-----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, TMQ8pBX9SpOSMrlNqCqw/kGL7kHzGtsgM+na/NwTEXSIwPl/bpfUR48zbL3oNP6m ifwTlrL8cRvFvAouEvNnTg== 0000892569-97-003144.txt : 19971113 0000892569-97-003144.hdr.sgml : 19971113 ACCESSION NUMBER: 0000892569-97-003144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESLEY COMPANIES /DE CENTRAL INDEX KEY: 0000878093 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 330475923 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10830 FILM NUMBER: 97716079 BUSINESS ADDRESS: STREET 1: 19 CORPORATE PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7146406400 MAIL ADDRESS: STREET 2: 19 CORP PLAZA CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,1997 1 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 September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-18001 THE PRESLEY COMPANIES (Exact name of registrant as specified in its charter) Delaware 33-0475923 (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 19 Corporate Plaza 92660 Newport Beach, California (Zip Code) (Address of principal executive offices) (714) 640-6400 (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 September 30, 1997 - --------------------- ------------------- Series A, par value $.01 17,838,535 Series B, restricted voting convertible, par value $.01 34,357,143
- -------------------------------------------------------------------------------- 2 THE PRESLEY COMPANIES INDEX
Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets - September 30, 1997 and December 31, 1996...........................................................................3 Consolidated Statements of Operations - Three and Nine Months Ended September 30, 1997 and 1996.................................................................4 Consolidated Statement of Stockholders' Equity - Nine Months Ended September 30, 1997....................................................................5 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996.................................................................6 Notes to Consolidated Financial Statements......................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................10 PART II. OTHER INFORMATION..................................................................................17 SIGNATURES...................................................................................................18
2 3 THE PRESLEY COMPANIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT NUMBER OF SHARES AND PAR VALUE PER SHARE)
September 30, December 31, 1997 1996 ------------- ------------ (unaudited) ASSETS Cash and cash equivalents $ 5,406 $ 4,550 Receivables 5,207 4,225 Real estate inventories - Note 2 243,110 304,126 Property and equipment, less accumulated depreciation of $2,125 and $1,432 at September 30, 1997 and December 31, 1996, respectively 3,834 3,047 Deferred loan costs 4,199 4,347 Other assets 6,546 11,320 -------- -------- $268,302 $331,615 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 10,518 $ 18,428 Accrued expenses 14,892 20,450 Notes payable 50,907 18,524 12 1/2% Senior Notes due 2001 - Note 3 190,000 190,000 -------- -------- 266,317 247,402 -------- -------- Stockholders' equity Common stock: Series A common stock, par value $.01 per share; 100,000,000 shares authorized; 17,838,535 issued and outstanding at September 30, 1997 and December 31, 1996, respectively 178 178 Series B restricted voting convertible common stock, par value $.01 per share; 50,000,000 shares authorized; 34,357,143 shares issued and outstanding at September 30, 1997 and December 31, 1996, respectively 344 344 Additional paid-in capital 114,599 114,599 Accumulated deficit from January 1, 1994 - Note 1 (113,136) (30,908) -------- -------- 1,985 84,213 -------- -------- $268,302 $331,615 ======== ========
3 4 THE PRESLEY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per common share amounts) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Sales Homes $ 67,583 $ 79,547 $223,234 $221,564 Lots, land and other 766 3 10,476 1,276 -------- -------- -------- -------- 68,349 79,550 233,710 222,840 -------- -------- -------- -------- Operating costs Cost of sales - homes (59,737) (69,904) (200,679) (195,755) Cost of sales - lots, land and other (913) (265) (9,983) (1,496) Impairment loss on real estate assets - Note 2 -- -- (74,000) -- Sales and marketing (5,191) (5,609) (15,826) (16,292) General and administrative (3,686) (3,467) (12,047) (10,621) -------- -------- -------- -------- (69,527) (79,245) (312,535) (224,164) -------- -------- -------- -------- Operating income (loss) (1,178) 305 (78,825) (1,324) Interest expense, net of amounts capitalized (2,237) (387) (5,001) (1,666) Other income (expense), net 215 765 1,598 1,719 -------- -------- -------- -------- Net income (loss) $ (3,200) $ 683 $(82,228) $ (1,271) ======== ======== ======== ======== Net income (loss) per common share - Note 1 $ (0.06) $ 0.01 $ (1.58) $ (0.02) ======== ======== ======== ========
4 5 THE PRESLEY COMPANIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 1997 (in thousands) (unaudited)
Common Stock ------------------------------------------ Accumulated Series A Series B Additional Deficit from ------------------ ----------------- Paid-In January 1, Shares Amount Shares Amount Capital 1994 Total ------ ------ ------ ------ ------------ ------------ -------- Balance - December 31, 1996 17,839 $178 34,357 $344 $114,599 $(30,908) $84,213 Net loss -- -- -- -- -- (82,228) (82,228) -------------------------------------------------------------------------------------------- Balance - September 30, 1997 17,839 $178 34,357 $344 $114,599 $(113,136) $ 1,985 ============================================================================================
5 6 THE PRESLEY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine Months Ended September 30, -------------------------- 1997 1996 --------- ---------- OPERATING ACTIVITIES Net loss $ (82,228) $ (1,271) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 546 449 Impairment loss on real estate assets 74,000 -- Net changes in operating assets and liabilities: Other receivables (1,776) (2,350) Real estate inventories (12,984) (4,355) Deferred loan costs 148 764 Other assets 4,774 (789) Accounts payable (7,910) 1,014 Accrued expenses (5,558) (6,606) --------- -------- Net cash used in operating activities (30,988) (13,144) --------- -------- INVESTING ACTIVITIES Principal payments on notes receivable 794 340 Property and equipment, net (1,333) (736) --------- -------- Net cash used in investing activities (539) (396) --------- -------- FINANCING ACTIVITIES Proceeds from borrowing on notes payable 115,418 84,602 Principal payments on notes payable (83,035) (72,071) -------- -------- Net cash provided by financing activities 32,383 12,531 --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 856 (1,009) CASH AND CASH EQUIVALENTS - beginning of period 4,550 4,217 --------- -------- CASH AND CASH EQUIVALENTS - end of period $ 5,406 $ 3,208 ========= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest, net of amounts capitalized $ 10,395 $ 7,603 ========= ======== Cash paid during the period for income taxes $ -- $ -- ========= ========
6 7 THE PRESLEY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Effective as of January 1, 1994, the Company completed a capital restructuring and quasi-reorganization. The quasi-reorganization resulted in the adjustment of assets and liabilities to estimated fair values and the elimination of an accumulated deficit effective January 1, 1994. The consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements included herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The interim consolidated financial statements have been prepared in accordance with the Company's customary accounting practices. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a presentation in accordance with generally accepted accounting principles have been included. Operating results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The consolidated financial statements include the accounts of the Company and all majority-owned or controlled subsidiaries and joint ventures. All significant intercompany accounts and transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method. The accounting policies of the joint ventures are substantially the same as those of the Company. The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of September 30, 1997 and December 31, 1996 and revenues and expenses for the periods presented. Accordingly, actual results inevitably will differ from those estimates in the near-term and such differences may be material to the Company's financial statements. Net income (loss) per common share for the three and nine months ended September 30, 1997 and 1996 is based on 52,195,678 of Series A and Series B common stock outstanding. 7 8 THE PRESLEY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) NOTE 2 - IMPAIRMENT OF REAL ESTATE ASSETS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No. 121"), which requires impairment losses to be recorded on assets to be held and used by the Company when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. Statement No. 121 also requires that long-lived assets that are held for disposal be reported at the lower of the assets' carrying amount or fair value less cost of disposal. Under this pronouncement, when an impairment loss is required for assets to be held and used by the Company, the related assets are adjusted to their estimated fair value which becomes the new cost basis of the respective asset. Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties, that is, other than a forced or liquidation sale. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain since it requires estimates of current market yields as well as future events and conditions over a period of many years. Such future events and conditions include economic and market conditions during the life of the related project, as well as the availability and cost of suitable financing to fund development and construction activities. The realization of the Company's real estate projects is dependent upon future uncertain events and conditions and, accordingly, the actual timing and amounts realized by the Company may be materially different from the estimated fair values as described herein. The loss for the nine months ended September 30, 1997 includes a non-cash charge of $74,000,000 as a result of the recognition of impairment losses on certain of the Company's real estate assets in accordance with Statement No. 121. The fair values utilized to calculate the impairment losses were estimated based upon discounted expected future cash flows. The impairment losses are related to three of the Company's weak performing master-planned communities. The impairment losses related to two communities located in the Inland Empire area of Southern California arose primarily due to declines in sales prices resulting from weak economic conditions and competitive pressures in that area of Southern California. The impairment losses related to a community located in Contra Costa County in the East San Francisco Bay area of Northern California are primarily attributable to a deterioration in value of the non-residential parcels of the project which are now held for sale and to lower than expected cash flow relating to one high end residential product in this community. 8 9 THE PRESLEY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) NOTE 3 - SENIOR NOTES In accordance with the bond indenture agreement governing the Company's Senior Notes, which are due in 2001, because the Company's Consolidated Tangible Net Worth was less than $60,000,000 as of September 30, 1997, the Company will, effective on December 4, 1997, be required to make an offer to purchase $20,000,000 of the Senior Notes at par plus accrued interest, less the face amount of Senior Notes acquired by the Company after September 30, 1997. Each six months thereafter, until such time as the Company's Consolidated Tangible Net Worth is $60,000,000 or more at the end of a fiscal quarter, the Company would be required to make similar offers to purchase Senior Notes. At September 30, 1997, the Company's Consolidated Tangible Net Worth was ($2,214,000). The Company's management is presently in discussions with representatives of the holders of the Senior Notes with respect to modifying this repurchase provision of the bond indenture agreement. Any such change in the terms or conditions of the bond indenture agreement requires the affirmative vote of at least a majority in principal amount of the Senior Notes then outstanding. No assurances can be given that any such change will be made. NOTE 4 - WITHDRAWAL OF REQUEST FOR REGISTRATION OF ADDITIONAL SERIES A COMMON STOCK In accordance with the Registration Rights Agreement, dated as of May 20, 1994, among the Company and the holders of the Company's Series B Common Stock, the holders had previously requested registration under the Securities Act of 1933 of 18,145,467 shares of the Company's Series A Common Stock into which the Series B Common Stock may be converted. That request for registration is no longer in effect, and, accordingly, the Company will not file a registration statement with the Securities and Exchange Commission at this time. 9 10 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of results of operations and financial condition should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1, as well as the information presented in the Annual Report on Form 10-K for the year ended December 31, 1996. FINANCIAL CONDITION AND LIQUIDITY The Company provides for its ongoing cash requirements from internally generated funds from the sales of real estate and from outside borrowings. The Company currently maintains the following major credit facilities, which are summarized below: 12 1/2% Senior Notes (the "Senior Notes"); a secured revolving lending facility (the "Working Capital Facility"); and a revolving line of credit relating to Carmel Mountain Ranch, its wholly-owned joint venture partnership (the "Joint Venture Facility"). SENIOR NOTES The Company filed with the Securities and Exchange Commission a Registration Statement on Form S-1 for the sale of $200,000,000 of Senior Notes which became effective on June 23, 1994. The offering closed on June 29, 1994 and was fully subscribed and issued. The following discussion of the Senior Notes should be read in conjunction with the Registration Statement as filed with the Securities and Exchange Commission. The 12 1/2% Senior Notes due 2001 (the "Senior Notes") were offered by The Presley Companies, a Delaware corporation ("Delaware Presley"), and are unconditionally guaranteed on a senior basis by Presley Homes (formerly The Presley Companies), a California corporation and a wholly-owned subsidiary of Delaware Presley ("California Presley"). However, California Presley has granted liens on substantially all of its assets as security for its obligations under the Working Capital Facility. Because the California Presley guarantee is not secured, holders of the Senior Notes are effectively junior to borrowings under the Working Capital Facility with respect to such assets. Delaware Presley and its consolidated subsidiaries are referred to collectively herein as "Presley" or the "Company". Interest on the Senior Notes is payable on January 1 and July 1 of each year. Except as set forth in the Indenture Agreement (the "Indenture"), the Senior Notes are not redeemable by Presley prior to July 1, 1998. Thereafter, the Senior Notes will be redeemable at the option of Delaware Presley, in whole or in part, at the redemption prices set forth in the Indenture. 10 11 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Senior Notes are senior obligations of Presley and rank pari passu in right of payment to all existing and future unsecured indebtedness of Presley, and senior in right of payment to all future indebtedness of the Company which by its terms is subordinated to the Senior Notes. Upon a Change of Control as described in the Indenture, Presley must offer to repurchase Senior Notes at a price equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of repurchase. In accordance with the Indenture, because the Company's Consolidated Tangible Net Worth was less than $60,000,000 as of September 30, 1997, the Company will, effective on December 4, 1997, be required to make an offer to purchase $20,000,000 of the Senior Notes at a purchase price equal to 100% of the principal amount plus accrued interest, less the face amount of Senior Notes acquired by the Company after September 30, 1997. Each six months thereafter, until such time as the Company's Consolidated Tangible Net Worth is $60,000,000 or more at the end of a fiscal quarter, the Company would be required to make similar offers to purchase Senior Notes. At September 30, 1997, the Company's Consolidated Tangible Net Worth was ($2,214,000). The Company's management is presently in discussions with representatives of the holders of the Senior Notes with respect to modifying this repurchase provision of the Indenture. Any such change in the terms or conditions of the bond indenture agreement requires the affirmative vote of at least a majority in principal amount of the Senior Notes outstanding. No assurances can be given that any such change will be made. The Indenture governing the Senior Notes restricts, among other things: (i) the payment of dividends on and redemptions of capital stock by Presley, (ii) the incurrence of indebtedness by Presley or the issuance of preferred stock by Delaware Presley's subsidiaries, (iii) the creation of certain liens, (iv) Delaware Presley's ability to consolidate or merge with or into, or to transfer all or substantially all of its assets to, another person, and (v) transactions with affiliates. These restrictions are subject to a number of important qualifications and exceptions. WORKING CAPITAL FACILITY The collateral for the loans provided by the Working Capital Facility includes substantially all real estate and other assets of the Company (excluding assets of partnerships and the portion of the partnership interests in Carmel Mountain Ranch partnership which are currently pledged to another lender). The borrowing base is calculated based on specified percentages of book values of real estate assets. The borrowing base at September 30, 1997 was approximately $157,000,000; however, the maximum loan under the Working Capital Facility is limited to $72,000,000. The principal outstanding under the Working Capital Facility at September 30, 1997 was $39,000,000. 11 12 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Working Capital Facility had a termination date of May 20, 1997, with two one-year extensions at the Company's option. On April 18, 1997, the Company exercised its option to extend the termination date of the Working Capital Facility for one period of twelve months from May 20, 1997 to May 20, 1998. Upon the extension of the termination date, the Company paid an extension fee of 1% of the Working Capital Facility commitment amount (in addition to the loan fee described below). The Company still holds the option to extend the termination date for an additional twelve (12) months. If the Company elects to exercise this option in the future, an additional extension fee of 1% of the Working Capital Facility commitment amount (in addition to the loan fee described below) would be incurred. Pursuant to the terms of the Working Capital Facility, outstanding advances bear interest at the prime rate plus 2%. An alternate option provides for interest based on a specified overseas base rate plus 4.44%, but not less than the prime rate option in effect at December 31, 1993 (8.00%). In addition, the Company pays a loan fee of 1% per annum, payable quarterly, on the total Working Capital Facility commitment amount. The Working Capital Facility requires certain minimum cash flow and pre-tax and pre-interest tests. The Working Capital Facility also provides for negative covenants which, among other things, place limitations on the payment of cash dividends, merger transactions, transactions with affiliates, the incurrence of additional debt and the acquisition of new land as described in the following paragraph. Under the terms of the Working Capital Facility, the Company may acquire new improved land for development of housing units of no more than 300 lots in any one location without approval from the lenders if certain conditions are satisfied. The Company may, however, acquire any new raw land or improved land provided the Company has obtained the prior written approval of lenders holding two-thirds of the obligations under the Working Capital Facility. JOINT VENTURE FACILITY Carmel Mountain Ranch ("CMR"), the partnership that owns the Carmel Mountain Ranch master-planned community, is a California general partnership and is 100% owned by The Presley Companies and its wholly-owned subsidiary. Effective in March 1995, the development and construction of the project has been financed through a revolving line of credit, the terms of which have been amended from time to time. Currently, the revolving line of credit consists of several components relating to production units, models and residential lots. At September 30, 1997, the revolving line of credit had an outstanding balance of $6,397,000. Availability under the line is subject to a number of limitations, but in any case cannot exceed $10,000,000. Interest on the outstanding balance is at prime plus 1.00% and the loan matures on March 17, 1998. 12 13 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SELLER FINANCING Another potential source of financing available to the Company is seller-provided financing for land acquired by the Company. At September 30, 1997, the Company had notes outstanding related to land acquisitions for which seller financing was provided in the amount of $5,510,000. During the few years prior to this year, the Company had not used this form of financing significantly. ASSESSMENT DISTRICT BONDS In some locations in which the Company develops its projects, assessment district bonds are issued by municipalities to finance major infrastructure improvements and fees. Such financing has been an important part of financing master-planned communities due to the long-term nature of the financing, favorable interest rates when compared to the Company's other sources of funds and the fact that the bonds are sold, administered and collected by the relevant government entity. As a landowner benefited by the improvements, the Company is responsible for the assessments on its land. When Presley's homes or other properties are sold, the assessments are either prepaid or the buyers assume the responsibility for the related assessments. RESULTS OF OPERATIONS OVERVIEW AND RECENT RESULTS Homes sold, closed and in backlog as of and for the periods presented are as follows:
As of and for As of and for the Three Months the Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Number of homes sold 419 429 1,296 1,498 Number of homes closed 357 467 1,186 1,326 Backlog of homes sold but not closed at end of period 392 488 392 488
Closings of homes in backlog generally occur within six months of the date indicated. The dollar amount of backlog of homes sold but not closed as of September 30, 1997 was $81,258,000, as compared to $91,513,000 as of September 30, 1996 and $65,252,000 as of June 30, 1997. The cancellation rate of buyers who contracted to buy a home but did not close escrow at the Company's projects was approximately 22% during 1996 and approximately 19% during the first nine months of 1997. 13 14 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The number of homes closed in the third quarter of 1997 was down 24 percent to 357 from 467 in the third quarter of 1996. Net new home orders for the quarter ended September 30, 1997 decreased 2 percent to 419 units from 429 a year ago. For the third quarter of 1997, net new orders decreased 2 percent to 419 from 428 units in the second quarter of 1997. The backlog of homes sold as of September 30, 1997 was 392, down 20 percent from 488 units a year earlier, and up 19 percent from 330 units at June 30, 1997. The Company's inventory of completed and unsold homes as of September 30, 1997 has increased by 32 percent to 135 units from 102 units as of June 30, 1997. The declines in net new home orders, closings and backlog for the third quarter are primarily the result of the completion or near completion of certain of the Company's older master-planned communities and delays in completion of new land acquisitions, which has resulted in less product available for sale. At September 30, 1997, the Company had 12 sales locations in its master-planned communities as compared to 24 sales locations in its master-planned communities at September 30, 1996. The Company recently consolidated certain operating units in order to operate more efficiently. The Company's operating units in the Inland Empire area and the Orange/Los Angeles area of Southern California were consolidated into one operating unit based in Newport Beach. The Company's operating units in the San Francisco Bay Area and the Sacramento Area of Northern California were consolidated into one operating unit based in the East Bay area of San Francisco. In addition, the Company's previously announced entry into the Colorado market place was postponed to allow the Company to focus its attention on the existing market places in which it currently operates. In general, housing demand is adversely affected by increases in interest and housing costs. Interest rates, the length of time that assets remain in inventory, and the proportion of inventory that is financed affect the Company's interest cost. If the Company is unable to raise sales prices sufficiently to compensate for higher costs, which has generally been the case recently, or if mortgage interest rates increase significantly, affecting prospective buyers' ability to adequately finance home purchases, the Company's sales, gross margins and net results may be adversely impacted. To a limited extent, the Company hedges against increases in interest costs by acquiring interest rate protection that locks in or caps interest rates for limited periods of time for mortgage financing for prospective homebuyers. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED SEPTEMBER 30, 1996 Sales (which represent recorded revenues from closings) for the three months ended September 30, 1997 were $68.3 million, a decrease of $11.3 million (14.0%) from sales of $79.6 million for the three months ended September 30, 1996. Revenue from sales of homes decreased $12.0 million to $67.6 million in the 1997 period from $79.6 million in the 1996 period. This decrease was due primarily to a decrease in the number of units closed, partially offset by an increase in the average sales prices of homes to $189,000 in the 1997 period from $170,000 in the 1996 period, primarily as a result of changes in the mix of product and, to a lesser extent, some price increases in certain markets. Revenue from lots, land and other increased $0.8 million to $0.8 million in the 1997 period from a nominal amount in the 1996 period. 14 15 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Total operating income (loss), changed from an income of $0.3 million in the 1996 period to a loss of $1.2 million in the 1997 period. The excess of revenue from sales of homes over the related cost of sales decreased by $1.7 million, to $7.9 million in the 1997 period from $9.6 million in the 1996 period. These decreases were primarily due to a decrease in the number of units closed, as well as increases in house construction costs and other development costs which could not be entirely recovered from increased sales prices. Sales and marketing expenses decreased by $0.4 million to $5.2 million in the 1997 period from $5.6 million in the 1996 period primarily as a result of decreased direct sales expenses related to the decreased sales volume. General and administrative expenses increased by $0.2 million to $3.7 million in the 1997 period from $3.5 million in the 1996 period, primarily as a result of start-up operations in Nevada. Total interest incurred increased $0.1 million (1.2%) from $8.1 million in the 1996 period to $8.2 million in the 1997 period as a result of an increase in interest rates. Net interest expense increased to $2.2 million in the 1997 period from $0.4 million for the 1996 period. This increase was due primarily to a reduction in real estate assets which qualify for interest capitalization. Other (income) expense, net decreased to $0.2 million in the 1997 period from $0.8 million in the 1996 period primarily as a result of decreased income from recreational facilities. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Sales (which represent recorded revenues from closings) for the nine months ended September 30, 1997 were $233.7 million, an increase of $10.9 million (4.9%), from sales of $222.8 million for the nine months ended September 30, 1996. Revenue from sales of homes increased $1.6 million to $223.2 million in the 1997 period from $221.6 million in the 1996 period. This increase was due primarily to an increase in the average sales prices of homes to $188,000 in the 1997 period from $167,000 in the 1996 period, primarily as a result of changes in the mix of product and, to a lesser extent, some price increases in certain markets, offset by a reduction in the number of homes closed in the 1997 period compared to the 1996 period. Revenue from lots, land and other increased $9.2 million to $10.5 million in the 1997 period from $1.3 million in the 1996 period. Total operating loss, excluding the impairment loss on real estate assets, increased from a loss of $1.3 million in the 1996 period to a loss of $4.8 million in the 1997 period. The excess of revenue from sales of homes over the related cost of sales decreased by $3.3 million, to $22.5 million in the 1997 period from $25.8 million in the 1996 period. These decreases were primarily due to an increase in average sales prices offset by a decrease in the number of units closed, as well as increases in house construction costs and other development costs which could not be entirely recovered from increased sales prices. Impairment losses on real estate assets amounting to $74.0 million were recorded in the 1997 period, with no corresponding charge in the comparable period for 1996. As a result of the impairment losses, gross margins on the affected projects are expected to be higher in the future. Sales and marketing expenses decreased from $16.3 million in the 1996 period to $15.8 million in the 1997 period, which is the result 15 16 THE PRESLEY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) of decreased advertising and decreased direct sales expenses related to the decreased sales volume. General and administrative expenses increased by $1.4 million to $12.0 million in the 1997 period from $10.6 million in the 1996 period, primarily as a result of increased overhead from start-up operations in Nevada and a charge of approximately $0.7 million for expenses related to the closing and consolidation of certain operating units. Total interest incurred increased $0.6 million (2.5%) from $23.7 million in the 1996 period to $24.3 million in the 1997 period as a result of increased interest rates. Net interest expense increased to $5.0 million in the 1997 period from $1.6 million for the 1996 period. This increase was due primarily to a reduction in real estate assets which qualify for interest capitalization. Interest expense will continue to be higher in the future due to a decrease in real estate assets which qualify for interest capitalization resulting from the impairment losses described above. Other (income) expense, net decreased $0.1 million to a net income of $1.6 million in the 1997 period from a net income of $1.7 million in the 1996 period primarily as a result of decreased income from mortgage operations and recreation facilities, partially offset by increased income from design operations. CASH FLOWS - COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Net cash used in operating activities increased from $13.1 million in the 1996 period to $31.0 million in the 1997 period. This change was primarily as a result of increased land acquisition and construction activity. Net cash used in investing activities increased by $0.1 million in the 1997 period as compared to the 1996 period primarily as a result of purchases of fixed assets, partially offset by increased principal collections on notes receivable. Net cash provided by financing activities increased by $19.9 million in the 1997 period as compared to the 1996 period as a result of an increase in net borrowings activity. * * * * * Certain statements contained herein that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. Factors that may impact such forward-looking statements include, among others, changes in general economic conditions and in the markets in which the Company competes, changes in interest rates and competition. 16 17 THE PRESLEY COMPANIES PART II. OTHER INFORMATION ITEMS 1, 2, 3, 4 AND 5. Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS. 10.1 Third Amendment to Master Credit Agreement, dated as of September 25, 1997, by and between Carmel Mountain Ranch, a California general partnership (Borrower) and Bank One, Arizona, N.A., a national banking association (Bank). 27 Financial Data Schedule (B) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K during the three months ended September 30, 1997. 17 18 THE PRESLEY COMPANIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 13, 1997 By: /s/ David M. Siegel -------------------------------------- DAVID M. SIEGEL Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: November 13, 1997 By: /s/ W. Douglass Harris -------------------------------------- W. DOUGLASS HARRIS Vice President, Corporate Controller (Principal Accounting Officer) 18 EX-10.1 2 THIRD AMENDMENT TO MASTER CREDIT AGREEMENT 1 EXHIBIT 10.1 THIRD AMENDMENT TO MASTER CREDIT AGREEMENT THIS THIRD AMENDMENT TO MASTER CREDIT AGREEMENT (this "AMENDMENT") is made as of this 25th day of September, 1997 by and between CARMEL MOUNTAIN RANCH, a California general partnership ("BORROWER"), and BANK ONE, ARIZONA, NA, a national banking association ("BANK"), with respect to the following: RECITALS A. Borrower and Bank are parties to that certain Master Credit Agreement dated as of February 15, 1995, as amended by that certain First Amendment to Master Credit Agreement dated as of October 10, 1995, and as further amended by that certain Second Amendment to Master Credit Agreement and Secured Promissory Note dated as of October 4, 1996 (as so amended, the "CMR CREDIT AGREEMENT"). Capitalized terms used in this Amendment shall have the meaning given to such terms in the CMR Credit Agreement. B. Bank and Presley are parties to that certain Master Credit Agreement dated as of October 10, 1995, as amended by that certain Amendment to Master Credit Agreement and Secured Promissory Note dated as of October 4, 1996 (as so amended, the "PRESLEY CREDIT AGREEMENT"). Presley is a general partner of Borrower. C. Bank and Horsethief Canyon Partners, a California general partnership ("HORSETHIEF") are parties to that certain Master Credit Agreement dated as of October 4, 1996 (the "HORSETHIEF CREDIT AGREEMENT"). Presley, a general partner of Borrower, is a general partner in Horsethief. D. Borrower, Presley and Horsethief are all Affiliates of each other. E. Borrower has requested Bank to modify the CMR Credit Agreement, and Bank has agreed to do so under the terms of this Amendment. AGREEMENT NOW, THEREFORE, taking the foregoing Recitals into account and in consideration of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree to amend the CMR Credit Agreement in the following particulars only: 1 2 1. AMENDMENT TO CMR AGREEMENT. Upon the satisfaction of the conditions set forth in Section 2 of this Amendment, the CMR Credit Agreement shall be deemed to be amended as follows: (a) The Commitment Amount shall be equal to Ten Million Dollars ($10,000,000) and the dollar limit on Advances set forth in Section 2.5.3.3(iii) of the CMR Credit Agreement shall be a like amount. (b) The consolidated maximum leverage test set forth in Section 5.20.4 of the CMR Credit Agreement shall be deleted in its entirety effective as of June 30, 1997. (c) A new Section 5.20.4 and a new Section 5.20.5 shall be added to the CMR Credit Agreement effective as of June 30, 1997 as follows: 5.20.4 POSITIVE CASH FLOW. The cash flow of Presley calculated as of the last day of each quarter for the four-quarter period ending on such last day, commencing December 31, 1994, shall be positive, before land acquisition costs, land improvement and land development costs, interest, and all loan fees and other costs payable pursuant to this Agreement and that certain Fourth Amended and Restated Loan Agreement dated as of March 25, 1994 between Presley, as borrower, and certain lenders, including Foothill Capital Corporation as both a lender and agent. 5.20.5 FIXED CHARGE RATIO. The Consolidated Fixed Charge Coverage Ratio of Presley, calculated as of the last day of each quarter for the four-quarter period ending on such last day, commencing December 31, 1994, will be at least 1.5:1. As used in this Section 5.20.5, the following terms shall have the following meanings: (a) "CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" of Presley means for any period the sum of the amount for such period of (i) consolidated net income, plus (ii) consolidated income tax expense, plus (iii) consolidated interest expense, plus (iv) amortization of non-cash costs to cost of sales of real property, plus (v) other non-cash items reducing consolidated net income minus consolidated interest income, all as determined on a consolidated basis for Presley in accordance with GAAP; and (b) "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" of Presley means, with respect to any determination date, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of Presley for the prior four full fiscal quarters for which financial results have been reported immediately preceding the determination date, to (ii) the aggregate 2 3 consolidated interest incurred of Presley reasonably anticipated in good faith by Presley to become due at any time during the fiscal quarter in which the determination date occurs and the three fiscal quarters immediately subsequent to such fiscal quarter; provided, however, that in any calculation of Presley's Consolidated Fixed Charge Coverage Ratio (A) the interest on any indebtedness (whether existing or being incurred) bearing a floating interest rate shall be computed as if the rate in effect on the determination date had been the applicable rate for the entire period, (B) no adjustment shall be made with respect to the intended use of proceeds of any asset sale if such asset sale has not taken place prior to the determination date, and (C) no adjustment shall be made with respect to any intended repayment or refinancing of indebtedness (other than (x) a repayment or refinancing of indebtedness out of the proceeds of the incurrence of indebtedness giving rise to the determination date, or (y) anticipated repayments of indebtedness in the ordinary course of business provided that the aggregate amount of indebtedness assumed to be outstanding during the period for which consolidated interest incurred is to be determined shall not be less than the aggregate amount of indebtedness outstanding at the determination date) that has not taken place prior to the determination date. (d) On August 14, 1997 Presley announced a net loss for its second quarter ending June 30, 1997 equal to Seventy-five Million Four Hundred Fifty-four Thousand Dollars ($75,454,000) (the "ANNOUNCED LOSS"). Bank shall not have the right to declare an Event of Default pursuant to Section 7.1.4 of the CMR Credit Agreement by reason of the Announced Loss; provided, however, Bank reserves the right to declare an Event of Default pursuant to said Section 7.1.4 by reason of any other event which is a Material Adverse Change. (e) Bank shall not make any further Infrastructure Development Advances under the CMR Credit Agreement. (f) No additional Project Loans shall be made by Bank under the CMR Credit Agreement other than those Project Loans which currently exist. (g) Except as expressly set forth in this Section 1 of this Amendment, the CMR Credit Agreement shall remain unchanged and in full force and effect. 3 4 2. CONDITIONS PRECEDENT. The following are conditions precedent to the effectiveness of the amendments to the CMR Credit Agreement set forth in Section 1 of this Amendment: (a) Borrower shall cause Presley to (i) pay all amounts owed to Bank under the Presley Credit Agreement, and (ii) execute and deliver to Bank a Facility Termination Agreement (Presley Credit Agreement) in the form attached to this Amendment as Exhibit A and by this reference made a part hereof; and (b) Borrower shall cause Horsethief Partners to (i) pay all amounts owed to Bank under the Horsethief Credit Agreement, and (ii) execute and deliver to Bank a Facility Termination Agreement (Horsethief Credit Agreement) in the form attached to this Amendment as Exhibit B and by this reference made a part hereof; and (c) The outstanding amount owed to Bank under the CMR Credit Agreement shall not exceed Ten Million Dollars ($10,000,000) at the time that the other conditions precedent set forth in this Section 2 have been satisfied; and (d) Borrower shall deliver to Bank such evidence of the due execution of this Amendment and the instruments delivered pursuant thereto as Bank shall in its sole and absolute discretion require; and (e) Borrower shall deliver to Bank an opinion of Borrower's counsel addressed to Bank in form and substance acceptable to Bank in its sole and absolute discretion; and (f) Payment by Borrower to Bank of all costs and expenses incurred by Bank in connection with this Amendment, including without limitation the costs of Bank's legal counsel in preparing this Amendment and the instruments delivered pursuant hereto. 3. DATE CERTAIN. If all of the conditions set forth in Section 2 of this Amendment have not been satisfied on or before September 30, 1997, this Amendment shall be of no force or effect. 4. NO RETURN OF FEES. Notwithstanding anything set forth in the CMR Credit Agreement, nothing in this Amendment shall require Bank to return all or any portion of any fee heretofore paid by Borrower to Bank pursuant to the CMR Credit Agreement. 4 5 5. MATURITY OF CMR CREDIT AGREEMENT. Borrower acknowledges that (a) the Note is due and payable in full on March 17, 1998 and that Bank has made no commitment to extend or renew the CMR Credit Agreement upon such maturity; (b) any such extension or renewal, if made, shall be on such terms and conditions as Bank may require in its sole and absolute discretion, including without limitation such financial covenants as to Borrower or Presley as Bank may so require. 6. WAIVER AND RELEASE BY BORROWER. (a) Bank would not have agreed to enter into this Amendment but for Borrower's representation, warranty and agreement that Bank is not in default of any of Bank's obligations under the CMR Credit Agreement or any Loan Documents. (b) Therefore, and except as expressly set forth in the CMR Credit Agreement as amended by this Amendment, Borrower hereby waives and releases Bank, its subsidiaries and Affiliates, past and present, as well as their directors, officers, agents and employees, past and present, from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown or suspected or unsuspected by Borrower, which Borrower may now own or hold or at any time heretofore owned or held against Bank and arising out of the CMR Credit Agreement or arising out of any other agreement, oral or written, actual or alleged, by and between Bank and Borrower. (c) In connection with the releases and waivers contained herein, Borrower hereby expressly waives any and all rights and benefits conferred upon it by the provisions of Section 1542 of the California Civil Code which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Borrower has been advised by its legal counsel, or Borrower has made a reasoned and fully informed decision not to be so represented by counsel, and understands and acknowledges the significance and consequences of this release and of this specific waiver of Section 1542 and Borrower expressly consents that the release contained herein shall be given full force and effect according to each and all of its express terms and provisions including those relating to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating to any other claims, demands and causes of action hereinabove specified. 5 6 7. CHOICE OF LAW. This Amendment and the transactions contemplated hereunder shall be governed by and construed in accordance with the laws of the State of California without giving effect to any choice of law or conflict-of-laws rules or principles. 8. TITLES AND HEADINGS. The titles and headings of sections of this Amendment are intended for convenience only and shall not in any way affect the meaning or construction of any provision of this Amendment. 9. COUNTERPART EXECUTION. This Amendment 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 Amendment to physically form one document. 10. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement and understanding of Bank and Borrower with respect to the subject matter hereof, and all prior or contemporaneous agreements or understandings, written or oral, are hereby superseded and merged herein. (signature page follows) 6 7 IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. BORROWER: CARMEL MOUNTAIN RANCH, a California general partnership By: Presley Homes, a California corporation, formerly known as The Presley Companies, General Partner By: /s/ David M. Siegel ------------------------- Name: David M. Siegel ------------------------- Title: Sr. Vice President/CFO ------------------------- By: /s/ W. Douglass Harris ------------------------- Name: W. Douglass Harris ------------------------- Title: Vice President/Controller ------------------------- By: Presley CMR, Inc., a California corporation, General Partner By: /s/ David M. Siegel ------------------------- Name: David M. Siegel ------------------------- Title: Sr. Vice President/CFO ------------------------- By: /s/ W. Douglass Harris ------------------------- Name: W. Douglass Harris ------------------------- Title: Vice President/Controller ------------------------- BANK: BANK ONE, ARIZONA, NA, a national banking association By: /s/ Frank W. Henry ------------------------------ Name: Frank W. Henry Title: Vice President 7 8 EXHIBIT A --------- FACILITY TERMINATION AGREEMENT (PRESLEY CREDIT AGREEMENT) THIS FACILITY TERMINATION AGREEMENT (hereinafter "TERMINATION AGREEMENT") is made as of September ___, 1997 by and between PRESLEY HOMES, a California corporation, formerly known as The Presley Companies ("PRESLEY"), and BANK ONE, ARIZONA, NA, a national banking association ("BANK"), with respect to the following: RECITALS A. Presley and Bank are parties to that certain Master Credit Agreement dated as of October 10, 1995, as amended by that certain Amendment to Master Credit Agreement and Secured Promissory Note dated as of October 4, 1996 (as so amended the "PRESLEY CREDIT AGREEMENT"). Capitalized terms used in this Termination Agreement without definition shall have the meaning given to such terms in the Presley Credit Agreement. B. In connection with that certain Third Amendment to Master Credit Agreement (the "CMR AMENDMENT") of even date herewith between Bank and CMR, an Affiliate of Presley, Bank and Presley desire to provide for the termination of the Presley Credit Agreement and the payment to Bank of all outstanding sums owed to Bank by Presley under the Loan Documents. AGREEMENT --------- NOW, THEREFORE, taking the foregoing Recitals into account, and on account of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Bank and Presley do hereby agree as follows: 1. REPAYMENT OF LOAN. Concurrently with the execution hereof, Presley has paid _____________________________ Dollars ($_______________) in immediately available funds to Bank representing all amounts due and outstanding from Presley to Bank under the Loan Documents. 2. TERMINATION OF CREDIT FACILITY. Effective upon the mutual execution and delivery of this Termination Agreement the Commitment of Bank is terminated. Without limiting the generality of the foregoing, Bank shall have no further obligation to make any Advances or Intract Development Advances to Presley under the Presley Credit Agreement with respect to any existing Project, nor shall any future Project be funded by Bank under the Presley Credit Agreement. As soon as reasonably A-1 9 practicable after the execution and delivery of this Termination Agreement and Bank's receipt of the funds described in Section 1 of this Termination Agreement, (a) Bank shall mark the Note as paid and shall return the same to Presley, and (b) shall cause the Deed of Trust for each existing Project to be reconveyed at Presley's expense (and Presley agrees to pay the cost of preparing and recording any such reconveyance). 3. WAIVER AND RELEASE. (a) Bank would not have agreed to enter into the CMR Amendment but for the representation, warranty and agreement of Presley that (i) the Bank is not in default under its obligations in favor of Presley under the Presley Credit Agreement, and (ii) except as may arise under the CMR Credit Agreement as amended by the CMR Amendment, under this Termination Agreement or under that certain Facility Termination Agreement (Horsethief Credit Agreement) of even date herewith (the "HORSETHIEF TERMINATION AGREEMENT") the Bank has no obligation to Presley or any of its Affiliates whatsoever. (b) Therefore, and except as the same may arise under this Termination Agreement, the Horsethief Termination Agreement or the CMR Credit Agreement (as amended by the CMR Amendment), Presley, on behalf of itself and its Affiliates hereby waives and releases Bank, its subsidiaries and Affiliates, past and present, as well as their directors, officers, agents and employees, past and present, from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown or suspected or unsuspected by Presley or any of its Affiliates, which Presley or any of its Affiliates may now own or hold or at any time heretofore owned or held against Bank and arising out of the Presley Credit Agreement or arising out of any other agreement, oral or written, actual or alleged, by and between Bank, on the one hand, and Presley or any of its Affiliates, on the other hand. (c) In connection with the releases and waivers contained herein Presley, on behalf of itself and its Affiliates, hereby expressly waives any and all rights and benefits conferred upon it by the provisions of Section 1542 of the California Civil Code which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." A-2 10 Presley has been advised by its legal counsel, and understands and acknowledges the significance and consequences of this release and of this specific waiver of Section 1542 and Presley, on behalf of itself and its Affiliates, expressly consents that the release contained herein shall be given full force and effect according to each and all of its express terms and provisions including those relating to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating to any other claims, demands and causes of action hereinabove specified. 4. NO RETURN OF FEES. Notwithstanding the execution of this Termination Agreement or anything contained in the Presley Credit Agreement, Bank shall not be required to return any fees paid by Presley to Bank pursuant to the Presley Credit Agreement. 5. CHOICE OF LAW. This Termination Agreement and the transactions contemplated hereunder shall be governed by and construed in accordance with the laws of the State of California without giving effect to any choice of law or conflict-of-laws rules or principles. 6. COUNTERPART EXECUTION. This Termination 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 Termination Agreement to physically form one document. 7. PREVAILING PARTY TO RECOVER FEES. In the event of any action or proceeding brought by any party hereto against the other party hereto based upon or arising out of any breach of the terms of this Termination Agreement, the prevailing party shall be entitled to recover its costs, including reasonable attorney's fees and costs, from the other party. As used herein "attorneys fees and costs" shall have the meaning set forth in Section 8.17 of the Presley Credit Agreement. 8. ENTIRE AGREEMENT. This Termination Agreement constitutes the entire agreement and understanding of Bank and Borrower with respect to the subject matter hereof, and all prior or contemporaneous agreements or understandings, written or oral, are hereby superseded and merged herein. A-3 11 IN WITNESS WHEREOF, Bank and Presley have executed this Agreement as of the day and year first above written. "PRESLEY" PRESLEY HOMES, a California corporation, formerly known as The Presley Companies By: ------------------------------- Name: ------------------------------- Title: ------------------------------- By: ------------------------------- Name: ------------------------------- Title: ------------------------------- "BANK" BANK ONE, ARIZONA, NA, a national banking association By: ------------------------------- Name: Frank W. Henry Title: Vice President A-4 12 EXHIBIT B --------- FACILITY TERMINATION AGREEMENT (HORSETHIEF CREDIT AGREEMENT) THIS FACILITY TERMINATION AGREEMENT (hereinafter "TERMINATION AGREEMENT") is made as of September ___, 1997 by and between HORSETHIEF CANYON PARTNERS, a California general partnership ("HORSETHIEF"), and BANK ONE, ARIZONA, NA, a national banking association ("BANK"), with respect to the following: RECITALS A. Horsethief and Bank are parties to that certain Master Credit Agreement dated as of October 4, 1996, (the "HORSETHIEF CREDIT AGREEMENT"). Capitalized terms used in this Termination Agreement without definition shall have the meaning given to such terms in the Horsethief Credit Agreement. B. In connection with that certain Third Amendment to Master Credit Agreement (the "CMR AMENDMENT") of even date herewith between Bank and CMR, an Affiliate of Horsethief, Bank and Horsethief desire to provide for the termination of the Horsethief Credit Agreement and the payment to Bank of all outstanding sums owed to Bank by Horsethief under the Loan Documents. AGREEMENT --------- NOW, THEREFORE, taking the foregoing Recitals into account, and on account of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Bank and Horsethief do hereby agree as follows: 1. REPAYMENT OF LOAN. Concurrently with the execution hereof, Horsethief has paid____________________________ Dollars ($_______________) in immediately available funds to Bank representing all amounts due and outstanding from Horsethief to Bank under the Loan Documents. 2. TERMINATION OF CREDIT FACILITY. Effective upon the mutual execution and delivery of this Termination Agreement the Commitment of Bank is terminated. Without limiting the generality of the foregoing, Bank shall have no further obligation to make any Advances or Intract Development Advances to Horsethief under the Horsethief Credit Agreement with respect to any existing Project, nor shall any future Project be funded by Bank under the Horsethief Credit Agreement. As soon as reasonably practicable after the execution and delivery of this Termination Agreement, and Bank's receipt of the funds described B-1 13 in Section 1 of this Termination Agreement, (a) Bank shall mark the Note as paid and shall return the same to Horsethief, and (b) shall cause the Deed of Trust for each existing Project to be reconveyed at Horsethief's expense (and Horsethief agrees to pay the cost of preparing and recording any such reconveyance). 3. WAIVER AND RELEASE. (A) Bank would not have agreed to enter into the CMR Amendment but for the representation, warranty and agreement of Horsethief that the Bank is not in default under its obligations in favor of Horsethief under the Horsethief Credit Agreement. (B) Therefore, and except as the same may arise under this Termination Agreement, Horsethief hereby waives and releases Bank, its subsidiaries and Affiliates, past and present, as well as their directors, officers, agents and employees, past and present, from any and all claims, demands and causes of action of any kind whatsoever, whether known or unknown or suspected or unsuspected by Horsethief or any of its Affiliates, which Horsethief or any of its Affiliates may now own or hold or at any time heretofore owned or held against Bank and arising out of the Horsethief Credit Agreement or arising out of any other agreement, oral or written, actual or alleged, by and between Bank, on the one hand, and Horsethief, on the other hand. (C) In connection with the releases and waivers contained herein Horsethief hereby expressly waives any and all rights and benefits conferred upon it by the provisions of Section 1542 of the California Civil Code which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Horsethief has been advised by its legal counsel, and understands and acknowledges the significance and consequences of this release and of this specific waiver of Section 1542 and Horsethief expressly consents that the release contained herein shall be given full force and effect according to each and all of its express terms and provisions including those relating to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating to any other claims, demands and causes of action hereinabove specified. B-2 14 4. NO RETURN OF FEES. Notwithstanding the execution of this Termination Agreement or anything contained in the Horsethief Credit Agreement, Bank shall not be required to return any fees paid by Horsethief to Bank pursuant to the Horsethief Credit Agreement. 5. CHOICE OF LAW. This Termination Agreement and the transactions contemplated hereunder shall be governed by and construed in accordance with the laws of the State of California without giving effect to any choice of law or conflict-of-laws rules or principles. 6. COUNTERPART EXECUTION. This Termination 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 Termination Agreement to physically form one document. 7. PREVAILING PARTY TO RECOVER FEES. In the event of any action or proceeding brought by any party hereto against the other party hereto based upon or arising out of any breach of the terms of this Termination Agreement, the prevailing party shall be entitled to recover its costs, including reasonable attorney's fees and costs, from the other party. As used herein "attorneys fees and costs" shall have the meaning set forth in Section 8.17 of the Horsethief Credit Agreement. 8. ENTIRE AGREEMENT. This Termination Agreement constitutes the entire agreement and understanding of Bank and Borrower with respect to the subject matter hereof, and all prior or contemporaneous agreements or understandings, written or oral, are hereby superseded and merged herein. B-3 15 IN WITNESS WHEREOF, Bank and Horsethief have executed this Agreement as of the day and year first above written. "HORSETHIEF" HORSETHIEF CANYON PARTNERS, a California general partnership By: HSP Inc., a California corporation, General Partner By: ---------------------------- Name: ---------------------------- Title: ---------------------------- By: ---------------------------- Name: ---------------------------- Title: By: Presley Homes, a California corporation, formerly known as The Presley Companies, General Partner By: ---------------------------- Name: ---------------------------- Title: ---------------------------- By: ---------------------------- Name: ---------------------------- Title: ---------------------------- By: ---------------------------- "BANK" BANK ONE, ARIZONA, NA, a national banking association By: ---------------------------------- Name: Frank W. Henry ---------------------------------- Title: Vice President ---------------------------------- B-4 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997. 1,000 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 5,406 0 5,207 0 243,110 0 3,834 2,125 268,302 0 240,907 0 0 522 1,463 268,302 68,349 68,349 60,650 60,650 8,662 0 2,237 (3,200) 0 0 0 0 0 (3,200) (0.06) 0
-----END PRIVACY-ENHANCED MESSAGE-----