by Bank, based on Telerate System reports or such other source as may be selected by Bank, to be the "London Interbank Offered Rate" at which deposits in United States dollars are offered by major banks in London, England, one (1) Business Day before the first day of the respective Interest Period by (B) a percentage equal to one hundred percent (100%) minus the Eurodollar Rate Reserve Percentage for the period equal to such Interest Period. "Fixed Rate Advance" means an Advance that bears or is requested to bear interest at the Fixed Rate. "Interest Period" means, for each Fixed Rate Advance, the period commencing on the date of such Fixed Rate Advance and ending on the last day of the period selected by Borrower pursuant to the provisions herein and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by Borrower pursuant to the provisions herein. The duration of each Interest Period shall be 30, 60, 90, or 120 days, as selected by Borrower (A), for a new Advance, in the request for a Fixed Rate Advance or (B), for an outstanding Advance, in the request for a Fixed Rate Advance to continue bearing interest at the Fixed Rate; provided, however, that: (i) Interest Periods commencing on the same date shall be of the same duration; (ii) Whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (iii) No Interest Period with respect to any Advance shall extend beyond the Maturity Date. "Regulatory Change" means any change effective after the date of this Note in United States federal, state, or foreign law, regulations, or rules or the adoption or making after such date of any interpretation, directive, or request applying to a class of banks including Bank, of or under any United States federal, state, or foreign law, regulation or rule (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Variable Rate" means the rate per annum equal to the sum of (i) the Applicable Spread (on a per annum basis), and (ii) the rate per annum most recently publicly announced by Bank, or its successors, in Phoenix, Arizona, as its "prime rate," as in effect from time to time. The Variable Rate will change on each day that the "prime rate" changes. The "prime rate" is not necessarily the best or lowest rate offered by Bank, and Bank may lend to its customers at rates that are at, above, or below its "prime rate." "Variable Rate Advance" means an Advance that bears or that is requested to bear interest at the Variable Rate. If the rating system of Moody's or S&P shall change, or if either such rating agency shall no longer have in effect a rating for the Public Notes and Clause (ii) above shall not be applicable, Borrower and Bank shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency. Each request for an Advance under the Loan Agreement shall, in addition to complying with the other requirements in the Loan Agreement, (i) specify the date and amount of the requested Advance, (ii) specify whether the Advance shall be an Advance that bears interest at the Variable Rate or shall be an Advance that bears interest at the Fixed Rate, and (iii) if the Advance is to bear interest at the Fixed Rate, (A) specify the Interest Period, (B) be delivered to Bank at least two (2) Business Days prior to the date of the requested Advance, (C) be in a minimum amount of $1,000,000 with integral multiples of $500,000 in excess thereof, and, (D), when added to the number of previous Advances bearing interest at the Fixed Rate, not cause the aggregate number of all outstanding Advances bearing interest at the Fixed Rate to exceed four (4). Any Advance not complying with the foregoing requirements for an Advance bearing interest at the Fixed Rate shall bear interest at the Variable Rate. If Borrower desires that a Fixed Rate Advance continue to bear interest at the Fixed Rate after the end of an existing Interest Period, Borrower shall deliver to Bank a notice making such election and specifying the new Interest Period. If Borrower does not deliver such notice within such time, then after the existing Interest Period the Fixed Rate Advance shall become a Variable Rate Advance and shall bear interest at the Variable Rate. Borrower may on any Business Day, upon written notice to and received by Bank not later than 12:00 p.m. (Phoenix, Arizona local time) (i) on the second Business Day, in the case of any conversion of a Variable Rate Advance into a Fixed Rate Advance and (ii) on the first Business Day in the case of any conversion of a Fixed Rate Advance into a Variable Rate Advance, prior to the date of the proposed conversion, convert any Advance of one type into an Advance of the other type; provided, however, that any conversion of a Fixed Rate Advance (A) shall only be made on the last day of the applicable Interest Period, (B) shall be made only as to an Advance in a minimum amount of $1,000,000 with integral multiples of $500,000 in excess thereof, and (C) shall not result after such requested conversion in the aggregate number of Fixed Rate Advances exceeding four (4). Each such notice of a conversion shall specify the date of such conversion and the Advance(s) to be converted. Notwithstanding any provision of the Loan Documents to the contrary, Bank shall be entitled to fund and maintain its funding of all or any part of any Advance in any manner it sees fit; provided, however, that for the purposes of this Note, all determinations hereunder shall be made as if Bank had actually funded and maintained each Fixed Rate Advance during the Interest Period therefor through the purchase of deposits having a maturity corresponding to the last day of the Interest Period and bearing an interest rate equal to the Fixed Rate for such Interest Period. If, due to any Regulatory Change, there shall be any increase in the cost to Bank of agreeing to make or making, funding, or maintaining Fixed Rate Advances (including, without limitation, any increase in any applicable reserve requirement), then Borrower shall from time to time, upon demand by Bank, pay to Bank such amounts as Bank may reasonably determine to be necessary to compensate Bank for any additional costs that Bank reasonably determines are attributable to such Regulatory Change and Bank will notify the Borrower of any Regulatory Change that will entitle Bank to compensation pursuant to this paragraph as promptly as practicable, but in any event within 90 days after Bank obtains knowledge thereof; provided, however, that if Bank fails to give such notice within 90 days after it obtains knowledge of such a Regulatory Change, Bank shall, with respect to compensation payable in respect of any costs resulting from such Regulatory Change, only be entitled to payment for costs incurred from and after the date that Bank does give such notice. Bank will furnish to Borrower a certificate setting forth in reasonable detail the basis for the amount of each request by Bank for compensation under this paragraph. Determinations by Bank of the amounts required to compensate Bank shall be conclusive, absent manifest error. Bank shall be entitled to compensation in connection with any Regulatory Change only for costs actually incurred by Bank. Notwithstanding any provision of the Loan Documents, if Bank shall notify Borrower that as a result of a Regulatory Change it is unlawful for Bank to make Advances at the Fixed Rate, or to fund or maintain Fixed Rate Advances, (i) the obligations of Bank to make Advances at the Fixed Rate and to convert Advances to the Fixed Rate shall be suspended until Bank shall notify Borrower that the circumstances causing such suspension no longer exist, and (ii) in the event such Regulatory Change makes the maintenance of Advances at the Fixed Rate unlawful, Borrower shall forthwith prepay in full all Fixed Rate Advances then outstanding, together with interest accrued thereon and all amounts in connection with such prepayment specified in the paragraph in this Note titled "PREPAYMENT," unless Borrower, within five (5) Business Days of notice from Bank, converts all Fixed Rate Advances then outstanding into Variable Rate Advances pursuant to the conversion procedures in this Note and pays all amounts in connection with such prepayments or conversions specified in the paragraph in this Note titled "PREPAYMENT." Notwithstanding any other provision of the Loan Documents, if prior to the commencement of any Interest Period, Bank shall determine (i) that United States dollar deposits in the amount of any Fixed Rate Advance to be outstanding during such Interest Period are not readily available to Bank in the London interbank market, or (ii) by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Fixed Rate for such Interest Period in the manner prescribed above in the definition of "Fixed Rate," then Bank shall promptly give notice thereof to Borrower and the obligation of Bank to create, continue, or effect by conversion any Fixed Rate Advance in such amount and for such Interest Period shall terminate until United States dollar deposits in such amount and for the Interest Period shall again be readily available in the London interbank market and adequate and reasonable means exist for ascertaining the Fixed Rate. Interest shall be due and payable commencing on December 1, 1995, and continuing on the same day of each successive month thereafter until November 30, 1996 ("Maturity Date"). No payments of principal shall be due and payable until the Maturity Date. On the Maturity Date Borrower shall pay to Bank the unpaid principal, all accrued and unpaid interest, and all other amounts ("Other Amounts") payable by Borrower to Bank under the Loan Documents. "Loan Documents" means this Note, the Amended and Restated Loan Agreement of even date herewith (the "Loan Agreement") between Borrower and Bank, and any other agreements, documents, and instruments evidencing, guarantying, securing, or otherwise relating to this Note, as they may be amended, modified, extended, renewed, restated, or supplemented from time to time. Principal shall bear interest at the Interest Rate from the date of disbursement until the due date thereof, whether due by acceleration or otherwise. Principal, interest, and Other Amounts not paid when due and any judgment therefor shall bear interest from its due date or the judgment date, as applicable, until paid at a rate ("Default Rate") equal to the sum of (i) four percent (4%) per annum and (ii) the Variable Rate, and such interest shall be immediately due and payable. All interest shall be computed on the basis of a 360-day year and accrue on a daily basis for the actual number of days elapsed. Borrower agrees to pay an effective rate of interest that is the sum of (i) the interest rate provided herein and (ii) any additional rate of interest resulting from any other charges or fees paid or to be paid in connection herewith that are determined to be interest or in the nature of interest. APPLICATION OF PAYMENTS. At the option of Bank, payments shall be applied to principal, interest, and Other Amounts in such order as Bank shall determine. PREPAYMENT. Except as to payments due under this paragraph with respect to payment or conversion of a Fixed Rate Advance on a day other than the last Business Day in the Interest Period for such Fixed Rate Advance, Borrower may prepay the outstanding principal balance hereof in whole or in part at any time prior to the Maturity Date without penalty or premium as stated in such notice by Borrower; provided, however, that if any payment of all or any portion of a Fixed Rate Advance shall be made other than on the last day of the Interest Period for such Fixed Rate Advance for any reason (including, without limitation, any optional or required prepayment and any acceleration of the Maturity Date) then, anything in the Loan Documents to the contrary notwithstanding, Borrower shall pay to Bank contemporaneously with such prepayment, a payment equal to any losses, costs, or expenses that Bank may reasonably incur as a result of such prepayment, including, without limitation, any loss (including, without limitation, loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Bank to fund or maintain such Fixed Rate Advance. Borrower agrees to also make a payment under the immediately preceding sentence upon each conversion of a Fixed Rate Advance to a Variable Rate Advance on a date other than the last Business Day of the Interest Period for such Fixed Rate Advance to be determined as if the amount so converted had been prepaid on the date of conversion. The obligations of Borrower and the rights of Bank under this paragraph shall survive payment and performance of the obligations of the Loan Parties under the Loan Documents and shall remain in full force and effect without termination. Bank will furnish to Borrower a certificate setting forth in reasonable detail the basis for the amount of each request by Bank for payment under this paragraph. The determination by Bank of amounts due under this paragraph shall be conclusive, absent manifest error. LATE CHARGE. If any payment of principal and/or interest is not received by Bank within fifteen (15) days after its due date, then, in addition to the other rights and remedies of Bank, a late charge of four percent (4%) of the amount due and unpaid will be charged to Borrower without notice to Borrower. Such late charge shall be immediately due and payable. NO COUNTERCLAIMS, DEDUCTIONS, ETC. All payments and other obligations of Borrower under the Loan Documents will be made and performed without counterclaim, deduction, defense, deferment, reduction, or set-off. EVENTS OF DEFAULT. Each of the following shall be an event of default ("Event of Default"): 13.1 Failure by any Loan Party to pay when due (i) any amount payable by such Loan Party under any of the Loan Documents and the expiration of ten (10) days after notice of such failure from Bank to Borrower, or (ii) any other indebtedness of such Loan Party to Bank and the expiration of any notice and grace periods with respect to such failure as provided din the documents governing such other indebtedness. "Loan Party" means Borrower and any other person that from time to time is obligated to Bank under any of the Loan Documents or grants any property, interests in property, or rights to property to secure any or all obligations of any person under the Loan Documents. 13.2 Failure by any Loan Party to perform any obligation not involving the payment of money (other than those obligations referred to in paragraph 12 below, which shall be governed by such paragraph), or to comply with any other term or condition applicable to such Loan Party, in any of the Loan Documents and the expiration of twenty (20) days after notice of such failure from Bank to Borrower. 13.3 Any representation or warranty made by any Loan Party in any of the Loan Documents or otherwise or any information delivered by any Loan Party to Bank in obtaining or hereafter in connection with the credit evidenced by this Note is materially incomplete, incorrect, or misleading as of the date made or delivered. 13.4 Bank in good faith deems itself insecure or believes in good faith that a Material Adverse Change has occurred after the date of the financial statements and other information provided by any Loan Party in obtaining the credit evidenced by this Note. "Material Adverse Change" means any change in the assets, business, financial condition, operations, prospects, or results of operations of any Loan Party or any other event or condition that in the reasonable opinion of Bank (i) could affect the likelihood of performance by any Loan Party of any of the obligations in the Loan Documents, (ii) could affect the ability of any Loan Party to perform any of the obligations in any of the Loan Documents, (iii) could affect the legality, validity, or binding nature of any of the obligations in the Loan Documents or any lien or encumbrance securing any of the obligations under the Loan Documents, or (iv) could affect the priority of any lien, security interest, or other encumbrance securing any of the obligations in the Loan Documents. 13.5 Any Loan Party (i) is unable or admits in writing such Loan Party's inability to pay such Loan Party's monetary obligations as they become due, (ii) makes a general assignment for the benefit of creditors, or (iii) applies for, consents to, or acquiesces in, appointment of a trustee, receiver, or other custodian for such Loan Party or any or all of the property of such Loan Party, or in the absence of such application, consent, or acquiescence by such Loan Party a trustee, receiver, or other custodian is appointed for such Loan Party or any or all of the property of such Loan Party. 13.6 Commencement of any case under the Bankruptcy Code (Title 11) of the United States Code) or commencement of any other bankruptcy, arrangement, reorganization, receivership, custodianship, or similar proceeding under any federal, state, or foreign law by or against any Loan Party. 13.7 The death, incompetence, dissolution, or liquidation of any Loan Party; the consolidation or merger of any Loan Party with any other Person; or the taking of any action by any Loan Party toward a dissolution, liquidation, consolidation, or merger. 13.8 Any Loan Party or any other person on behalf of any Loan Party claims that any Loan Document is not legal, valid, binding, and enforceable against any Loan Party, that any lien, security interest, or other encumbrance securing any of the obligations under the Loan Documents is not legal, valid, binding, and enforceable, or that the priority of any lien, security interest, or other encumbrance securing any of the obligations in the Loan Documents is different than the priority represented and warranted in the Loan Documents. 13.9 The occurrence of (i) any of the events described in Section 6.01(1) through (7) inclusive of the Indenture (as defined in the Loan Agreement) regardless of whether or not the trustee or holders of the Public Notes (as defined in the Loan Agreement) have notified Borrower of such event or exercised any of their rights and remedies with respect thereto, or (ii) any of the events described in Section 6.01(1) through (7) inclusive of the Subordinated Notes Indenture (as defined in the Loan Agreement) regardless of whether or not the trustee or holders of the Subordinated Notes (as defined in the Loan Agreement) have notified the Borrower of such event or exercised any of their rights and remedies with respect thereto. 13.10 Failure of Borrower to pay the entire outstanding principal, all accrued and unpaid interest, and all other amounts due under the Convertible Notes Indenture and/or the Convertible Notes (as defined in the Loan Agreement) on or before December 11, 1995. 13.11 The occurrence of any Change of Control (as defined in the Loan Agreement). 13.12 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 any other Loan Document or in any agreement, document, or instrument relating to any other indebtedness of any Loan Party to Bank or any indebtedness of any Subsidiary to Bank, including, without limitation, the Warehousing Facility (as defined in the Loan Agreement). 13.13 Borrower fails to comply with the financial covenants set forth in Section 6.12.1, 6.12.2, or 6.12.3 of the Loan Agreement in each of two consecutive quarterly fiscal periods and/or Borrower violates any of the negative covenants set forth in Section 7 of the Loan Agreement. 13.14 The occurrence of any condition or event that is a default or designated as a default, or event of default or other event or occurrence that permits the exercise of rights and remedies in any agreement, document or instrument relating to any Bank Facility (as defined in the Loan Agreement) or any other Debt of any Loan Party. 13.15 Any default under any future senior note offering. If requested by Bank, after Borrower issues such Senior Notes, Borrower will sign a further amendment confirming such cross default. RIGHTS AND REMEDIES OF BANK. Upon occurrence of an Event of Default, Bank may, at its option, in its absolute and sole discretion, and without demand or notice, (i) declare the obligations in the Loan Documents to be immediately due and payable, whereupon the obligations in the Loan Documents shall be immediately due and payable, and (ii) exercise any or all other rights and remedies of Bank concurrently or consecutively in such order as Bank elects. The rights and remedies of Bank shall be cumulative and non-exclusive. Delay, discontinuance, or failure to exercise any right or remedy of Bank shall not be a waiver thereof, or of any other right or remedy of Bank, or of the time of the essence provision. Exercise of any right or remedy of Bank shall not cure or waive any Event of Default or invalidate any act done in response to any Event of Default. LIMIT OF LIABILITY OF BANK. In exercising rights and remedies, neither Bank nor any stockholder, director, officer, employee, agent, or representative of Bank shall have any liability for any injury to the assets, business, operations, or property of Borrower or any other liability to Borrower, other than for its own gross negligence or willful misconduct. SURVIVAL. The representations, warranties, and covenants of the Loan Parties in the Loan Documents shall survive the execution and delivery of the Loan documents and the making of advances to Borrower. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, WAIVER, APPROVAL, CONSENT, ETC. The Loan Documents contain the complete understanding and agreement of Borrower and Bank and supersede all prior representations, warranties, agreements, arrangements, understandings, and negotiations. No provision of the Loan Documents may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the parties thereto. Delay or failure by Bank to insist on performance of any obligation when due or compliance with any other term or condition in the Loan Documents shall not operate as a waiver thereof or of any other obligation, term, or condition or of the time of the essence provision. Acceptance of late payments shall not be a waiver of the time of the essence provision, the right of Bank to require that subsequent payments be made when due, or the right of Bank to declare an Event of Default if subsequent payments are not made when due. Any approval, consent, or statement that a matter is satisfactory by Bank under the Loan Documents must be in writing executed by Bank and shall be construed to apply only to the person(s) and facts specifically set forth in the writing. BINDING EFFECT. The loan documents shall be binding upon and shall inure to the benefit of bank and the loan parties and their successors and assigns and the executors, legal administrators, personal representatives, heirs, devisees, and beneficiaries of the Loan Parties, provided, however, that the Loan Parties may not assign any of their rights or delegate any of their obligations under the Loan Documents and any purported assignment or delegation shall be void. Bank may from time to time in its absolute and sole discretion assign it rights and delegate its obligations under the Loan Documents, in whole or in part, without notice to or consent by any Loan Party (including, without limitation, participations). In addition to any greater or lesser limitation provided by law, no Loan Party shall assert against any assignee of Bank any claims or defenses such Loan Party may have against Bank, except claims and defenses arising under the Loan Documents. COSTS, EXPENSES, AND FEES. Borrower agrees to pay on demand all external and internal costs, expenses, and fees (including, without limitation, as applicable, inside and outside attorneys, paralegals, document clerks and specialists, appraisal, appraisal review, environmental assessment, environmental testing, environmental cleanup, other inspection, processing, title, filing, and recording costs, expenses, and fees) of bank (i) in the negotiation, execution, delivery, and modification of the Loan Documents, (ii) in enforcement of the Loan Documents and exercise of the rights and remedies of Bank, (iii) in defense of the legality, validity, binding nature, and enforceability of the Loan Documents and the perfection and priority of the liens and encumbrances granted in the Loan documents, (iv) in gaining possession of, holding, repairing, maintaining, preserving, and protecting the property ("Collateral") securing the obligations in the Loan Documents, (v) in selling or otherwise disposing of the Collateral, (vi) otherwise in relation to the Loan Documents, the Collateral, or the rights and remedies of Bank under the Loan Documents or relating to the Collateral, and (vii) in preparing for the foregoing, whether or not any legal proceeding is brought or other action is taken. Such costs, expenses, and fees shall include, without limitation, all such costs, expenses, and fees incurred in connection with any bankruptcy, receivership, replevin, or other court proceedings (whether at the trial or appellate level). Borrower agrees to pay interest on such costs, expenses, and fees at the Default Rate from the date incurred by Bank until paid in full. SEVERABILITY. If any provision or any part of any provision of the Loan Documents is unenforceable, the enforceability of the other provisions or the other provisions and the remainder of the subject provision, respectively, shall not be affected and they shall remain in full force and effect. CHOICE OF LAW. The Loan Documents shall be governed by the laws of the State of Arizona, without giving effect to conflict of laws principles. TIME OF ESSENCE. Time is of the essence with regard to each provision of the Loan Documents as to which time is a factor. NOTICES AND DEMANDS. All demands or notices under the Loan Documents shall be in writing (including, without limitation, telecopy, telegraphic, telex, or cable communication) and mailed, telecopied, telegraphed, telexed, cabled, or delivered to the respective party hereto at the address specified at the end of this paragraph or such other address as shall have been specified in a written notice. Any demand or notice mailed shall be mailed first-class mail, postage-prepaid, return receipt requested and shall be effective upon the earlier of (i) actual receipt by the addressee, and (ii) the date shown on the return receipt. Any demand or notice not mailed will be effective upon the earlier of (i) actual receipt by the addressee, and (ii) the time the receipt of the telecopy, telegram, telex, or cable is mechanically confirmed. Address for Notices to Borrower: 7001 North Scottsdale Road, Suite 2050, Scottsdale, Arizona 85253, Attention: Kenda Gonzales, with a copy to Timothy Westfall at the same address. Address for Notices to Bank: Western Region Real Estate, P. O. Box 29542, Phoenix, Arizona 85038, Attention: Dept. A-383. JOINT AND SEVERAL OBLIGATIONS. All obligations in any of the Loan Documents executed by more than one Loan Party shall be the joint and several obligations of each such person. In each Loan Document executed by more than one Loan Party, each reference to Borrower, Obligor, or Trustor shall be a reference to each person executing such Loan document individually and to all such persons collectively. COMMUNITY PROPERTY AND SEPARATE PROPERTY OF BORROWER. If Borrower includes one or more persons who are married to each other or to other persons, each such person included in Borrower agrees that (i) the Loan documents executed by Borrower are made on behalf of the marital community of each person included in Borrower and his or her spouse, and (ii) Bank may have recourse against the separate property of each person included in Borrower and the community property of each such person included in Borrower and his or her spouse for satisfaction of the obligations of Borrower under the Loan Documents. BANK'S RIGHT OF SET-OFF. Borrower grants to Bank (i) the right at any time and from time to time after an Event of Default, in the absolute and sole discretion of Bank and without demand or notice to the Borrower, to set-off and apply deposits (whether certificates of deposit, demand, general, savings, special, time, or other, and whether provisional or final) held by Bank for Borrower and any other liabilities or other obligations of Bank to Borrower ("Deposits, Liabilities, and Obligations") against or to the obligations of Borrower under the Loan Documents, regardless of whether the Deposits, Liabilities, and Obligations are contingent, matured, or unmatured, and (ii) a security interest in the Deposits, Liabilities, and Obligations to secure the obligations of Borrower under the Loan Documents. In addition, Borrower grants to Bank the right upon the occurrence of an event that with notice, passage of time, or both would be an Event of Default to segregate all Deposits, Liabilities, and Obligations into an account or otherwise under the sole control of Bank. INDEMNIFICATION OF BANK. Borrower agrees to indemnify, hold harmless, and on demand defend Bank and its stockholders, directors, officers, employees, agents, and representatives for, from, and against any and all damages, losses, liabilities, costs, and expenses (including, without limitation, costs and expenses of litigation and reasonable attorneys' fees) arising from any claim or demand in respect of the Loan Documents, the Collateral, or the transaction described in the Loan Documents and arising at any time, whether before or after payment and performance of the Obligations in full, excepting any such matters arising solely from the gross negligence or willful misconduct of Bank. The obligations of Borrower and the rights of Bank under this paragraph shall survive payment and performance of the Obligations in full and shall remain in full force and effect without termination. RESCISSION OR RETURN OF PAYMENTS. If at any time or from time to time, whether before or after payment and performance of the obligations of the Loan Parties under the Loan Documents in full, all or any part of any amount received by Bank in payment of, or on account of, any obligation of the Loan Parties under the Loan Documents is or must be, or is claimed to be, avoided, rescinded, or returned by Bank to Borrower or any other Person for any reason whatsoever (including, without limitation, bankruptcy, insolvency, or reorganization of Borrower or any other Person), such obligation and any liens, security interests, and other encumbrances that secured such obligations at the time such avoided, rescinded, or returned payment was received by Bank shall be deemed to have continued in existence or shall be reinstated, as the case may be, all as though such payment had not been received. HEADINGS. The headings at the beginning of each section of the Loan Documents are solely for convenience and are not part of the Loan Documents. NUMBER AND GENDER. In the Loan Documents the singular shall include the plural and vice versa and each gender shall include the other genders. MULTIPLE CREDIT ACCOMMODATIONS. If from time to time Borrower has more than one loan or other credit accommodation with Bank, Borrower agrees that, unless otherwise agreed by Bank and Borrower in writing, (i) the Loan Documents and the agreements, documents, and instruments evidencing and relating to such other loan(s) and credit accommodation(s) shall all remain in effect and neither shall supersede the other, regardless of whether the Loan Documents and such other agreements, documents, and instruments have differing terms, conditions, and requirements (ii), regardless of any such differences, Borrower shall comply with all the terms, conditions, and requirements of the Loan Documents and of such other agreements, documents, and instruments. WAIVER OF STATUTE OF LIMITATIONS. Borrower waives, to the full extent permitted by law, the right to plead any statutes of limitations as a defense to any or all obligations under the Loan Documents. WAIVERS BY BORROWER. Borrower (i) waives, to the full extent permitted by law, presentment, notice of dishonor, protest, notice of protest, notice of intent to accelerate, notice of acceleration, notice of dishonor, and all other notices or demands of any kind (except notices specifically provided for in the Loan Documents), and (ii) agrees that Bank may enforce this Note and any other Loan Documents against any person included in Borrower without first having sought enforcement against any other Loan Party or any Collateral. SENIOR INDEBTEDNESS. The obligations evidenced by this Note constitute "Senior Indebtedness" pursuant to the terms of the Subordinated Notes Indenture and Bank is and shall be entitled to all of the rights and benefits accruing to the holders of Senior Indebtedness pursuant to the Subordinated Notes Indenture. REPLACEMENT NOTE. This Note is a replacement of that Promissory Note dated February 25, 1993 in the principal amount of $10,000,000.00 made by Borrower and payable to Bank. CONTINENTAL HOMES HOLDING CORP., a Delaware corporation By: /s/ Kenda B. Gonzales -------------------------------------- Name: Kenda B. Gonzales ------------------------------------ Title: Senior Vice President ----------------------------------- EX-11 8 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 Six months ended November 30, November 30, ----------------- ----------------- Fully diluted: 1995 1994 1995 1994 ------- ------- ------- ------- Net income $ 5,315 $ 3,092 $10,539 $ 7,608 Interest expense on convertible subordinated notes, net of income taxes 585 401 994 802 ------- ------- ------- ------- $ 5,900 $ 3,493 $11,533 $ 8,410 Weighted average number of shares outstanding 6,947 6,963 6,937 6,963 Conversion of convertible subordinated notes (42.55 shares per $1,000 principal amount of notes) 1,489 1,489 1,489 1,489 Conversion of convertible subordinated notes (42.105 shares per $1,000 principal amount of notes) 737 -- 368 -- Incremental shares relating to stock options exercisable 86 59 90 54 ------- ------- ------- ------- Weighted average number of shares outstanding assuming full dilution 9,259 8,511 8,884 8,506 ======= ======= ======= ======= Fully diluted net income per share $ .64 $ .41 $ 1.30 $ .99 ======= ======= ======= ======= EX-27 9 ARTICLE 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 U.S. DOLLARS 6-MOS MAY-31-1996 JUN-01-1995 NOV-30-1995 1 18,745 0 43,496 0 309,735 0 2,472 0 411,294 0 239,683 71 0 0 120,556 411,294 268,330 284,649 218,857 0 0 0 2,488 18,692 8,153 10,539 0 0 0 10,539 1.52 1.30
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