<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-33965
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
UNITED HOMES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 1520 36-3978181
(State or other jurisdiction (Primary Standard Industrial (I.R.S.Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
DAVID L. FELTMAN
VICE PRESIDENT, GENERAL COUNSEL
2100 GOLF ROAD, SUITE 110
ROLLING MEADOWS, ILLINOIS 60008
(847) 427-2450
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
WITH COPIES TO:
MICHAEL J. CHOATE, ESQ. DANIEL A. YARANO, ESQ.
Shefsky & Froelich Ltd. Fredrikson & Byron, P.A.
444 North Michigan Avenue 1100 International Center
Suite 2500 900 Second Avenue South
Chicago, Illinois 60611 Suite 1100
(312) 836-4066 Minneapolis, Minnesota 55402-3397
(612) 347-7149
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER DEBENTURE OFFERING PRICE(1) FEE(3)
<S> <C> <C> <C> <C>
___% Mandatory Redemption Debentures due March
15, 2005(2)................................. 7,000 $1,000 $7,000,000 $2,122
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933.
(2) Includes $1,000,000 in aggregate principal amount of Debentures which may be
purchased by the Underwriter to cover over-allotments, if any.
(3) The Registrant previously paid a filing fee of $1,819 in connection with the
filing of its Registration Statement on Form S-1 (File Number 333-33965) as
filed on August 19, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNITED HOMES, INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF
INFORMATION REQUIRED BY ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Outside Front Cover page; Outside Back Cover Page;
Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Outside Front Cover Page; Prospectus Summary; Risk
Factors
4. Use of Proceeds...................................... Prospectus Summary, Use of Proceeds
5. Determination of Offering Price...................... *
6. Dilution............................................. *
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........... Prospectus Summary; Dividend Policy; Description of
Securities
10. Interest of Named Experts and Counsel................ *
11. Information with Respect to Registrant............... Prospectus Summary; Risk Factors; Estimated Use of
Proceeds; Capitalization; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Security
Ownership of Certain Benefical Owners and
Management; Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... *
</TABLE>
- ------------------------
* Not Applicable
i
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1997
[UNITED LOGO]
UNITED HOMES, INC.
___% MANDATORY REDEMPTION DEBENTURES DUE MARCH 15, 2005
---------------------
United Homes, Inc. ("United") is hereby offering on a "best effort" basis a
minimum of $3,000,000 (the "Minimum Amount") and a maximum amount of $6,000,000
(the "Maximum Amount") aggregate principal amount of its __% Mandatory
Redemption Debentures which will mature on March 15, 2005 (the "Debentures").
The Offering will terminate no later than , 1998 unless terminated
earlier. Until receipt of subscriptions for the Minimum Amount, any monies
received by the Underwriter will be deposited in a separate bank account, as
agent or trustee for the investors.
Interest on the Debentures will accrue from their date of original issuance
and will be payable quarterly on December 15, March 15, June 15 and September 15
of each year, commencing on March 15, 1998. The Debentures initially will be
issued in denominations of $1,000 each, or any integral multiple thereof.
United must redeem a portion of the Debentures on or before September 15,
1999. Commencing on or before September 15, 1999 and on each September 15th and
March 15th thereafter, United will pay the Trustee on each redemption date
sufficient cash to redeem $83,333 for each $1,000,000 worth of Debentures sold
by United. The Debentures are redeemable, at United's option, in whole or in
part, upon at least 30 days' notice, at any time beginning December 15, 1997 at
the redemption prices set forth herein plus accrued interest to the date of
redemption. The Debentures to be redeemed will be selected by the Trustee by lot
or other similar method.
The Debentures will be unsecured obligations of United and will rank equally
and ratably with all other unsecured indebtedness of United. The Debentures are
not guaranteed by, or otherwise an obligation of, any of United's subsidiaries.
As of June 30, 1997, United and its operating subsidiaries had approximately
$84.0 million of outstanding liabilities, including approximately $70.3 million
of secured indebtedness. The Indenture governing the Debentures does not limit
the amount of secured indebtedness United or its Subsidiaries may incur.
--------------------------
AN INVESTMENT IN THE DEBENTURES INVOLVES A HIGH DEGREE OF RISK. THERE IS NO
EXISTING PUBLIC MARKET FOR THE DEBENTURES AND THERE CAN BE NO
ASSURANCE THAT A PUBLIC MARKET WILL DEVELOP. SEE
"RISK FACTORS" BEGINNING ON PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNT AND NET PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
<S> <C> <C> <C>
PER DEBENTURE.................................................. $_____ 7% $___
MINIMUM AMOUNT (_____ DEBENTURES).............................. $_________ 7_ $_________
MAXIMUM AMOUNT (_____ DEBENTURES)(4)........................... $_________ 7_ $_________
</TABLE>
(1) Each Debenture will be offered ______ with payment for interest accruing
from the Closing Date or, with respect to Debentures sold after a quarterly
interest payment date, the most recent quarterly interest payment date. See
"Underwriting."
(2) The Company has granted the Underwriter the exclusive right to sell the
Debentures on a "best efforts" basis for a period of six months, subject to
termination or extension in certain circumstances. The Company has agreed to
pay the Underwriter an Underwriting Discount and Commission equal to 7%, a
management fee equal to 2%, and a non-accountable expense allowance equal to
1% of the Total Price to Public and to reimburse the underwriter for
accountable expenses up to $120,000. The Company has agreed to indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(3) The "Net Proceeds to Company" in each case reflects the Price to Public
reduced by all Underwriting Discount and Commissions, management fees as
well as accountable and non-accountable expense allowances and other
expenses of the offering payable by the Company which other expenses are
estimated at approximately $188,000.
(4) The Company has granted the Underwriter an option to purchase up to
$1,000,000 aggregate principal amount of Debentures on the same terms and
conditions as the Debentures offered hereby, solely to cover
over-allotments. If all of the additional Debentures are purchased, the
total Underwriting Discount and Commissions will be $_______, management
fees will be $_______, the non-accountable expense allowance will be $______
and the accountable expense reimbursements shall not exceed $_______.
------------------------------
MILLER & SCHROEDER FINANCIAL, INC.
The date of this Prospectus is ________________ , 1997.
<PAGE>
MAPS
MAPS INDICATE THE LOCATION OF THE COMPANY'S
DEVELOPMENTS IN ARIZONA, ILLINOIS AND MICHIGAN.
Map 1. ILLINOIS. The map depicts the Chicago Area with the location of the
Company's developments marked with a star. Additionally, the map contains
a picture of homes in the Woodmere development located in Illinois.
Map 2. WESTERN MICHIGAN. The map depicts the Grand Rapids Area with close-ups
of the locations of the Company's developments. Additionally, the map
contains a picture of the interior of a home.
Map 3. ARIZONA. The map depicts the greater Phoenix Area with locations of the
Company's developments marked with a star. Additionally the map contains
a picture of a home in the Altezza development located in Phoenix,
Arizona.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE "COMPANY" MEANS
UNITED HOMES, INC. ("UNITED"), AND UNITED'S WHOLLY-OWNED SUBSIDIARIES UNITED
HOMES OF ILLINOIS, INC.; UNITED HOMES OF MICHIGAN, INC.; AND UNITED HOMES, INC.,
AN ARIZONA CORPORATION (INDIVIDUALLY, A "SUBSIDIARY," COLLECTIVELY THE
"SUBSIDIARIES") AND PARTNERSHIPS IN WHICH UNITED OR THE SUBSIDIARIES OWN
CONTROLLING INTERESTS IN EITHER AS GENERAL OR LIMITED PARTNERS; WILLIAMS GLEN
LIMITED PARTNERSHIP, THE HIDDEN SPRINGS REAL ESTATE LIMITED PARTNERSHIP,
UNITED/RBG XII L.P. AND THE UNITED LINDSAY EAST VALLEY LIMITED PARTNERSHIP.
UNITED WAS FORMED IN 1994 TO CARRY ON THE HOMEBUILDING ACTIVITIES OF UNITED'S
PARENT CORPORATION UNITED DEVELOPMENT MANAGEMENT COMPANY (THE "PARENT"). UNITED
IS A WHOLLY-OWNED SUBSIDIARY OF THE PARENT. STATISTICAL AND OTHER INFORMATION
CONTAINED HEREIN REGARDING THE COMPANY'S HOMEBUILDING ACTIVITIES INCLUDE THE
HOMEBUILDING ACTIVITIES OF THE PARENT SINCE 1982. THE DATA INCLUDED HEREIN
ASSUMES THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
The Company is a fully-integrated land development and homebuilding company
operating in the Chicago, Phoenix and western Michigan markets and since 1982
has developed over 7,300 lots and has built and closed over 6,100 homes. The
Company acquires undeveloped land and develops it into finished lots for
residential subdivisions, and periodically options or purchases finished lots
from third parties, primarily for the construction and sale of homes. The
Company maintains an inventory of potential home sites (lots) by controlling
undeveloped and developed land through options, contingent purchase agreements,
joint ventures, partnerships and other contractual relationships with landowners
("Acquisition Agreements"). The Company believes that this strategy allows it to
control sites for future development and at the same time maximize use of its
available capital. For the nine months ended June 30, 1997, the Company closed
on the sale of 280 homes generating approximately $51.0 million in revenue from
housing and land sales as compared to 205 homes generating approximately $35.0
million in revenue from housing and land sales for the nine months ended June
30, 1996. As of June 30, 1997, the Company had contracts to sell an additional
425 homes and a current inventory of 739 lots on which the Company anticipates
developing and selling 739 homes. Additionally, the Company controlled eight
parcels of land under the Acquisition Agreements for future development of an
estimated 3,314 homes.
Prices for the Company's homes, including the lot, range from $110,000 to
$400,000 per home. During the first nine months of fiscal 1997, the average
price for a home sold by the Company was approximately $179,000. The Company
markets its products to entry-level, first and second move-up, and empty-nest
buyers by emphasizing the community atmosphere of its residential subdivisions,
as well as those characteristics that the Company believes that its homes
possess: desirable designs, quality construction and competitive prices.
United, which is an Illinois corporation, has its principal office at 2100
Golf Road, Suite 110, Rolling Meadows, Illinois 60008. Its telephone number is
847-427-2450.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ A minimum of $3,000,000 (the "Minimum Amount") and up to
$6,000,000 aggregate principal amount (the "Maximum
Amount") of ___% Mandatory Redemption Debentures, due
March 15, 2005 to be issued pursuant to an Indenture
(the "Indenture") between the Company and National City
Bank of Minneapolis (the "Trustee") only in fully
registered form in denominations of $1,000 each, or any
integral multiple thereof. See "Description of
Securities."
Interest Payment Dates............ Interest will accrue from the date of original issuance
and will be payable quarterly on December 15, March 15,
June 15 and September 15 of each year ("Interest Payment
Date"), commencing on March 15, 1998.
Mandatory Redemptions............. The Debentures will be subject to mandatory redemption
beginning September 15, 1999. On or before September 15,
1999 and on each September 15 and March 15 thereafter
through September 15, 2004, United will pay to the
Trustee cash sufficient to redeem $83,333 for each
$1,000,000 worth of Debentures sold by United. On or
before March 15, 2005, United will pay to the Trustee
cash sufficient to redeem all remaining outstanding
Debentures. Debentures to be redeemed will be selected
by the Trustee by lot or other similar method. See
"Description of Securities--Mandatory Redemption."
Optional Redemptions.............. United may, at its option, redeem Debentures on any
Interest Payment Date in minimum aggregate amounts of
$100,000 at a price equal to par plus accrued interest
and a premium. If an optional redemption occurs on or
before September 15, 1998, United must pay a 5% premium.
After this date, the premium due on optional redemption
will decline at the rate of 1% per year, with no premium
due after September 15, 2002. United may, at its option,
elect to have any optional redemption payment applied to
the next mandatory redemption payment or payments. See
"Description of Securities--Optional Redemption."
Rank.............................. The Debentures will be unsecured obligations of United
and will rank equally and ratably with all other
unsecured indebtedness of United. The Debentures are not
guaranteed by, or otherwise an obligation of, any
Subsidiary. As of June 30, 1997, the Company had
outstanding liabilities of $84.0 million (including
$70.3 million of secured indebtedness). The Indenture
governing the Debentures does not limit the amount of
secured indebtedness United or its Subsidiaries may
incur.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Estimated Use of Proceeds......... United intends to use the net proceeds from the sale of
the Debentures, estimated to be approximately $5,092,000
assuming sale of the Maximum Amount (at par), first to
repay indebtedness incurred in connection with land
acquisitions or working capital loans ($2,600,000) and
second to repay indebtedness outstanding under its
Construction Lines as defined herein ($2,482,000).
Amounts repaid on these Construction Lines may be
reborrowed for land acquisition, land development,
construction of homes, and for working capital. See
"Estimated Use of Proceeds."
Certain Covenants................. United has agreed to comply with certain financial
covenants as set forth in the Indenture. See
"Description of Securities."
Escrow Arrangements............... Pending receipt of proceeds equal to the Minimum Amount,
the Underwriter will hold the proceeds from the sale of
Debentures in a separate bank account as agent or
trustee for the investors as required by Rule 15c 2-4 of
the Securities and Exchange Act of 1934, as amended.
</TABLE>
RISK FACTORS
An investment in the Debentures involves certain risks. See "Risk Factors"
for a discussion of factors that investors should carefully consider before
purchasing any of the Debentures offered hereby.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The following summary of the Company's consolidated financial information
should be read in conjunction with the Consolidated Financial Statements,
including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR
ENDED JUNE 30, ENDED SEPTEMBER 30,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 51,608 $ 34,991 $ 65,117 $ 44,349 $ 32,886
Gross Profit........................................... $ 3,477 $ 3,692 $ 4,623 $ 4,282 $ 3,659
Operating Income....................................... $ 1,575 $ 1,406 $ 1,785 $ 1,512 $ 1,169
Investor's Share of Income in Majority Owned Land
Development and Housing Partnerships................. $ (465) $ (375) $ (735) $ (70) --
--------- --------- --------- --------- ---------
Income before Income Taxes............................. $ 1,110 $ 1,031 $ 1,050 $ 1,442 $ 1,169
--------- --------- --------- --------- ---------
Number of Homes and Lots Closed........................ 310(3) 205 378 267 174
Average Selling Price per Home......................... $ 179 $ 169 $ 171 $ 163 $ 185
--------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges(1)...................... (4) 1.06 (4) 1.14 2.45
Ratio of Earnings to Adjusted Fixed Charges(2)............. 5.65 60.35 13.12 27.13 34.54
</TABLE>
- ------------------------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
income before minority interests, income tax and fixed charges, less
capitalized interest, plus the interest component included in cost of sales.
Fixed charges consist of interest expended and capitalized and amortization
of debt service costs. The interest factor implicit in rent expense is not
significant.
(2) Represents the ratio of the amount of fixed charges actually funded from the
Company's earnings. In calculating this ratio the amount of interest charges
which are funded from the Company's various lines of credit through draws on
these lines is excluded from fixed charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" below.
(3) Includes the sale of 30 lots at an average price of $46,000 per lot.
(4) Earnings were inadequate to cover fixed charges by approximately $209,000
for the year ended September 30, 1996 and by approximately $1,893,000 for
the nine months ended June 30, 1997.
6
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997 AS OF
----------------------------------- SEPTEMBER 30,
AS AS -------------------------------
SELECTED BALANCE SHEET DATA: ADJUSTED(6) ADJUSTED(8) ACTUAL 1996 1995 1994
----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Housing Inventories.......... $ 80,420 $ 80,420 $ 80,420 $ 54,588 $ 28,796 $ 21,143
Total Assets................. $ 95,427(7) $ 95,727(9) $ 94,819 $ 69,931 $ 34,365 $ 26,779
Total Liabilities (excluding
Debentures)................ $ 81,165 $ 78,465 $ 83,557 $ 58,699 $ 22,909 $ 18,825
Debentures................... $ 3,000 $ 6,000 -- -- -- --
Investor's Equity in
Majority-Owned
Projects(5)................ $ 1,467 $ 1,467 $ 1,467 $ 2,165 $ 3,037 $ 400
Stockholder's Equity......... $ 9,795 $ 9,795 $ 9,795 $ 9,067 $ 8,419 $ 7,554
</TABLE>
- ------------------------
(5) Represents the equity of investors in projects, a majority of which is owned
by the Company.
(6) Adjusted to give effect to the sale of the Minimum Amount and the
application of the net proceeds as of June 30, 1997 assuming sale of the
Debentures at a price equal to par. See "Estimated Use of Proceeds" and
"Underwriting."
(7) The increase includes the estimated costs of the offering estimated at an
aggregate of $608,000 (assuming the sale of the Minimum Amount at par).
These costs are paid currently but are capitalized and amortized over the
life of the Debentures.
(8) For illustration purposes only, adjusted to give effect to the sale of the
Maximum Amount of Debentures offered hereby (at par) and the application of
the net proceeds as of June 30, 1997. See "Estimated Use of Proceeds" and
"Underwriting."
(9) The increase includes the estimated costs of the offering estimated at an
aggregate of $908,000 (assuming sale of the Maximum Amount). These costs are
paid currently, but are capitalized and amortized over the life of the
Debentures.
7
<PAGE>
RISK FACTORS
THE DEBENTURES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING THE DEBENTURES.
SUBSTANTIAL LEVERAGE, RELIANCE ON FINANCING AND NO ASSURANCE OF AVAILABILITY OF
CREDIT
The land development and homebuilding business is capital intensive. The
Company typically finances the acquisition of land parcels and the costs
associated with development of the parcels (such as entitlement activities and
construction of streets and sewers) by making draws on its A&D Lines (as defined
herein), including the Residential Line II which can be used solely to fund
acquisition and development activity such as sewer and roadway construction.
Under the agreements governing the A&D Lines, the Company may generally draw up
to 75-80% of the value of the land and improvements (based on an as-built
appraisal) to fund acquisition and development costs. Based on the outstanding
balance of the A&D Lines at the end of each month, an interest charge is either
paid by the Company if the particular loan either does not have an interest
reserve or is funded through an additional draw on the loan. As of June 30,
1997, and September 30, 1996, the Company had total indebtedness of
approximately $24.3 million and $22.1 million respectively outstanding on its
A&D Lines, including $10.9 million and $4.0 million respectively on the
Residential Line II. As of these dates, the Company had funded interest charges
of approximately $2.2 million and $1.9 million associated with these lines,
including $0.3 million and $0.5 million, respectively, on the Residential Line
II through additional draws on the line. Additional interest charges associated
with other A&D Lines that do not have interest reserves or permit additional
draws to fund the interest as well as corporate level debt of approximately
$619,000 and $285,000, respectively, were incurred and paid by the Company from
earnings.
Once construction of a home commences, the Company is able to draw on the
Heller Line and the Residential Line I to finance the costs associated with
constructing a home and preparing a lot for delivery and selling the home to the
end purchaser. As noted herein, the Company typically does not commence
construction of a home until execution of a purchase contract. See
"Business--Inventory Management" below. As of June 30, 1997 and September 30,
1996, the Company had total indebtedness of approximately $38.1 million and
$16.5 million respectively outstanding on these two lines and had incurred
interest charges of approximately $2.5 million and $1.7 million associated with
these lines, all of which was funded by additional draws allowable on these
lines.
The amount of indebtedness incurred with respect to any particular project
is based on the purchase price of the land and the costs of constructing and
selling homes on the land. These estimates are based on, among other things,
demand for housing in its market areas which the Company then factors into its
analysis of the number of homes that it believes may be constructed and the rate
in which these homes may be sold to end-purchasers although from time to time
the Company will sell improved lots without constructing a home thereon. There
can be no assurance that the Company's estimate of the demand for housing in the
market area or more particularly the rate at which these houses can be sold will
not deviate from its estimates which may cause the Company to incur additional
holding costs associated with land which is being improved for the construction
of homes.
Upon closing of a home sale, the Company utilizes all of the net closing
proceeds (including the Company's profit) from the sale of the home to reduce
indebtedness under the relevant A&D Line as well as the Heller Line or
Residential Line I as the case may be. Thus, the amount of indebtedness
outstanding on these lines fluctuates based on the number of parcels and homes
under development or construction at any one time and the rate at which closings
are completed on homes under contract for sale. During the fiscal year ended
September 30, 1996 and the nine months ended June 30, 1997, the Company made
principal reductions of approximately $59.8 million and $40.9 million
respectively. As of September 30, 1997, the Company had approximately $6.5
million available for borrowing under all of its credit facilities.
8
<PAGE>
As of June 30, 1997, the Company had $84.0 million of outstanding
liabilities, including $70.3 million of secured indebtedness. The Indenture
governing the Debentures does not limit the amount of secured indebtedness
United or its Subsidiaries may incur. Although the Company has been able to draw
on its various lines to finance substantially all of its fixed charges, there
can be no assurance that it will have sufficient resources to fund these charges
if it were unable to draw on its lines or does not have sufficient interest
reserves. Earnings were inadequate to cover fixed charges by approximately
$209,000 and $1,893,000 for the fiscal year ended September 30, 1996, and the
nine months ended June 30, 1997, respectively, although such earnings were
sufficient to cover these charges when adjusted to reflect the interest charges
funded by draws on the line. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Selected Consolidated Financial Data" below. Although the Company believes
that internally generated funds, the net proceeds from the Debentures and the
Company's available borrowings under its credit facilities will be sufficient to
meet its reasonably anticipated needs for working capital, and fixed charges
including debt service on the Debentures, there can be no assurance that these
sources will prove sufficient. If the Company does not realize net proceeds
equal to at least $2,600,000 it will be unable to pay down indebtedness bearing
interest at rates higher than the Debentures and will be unable to create
additional borrowing capacity under its Construction Lines.
The Company's ability to meet its debt service obligations is dependent upon
the future performance of the Company, which, in turn, is subject to general
economic conditions as to financial, competitive, business and other factors,
including factors beyond the Company's control. The level of the Company's
leverage could restrict its flexibility in responding to changing business and
economic conditions. If the Company is at any time unable to generate sufficient
cash flow from operations or borrow under its existing credit facilities to
service its debt, it may be required to seek refinancing for all or a portion of
that debt or to obtain additional financing. There can be no assurance that
additional capital, either in the form of equity or debt, will be available on
terms and conditions acceptable to the Company, if at all. Further, any
additional debt capital may rank senior in right of payment to the Debentures.
The Indentures impose limitations on the Company's ability to declare and pay
dividends or make other payments to the Parent. See "Description of
Securities--Restrictive Covenants--Limitation on Restricted
Payments;--Limitation on Transactions with Affiliates;--Limitation on Dividends
and Other Payment Restrictions Affecting a Subsidiary."
FRAUDULENT CONVEYANCE
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Debentures: (i) incurred the indebtedness
with the intent to hinder, delay or defraud creditors; or (ii) (a) received less
than reasonably equivalent value or fair consideration for the issuance of the
Debentures; and (b) (I) was insolvent at the time of the incurrence, (II) was
rendered insolvent by reason of the incurrence, (III) was engaged or was about
to engage in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital to carry on its business or (IV)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they mature, then, in each such case, a court of competent
jurisdiction could avoid, in whole or in part, the Debentures or, in the
alternative, subordinate the Debentures to existing and future indebtedness of
the Company. The measure of insolvency for purposes of the foregoing would vary
depending upon the law applied in each case. Generally, the Company would be
considered insolvent if the sum of its debts, including contingent liabilities
was greater than all of its assets at fair valuation or if the present fair
saleable value of its assets was less than the amount that would be required to
pay the probable liability on its existing debts, including contingent
liabilities, as they become absolute and matured.
The Company believes that, for purposes of the United States Bankruptcy Code
and state fraudulent transfer or conveyance laws, the Debentures were issued
without the intent to hinder, delay or defraud
9
<PAGE>
creditors and for proper purposes and in good faith, that the Company received
fair consideration in exchange for the Debentures, and that the Company, after
the issuance of the Debentures and the application of proceeds therefrom, was
and remains solvent, has sufficient capital for carrying on its business and is
able to pay its debts as they mature. Accordingly, the Company believes that
these provisions of the Bankruptcy Code and the state fraudulent transfer or
conveyance laws were not triggered by the issuance of the Debentures.
LACK OF COLLATERAL
United's obligations under the Indenture are not secured by any of its
assets. As of June 30, 1997, the Company had approximately $84.0 million of
outstanding liabilities, including approximately $70.3 million of secured
indebtedness. Creditors who have a security interest in a particular asset have
a right ranking ahead of the holders of the Debentures with respect to that
asset. Further, United's homebuilding operations are conducted entirely through
the Subsidiaries. Accordingly, United derives its operating income and cash flow
from the Subsidiaries, and relies on the Subsidiaries to generate the funds
necessary to meet its obligations, including its obligations to pay principal
and interest on the Debentures. The ability of the Subsidiaries to pay dividends
or otherwise make payments to United is subject to, among other things,
applicable state law and restrictions imposed on the Subsidiaries by their
respective creditors. The Indenture will not limit the ability of the
Subsidiaries to incur additional restrictions in the future. Further, the right
of United to participate in the assets of any Subsidiary (and thus the ability
of the holders of the Debentures to benefit indirectly from these assets) is
generally subject to the prior claims of creditors, including trade creditors,
of that Subsidiary except to the extent that United is recognized as a creditor
of such Subsidiary. In this latter case, United's claims would still be
subordinate to any security interest holders or other creditors of that
Subsidiary. The Debentures, therefore, will be structurally subordinated to
creditors, including trade creditors of the Subsidiaries.
In the event of the dissolution, winding up, liquidation or bankruptcy of
United, the holders of the Debentures will not be entitled to receive any
payment until the holders of secured indebtedness receive payment or
distributions in respect of the assets collateralizing their debt. Upon the
occurrence of any payment default on secured indebtedness, proceeds from the
assets collateralizing the secured indebtedness which is in default may not be
used to satisfy United's obligations on the Debentures. The Indenture does not
limit the amount of secured indebtedness that United or its Subsidiaries may
incur. Amounts drawn by United on the A&D Lines are typically secured by the
parcel for which the funds are being drawn. As described above, United is
typically permitted to make draws on the A&D Lines up to 75-80% of the value of
the parcel (on an as-built basis). Reductions in the value of these parcels
would limit the amount of proceeds United could draw to fund acquisition and
development expenses which could have a material adverse effect on the Company's
results of operations and financial condition since revenues would likely
decrease and projects would likely be delayed.
INTEREST RATES; MORTGAGE FINANCING
In general, the demand for housing is influenced in large part by the
availability of mortgage financing and the ability of prospective purchasers to
finance home purchases since virtually all purchasers of the Company's homes
finance their acquisitions through third-party lenders. Increases in interest
rates generally reduce the demand for, and affordability of, mortgage financing
and therefore the demand for the Company's homes. Increases in interest rates
would have a material adverse affect on the Company's results of operations and
financial condition.
CYCLICAL ECONOMIC CONDITIONS
The homebuilding industry is cyclical in nature and is significantly
affected by changes in national and local economic and other conditions, such as
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. Sales of new homes are also affected by market
conditions for
10
<PAGE>
resale homes and rental properties. Certain of the markets in which the Company
operates have at times in the past experienced significant declines in housing
demand and there can no assurance that these declines will not occur in the
future. Homebuilders such as the Company also incur substantial risk due to the
fluctuating market value of land, building lots, and housing inventories.
Additionally, the carrying cost of the Company's inventory can be significant
and can result in losses in poorly performing projects or markets. Homebuilders
are also subject to various other risks which may cause fluctuations in
operating results such as competitive over building, shortage of desirable land
with municipal services, availability and cost of materials and labor,
construction delays, cost overruns, weather conditions, government regulation,
availability of adequate financing, changes in mortgage interest rates and real
estate taxes as well as other governmental fees.
FLUCTUATIONS IN OPERATING RESULTS/IMPACT ON FUTURE OPERATIONS
The Company's operating results fluctuate from time to time based on factors
not entirely within the Company's control. These factors include, among others:
(i) the timing of home closings and land sales; (ii) the Company's ability to
acquire additional land or options thereon on acceptable terms; (iii) the
condition of the real estate market and the general economy in the Company's
markets as well as other markets into which the Company may expand; (iv) the
cyclical nature of the home building industry and changes in prevailing interest
rates and availability of mortgage financing; and (v) cost of material and labor
and delays in construction schedules. The Company's gross margins also are
affected by the location and type of lot, as well as the design of the
particular home sold. Negative fluctuations in operating results may have an
adverse effect on the Company's future results and financial condition. As noted
above, the Company utilizes the net proceeds from home sales to repay
indebtedness on its lines of credit. Amounts repaid on these lines are then
available to be "reborrowed" to fund future acquisition, development and
construction activities. A slowing or reduction in home sales from those
projected or anticipated by the Company would have an adverse impact on the
Company's ability to fund future activities since it would have less capital in
the form of additional borrowing capacity available to finance acquisition
development and construction activity.
RESTRICTIONS IMPOSED BY TERMS OF INDENTURE
The Indenture will restrict United and the Subsidiaries from, among other
things, incurring additional indebtedness, paying excessive dividends or making
certain other restricted payments or investments (to the Parent), consummating
certain asset sales, entering into certain transactions with affiliates,
incurring liens, or merging or consolidating with any other person or selling,
assigning, transferring, conveying or otherwise disposing of all of
substantially all of their respective assets. The Indenture will also impose
limitations on United's ability to restrict the ability of its Subsidiaries to
pay dividends or make certain payments to United or any of the Subsidiaries. In
addition, the Indenture will require United to maintain specified financial
ratios and satisfy certain financial tests. United's ability to meet these
ratios and tests may be affected by events beyond its control, and there can be
no assurance that the United will meet these tests. The Indenture does not,
however, prohibit United from entering new markets and United may elect to
utilize a portion of the proceeds from the Debentures to fund expansion into new
markets. See "Description of Securities"
NEED TO ACQUIRE LAND FOR FUTURE DEVELOPMENT
The Company's ability to generate revenues in the future depends, in part,
on its ability to acquire or otherwise control an inventory of undeveloped land
while efficiently deploying its available capital. Although the Company attempts
to minimize the amount of capital invested in land parcels, the Company's
inventory of land may, from time to time, exceed the demand for the Company's
products thus limiting the capital available for additional land acquisition. In
pursuing its development activities, the Company may invest significant amounts
of capital to acquire and maintain control of undeveloped land as
11
<PAGE>
well as to apply for regulatory approvals prior to determining whether the
Company will actually develop the land. There can be no assurance that such land
will be developed on acceptable terms and conditions, if at all, or that the
Company will have adequate capital to compete with third parties in acquiring
land. See "Business--Operating Strategy" and "Business--Land Development."
EXTENSIVE REGULATIONS AND ENVIRONMENTAL FACTORS
The homebuilding industry in general, and the Company in particular, is
subject to extensive and complex laws and regulations which cover, among other
things, zoning and density requirements, design and building permits, building
materials, environmental and health issues, advertising and consumer credit,
development, homebuilding and sales activities. These laws and regulations
impact the time required to obtain approvals necessary to begin home
construction and can adversely impact the time between the initial control of
land, commencement of development and completion of construction. The Company is
also subject to a variety of environmental laws and regulations which can affect
its business and its homebuilding projects. The particular environmental laws
and regulations which apply to any given homebuilding site vary greatly
depending on the site's location, environmental condition, present and former
uses of the site as well as adjoining properties. These laws and regulations may
result in additional delays, may cause the Company to incur substantial
compliance and other costs, and may prohibit or severely restrict homebuilding
activity in certain environmentally sensitive areas. See "Business--Governmental
Regulation."
In addition, the Company is subject to laws and regulations governing the
type of materials used in constructing its homes and imposing liability on the
Company for personal injury and worker's compensation claims. Although the
Company maintains insurance against the liability for personal injury and
worker's compensation claims, there can be no assurance that this coverage will
be adequate.
RELIANCE ON SUBCONTRACTORS
With the exception of field supervisors, the Company does not employ its own
development or construction personnel. Instead, the Company depends on
subcontractors and other independent contractors to complete its land
development and home construction activities. There can be no assurances that
the Company will continue to be able to contract for the services of
subcontractors necessary to complete such land development and construction on
reasonable terms, if at all. See "Business--Home Design and Construction."
RELIANCE ON KEY PERSONNEL
The Company relies upon certain key management employees, including United's
Chairman, Virgil W. Owings, and President, Edward F. Havlik. The loss of either
individual's services could have a material adverse effect on the Company's
results of operations and financial condition. The Company believes that its
future success will depend on its ability to retain key members of management
and to attract experienced management in the future. There can be no assurance
that it will be able to do so. The Company does not carry, and will not likely
obtain any key man life insurance on these individuals nor has it entered into
contracts with any of these individuals. See "Management."
COMPETITION
The homebuilding industry is highly competitive and fragmented. Homebuilders
compete for desirable properties, financing, raw materials and skilled labor.
The Company competes for residential sales with other homebuilders, individual
resales of existing homes, available rental housing and, to a lesser extent,
resales of condominiums. The Company's competitors include a number of large
national and regional homebuilding companies (Chicago and Phoenix markets) and
small local homebuilding companies (in all
12
<PAGE>
of the Company's markets), some of which may have greater financial resources,
easier access to capital markets or lower costs than the Company.
CONFLICTS OF INTEREST
From time to time the Company may enter into transactions with affiliates
including the Parent or its shareholders as well as the Company's officers and
directors. Although the Indenture will impose limitations on the Company's
ability to engage in certain of these transactions, there can be no assurance
that these transactions will be on terms and conditions similar to those that
may be available with a third party and may have an unfavorable impact on the
Company's results of operation and financial condition. See "Description of
Securities" and "Certain Transactions" below.
NO PUBLIC MARKET FOR THE DEBENTURES
There is no existing public market for the Debentures, and there can be no
assurance that one will develop or, if a market does develop, that it will
provide sufficient liquidity or will continue in existence until maturity of the
Debentures. Even if a market develops, there can be no assurance that a holder
of the Debentures will be able to sell Debentures on acceptable terms and
conditions, if at all. To the extent that a market develops, future trading
prices of the Debentures will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results, competitive
factors and the market for similar securities which is subject to numerous
factors, including but not limited to fluctuating interest rates. The Company
does not intend to list the Debentures on any securities exchange or to seek to
have the Debentures authorized for quotation on Nasdaq.
BEST EFFORTS OFFERING
The Debentures are being sold by the Underwriter on a "best efforts" basis
whereby the Underwriter is required to use its best efforts to sell the
Debentures on behalf of the Company. If all of the Debentures are not sold
during the six months following the date of this Prospectus (subject to
extension as described in "Underwriting"), the Company may not have sufficient
funds available from its own resources and from the proceeds of the Debentures
already sold to complete all of its objectives. The amount of proceeds actually
raised by the Company may affect the Company's future capital requirements. See
"Estimated Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
13
<PAGE>
ESTIMATED USE OF PROCEEDS
The net proceeds from sale of the Debentures are estimated to be
approximately $5,092,000 if the Maximum Amount is sold and $2,393,000 if only
the Minimum Amount is sold, in both cases assuming the Debentures are sold at a
price equal to par. The Company will utilize the net proceeds first to repay
indebtedness incurred by the Company in connection with land acquisition (the
"Land Indebtedness") and, second, to repay a portion of the debt outstanding
under the Heller Line and the Residential Line I (each as defined herein,
collectively the "Construction Lines"). If only the Minimum Amount is sold, the
Company will utilize the net proceeds to repay a portion of the Land
Indebtedness.
Because the Debentures are being sold by the Underwriter on a "best efforts"
basis, no assurance can be given as to the amount of Debentures that will be
sold or as to the amount of net proceeds which will be available to the Company
as a result of this offering. The amount of proceeds actually raised may affect
the Company's future capital requirements. See "Risk Factors--Best Efforts
Offering" and "Underwriting."
The table below sets forth information concerning the estimated use of
proceeds assuming the sale of the Minimum Amount ($3,000,000) and the Maximum
Amount ($6,000,000) at a price equal to par.
<TABLE>
<CAPTION>
ASSUMING SALE OF THE ASSUMING SALE OF THE
MINIMUM AMOUNT ($3,000,000) MAXIMUM AMOUNT ($6,000,000)
------------------------------- -------------------------------
PERCENTAGE OF PERCENTAGE OF
AMOUNT GROSS PROCEEDS AMOUNT GROSS PROCEEDS
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Gross Proceeds....................................... $ 4,300,000 100% $ 6,000,000 100%
Underwriting Discount and Commissions................ 210,000 7% 420,000 7%
Management Fee....................................... 60,000 2% 120,000 2%
Non-Accountable Expense Allowance.................... 30,000 1% 60,000 1%
Accountable Expense Allowance........................ 120,000 4% 120,000 2%
Other Expenses....................................... 188,000 4.7% 188,000 2.6%
Total Expenses....................................... 608,000 16.7% 908,000 14.6%
------------ ------------
Proceeds Available to the Company.................... $ 2,392,000 83.3% $ 5,092,000 84.8%
------------ ------------
------------ ------------
</TABLE>
The Company will require approximately $2,600,000 to fully repay the Land
Indebtedness. This indebtedness bears interest at an annual rate of 25% and
matures in February and August, 1999. Amounts in excess of $2,600,000, including
any proceeds received from exercise of the over-allotment option, will be
allocated equally to repay indebtedness owed by the Company on the Heller Line
and the Residential Line I.
Draws on the Heller Line bear interest at a variable rate equal to the
General Electric Capital Corporation Composite Commercial Paper Rate (as defined
in the loan agreement) plus 3.75% per annum (9.4% as of June 30, 1997). Draws on
the Heller Line which are outstanding on May 31, 1998 automatically convert to a
term loan maturing on May 31, 1999. Draws under Residential Line I bear interest
at a variable rate equal to prime plus 1.25% per annum (9.75% as of June 30,
1997). Residential Line I matures on March 14, 2001. As of the date of this
Prospectus, a total of $ million and $ million was outstanding on the
Heller Line and the Residential Line I, respectively. The Company is in
compliance with the terms of the credit agreements governing this indebtedness.
The Company may re-borrow amounts repaid under either line for general corporate
purposes including land acquisition, land development, construction of homes and
for working capital. See "Management's Discussion and Analysis and Results of
Operations and Financial Condition--Financial Condition and Liquidity."
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997, and as adjusted to give effect to the sale of both the
Minimum Amount ($3,000,000) and the Maximum Amount ($6,000,000) in aggregate
principal amount of Debentures (assuming sale at a price equal to par) and the
application of the net proceeds at each level.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------------------------
AS ADJUSTED AS ADJUSTED
(ASSUMING SALE OF (ASSUMING SALE OF
ACTUAL THE MINIMUM AMOUNT) THE MAXIMUM AMOUNT)
--------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness:
Debt due within one year............. $ 8,899 $ 8,999 $ 8,899
Debt due after one year (excluding
Debentures)........................ $ 61,394 $ 59,002 $ 56,302
Debentures........................... -- $ 3,000 $ 6,000
--------- ------- -------
Total indebtedness................... $ 70,293 $ 70,901 $ 71,201
Total stockholder's equity............. $ 9,795 $ 9,795 $ 9,795
--------- ------- -------
Total capitalization................... $ 80,088 $ 80,696 $ 80,996
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of September 30, 1996
and 1995 and for each of the three years in the period ended September 30, 1996
has been derived from the Company's consolidated financial statements audited by
Ernst & Young LLP, independent auditors, whose report with respect thereto is
included elsewhere in this Prospectus. The selected consolidated financial data
as of September 30, 1994, 1993 and 1992 and for each of the two years in the
period ended September 30, 1993, has been derived from audited financial
statements. The selected consolidated financial data for the nine months ended
June 30, 1997 and 1996 are derived from unaudited financial statements but, in
the opinion of management, includes adjustments, all of which are of a normal
recurring nature, necessary for a fair presentation. The results of operations
for the nine months ended June 30, 1997 may not be indicative of the results to
be expected for the year ending September 30, 1997. The following selected
consolidated financial data should be read in conjunction with the consolidated
financial statements, including the notes thereto, set forth elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
30, YEAR ENDED SEPTEMBER 30,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues................................ $ 51,608 $ 34,991 $ 65,117 $ 44,349 $ 32,886 $ 24,896 $ 35,011
Cost of Revenues........................ $ (48,131) $ (31,299) $ (60,494) $ (40,067) $ (29,227) $ (19,674) $ (28,523)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit............................ $ 3,477 $ 3,692 $ 4,623 $ 4,282 $ 3,659 $ 5,222 $ 6,488
Operating Expenses...................... $ (1,902) $ (2,286) $ (2,838) $ (2,770) $ (2,490) $ (2,607) $ (4,473)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before Investors Share of Income
in Majority Owned Land Development and
Housing Partnerships.................. $ 1,575 $ 1,406 $ 1,785 $ 1,512 $ 1,169 $ 2,615 $ 2,015
Investor's Share of Income in Majority
Owned Land Development and Housing
Partnerships.......................... $ (465) $ (375) $ (735) $ (70) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before Income Taxes.............. $ 1,110 $ 1,031 $ 1,050 $ 1,442 $ 1,169 $ 2,615 $ 2,015
Income Taxes............................ $ (382) $ (401) $ (401) $ (577) $ (468) $ (1,046) $ (826)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income.............................. $ 728 $ 630 $ 649 $ 865 $ 701 $ 1,569 $ 1,189
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Number of Homes and Lots Closed......... 310(4) 205 378 267 174 110 146
Average Selling Price per Home.......... $ 179 $ 169 $ 171 $ 163 $ 185 $ 224 $ 233
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges(1)... (3) 1.06 (3) 1.14 2.45 7.28 5.48
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Adjusted Fixed
Charges(2)............................ 5.65 60.35 13.12 27.13 34.54 31.92 15.13
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ------------------------------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
income before minority interests, income tax and fixed charges, less
capitalized interest, plus the interest component included in cost of sales.
Fixed charges consist of interest expended and capitalized and amortization
of debt service costs. The interest factor implicit in rent expense is not
significant.
(2) Represents the ratio of the amount of fixed charges actually funded from the
Company's earnings. In calculating this ratio, the amount of interest
charges which are funded from the Company's various lines of credit through
draws on these lines is excluded from fixed charges. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" below.
(3) Earnings were inadequate to cover fixed charges by approximately $209,000
for the year ended September 30, 1996 and by approximately $1,893,000 for
the nine months ended June 30, 1997 respectively.
(4) Includes the sale of 30 lots at an average price of $46,000 per lot.
16
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
-------------------- -----------------------------------------------------
SELECTED BALANCE SHEET DATA: 1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Inventories............... $ 80,420 $ 52,827 $ 54,588 $ 28,796 $ 21,143 $ 12,506 $ 9,157
Total Assets.............. $ 94,819 $ 60,615 $ 69,931 $ 34,365 $ 26,779 $ 21,216 $ 15,310
Debt Due after One Year... $ 61,394 $ 40,139 $ 37,692 $ 16,507 $ 7,250 $ 7,196 $ 3,323
Total Liabilities......... $ 83,557 $ 48,865 $ 58,699 $ 22,909 $ 18,825 $ 13,718 $ 7,302
Investor's Equity in
Majority-Owned
Projects(5)............. $ 1,467 $ 2,702 $ 2,165 $ 3,037 $ 400 -- --
Stockholders' Equity...... $ 9,795 $ 9,048 $ 9,067 $ 8,419 $ 7,554 $ 7,498 $ 8,008
</TABLE>
- ------------------------
(5) Represents the equity of investors in projects, a majority of which are
owned by the Company.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the Company's consolidated financial condition and
results of operations as of September 30, 1995 and 1996, for the years ended
September 30, 1994, 1995, and 1996 and for the nine months ended June 30, 1996
and 1997 should be read in conjunction with the Company's Consolidated Financial
Statements, including the notes thereto, and other information presented
elsewhere in this Prospectus.
GENERAL
The Company generates revenue from the interrelated activities of land
acquisition, development and homebuilding. The Company generally enters into a
purchase agreement with a potential home buyer prior to commencing construction,
except where the home is being constructed on a speculative basis or to be used
as a model home. As of June 30, 1997, the Company had 430 homes built or under
construction, 425 of which were under contract for sale. The number of homes
under construction prior to execution of sales contracts tends to vary by season
reflecting the fact that weather conditions in the Chicago and western Michigan
markets necessitate starting foundation construction in the fall and early
winter months prior to executing purchase agreements to ensure available
inventory for winter sales and spring closings. The Company does not recognize a
sale for accounting purposes until the sale of a home or lot is closed. The time
period from execution of a purchase agreement to the closing of the sale of a
home generally ranges from six to nine months. See "Business-Land Acquisition."
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 AND 1996. Revenues from housing and land
sales increased approximately $17.0 million or 49% for the nine months ended
June 30, 1997, compared to the same period in 1996 increasing from approximately
$34.5 million to approximately $51.5 million. The increase in revenue resulted
from both an increase in the volume of homes and lots closed during the period
and the sale of twenty-two model homes to Model Homes L.L.C. which produced
approximately $4.6 million in additional revenue and resulted in a gain of
approximately $766,000. See "Certain Transactions." During this time period, the
Company closed on the sale of 280 homes and lots at an average selling price of
$179,000 compared to 205 closings at an average selling price of $169,000 in the
same period in 1996. The Company believes that the volume increase reflected an
increase in demand for the Company's homes and lots and an increase in the
number of housing starts. The increase in average selling price reflected both a
general price increase of 5% instituted by the Company on all its products, as
well as sales made to affiliates at prices averaging approximately $211,000
offset by a change in the mix of homes closed in 1997 (lower priced homes)
compared to 1996.
Direct construction costs, including amortization of capitalized interest
and real estate taxes, increased during the nine-month period ended June 30,
1997 from approximately $28 million to approximately $42 million as compared to
the same period in 1996. The increase in these costs resulted mainly from
increases in the number of homes constructed, sold and closed during the period
as compared to the same period in 1996 and a corresponding increase in the
expense incurred related to interest and real estate taxes previously
capitalized. As a percentage of housing and land sales revenue, however, direct
construction costs declined from 81.4% during the nine months ended June 30,
1996 to 80.9% during the nine months ended June 30, 1997. Other costs and
expenses, however, increased from approximately $5.5 million for the nine months
ended June 30, 1996 to approximately $8.3 million for the nine months ended June
30, 1997. The increase in these costs and expenses was due to the increase in
the number of homes closed between the two periods which resulted in additional
selling and general administrative costs. Income after adjusting for minority
interests in company controlled land development and housing partnerships and
income taxes increased from approximately $630,000 for the nine months ended
June 30, 1996 to approximately $728,000 for the nine months ended June 30, 1997.
Total earnings, which reflects net
18
<PAGE>
income before minority interests and income taxes adjusted for the amount of
interest expense during the period, increased to $3,500,442 for the nine months
ended June 30, 1997 from $2,380,808 for the nine months ended June 30, 1996.
Total fixed charges which means all interest charges, whether expensed or
capitalized also increased to $5,393,865 for the nine months ended June 30, 1997
from $2,241,106 for the nine months ended June 30, 1996. Of this amount, a total
of approximately $4.7 million was funded from draws on the Company's lines of
credit with the remaining amount being funded from the Company's earnings. The
increase in fixed charges reflects the increase in the number of homes
constructed and sold during the period, as well as increases in the Company's
inventory of homes under construction, but whose sales are not closed. These
charges are amortized at the time of closing. Earnings were inadequate to cover
fixed charges for the nine months ended June 30, 1997 by approximately $1.89
million. Management believes that the Company has adequate capital to cover
these fixed charges, since not all fixed charges require funding from earnings.
In particular, a substantial portion of these fixed charges are funded through
additional draws on the Company's lines of credit if permitted by the relevant
loan agreement. See "Risk Factors--Substantial Leverage, Reliance on Financing
and No Assurance of Availability of Credit." On an adjusted basis giving effect
to fixed charges funded through draws on the Company's lines of credit, the
Company's earnings exceeded these adjusted fixed charges by 5.65 times for the
nine months ended June 30, 1997 and by 60.35 times for the nine months ended
June 30, 1996.
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994. Revenue from housing and
land sales for the fiscal years ended September 30, 1996, 1995 and 1994 was
approximately $64.7 million, $43.4 million and $32.2 million, respectively.
Total revenues were approximately $65.1 million, $44.3 million and $32.8
million, respectively, when adding in revenue from the Company's share of net
income from minority owned land development housing partnerships, as well as
management fees. The total number of homes sold and closed for the fiscal year
ended September 30, 1996, 1995 and 1994 was 378 homes, 267 homes and lots and
174 homes, respectively. The Company believes that the increases in the volume
of homes closed when comparing 1995 to 1994 and 1996 to 1995 was caused in part
by increases in demand for new residential housing resulting from decreases in
long-term mortgage interest rates, and in the case of 1995 compared to 1994,
increases in the Company's inventory of land available for development which
translated into the construction and sale of more homes in 1995. The average
selling price of a home closed in 1996 also increased from $163,000 in 1995 to
$171,000 in 1996. In contrast, the average selling price for a home closed
during fiscal year 1995 decreased from $185,000 for fiscal year 1994 to
$163,000. The Company believes that the increase in the average selling price of
homes closed in 1996 when compared to 1995 resulted from changes in the mix of
homes closed during 1996 (higher priced homes), which also accounted for the
decline in average selling price during fiscal year 1995 when compared to fiscal
year 1994 (lower priced homes).
Direct construction costs, including amortization of capitalized interest
and real estate taxes for the year ended September 30, 1996, 1995 and 1994 was
approximately $53.7 million, $36.3 million and $26.3 million, respectively. The
year-to-year increases were generally the result of increases in the number of
homes constructed, sold and closed during 1995 when compared to 1994 and during
1996 when compared to 1995. As a percentage of housing and land sales revenue,
direct construction and costs increased to 83.6% for fiscal year 1995 when
compared to 81.6% for fiscal year 1994 and then declined to 83% for fiscal year
ended 1996 when compared to fiscal year 1995. Other costs and expenses for the
year ended September 1996, 1995 and 1994 were approximately $9.5 million, $6.5
million and $5.4 million, respectively. The increase in these expenses resulted
mainly from an increase in the number of active projects, as well as increases
in advertising costs associated with these projects. Net income was $648,627 in
1996 compared to $864,939 in 1995. Total earnings for the fiscal years ended
September 30, 1996, 1995 and 1994 were $3,751,766, $2,171,479 and $1,889,538
respectively. Fixed charges for these periods were $3,960,336, $1,904,939 and
$771,379. A total of approximately $3.6 million, $1.8 million and $717,000 was
funded from draws on the Company's lines of credit with the remaining amount
being funded by the Company from earnings. The increase in these charges from
period to period reflects an increase in the inventory of homes under
construction, but whose sales had not closed. For example, as of September 30,
1996, the
19
<PAGE>
Company had housing inventories of approximately $54.8 million compared to
approximately $28.7 million as of September 30, 1995. Earnings were inadequate
to cover fixed charges by approximately $209,000 for the fiscal year ended
September 30, 1996, but exceeded fixed charges by 1.14 times and 2.45 times for
the fiscal years ended September 30, 1995 and 1994, respectively. On an adjusted
basis giving effect to fixed charges funded through draws on the Company's lines
of credit as described above, the Company's earnings exceeded these adjusted
fixed charges by 13.12, 27.13 and 34.54 times, respectively. See "Risk
Factors--Substantial Leverage, Reliance on Financing and No Assurance of
Availability of Credit."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at June 30, 1997 and
September 30, 1996 was approximately $1.1 million and $824,000, respectively. As
described below, the increase in cash and cash equivalents was attributable to
an increase in cash flow from financing activities of approximately $20.9
million and offset by net cash used in operating activities of approximately
$20.6 million.
The Company typically finances the acquisition of land parcels and the costs
associated with initial development of the parcels (such as entitlement
activities and construction of streets and sewers) by making draws on various
acquisition and development lines of credit (the "A&D Lines"), including a $25
million line of credit from Residential Funding Corp. which can be used solely
to fund acquisition and development activity, such as sewer and roadway
construction (the "Residential Line II"). Under the agreements governing the A&D
Lines, the Company may generally draw up to 75-80% of the value of the land and
improvements (based on an as-built appraisal) to fund acquisition and
development costs. Based on the outstanding balance of the A&D Lines at the end
of each month, an interest charge is either paid by the Company if the
particular loan does not have an interest reserve or is funded through an
additional draw on the loan. As of June 30, 1997 and September 30, 1996, the
Company had total indebtedness of approximately $24.3 million and $22.1 million
respectively outstanding on its A&D Lines, including $10.9 million on the
Residential Line II. As of these dates, the Company had funded interest charges
of approximately $2.2 million and $1.9 million associated with these lines,
including $0.3 million and $0.5 million, respectively, on the Residential Line
II, through additional draws on the line. Additional interest charges associated
with other A&D Lines that do not have interest reserves or permit additional
draws to fund the interest as well as corporate level debt of approximately
$619,000 and $285,000 were incurred and paid by the Company from earnings.
Once construction of a home commences, the Company is able to draw on two
lines of credit, a $25 million facility with Heller Financial (the "Heller
Line") and a second line in the amount of $25 million from Residential Funding
Corp. (the "Residential Line I," collectively with the "Residential Line II,"
the "Residential Lines") to finance the costs associated with constructing a
home and preparing a lot for delivery and selling the home to the end purchaser.
As noted herein, the Company typically does not commence construction of a home
until execution of a purchase contract. See "Business--Inventory Management"
above. As of June 30, 1997 and September 30, 1996, the Company had total
indebtedness of approximately $38.1 million and $16.5 million respectively
outstanding on these two lines and had incurred interest charges of
approximately $2.5 million and $1.7 million associated with these lines, all of
which were funded by additional draws allowable on these lines.
The amount of indebtedness incurred with respect to any particular project
is based on the purchase price of the land, the estimated costs of
infrastructure activities and the costs of constructing and selling homes on the
land. These estimated costs are based on, among other things, demand for housing
in its market areas which the Company then factors into its analysis of the
number of homes that it believes may be constructed and the rate in which these
homes may be sold to end-purchasers although from time to time the Company will
sell improved lots without constructing a home thereon. See "Risk Factors--
Substantial Leverage, Reliance on Financing and No Assurance of Availability of
Credit" above.
20
<PAGE>
Upon closing of a home sale, the Company utilizes all of the net closing
proceeds (including the Company's profit) from the sale of the home to reduce
the indebtedness under the relevant A&D Line as well as the Heller Line or
Residential Line I as the case may be. Thus, the amount of indebtedness
outstanding on these lines fluctuates based on the number of parcels and homes
under development or construction at any one time and the rate at which closings
are completed on homes under contract for sale. During the fiscal year ended
September 30, 1996 and the nine months ended June 30, 1997, the Company made
principal reductions of approximately $59.8 million and $40.9 million
respectively. As of September 30, 1997, the Company had approximately $6.5
million available for borrowing under its credit facilities. Draws on the Heller
Line bear interest at a variable rate equal to the General Electric Capital
Corporation Composite Commercial Paper Rate plus 3.75% per annum (9.4% as of
June 30, 1997). Draws on the Heller Line which are outstanding on May 31, 1998
automatically convert to a term loan maturing on May 31, 1999. Draws under the
Residential Lines bear interest at a variable rate equal to prime plus 1.25% per
annum (9.75% as of June 30, 1997). Residential Line I matures on March 14, 2001.
From time to time, the Company also incurs indebtedness secured by specific
projects for specific acquisition and development activities. As of June 30,
1997, the Company had approximately $21.3 million of this indebtedness
outstanding, all of which was secured by certain of the Company's assets. This
indebtedness generally matures between 1997 and 2000 and bears interest at a
rate of approximately 9.75% per annum as of June 30, 1997.
Finally, the Company also generates additional working capital by selling,
and then leasing back, certain of its model homes to Model Homes, L.L.C. ("Model
Homes"), a company controlled by family members of the Company's directors and
shareholders. See "Certain Transactions." Under this arrangement, the Company
sells certain of its model homes to Model Homes at a price equal to the
appraised value of the completed home and then leases the completed home from
Model Homes. As part of the sale, Model Homes typically assumes indebtedness
secured by the particular model home. The net proceeds after debt assumption,
typically 25% of the purchase price, are paid to the Company in cash (15%) and
an interest bearing demand note. See "Certain Transactions." As of June 30,
1997, the Company had a $0.6 million note from Model Homes in respect of these
sales. This demand note bears interest at a rate of 10% per annum. The Company
believes this arrangement allows it to increase its available capital by
reducing the amount of capital committed to model homes which typically are the
last homes sold at the Company's developments.
The Company believes that the capital available under the lines of credit
described above, as well as project specific indebtedness and cashflow from the
sale of the model homes, along with internally generated funds and the proceeds
from the Debentures, will be sufficient to meet the Company's reasonably
anticipated needs for working capital and liquidity. If these amounts prove
insufficient, however, the Company would likely have to raise additional capital
(debt or equity or both) from third parties. There can be no assurance that
additional capital, either in the form of equity or debt, will be available on
terms and conditions acceptable to the Company, if at all. Further, any
additional debt capital may rank senior in right of payment to the Debentures.
The Indentures impose limitations on the Company's ability to declare and pay
dividends or make other payments to the Parent. See "Description of
Securities--Restrictive Covenants--Limitation on Restricted
Payments;--Limitation on Transactions with Affiliates;--Limitation on Dividends
and Other Payment Restrictions Affecting a Subsidiary."
CASH FLOWS FROM OPERATING ACTIVITIES. The Company's operating activities
utilized cash in both the year ended September 30, 1996 and the nine months
ended June 30, 1997. The Company utilized approximately $29.5 million in cash in
operating activities during the year ended September 30, 1996. This cash was
used primarily to increase the Company's housing inventories (approximately $26
million) as well as to increase the land held for future development
(approximately $8.0 million) offset by an increase in the Company's increase in
accounts payable (approximately $4.0 million). Similarly, for the nine months
ended June 30, 1997, the Company utilized approximately $20.6 million in cash
from operating activities. This cash was utilized primarily to increase the
Company's inventory of housing (approximately $26 million) offset by an
21
<PAGE>
increase in the Company's accounts payable (approximately $4.3 million). In each
case, the increase in the Company's accounts payable reflects an increase in
amounts owed to vendors and other subcontractors reflecting an increase in the
number of homes being constructed by the Company.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES. The Company's financing
activities provided the bulk of the Company's cashflow in both the fiscal year
ended September 30, 1996, as well as the nine months ended June 30, 1997. During
the fiscal year ended September 30, 1996, net cash provided by financing
activities was approximately $29 million comprised almost entirely of proceeds
from development loans and other notes payable of approximately $99.5 million
offset by repayments on development loans and other notes payable of
approximately $68.8 million. For the nine months ended June 30, 1997, financing
activities provided the Company with net cash of approximately $20.9 million
comprised of the proceeds from development loans and other notes payable of
approximately $93.4 million offset by repayments on development loans and other
notes payable of approximately $71.3 million. The increase in borrowing activity
in each time period reflects increases in the amount of funds necessary to
finance the Company's construction and development activities as reflected by
increases in the number of homes constructed and sold by the Company in each
period when compared to the prior comparable period. These borrowings are
typically repaid from the proceeds of housing or lot sales and then reborrowed
by the Company to fund construction costs. Thus, borrowings on the Company's
lines of credit (described above) fluctuate significantly based on the level of
the Company's activities.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash provided by or used for
investing activities was not significant for the nine months ended June 30, 1997
or for the fiscal year ended September 30, 1996.
INFLATION AND THE EFFECTS OF CHANGING PRICES. Real estate and residential
housing prices are affected by inflation, which can cause increases in the price
of land, raw materials and subcontracted labor. Historically, the Company has
been able to increase the price of its housing products to cover these costs.
Interest rate fluctuations also affect gross profit margins by increasing or
decreasing financing costs for land, construction, and operations. The Company
believes that product demand and sales are impacted by mortgage interest rates.
The Company benefited from low mortgage interest rates from 1994 through early
1995, and then again from mid-year 1995 through 1997. If rates increase,
customers may be discouraged from purchasing a home, due to the increased cost,
decrease in buying power and possible difficulty in qualifying for a mortgage.
Seasonality is generally not a significant factor in the Company's operations,
in part because homes can be constructed and sold year-round, particularly in
the Phoenix Area.
22
<PAGE>
BUSINESS
The Company is a fully integrated land development and homebuilding company
operating in the Chicago, Phoenix and western Michigan markets and since 1982
has developed over 7,300 lots and has built and closed over 6,100 homes. The
Company acquires undeveloped land and develops it into finished lots for
residential subdivisions, and periodically options or purchases finished lots
from third parties primarily for the construction and sale of homes. The Company
maintains an inventory of potential home sites (lots) by controlling undeveloped
and developed land through the use of the Acquisition Agreements. The Company
believes that this strategy allows it to control sites for future development
and at the same time maximize the use of its available capital. See "--Land
Acquisition" below. For the nine months ended June 30, 1997, the Company closed
on the sale of 280 homes and lots generating approximately $51.6 million in
revenue from housing and land sales as compared to 205 homes and lots generating
approximately $35.0 million in revenue from housing and land sales for the nine
months ended June 30, 1996. As of June 30, 1997, the Company had contracts to
sell an additional 425 homes and a current inventory of 739 lots on which the
Company anticipates developing and selling 739 homes. Additionally, the Company
controlled, through Acquisition Agreements eight parcels of land for future
development of an estimated 3,314 homes.
Prices for the Company's homes (including the lot) range from $110,000 to
$400,000 per home. During the first nine months of fiscal 1997, the average
price for a home sold by the Company was approximately $202,000. The Company
markets its products to entry level, first and second move-up, and empty-nest
buyers by emphasizing the community atmosphere of its residential subdivisions,
as well as those characteristics that the Company believes its homes possess:
desirable designs, quality construction, and competitive prices.
The table below summarizes the number of closings for the last three fiscal
years and the interim periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSAND)
<S> <C> <C> <C> <C> <C>
Homes and Lots Closed...................................... 310(1) 205 378 267 174
Average Selling Price of Homes and Lots.................... $ 179 $ 169 $ 171 $ 163 $ 185
Total Dollar Volume of Closed Homes and Lots............... $ 51,608 $ 34,991 $ 64,749 $ 43,448 $ 32,231
</TABLE>
- ------------------------
(1) Includes the sale of 30 lots at an average price of $46,000 per lot.
United, which is an Illinois corporation, was formed in 1994 when the Parent
transferred ownership of the Subsidiaries to United in return for all of the
outstanding stock of United. United and the Subsidiaries own controlling general
partner and limited partner interests in the Williams Glen Limited Partnership.
The Hidden Springs Real Estate Limited Partnership, United/RBG XII L.P. and the
United Lindsay East Valley Limited Partnership. United also has a
non-controlling interest in a partnership known as the United Development
Bristolwood Limited Partnership. United's principal place of business is located
at 2100 Golf Road, Suite 110, Rolling Meadows, Illinois 60008, and its telephone
number is (847) 427-2450.
OPERATING STRATEGY
The Company seeks to locate and control property for development while
minimizing the amount of direct capital investment. The Company seeks to
minimize its financial exposure by carefully monitoring and controlling the
costs of designing, building and selling its homes and by carefully managing its
inventory of undeveloped land, developed lots and unsold homes. The Company
attempts to achieve this
23
<PAGE>
goal by maintaining its inventory of homesites, lots, undeveloped and developed
land by using Acquisition Agreements. Generally, the Company attempts to develop
homes in areas with limited competition and before purchasing any property
employs an independent marketing consultant to analyze the real estate market in
which the property is located. The Company seeks to control construction costs
by requiring firm bids from its subcontractors and approval of all payments and
change orders by the Company's construction supervisor.
The Company's product mix includes both single family and multifamily home
designs. The Company uses competitive market analysis, focus groups and research
in an effort to define and develop each product line to suit the needs of each
particular market. Each home design is periodically updated in order to reflect
changing market and customer needs and demand.
The Company sells its homes through commissioned employees who work from
sales offices located at each project or, in certain cases, outside brokers. The
Company markets its homes through a combination of newspaper, radio and
television advertising, direct mail, directional signage, special promotions,
the Internet and referrals both from homebuyers and brokers. Uniform corporate
brochures and promotional pieces have been developed to create cost efficiencies
and to promote uniformity in the use of the Company's name, identity and vision.
The Company monitors customer satisfaction through an annual survey
conducted by independent third parties and through post-closing customer
satisfaction surveys as well as through sample surveys of individuals who did
not purchase a home from the Company.
MARKETS/PRODUCT
CHICAGO METROPOLITAN AREA. The Company believes that the Chicago
metropolitan area (excluding DeKalb, Kendall and Grundy counties), which
essentially consists of Cook, DeKalb, DuPage, Grundy, Kendall, Lake, McHenry,
Will and Kane counties (the "Chicago Area") offers significant opportunities for
expansion. The economy in this area has exhibited growth in recent years due in
part to the diversification of employment opportunities which has led to an
increase in employment, population and housing starts. According to the U.S.
Department of Commerce annual building permits issued for single-family
residential units in the Chicago Area have increased from approximately 17,726
in 1991 to approximately 24,597 in 1996.
The Chicago Area was ranked 88th in the nation by the National Association
of Homebuilders ("NAHB") in population growth during the time period 1986-1995.
According to Claritas Inc., the population of the Chicago Area is projected to
grow to approximately 7,769,033, up from the 1990 census figures of
approximately 7,410,858 and is projected to rise to approximately 7,995,867
people by 2002. The unemployment rate in the Chicago CMSA (which includes the
Chicago Area plus the Gary Indiana; Kankakee, Illinois; and Kenosha, Wisconsin
PMSA's) has declined from 5.0% in December, 1995 to 4.4% as of December, 1996.
From 1990-1996, approximately 260,600 new jobs were created in the Chicago Area
with projected increases of approximately 62,000 new jobs in 1997. The median
annual household income of the Chicago Area is estimated at approximately
$45,792 for 1997 and approximately 33% of the population is between the ages of
25 and 44, which the Company believes are favorable indicators of a good supply
of potential customers in various stages of the home buying cycle.
United's subsidiary, United Homes of Illinois, Inc. was ranked among the top
twenty homebuilders for calendar year 1996 and the first half of calendar year
1997. For the first nine months ended June 30, 1997 the Company sold 372 homes,
including lot sales, in the Chicago Area and is currently constructing homes in
Antioch, Algonquin, Crystal Lake, Cary, Vernon Hills, Waukegan, Darien, and
Tinley Park. Prices for the Company's Chicago Area homes range from $110,000 to
$400,000.
PHOENIX. The Company believes that the City of Phoenix and the surrounding
metropolitan area (the "Phoenix Area") offers significant growth opportunities.
The Phoenix Area economy has exhibited growth
24
<PAGE>
in recent years due in part to the high technology industry which has led to an
increase in employment, population and housing starts. Annual building permits
issued for single-family residential units in the Phoenix MSA have increased
from approximately 10,909 in 1990 to approximately 28,583 in the Phoenix-Mesa
MSA in 1995.
The Phoenix Area was ranked 12th in the nation by the NAHB in population
growth during the time period 1986-1995. According to Claritas, Inc., the
population of the Phoenix Area is projected to grow to approximately 2,815,051,
up from the 1990 census figures of approximately 2,238,480 and is projected to
rise to approximately 3,232,179 by 2002. The unemployment rate in the
Phoenix-Mesa MSA (which includes Maricopa and Pinal counties) has declined from
4.8% in 1993 to 3.1% as of December, 1996. From 1990-1996 approximately 300,000
new jobs were created in the Phoenix Area. The median annual household income of
the Phoenix Area is approximately $37,583 and approximately 32% of the
population is between the ages of 25 and 44, which the Company believes will
assure a good supply of potential customers in various stages of the home buying
cycle.
United's subsidiary, United Homes, Inc., an Arizona corporation, has
operated in the Phoenix Area since 1984. For the first nine months ended June
30, 1997 the Company sold 72 homes in the Phoenix Area. Prices for the Company's
homes in this market range from $110,000 to $400,000.
WESTERN MICHIGAN The Company conducts its homebuilding operations in
Western Michigan primarily in a 60 mile radius of Grand Rapids, Michigan which
includes Holland and Kalamazoo Michigan (the "Grand Rapids Area"). The Company
believes the Grand Rapids MSA (comprised of Grand Rapids, Holland and Muskegon)
offers opportunities for expansion. United believes that the Grand Rapids Area
economy has exhibited growth in recent years due in part to the continued
expansion and addition of New York Stock Exchange listed businesses located
within the area/region and continued recognition by these businesses of a
skilled workforce which has led to an increase in employment, population and
housing starts. Annual building permits issued for single-family residential
units in the Grand Rapids MSA have increased from approximately 3,957 in 1990 to
approximately 6,117 in 1996.
The Grand Rapids Area was ranked 54th in the nation by the NAHB for
population growth during the time period 1986-1995. According to the U.S. Census
Bureau the 1996 population of the Grand Rapids MSA was approximately 1,015,099,
up from the 1990 census figures of approximately 941,776 and is projected to
increase to approximately 1,052,300 by 2000. The unemployment rate in the Grand
Rapids Area has declined from 6.2% in 1990 to 3.4% as of December 1996.
Approximately 72,000 new jobs were created in the Grand Rapids Area between 1990
and 1996. The median annual household income of the Grand Rapids Area is
projected to be approximately $47,400 in 1997 and approximately 33% of the
population is between the ages of 25 and 44, which the Company believes are
favorable indicators of a good supply of potential customers in various stages
of the home buying cycle.
United's subsidiary, United Homes of Michigan, Inc., is the second largest
homebuilder in the Grand Rapids Area based on homes closed. United Homes of
Michigan, Inc. is currently exploring expanding its operations into Lansing, Ann
Arbor and Detroit, Michigan, as well as Indianapolis, Indiana. The Company
generally sells single family homes to move-up buyers with prices generally
averaging $154,000 in this market which is below the market average of $165,000.
For the first nine months ended June 30, 1997, the Company sold 66 homes in the
Grand Rapids Area.
LAND ACQUISITION
A significant factor influencing the Company's results of operation and
financial condition is its ability to acquire land for future home sites on
acceptable terms and conditions. The Company has developed procedures for, and
employs management specialized in, site acquisition and development. The Company
attempts to develop homes in areas with limited competition and before entering
into an acquisition arrangement generally employs an independent marketing
consultant to perform a market analysis.
25
<PAGE>
The Company attempts to minimize the amount of capital invested in
undeveloped land by entering into agreements containing contingencies allowing
the Company extended periods of time to conduct its due diligence review prior
to the actual purchase of the land. The Company uses this review period to
obtain necessary development approvals from government units and to evaluate the
feasibility and profitability of the project. The Company also investigates
other factors affecting the feasibility of the project, including:
<TABLE>
<C> <S> <C> <C>
-- topography -- archeological site status
-- geology, soils and grading -- regulatory processing and approval
schedule
-- traffic, transportation and access -- financing alternatives
-- market research -- hazards, including noise and pollution
-- environmental issues -- economic feasibility
</TABLE>
Occasionally, the Company acquires control of land through joint ventures
and other contractual relationships with third-party landowners. Under these
arrangements, the Company generally is employed as an agent to zone and develop
the property and build and sell homes for the ventures. The Company is typically
required to meet certain criteria relating to cost control and absorption rates.
The landowner generally subordinates his or her interest in the land to a
mortgage securing the development financing typically provided by a third party.
As lots are sold, the landowner shares in the profits on the finished lots. This
approach allows the landowner to maximize the profit to be made on the sale of
the land and enables the Company to control a site which it might not otherwise
have been able to control. The arrangement also enables the Company to
participate in the lot profit, while retaining the profit from the construction
of the homes on the site. Affiliates of the Company may be participants in these
arrangements. See "Certain Transactions."
Periodically, the Company uses Acquisition Agreements to control finished
lots developed by third parties. The Company believes that this approach allows
it to control and market a large number of finished lots with minimal capital
investment and limited development risk. Generally, under these agreements, the
Company can continue to control these finished lots as long as the Company
purchases a specified number of lots within a predetermined time period. The
Company attempts to ultimately build its homes on lots developed by the Company,
although the Company occasionally builds homes on lots developed by third
parties. During the fiscal year ended September 30, 1996, approximately 80% of
the homes sold by the Company were built on lots developed by the Company. This
falls within the Company's goal of 70-85% which was set at that level since
homes built on land developed by third parties result in lower profit margins to
the Company.
The following table summarizes the Company's inventory of homes sold, but
not yet closed, the current lot inventory, lots available for future development
and completed homes as of June 30, 1997:
<TABLE>
<CAPTION>
LOTS AVAILABLE
CURRENT LOT FOR FUTURE COMPLETED
HOMES SOLD BUT NOT CLOSED(1) INVENTORY(2) DEVELOPMENT(3) HOMES(4) TOTAL
------------------------------- --------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ILLINOIS...................... 280 381 2,751 5,622 9,034
MICHIGAN...................... 84 168 447 278 977
ARIZONA....................... 61 190 116 246 613
--- --- ----- ----- ---------
TOTAL......................... 425 739 3,314 6,146 10,624
</TABLE>
- ------------------------
(1) Represent homes subject to a purchase agreement which have not yet closed
(sales backlog). Revenue is not recognized until the time of closing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
26
<PAGE>
(2) Represents lots owned by the Company that are available for home
construction which have not been sold. The Company typically constructs and
sells one home on a lot.
(3) Represents undeveloped land that the Company either owns or controls through
Acquisition Agreements.
(4) Represents homes that have been closed by the Company and the Parent since
the Parent's inception.
LAND DEVELOPMENT
Land development consists principally of two activities: (i) obtaining
necessary governmental approvals, including zoning, density and plat approvals;
and (ii) preparing the land for construction of homes, including grading,
installing streets, curbs, sewers, utilities and land clearing. The Company
engages engineers to prepare plat drawings and architects to prepare home plans
and, along with employees of the Company, to pursue the necessary governmental
approvals. Once the required preliminary approvals are obtained, the Company
retains subcontractors to perform the land improvements. The Company may begin
land development prior to obtaining final plat approval. Additionally, the
Company may obtain final plat approval for only a portion of a given project and
develop the project in phases. Once these initial activities are complete, the
site is ready for home construction.
Once the Company acquires control of undeveloped land, it commences the
process of obtaining zoning and other government approvals necessary for the
proposed development. This process is generally completed in one to three years.
During this phase, the Company estimates the cost of developing the entire
parcel to determine whether finished lots can be profitably sold and updates its
market studies to determine both the level of competition from other land
developers and builders and projected lot absorption rates. Further, the Company
determines the availability of utilities, surveys, tests soil conditions on the
site and performs the required environmental reviews. Upon receipt of final
governmental approvals, the Company will usually complete its purchase of the
land and begin site development. If at any time during the zoning and approval
process, however, it appears that development costs will be too great for the
market, or that the approval process is not progressing satisfactorily, the
Company will cease the zoning and approval process and sell or abandon its
interest in the land. The Company may, nevertheless, incur pre-development costs
ranging from approximately $50,000 to $250,000 per parcel during the approval
process prior to determining whether it can, or will develop the land. The
Company has generally been successful in obtaining the necessary zoning and
governmental approvals.
During the site development stage, the land is developed into finished lots.
This process generally involves, among other things, grading the land and
installing sanitary and storm sewers, water mains, curbs, gutters and streets.
The Company believes that creating a successful subdivision distinguishable from
that of its competitors requires creating a distinctive neighborhood environment
which fosters a sense of community. The Company focuses on a number of factors
in an effort to create this feeling: a street and lot configuration that it
believes arrives at the best balance of installation and construction costs and
the esthetics of the subdivision; the location, design, landscaping and creation
of the entrance; and the creation of common amenities, such as children's play
areas, tennis courts, swimming pools, basketball courts, gazebos and community
open spaces, such as hiking trails.
HOME DESIGN AND CONSTRUCTION
The Company builds its homes from a variety of standard plans designed by
national and local architectural firms. These standard plans allow for moderate
customizing by the customer and are reviewed on a regular basis to ensure
desirability, practicality and competitive edge. Additional input on new home
designs is provided by focus groups consisting of individuals who have purchased
homes in the last six months in approximately the same price range as that of
the new designs. In addition, the Company utilizes a number of marketing
consultants in cities across the United States having similar climate and
housing construction techniques. The Company periodically consults with these
marketing consultants to
27
<PAGE>
determine the type of houses being sold in other markets. The Company also sends
employees to study new home ideas in other market areas usually two or three
times a year.
The Company acts as its own general contractor at each project but, except
for employing field supervisors, does not employ construction or trade
personnel. Subcontractors are selected through a competitive bidding process
which the Company believes limits its financial exposure. The Company seeks to
control construction costs by requiring a construction supervisor, employed by
the Company, to approve all payments and change orders.
The purchase price for a standard house ranges from approximately $110,000
to $400,000 per home with the average price of a home with no upgrades being
approximately $189,375 with square footage ranging from 900 to 3800 square feet
of finished space. Included within the purchase price of each home is a one/two
year construction warranty and a ten year structural warranty which the Company
purchases from Home Warranty Corporation, an entity unaffiliated with the
Company. Purchasers can select from various base floor plan and elevation
combinations, as well as customize their homes with a selection of changes,
features and upgrades. Some typical features of the Company's floor plans,
depending on the development, are:
- vaulted or higher-than-average ceilings and large decorative windows to
admit natural light;
- two story entries which offer a sight line through the house;
incorporation of columns, arches, bridges, niches and wall cutouts,
formal and informal stairways and other design features;
- basements, most with windows or outside entries;
- two and three car garages.
In addition, purchasers can choose, at additional cost, optional amenities
such as different front elevations for the house, bay windows, decks, cabinets,
upgraded carpets and floor coverings, fireplaces, lighting fixtures, appliances
and hardware. To insure proper communication between the customer and the
construction supervisors, as well as to minimize costs associated with
revisions, the Company conducts two "walk throughs": the first before the
drywall is installed so as to easily allow any modifications necessary and the
second immediately prior to closing.
CUSTOMER SERVICE
The Company places tremendous emphasis on providing a high level of customer
service. The Company attempts to maintain personal contact with its customers
from their first meeting with the sales representative, through the construction
process and after the closing. This relationship begins when the customer first
visits one of the Company's model homes and selects a house plan. The Company
emphasizes customer service by making it a topic at meetings with the
construction, sales, and marketing personnel, as well as by making it an
important part of the annual sales training program in which all the sales
representatives participate. The Company's sales representatives service the
customers' needs until the customers' final plans have been approved for
construction. Once approval for construction has been obtained, a construction
coordinator is assigned to the customer. The construction coordinators are
responsible for addressing any of the customers' concerns, changes, service and
warranty work and are available to talk with customers at any time during the
Company's normal business hours.
The Company has also developed a system to educate its customers on the
process of building a home. This system is designed to establish the sequence
and timing of events during the process of building and servicing a customer's
home. The Company monitors these procedures on a weekly basis, and customers are
automatically sent progress letters at various points during the process.
28
<PAGE>
COST CONTROL
The Company seeks to control costs at each phase of the development. To
control construction costs, the Company seeks to achieve the most efficient
design for each home product. After completing the schematic plan of a home, the
Company's construction department and the purchasing department review the plan
to ensure the home is designed to minimize both labor and material costs. The
sales department also reviews the plan to ensure that amenities designed into
the home will create value for the home buyer. The plan is then sent to an
outside structural engineer who reviews the structural integrity of the plan and
makes recommendations where necessary. Additionally, the plan is sent to a truss
manufacturer, electrical consultant and a cabinet maker for additional input and
recommendations. The Company then reviews these recommendations and, if
appropriate, incorporates them into the final plan. Along with the design
department, the construction and purchasing departments also review the final
plan and officially approve it for use by the Company. The purchasing and
construction departments may seek input from suppliers and subcontractors on
ways to improve on the design of the home. Once the plan is completed, the
purchasing and construction departments seek bids from local subcontractors and
suppliers, although the Company has arranged and is continually attempting to
increase direct purchase relationships with national vendors in order to provide
certain items at a lower price.
Once the home plans are completed, they are sent to the estimating
department, which, using a computerized estimating system, determines the exact
quantities and cost of materials needed to build the home. This estimated cost
is then verified with individual cost quotes or bids from each subcontractor or
supplier. A detailed budget for the home is then input into a computerized
purchase order system which enables the Company to monitor all of its costs and
variances from the original budget. Variances from the original budget for the
home are generally recorded and input into the system as they occur. This allows
the Company to view on a daily basis any variance on homes under construction.
Management of the Company normally meets weekly to review variances to determine
the cause and to establish procedures to eliminate them in the future.
The Company also uses its management information system to monitor and
trigger payments to its suppliers and subcontractors. Unless there is an
approved variance purchase order or approved change order that has been entered
into the system, only originally budgeted amounts are paid to the suppliers and
subcontractors. By using this system over a period of time, the Company believes
it can determine the most cost efficient way for it to produce its homes. The
Company also monitors its gross margin on each home at four different points in
order to determine how the actual margin compares to the budget: (i) when the
purchase agreement is signed by the Company; (ii) after the budget is placed in
the computerized purchase order system; (iii) when the sale closes; and (iv)
approximately forty-five days after the sale closes and all outstanding invoices
have been reviewed and entered into the purchase order system.
INVENTORY MANAGEMENT
The Company believes that most of the risk in the homebuilding industry is
related to excessive inventory, including undeveloped land, finished lots and
completed but unsold homes. The Company attempts to reduce the amount of capital
committed to land by continuously monitoring its undeveloped and finished lot
inventory. The Company seeks to purchase land through Acquisition Agreements,
which the Company believes reduce the amount of capital invested at any one time
and permit the Company to terminate or postpone the ultimate purchase of land
that it does not need. The Company attempts to limit its exposure to an excess
inventory of completed houses by: (i) generally not starting construction of a
home until execution of a purchase agreement, receipt of satisfactory earnest
money, receipt by the home buyer of a preliminary mortgage commitment and
removal of all contingencies; and (ii) controlling the number of finished homes
held as speculation homes on a project-by-project basis and monitoring weekly
the sales progress of each subdivision.
29
<PAGE>
As of June 30, 1997, the Company had 430 homes built or under construction
to be sold or held as inventory and located in seventeen different subdivisions
and in various stages of the construction process. A total of 425 of these homes
were under contract to be sold. The Company rarely holds houses in inventory
after completing construction, with the exception of model homes which are
typically sold to Model Homes and then leased back. Homes in inventory not
subject to a purchase contract are generally marketed to transferee home buyers
or buyers who can not wait for the construction cycle to be completed.
Transferee buyers have traditionally represented a small portion of the
Company's sales. A transferee buyer typically requires delivery of a new house
within 30 to 60 days. The number of homes held in inventory will vary seasonally
and with changes in the local and national economy.
COMPETITION
The homebuilding industry is highly competitive and fragmented. Homebuilders
compete for desirable properties, financing, raw materials and skilled labor.
The Company competes for residential sales with other homebuilders, resales of
existing homes, available rental housing, and, to a lesser extent, resales of
condominiums. The Company's competitors include a large number of national and
regional homebuilding companies (Chicago and Phoenix markets) and small local
homebuilding companies (in all of the Company's markets), some of which may have
greater financial resources, easier access to working capital or lower capital
costs than the Company.
EMPLOYEES
As of June 30, 1997, the Company employed 130 full-time employees,
including, executive and office personnel as well as, construction
superintendents. The Company's employees are not covered by a collective
bargaining agreement and the Company believes its relations with its employees
are good.
GOVERNMENTAL REGULATION
The Company's business is subject to regulation by a variety of state and
federal laws and regulations relating to, among other things, advertising,
collection of state sales and use taxes and product safety. The Company's
development activities are also affected by local zoning ordinances, building
codes and other municipal laws as well as federal, state and municipal
environmental and conservation laws. While the Company believes it is presently
in material compliance with these regulations, in the event that it should be
determined that the Company is not in compliance with all such laws and
regulations, the Company could become subject to cease and desist orders,
injunctive proceedings, civil fines and other penalties.
ENVIRONMENTAL AND LEGAL PROCEEDINGS
The Company currently is not subject to any environmental litigation or
administrative proceedings. The Company is not currently involved in any legal
proceedings other than those arising in the ordinary course of business.
The Company believes that its potential liability for environmental concerns
can arise in one of two contexts: (i) liability could arise with respect to
substances that are in, under or on land which the Company intends to acquire;
or (ii) liability could arise in connection with how the Company intends to
develop the land. With respect to a substance in, under or on land for which the
Company could face environmental liability, the Company performs a Phase I
environmental audit prior to acquiring the land. If the audit uncovers any
environmental hazards on the land, the Company would not exercise the option
unless the hazard could be corrected at a reasonable cost. With respect to
liabilities in connection with a planned development, the Company obtains the
federal and state permits necessary for building and development before it
exercises the options. If a planned development is not permissible under
environmental laws, the Company will not exercise the option.
30
<PAGE>
MANAGEMENT
The current executive officers, directors and managers of United are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------------------------------ --- ----------------------------------------------
<S> <C> <C>
Virgil W. Owings............................................ 62 Chairman of the Board
Edward F. Havlik............................................ 53 President and Director
Laurie H. Bulson............................................ 29 Vice President and Director
Timothy S. Owings........................................... 36 Vice President and Director
William J. Crock, Jr........................................ 49 Executive Vice President, Chief Financial
Officer, Secretary/Treasurer
David L. Feltman............................................ 37 Vice President/General Counsel
</TABLE>
VIRGIL OWINGS, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Owings has served as
the Chief Executive Officer of the Parent since 1982 and as United's Chairman of
the Board since its inception in 1994. Prior thereto, Mr. Owings was Chief
Financial Officer of Urban Investment Company. He holds a B.S. degree from the
University of Missouri and an MBA from the University of Chicago and is a C.P.A.
Mr. Owings is the father of Timothy Owings.
EDWARD F. HAVLIK, PRESIDENT AND DIRECTOR. Mr. Havlik has served as the
Chairman of the Board of the Parent since 1982 and as United's President since
its inception in 1994. Mr. Havlik has more than twenty-three years of experience
building and developing homes with an emphasis on marketing, forward planning
and negotiations. Mr. Havlik holds a B.A. in marketing from Northern Michigan
University and an honorary Doctor of Letters from Jordan College. Mr. Havlik is
scheduled to become President of the Illinois Homebuilders Association in 1998.
Mr. Havlik is the father of Laurie Bulson.
LAURIE H. BULSON, VICE PRESIDENT AND DIRECTOR. Ms. Bulson has been employed
by the Company or its Parent since 1988. In addition to her current
responsibilities, she has also served as Director of Sales and Marketing for
United Homes Michigan, Inc. and Vice President of Marketing of United Homes of
Illinois, Inc. Ms. Bulson has a B.S. degree in Business and Marketing from
Indiana University. Ms. Bulson is the daughter of Mr. Havlik.
TIM S. OWINGS, VICE PRESIDENT AND DIRECTOR, PRESIDENT UNITED HOMES, INC., AN
ARIZONA CORPORATION. Mr. Owings has been employed by the Company or its Parent
since 1984. Prior thereto, he was Director of Research for Home Data
Corporation, Chicago. Mr. Owings is President of United Homes, Inc., an Arizona
corporation and has a degree in Business Administration/Marketing from Western
Illinois University and is a licensed Real Estate Broker in Arizona. Mr. Owings
is the son of Virgil Owings.
WILLIAM J. CROCK, JR., EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER. Mr.
Crock has served as Chief Financial Officer of United and its Parent since 1990.
Prior thereto, he was Chief Lending Officer of Skokie Federal Savings and Loan
from 1986 to 1990, Vice President of Finance for Joseph Freed & Associates from
1983 to 1986 and an audit manager for Touche Ross & Company from 1969 to 1983.
Mr. Crock has a B.S. from Bradley University, Peoria, Illinois and is a C.P.A.
DAVID L. FELTMAN, VICE PRESIDENT/GENERAL COUNSEL. Mr. Feltman joined United
in 1996. From 1988 to 1989 Mr. Feltman was associated with, and from 1990 to
1995 a partner with, Shefsky & Froelich Ltd. practicing in the Real Estate
Department. In 1981 he received a B.S. in Accounting, and in 1984 he received a
J.D. degree, both from the University of Illinois. Mr. Feltman is also a C.P.A.
In addition, the following are the chief officers of the Subsidiaries:
BRUCE C. BROWN, PRESIDENT, UNITED HOMES OF MICHIGAN, INC. Mr. Brown has been
with United Homes of Michigan, Inc. since 1986. Prior to that he was President
and Chief Executive Officer of Square Real Estate, Inc. in Grand Rapids. Mr.
Brown has served as City Manager, Kalamazoo, Michigan and Director
31
<PAGE>
of Planning/Economic Development, Indianapolis, Indiana. Mr. Brown holds B.S.
and M.B.A. degrees from Michigan State University and is a licensed real estate
broker in the State of Michigan.
NEVILLE ALPERSTEIN, PRESIDENT OF UNITED HOMES OF ILLINOIS, INC. Mr.
Alperstein joined United Homes of Illinois, Inc. in 1996. Prior to that, he
spent over fifteen years with Pulte Home Corporation. Mr. Alperstein holds a
B.S. in Construction Engineering as well as an M.B.A. from the University of
Michigan.
The officers of the Company are elected annually and serve at the discretion
of the Board of Directors. None of the Company's officers is employed pursuant
to a written employment contract.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to those persons
who: (i) served as the chief executive officer of United during the fiscal year
ended September 30, 1997; and (ii) were the most highly compensated executive
officers of United at September 30, 1997, whose total annual salary and bonus
exceeded $100,000 for the year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL COMPENSATION
---------------------------------------------------------------- (G)
(F) SECURITIES
(E) RESTRICTED UNDERLYING
(A) (B) (C) (D) OTHER ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS SARS(#)
- ---------------------------- --------- --------- ------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Virgil W. Owings ........... 1997 325,000 -- -- -- -- -- -- -- -- -- --
Chairman 1996 325,000 --
1995 325,000 --
Edward F. Havlik ........... 1997 368,750 -- -- -- -- -- -- -- -- -- --
President 1996 325,000 --
1995 325,000 --
Neville Alperstein ......... 1997 146,616 -- -- -- --
President of United Homes 1996 -- -- -- -- --
of Illinois, Inc. 1995 -- -- -- -- --
William J. Crock, Jr. ...... 1997 125,000 -- -- -- -- -- -- -- -- -- --
Executive Vice President 1996 125,000 --
1995 117,000 --
David L. Feltman ........... 1997 125,000 -- -- -- --
Vice President General 1996 -- -- -- -- --
Counsel 1995 -- -- -- -- --
Bruce C. Brown ............. 1997 120,000 -- -- -- --
President United Homes of 1996 120,000 -- -- -- --
Michigan, Inc. 1995 120,000 -- -- -- --
Timothy S. Owings .......... 1997 100,000 -- -- -- -- -- -- -- -- -- --
Vice President 1996 100,000 --
1995 100,000 --
<CAPTION>
PAYOUTS
------------------------------------
(H) (I)
(A) LTIP ALL OTHER
NAME AND PRINCIPAL POSITION PAYOUTS($) COMPENSATION($)(1)
- ---------------------------- --------------- -------------------
<S> <C> <C>
Virgil W. Owings ........... -- -- -- --
Chairman 11,450
15,609
Edward F. Havlik ........... -- -- -- --
President 11,450
15,609
Neville Alperstein ......... -- --
President of United Homes -- 9,535
of Illinois, Inc. -- 10,432
William J. Crock, Jr. ...... -- -- -- --
Executive Vice President --
--
David L. Feltman ........... -- --
Vice President General -- --
Counsel -- --
Bruce C. Brown ............. -- --
President United Homes of -- 9,125
Michigan, Inc. -- 12,106
Timothy S. Owings .......... -- -- -- --
Vice President 7,643
5,300
</TABLE>
- ------------------------
(1) Reflects the value of shares in the Parent issued to the individual under
Parent's Employee Stock Ownership Plan ("ESOP"). The ESOP was terminated
effective March 30, 1997 and no awards have been made as of the date of this
Prospectus for the year ended September 30, 1997. Awards under the ESOP were
based on the individual's length of service with the Company and his or her
compensation level.
32
<PAGE>
United has recently established a bonus plan which enables all employees of
United to receive up to forty percent (40%) of their annual base salary plus an
additional one quarter of one percent (.25%) for each year that the individual
has been employed by United if the Company achieves its budget for that
particular year. In particular, at the beginning of each fiscal year, the
Company's managers develop budgets for their respective operations. These
budgets are then approved by the Company's board of directors. If the Company is
successful in meeting or exceeding the budget, then the various employees are
eligible for bonuses. The determination of bonus payments is made in the
December following the end of the previous fiscal year following receipt and
review by the board of the Company's audited financial statements for the prior
year.
33
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
United is a wholly-owned subsidiary of the Parent, which owns 100% of the
issued and outstanding common stock of United. Control of United is directed by
the shareholders of the Parent. The following table sets forth certain
information regarding the ownership of the Parent's common stock as of September
30, 1997 by each person who is known to beneficially own more than 5% of the
Parent's common stock, by each of the Directors and executive officers of
United, and by all Directors and executive officers of United as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAMES AND ADDRESS NUMBER OF SHARES CLASS
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OUTSTANDING
- --------------------------------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Edward F. Havlik (2) ...................................................... 37,455 48%
2100 Gold Road
Suite 110
Rolling Meadows, IL60008
Virgil Owings (3) ......................................................... 38,516 49%
3260 North Hayden
Suite 102
Scottsdale, AZ85251
Timothy S. Owings (4) ..................................................... 652 *
3260 North Hayden
Suite 102
Scottsdale, AZ85251
Laurie Bulson (5) ......................................................... 499 *
2100 Golf Road
Suite 110
Rolling Meadows, IL60008
Bruce C. Brown (7) ........................................................ 940 1.19%
4525 Broadmoor
Grand Rapids, MI 49512
William J. Crock, Jr. (6) ................................................. 730 *
2100 Golf Road
Suite 110
Rolling Meadows, IL60008
David L. Feltman .......................................................... __ __
2100 Golf Road
Suite 110
Rolling Meadows, IL60008
Officers and Directors of United .......................................... 77,852 98.81%
as a Group (Six Persons)
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting power
and/or investment power with respect to securities. Shares of common stock
which a person has the right to acquire within 60 days of October 20, 1997,
are deemed outstanding for computing the percentage of the person possessing
such right but are not deemed outstanding for computing the percentage of
any other person. Unless otherwise indicated, the Company believes that each
person named or included in the table has sole voting and investment power
with respect to the shares of common stock set forth opposite his or her
name.
(2) Mr. Havlik owns his interest in United through his interest in the Parent.
Mr. Havlik owns 17,500 shares and Mr. Havlik's wife Nancy owns 17,500
shares.
34
<PAGE>
(3) Mr. Owings owns his interest in United through his interest in the Parent.
Includes 17,500 shares of common stock held in a trust of which Ruth Goodwin
(Mr. Owings daughter), Timothy Owings and Todd Owings serve as trustee and
of which Mr. Owings has disclaimed beneficial ownership; 17,500 shares of
common stock held by the Barbara M. Owings Irrevocable Trust (the "Owings
Family Trust"); and 3,516 shares of common stock held by the Plan.
(4) Mr. Timothy Owings owns his interests in United through his interest in the
Parent. Mr. Owings does not directly own any shares of the Parent's common
stock. He indirectly owns 652 shares held for Mr. Owings' benefit by the
Plan and has a 33% interest in the Owings Family Trust which for these
purposes are fully attributable to Mr. Virgil Owings.
(5) Ms. Bulson owns her interest in United through her interest in the Parent.
Ms. Bulson does not directly own any shares of the Parent's common stock.
She indirectly owns 499 shares held for Ms. Bulson's benefit by the Plan.
(6) Mr. Crock owns his interest in United through his interest in the Parent.
Mr. Crock does not directly own any shares of the Parent's common stock. He
indirectly owns 730 shares held for Mr. Crock's benefit by the Plan.
(7) Mr. Brown owns his interest in United through his interest in the Parent.
Mr. Brown does not directly own any shares of the Parent's common stock. He
indirectly owns 940 shares held for Mr. Brown's benefit by the Plan.
CERTAIN TRANSACTIONS
The Company and Nancy I. Havlik ("N. Havlik"), wife of United's president,
are each limited partners with 24.5% interests in United Development Bristolwood
Limited Partnership ("Bristolwood"). The general partner of Bristolwood, which
has a 1% interest, is owned 50% by Edward Havlik, the president of the Company,
and 50% by a third party not affiliated with the Company. Bristolwood sold to
United 48 lots for $22,000 per lot and 142 lots for $28,000 per lot, of which
$784,000 remains unpaid. The purchase price under the agreement was based on the
parties agreement on fair market value for the lots. Neither party relied on
third party appraisals.
The Owings Family Trust and the Nancy I. Havlik Trust ("Havlik Trust"), each
an affiliate of a director of the Company, each pledged a $300,000 letter of
credit as security for a loan obtained by the Company in September of 1996.
United in turn executed a $300,000 promissory note in favor of each of the
Owings Trust and the Havlik Trust, which notes bear interest at the rate of 1%
per month. No principal becomes due unless the lender draws on the letters of
credit. There have been no draws to date.
During fiscal year 1995, the Company sold four (4) model homes for an
aggregate price of $650,000 to an affiliate of Messrs. Havlik and Owings. The
sale and subsequent purchase was based on the fair market value of the homes as
determined by comparable home costs. The Company repurchased the model homes for
an aggregate price of $650,000 in fiscal year 1996.
The Company sells certain of its model homes to Model Homes, L.L.C., an
Illinois limited liability company which has as its members two corporations
controlled by the Havlik and Owings families. On March 30, 1997, Model Homes,
L.L.C., purchased twenty-two model homes valued at $4,661,500 from the Company.
The sale resulted in a gain to the Company of approximately $766,000. The
purchase price in this and similar transactions was the "appraised value" of the
model homes. The "appraised value" is determined based on selling prices for
comparable homes in the development. In this and other similar transactions, the
purchase price was paid by (a) assumption of debt secured by the model home in
the amount of 75% of its appraisal value, (b) cash (15% of appraised value), and
(c) a note (10% of the appraised value) which bears interest at 10% per annum.
All model homes sold to Model Homes, L.L.C., including the twenty-two homes sold
in this transaction, are then leased back to the Company pursuant to a month to
month triple net lease including payments of base rent equal to satisfaction of
the assumed debt service and a return of 15% on the cash paid at acquisition.
The Company believes that these transactions are completed on terms
substantially similar, or more favorable to the Company, than would be available
through independent model home purchasers.
On May 1, 1994, the Parent executed a Real Estate Purchase Agreement with
Greenbrooke Associates, Ltd. ("Greenbrooke"), a Michigan corporation. Edward
Havlik and Virgil Owings each own 16 2/3% of Greenbrooke. The Purchase Agreement
was for the sale of 142 unimproved single family lot sites from Greenbrooke for
$12,000 per lot plus interest at the rate of 8% per annum (subsequently
increased to $13,000 per lot plus interest by amendment to the Purchase
Agreement). The Parent assigned the Purchase Agreement to United Homes of
Michigan, Inc. in May of 1994. As of June 30, 1997 United Homes of
35
<PAGE>
Michigan, Inc. was obligated to pay Greenbrooke $369,000 (inclusive of interest)
for lots to be improved with single family residences and $143,000 (inclusive of
interest) for lots to be improved with condominiums. The sale price and
subsequent increase were determined based upon the parties agreement of the fair
market value of the lots, without reliance on independent appraisals.
On February 1, 1996 United Homes of Michigan, Inc., executed a $100,000
promissory note in favor of Landrover Properties, L.L.C., a Michigan limited
liability company, 60% of which is owned by the Havlik Trust. The note bears
interest at 25% per annum and is paid with closing proceeds from the sale of
units at the Woodside Green subdivision in Michigan. As of June 30, 1997 the
balance of the note was $94,500.
N. Havlik owns a 15.16% interest in approximately 86 acres of land in
Kalamazoo, Michigan which was sold in fiscal year 1995 to United Homes of
Michigan, Inc. The sale contract requires payment of $422,600 (inclusive of
interest) on March 2, 1997, which amount was paid and an additional $422,600
(inclusive of interest accruing at 8% per annum) to be made to N. Havlik on
March 2, 1998 and March 2, 1999. The sales price was based upon the parties
agreement of the fair market value of the property, without reliance on
independent appraisals.
DR Development, Inc. a corporation owned by the Havlik Trust and the Owings
Trust loaned the Company $200,000 in September of 1993, ("Loan 1") and $182,000
on August 5, 1994 ("Loan 2"). Loan 1 and Loan 2 are each evidenced by a
promissory note ("Note 1" and "Note 2" respectively). Note 1 bears interest at
10% per annum. Note 2 provides that $364,000 inclusive of interest is due on
maturity, which is December 31, 1997. As of June 30, 1997 $384,000 is owed in
aggregate on Note 1 and Note 2.
Odyssey Limited Partnership, an entity owned 25% by each of N. Havlik, and
the children of Edward and N. Havlik, in the aggregate and Barbara Owings, wife
of Virgil Owings and the children of Virgil and Barbara Owings, in the
aggregate, is indebted to the Company in the aggregate principal amount of
$558,133 for prior management of certain property known as Odyssey Club. This
indebtedness is unsecured and is to be repaid from the sale of units, if any, at
the Odyssey Club.
Greenbrooke Associates Ltd., in which Edward Havlik and Virgil Owings each
own a 16 2/3% interest, loaned the Company $250,000 in February, 1997. The
obligation is evidenced by a demand note which bears interest at the annual rate
of prime plus 1% (9.75% as of September 30, 1997).
From time to time, the Company has advanced monies to Parent to pay
obligations of Parent. Such advances have resulted in a payable to the Company,
evidenced by a promissory note, which as of June 30, 1997 was $3,526,086. This
promissory note bears interest at the prime rate (8.75% as of September 30,
1997).
Messrs. Havlik and Owings have each guaranteed certain indebtedness of the
Company and its subsidiaries in the past. As of June 30, 1997 these guarantees
are for approximately $15,000,000 of debt, in the aggregate.
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DESCRIPTION OF SECURITIES
GENERAL
The Debentures will be issued under an Indenture (the "Indenture"), dated as
of October , 1997 between United and the Trustee. A copy of the form of the
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following statements are summaries of certain
provisions of the Indenture and are subject to and qualified in their entirety
by reference to all of the provisions of the Indenture, including the
definitions therein of certain terms herein.
The Debentures offered by United under the Indenture will be limited to
$7,000,000 aggregate principal amount (assuming exercise of the over-allotment
option). The Debentures will mature March 15, 2005, unless redeemed earlier.
Interest on the Debentures will accrue at an annual rate of %. Interest is
payable quarterly on the 15th day of each calendar quarter (each a "Interest
Payment Date") beginning on March 15, 1998 to the person in whose name the
Debenture is registered, at the close of business on the Regular Record Date
which is the 15th day of the calendar month next preceding each Interest Payment
Date.
Principal, premium, if any, and interest will be payable, and the Debentures
will be exchangeable and transfers thereof will be registered, at the office or
agency to be maintained by United in St. Paul or Minneapolis, Minnesota.
Initially, United's office will be the office of the Trustee in St. Paul,
Minnesota.
The Debentures will be issued only in registered form, without a coupon, in
denominations of $1,000 each and any integral multiple of $1,000. The Debentures
are transferable and transfers will be registered without charge thereof, but
United may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Holders may transfer the
Debentures by surrendering them for transfer at the office of the Trustee.
COLLATERAL AND RANKING
The Debentures will be unsecured obligations of United. In the event of the
dissolution, winding up, liquidation or bankruptcy of United, the holders of the
Debentures will not be entitled to receive any payment until the holders of
secured indebtedness receive payment or distributions in respect of the assets
collateralizing their debt. Upon the occurrence of any payment default on
secured indebtedness, proceeds from the assets collateralizing the secured
indebtedness which is in default may not be used to satisfy United's obligations
on the Debentures. As of June 30, 1997, the Company had approximately $84.0
million of outstanding liabilities, including approximately $70.3 million of
secured indebtedness. The Indenture does not limit the amount of secured
indebtedness that United or its Subsidiaries may incur.
REDEMPTION
MANDATORY REDEMPTION. The Debentures will be subject to mandatory
redemption. On September 15, 1999 and on each March 15 and September 15
thereafter through September 15, 2004, United will pay to the Trustee cash
sufficient to redeem, on each redemption date, up to $83,333 for each $1,000,000
worth of Debentures sold by United. On or before March 15, 2005, United will pay
to the Trustee cash sufficient to redeem all remaining outstanding Debentures.
The Debentures will be redeemed in whole, but not in part, and will be selected
by the Trustee by lot or in any manner deemed proper by the Trustee.
OPTIONAL REDEMPTION. The Debentures will be subject to redemption at the
option of United, in whole or in part, from time to time, commencing on December
15, 1997, upon not less than 30 days' nor more than 60 days' notice mailed to
the holders thereof, at the Redemption Prices established for the Debentures,
together in each case, with interest accrued to the date fixed for redemption
(subject to the right of a holder on the Regular Record Date for an interest
payment to receive such interest). The Redemption Prices for the debentures
(expressed as a percentage of the principal amount) shall be as
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follows for Debentures redeemed in the 12-month periods beginning December 15 of
each of the following years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
1997.............................................................................. 105%
1998.............................................................................. 104%
1999.............................................................................. 103%
2000.............................................................................. 102%
2001.............................................................................. 101%
2002 and thereafter............................................................... 100%
</TABLE>
United may elect to redeem less than all of the Debentures. If United elects
to redeem less than all of the Debentures, the Trustee will select which
Debentures to redeem by lot or any similar method which is deemed fair and
appropriate.
DEFINITIONS
"Adjusted Consolidated Net Income" means, with respect to any person for any
period, the aggregate of the net income of such person and its Subsidiaries for
such period, on a Consolidated basis, determined in accordance with GAAP,
provided that extraordinary gains and losses (determined in accordance with
GAAP) shall be excluded.
"Adjusted Total Liabilities" means Total Liabilities less non-interest
bearing trade payables, non-interest bearing accrued construction costs and
deposits from home buyers.
"Consolidated Tangible Net Worth" means, with respect to any person at any
date of determination, the Consolidated stockholders' equity represented by the
shares of such person's capitalized stock (other than Disqualified Stock)
outstanding at such date, as determined on a Consolidated basis in accordance
with GAAP less any portion of such stockholders' equity attributable to
intangible assets as determined in accordance with GAAP.
"Indebtedness" means, with respect to any person at any date, without
duplication, all items of indebtedness which, in accordance with GAAP, would be
included in determining total liabilities as shown on the liabilities side of a
balance sheet of such person at such date, and in addition includes: (i)
Guaranties by such person; (ii) all Capitalized Lease Obligations of such
person; and (iii) all indebtedness secured by any mortgage, lien, pledge, charge
or encumbrances upon property owned by such person, whether or not the
indebtedness so secured has been assumed by such person. For the purpose of
computing the "Indebtedness" of any person, the following will be excluded: (i)
any particular Indebtedness to the extent that, upon or prior to the maturity
thereof, there will have been deposited with the proper depository in trust the
necessary funds, securities, or evidences of such Indebtedness, if permitted by
the instrument creating such Indebtedness, for the payment, redemption, or
satisfaction of such Indebtedness, and thereafter such funds and evidences of
Indebtedness so deposited shall not be included in any computation of the assets
of such person; and (ii) Indebtedness of a Restricted Subsidiary of such person,
which is not guaranteed by such person.
"Restricted Payment" means: (i) the declaration of payment for any dividend
or any other distribution on the capital stock of United or any Subsidiary of
United or any payment made to the direct or indirect holders (in their
capacities as such) of the capital stock of United or any Subsidiary of United
(other than (x) dividends or distributions payable solely in capital stock or in
options, warrants or other rights to purchase capital stock, and (y) in the case
of any Subsidiary of United, dividends or distributions payable to United or to
a Subsidiary of United); or (ii) the purchase, redemption or other acquisition
or retirement for value of any capital stock of United or any Subsidiary. If a
Restricted Payment is made in other than cash, the value of any such payment
shall be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Company Resolution to be filed with the
Trustee. For
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purposes of this definition, "Restricted Payment" shall not include: (a)
payments made in the form of United's common stock; or (b) purchases of common
stock of a Wholly-Owned Subsidiary of United that is not a Restricted
Subsidiary.
MODIFICATION OF THE INDENTURE
With the consent of the holders of not less than two-thirds in aggregate
principal amount of the Debentures then outstanding, the Trustee and United may
execute a supplemental Indenture to add provisions to, or change in any manner
or eliminate any provisions of, the Indenture or modify in any manner the rights
of the holders of the Debentures, provided that, without the consent of the
holder of each outstanding Note so affected, no such supplemental Indenture and
no such amendment will: (i) change the maturity date of the principal or
interest rate payable on any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption thereof;
(ii) reduce the percentage of the holders of the Debentures whose consent is
required for the authorization of any such supplemental Indenture; or (iii)
modify any provisions of Section 518, 402 or 1012 of the Indenture, except to
increase any such percentage or to provide that certain other provisions of the
Indenture cannot be waived or modified without the consent of the holder of each
outstanding Debenture.
RESTRICTIVE COVENANTS
LIMITATION ON ADDITIONAL INDEBTEDNESS. The Indenture will restrict United
and each Subsidiary from incurring additional Indebtedness, except for: (i)
Indebtedness under the Debentures and the Indenture; (ii) Indebtedness
outstanding on the original issue date of the Debentures and disclosed to the
Trustee; (iii) Indebtedness that immediately after giving pro forma effect to
the incurrence thereof, (a) does not cause the ratio of Adjusted Total
Liabilities to Consolidated Tangible Net Worth to exceed 7:1; and (iv) with
certain limitations, any deferrals, renewals, extensions, or modifications to
Indebtedness incurred under clause (ii) or (iii) above.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture will restrict United and
each Subsidiary from making any Restricted Payments: (i) if at the time of such
action an Event of Default shall have occurred and be continuing, after giving
effect to such Restricted Payment; (ii) if at the time, upon giving effect to
such Restricted Payment, United could not incur at least $1.00 of Indebtedness
pursuant to the provisions of the Indenture limiting additional Indebtedness; or
(iii) if, immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made from the date of the
Indenture, through and including the date of such Restricted Payment (the "Base
Period") exceeds the sum of 50% of Consolidated Net Income (or in the event
Consolidated Net Income is a deficit, minus 100% of such deficit) during the
Base Period and 100% of the aggregate net proceeds received by United from the
issue or sale during the Base Period of capital stock of United.
LIMITATION ON TRANSACTIONS WITH AFFILIATES; AFFILIATE LOANS. The Indenture
will restrict United and each Subsidiary from engaging, conducting or entering
into any transaction or series of transactions with or for the benefit of any
Affiliate or Subsidiary of United or any holder of 5% or more of any class of
Capital Stock of United (each an "Affiliate Transaction"), except in good faith
and on terms that are, in the aggregate, no less favorable to United or such
Subsidiary, as the case may be, than those that could have been obtained in a
comparable transaction on an arms-length basis from a person not an Affiliate of
United or such Subsidiary. Any loans to the Company or any Subsidiary from any
Affiliate, incurred after the Issue Date, whether by deferrals, renewals,
extensions, replacements, refinancings, refundings, amendments, modifications,
supplements, or the like, shall be unsecured and pari-passu to the Debentures;
provided however that: (i) if an Event of Default occurs and notice is provided
to the Company pursuant to Section 502 of the Indenture; (ii) the Company fails
to make any payment of principal or interest in a timely manner, without giving
effect to any cure periods or any other payment in any other form, on such
loans; or (iii) the Tangible Net Worth of the Company shall fall below the
minimum Tangible Net Worth required under the Indenture; the Company shall not
make any payment of principal, interest or any other
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<PAGE>
payment in any form on such loans, nor shall any Affiliate making any such loans
have the right to receive any such payment, until the Debentures have been paid
in full or the default has been cured. In addition, upon the occurrence of any
bankruptcy, reorganization or similar proceeding, the Company shall not make any
payment of principal, interest or any other payment in any form on such loans,
nor shall any Affiliate making any such loans have the right to receive any such
payment, until the Debentures have paid in full, it being the intent of the
Company and Trustee, upon the occurrence of any bankruptcy, reorganization or
similar proceeding, that the Debentures will be paid in full before any further
payments are made on such loans to Affiliates. The Company covenants and agrees
that it will notify every Affiliate who makes a loan to the Company after the
Issue Date of the Company's agreement under Section 1009, and the Company shall
obtain an agreement from every Affiliate making a loan to the Company, after the
Issue Date, to the effect that such Affiliate agrees, upon the occurrence of a
bankruptcy, reorganization or similar event, that the Affiliate shall be
prohibited from receiving any payments with respect to any loan after the Issue
Date, whether principal or interest, until the Debentures have been indefensibly
paid in full in form and substance satisfactory to the Trustee and counsel to
the Trustee.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING A
SUBSIDIARY. The Indenture will restrict United and each Subsidiary from,
directly or indirectly, creating or otherwise causing or suffering to exist or
become effective or entering into any agreement with any person that would cause
or create any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary of United to: (i) pay dividends, in cash or otherwise, or make
any other distributions on its capital stock or any other interest or
participation in, or measured by, its profits owned by United or a Subsidiary of
United; (ii) make any loans or advances to, or pay any Indebtedness owed to,
United or any Subsidiary of United; or (iii) transfer any of its properties or
assets to United or to any Subsidiary of United, except, in each case, for such
encumbrances or restrictions existing under or contemplated by or by reason of:
(a) the Debentures or the Indenture; (b) any restrictions existing under
agreements in effect on the date the Debentures are issued; and (c) any
restrictions existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (a) or (b) above,
provided that the terms and conditions of such restrictions are not materially
less favorable in the aggregate to the Debenture holders than those under or
pursuant to the agreement being replaced or the agreement evidencing the
Indebtedness being refinanced or replaced.
NET WORTH. The Indenture will require United to keep and maintain, at all
times during the term of the Debentures, Consolidated Tangible Net Worth,
determined as of the last day of each quarter, at an amount not less than six
million dollars ($6,000,000) plus 50% of positive Consolidated Net Income earned
after September 30, 1997. Compliance with this covenant shall be measured on the
last day of March, June, September and December of each year, and the Indenture
requires United to provide Consolidated Tangible Net Worth as of each quarter
within 45 days of each calendar quarter except December 31 for which United
shall have 90 days to provide the calculation. In the event of any
non-compliance with this covenant, the Indenture will require United deliver to
the Trustee a certificate from United's independent public accountants as to
subsequent compliance to cure any such default.
LIMITATIONS ON COMPENSATION. The Indenture will restrict United from: (i)
paying salary compensation (excluding bonuses or other performance based or
incentive compensation) to Edward F. Havlik in excess of $500,000 in any
calendar year; (ii) paying salary compensation (excluding bonuses or other
performance based or incentive compensation) to Virgil W. Owings in excess of
$325,000 in any calendar year; (iii) paying or permitting any Subsidiary to pay
salary compensation to any other employee in excess of amounts paid to similar
employees by other reputable persons engaged in the same or similar business and
similarly situated. The Indenture will also restrict United and any Subsidiary
from paying bonuses or other performance based or incentive compensation to
Edward F. Havlik in excess of $125,000 in any calendar year or to Virgil W.
Owings in excess of $81,250 in any calendar year.
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<PAGE>
LIMITATIONS ON INVESTMENTS. The Indenture will restrict United and each
Subsidiary from acquiring for value, making, having or holding any Investments,
except: (i) Investments existing on the date of this Agreement; (ii) Property to
be used in the ordinary course of business consistent with past practice; (iii)
current assets arising from the sale of goods and services in the ordinary
course of business; (iv) Investments in readily marketable direct obligations
issued or guaranteed by the United States or any agency thereof and supported by
the full faith and credit of the United State; (v) Certificates of deposit or
bankers' acceptances issued by any commercial bank organized under the laws of
the United States or any State thereof which has combined capital and surplus of
at least $100,000,000; (vi) commercial paper given the highest rating by a
nationally recognized rating service and maturing not more than one year from
the date of acquisition thereof.
ADDITIONAL LIENS; NEGATIVE PLEDGES. The Indenture will restrict United and
each Subsidiary from creating, incurring, assuming or suffering to exist any
lien, or entering into, or making any commitment to enter into, any arrangement
for the acquisition of any property through conditional sale, lease-purchase or
other title retention agreements, with respect to any property now owned or
hereafter acquired by United or a Subsidiary, except: (i) liens existing on the
date the Debentures are originally issued and disclosed in United's audited
financial statements; (ii) Deposits or pledges which secure payment of workers'
compensation, unemployment insurance, old age pensions or other social security
obligations, in the ordinary course of business of United or a Subsidiary; (iii)
liens for taxes, fees, assessments and governmental charges not delinquent or to
the extent that payment therefor shall not at the time be required to be made in
accordance with the provisions of the Indenture; (iv) liens of carriers,
warehousemen, mechanics and materialmen, and other like liens arising in the
ordinary course of business, for sums not due or to the extent that payment
therefor shall not at the time be required to be made in accordance with the
provision of the Indenture; (v) liens incurred or deposits or pledges made or
given in connection with, or to secure payment of, indemnity, performance or
other similar bonds; (vi) Encumbrances in the nature of zoning restrictions,
easements and rights or restrictions of record on the use of real property and
landlord's liens under leases on the premises rented, which do not materially
detract from the value of such property or impair the use thereof in the
business of United or a Subsidiary; (vii) the interest of any lessor under any
capitalized lease entered into after the date the Debentures are issued or
purchase money liens on property acquired after such date; provided, that: (a)
the Indebtedness secured thereby is otherwise permitted by the Indenture; and
(b) such liens are limited to the property acquired and do not secure
Indebtedness other than the related capitalized lease obligations or the
purchase price of such property.
Further, the Indenture will restrict United and each Subsidiary from,
entering into any agreement, bond, note or other instrument with or for the
benefit of any person other than the Debenture Holders which would: (i) prohibit
United or such Subsidiary from granting, or otherwise limit the ability of
United or such Subsidiary to grant, to the Debenture Holders any lien on any
assets or properties of United or such Subsidiary; or (ii) require United or
such Subsidiary to grant a lien to any other person if United or such Subsidiary
grants any lien to the Debenture Holders.
CONSOLIDATION, MERGER, TRANSFER OR LEASE. Under the Indenture, United may
not consolidate with, or merge with or into, or transfer all or substantially
all of its assets in one transaction or a series of related transactions, to
another person unless: (i) the successor entity is an entity organized and
existing under the laws of the United States or any state thereof or the
District of Columbia; (ii) immediately after giving effect to such transaction:
(a) no Default or Event of Default shall have occurred and be continuing; (b)
the net worth of the successor corporation is not less than $6,000,000; and (c)
the successor corporation is able to incur at least one dollar of additional
Indebtedness; and (iii) in the case of a consolidation or merger between United
and UDMC, Indebtedness of the surviving entity to affiliates to the extent such
indebtedness exceeds that permitted by the Indenture shall be subordinated to
payment in full of the Debentures until such time as the surviving entity is
permitted to incur "Additional Indebtedness" under the Indenture; provided
further that any indebtedness of UDMC to affiliates remaining after the merger
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<PAGE>
will be subject to the terms of the Indenture. See "--Restrictive
Covenants--Limitation on Additional Indebtedness" above.
EVENTS OF DEFAULT
The following acts constitute events of default under the Indenture: (i)
default in the payment of any interest upon any Debenture when it becomes due
and payable and continuance of such default for a period of 15 days; (ii)
default in the payment of the principal of or premium, if any, on any Debenture
at its maturity; (iii) the continuing breach of any covenants of United in the
Indenture; (iv) with certain limited exceptions, a default under any bond,
debenture, note or other evidence of Indebtedness of United or any Subsidiary
evidencing any indebtedness in excess of $100,000 of United or any Subsidiary
now or hereafter outstanding shall happen and continue and the holders of such
indebtedness shall have the right to accelerate the maturity of such
indebtedness; (v) a decree or order of a court of competent jurisdiction shall
have been entered, either: (a) adjudging United or any Subsidiary a bankrupt or
insolvent; (b) approving a petition seeking reorganization of United or any
Subsidiary under the Bankruptcy Act or any other similar applicable federal or
state law; (c) appointing a receiver, liquidator, assignee, trustee,
sequestrator or other similar official of United or any Subsidiary or of any
substantial part of its property, or (d) ordering the winding up or liquidation
of its affairs, and the continuance of any such order unstayed and in effect for
a period of sixty (60) consecutive days; (vi) the commencement by United or any
Subsidiary of a voluntary case under federal bankruptcy law or any other
applicable federal or state bankruptcy, insolvency, or other similar law, or the
consent by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under federal bankruptcy law or any other applicable
federal or state law, or the consent by it to the filing of such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of United or any Subsidiary or of any substantial part of it
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by United or any Subsidiary
in furtherance of any such action; or (vii) the rendering of a final judgment or
judgments (not subject to appeal) for the payment of money against United or any
Subsidiary not fully insured against in an aggregate amount in excess of
$250,000 by a court or courts of competent jurisdiction, which judgment or
judgments remain unsatisfied for a period of 30 days after the right to appeal
all such judgments has expired or otherwise terminated.
In each and every such case, so long as an Event of Default has not have
been remedied and the principal of all the Debentures shall not have already
become due and payable, then either the Trustee or the holders of not less than
twenty-five percent (25%), in aggregate principal amount of the Debentures then
outstanding, by notice in writing to United (and to the Trustee if given by the
Subordinated Note Holders) may declare the principal of all the Debentures then
outstanding to be due and payable immediately.
THE TRUSTEE
Upon the occurrence and during the continuance of any Event of Default, the
Trustee is required to apply only the degree of care and skill in fulfilling its
obligations as a prudent person would exercise or use in the circumstances in
the conduct of such person's own affairs. The Trustee is not liable for any
error of judgment made in good faith and will not be liable with respect to any
action taken or omitted to be taken in good faith in accordance with the
direction of the holders of a majority in aggregate principal amount of the
Debentures at the time outstanding, relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or of
exercising any trust or power conferred upon the Trustee, under the Indenture.
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UNDERWRITING
Miller & Schroeder Financial, Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which the Underwriter,
subject to certain terms and conditions, has been appointed and will act as the
exclusive underwriter for the Debentures for a period of six months from the
commencement of this offering.
The Underwriting Agreement provides that the Underwriter will offer a
minimum of $3,000,000 (the "Minimum Amount") and a maximum of $6,000,000 (the
"Maximum Amount") of the Debentures on a "best efforts" basis. The Underwriter
proposes to offer the Debentures to the public at The Price to Public set forth
on the cover page of this Prospectus, plus accrued interest, and to certain
selected dealers at such price less a concession on the principal amount of the
Debentures of $50 per Debenture. The Underwriter may purchase the Debentures for
its own account for the purpose of subsequent resales. These resales, if any,
will be made at the Price to Public, plus accrued interest. The Company will pay
interest on each Debenture accruing from , 1997 or, with respect to
Debentures sold after a subsequent quarterly interest payment date, the most
recent quarterly interest payment date.
In addition to the Underwriting Discount and Commissions equal to 7% of the
Total Price to Public, the Company has agreed to pay to the Underwriter a
management fee equal to 2% of the Total Price to Public and a non-accountable
expense allowance equal to 1% of the Total Price to Public and to reimburse the
Underwriter for accountable expenses (up to $120,000).
The Company has agreed to indemnify the Underwriter against, and to provide
contribution with respect to, certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended.
The Debentures will be offered by the Underwriter on a "best efforts" basis,
when, as, and if issued by the Company, subject to the Underwriter's right to
reject orders in whole or in part, the approval by counsel of certain legal
matters and certain other conditions. Proceeds of the sale of Debentures by the
Underwriter as agent or trustee for the investors pending delivery to the
Company will be held in a separate bank account by the Underwriter. Sales of
Debentures by selected dealers will be settled in the same manner as sales by
the Underwriter with proceeds held in a segregated account by the clearing agent
for each of the respective selected dealers. If the Minimum Amount is not sold,
the proceeds held in the separate bank account will be promptly remitted to
investors with interest, if any, paid thereon. After the Minimum Amount of
Debentures offered hereby has been sold and funds deposited in the separate
account, a closing will be held, the proceeds will be released to the Company
and the offering will continue until all the remaining Debentures offered hereby
have been sold or until the termination date of the offering whichever occurs
first.
The Company has granted the Underwriter an over-allotment option exercisable
at any time prior to to purchase up to an additional $1,000,000
aggregate principal amount of Debentures at the public offering price, less the
underwriting discounts and commissions, management fees and expense
reimbursements and allowances set forth on the cover page of this Prospectus.
The over-allotment option may be exercised for fewer than all of the Debentures
subject to the option. The Underwriter may exercise this option to cover
over-allotments, if any, made in connection with sale of the Debentures offered
hereby. If purchased, the additional Debentures will be sold by the Underwriter
on the same terms as those on which the Debentures are being offered.
The Company will use its best efforts to qualify or register the Debentures
for sale in "non-issuer" transactions, or obtain exemptions from the application
of, the securities laws of those states designated by the Underwriter to permit
marketmaking transactions and secondary trading of the Debentures in the
designated states. The Company will use its best efforts to comply with the
applicable state securities laws and to continue such qualification,
registration or exemption for so long as the Debentures remain outstanding.
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In order to facilitate the offering of the Debentures, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Debentures. Specifically, the Underwriter may over-allot the Debentures in
connection with the offering, creating a short position in the Debentures for
its own account. In addition, to cover over-allotments or to stabilize the price
of the Debentures, the Underwriter may bid for, and purchase, Debentures in the
open market if one develops. The Underwriter may also reclaim selling
concessions allowed to a dealer for distributing the Debentures in the offering,
if the Underwriter repurchases previously distributed Debentures in transactions
to cover its short positions, in stabilization transactions or otherwise.
Finally, the Underwriter may bid for, and purchase, Debentures in market making
transactions and impose penalty bids. These activities may otherwise prevail.
The Underwriter is not required to engage in these activities, and may end any
of these activities at any time.
The obligations of the Underwriter to act as underwriter in connection with
the purchase and sale of the Debentures contemplated by this Prospectus and to
accept delivery of the Debentures against payment therefor, are subject to
certain typical conditions precedent within the control of the Company contained
in Underwriting Agreement, as of the date of this Prospectus and as of each
closing, including: (i) the accuracy of the representations and warranties of
the Company contained in the Underwriting Agreement; (ii) the performance by the
Company of its obligations thereunder, (iii) the delivery by the Company of
certain certificates; (iv) the delivery to the Underwriter of an opinion of
counsel to the Company and related bring-down certificates; and (v) the delivery
to the Underwriter of a letter of the independent accountants for the Company,
and related bring-down certificates. The form of the Underwriting Agreement is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
LEGAL MATTERS
Certain legal matters in connection with the issuance and sale of the
Debentures will be passed upon for the Company by Shefsky & Froelich Ltd.,
Chicago, Illinois. Fredrikson & Byron, P.A. is acting as counsel for the
Underwriter in connection with certain legal matters relating to the securities
offered hereby.
EXPERTS
The consolidated financial statements of United Homes, Inc. as of September
30, 1996 and 1995 and for each of the three years in the period ended September
30, 1996 and the financial statements of United Development Bristolwood Limited
Partnership as of September 30, 1995 and for the year then ended, appearing in
the Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the Debentures offered
hereby. For purposes hereof, the term "Registration Statement" means the
original Registration Statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the schedules and exhibits thereto, to which reference hereby is
made, as permitted by the rules and regulations of the Commission. The material
terms of certain material agreements to which the Company is party are
summarized in this Prospectus, but these summaries do not purport to be complete
nor qualified in their entirety by reference to the relevant agreements which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part. Any interested party may inspect the Registration Statement and its
exhibits, without charge, at the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the public reference facilities maintained
by the Commission at its regional offices located at The Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at Seven
World Trade Center, Suite 1300, New York, New York 10048. The Commission also
maintains a site on the World Wide Web at http:\\www.sec.gov that contains
reports, proxy and other information statements and other information regarding
registrants that file electronically with the Commission.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
UNITED HOMES, INC.
ANNUAL FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of September 30, 1996 and 1995.............................................. F-3
Consolidated Statements of Income for the years ended September 30, 1996, 1995, and 1994................... F-4
Consoldidated Statements of Changes in Stockholder's Equity for the years ended
September 30, 1996, 1995, and 1994....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995, and 1994..................................................................................... F-6
Notes to the Consolidated Financial Statements............................................................. F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet as of June 30, 1997................................................... F-13
Condensed Consolidated Statements of Income for the nine months ended June 30, 1997 and 1996............... F-14
Consolidated Statements of Changes in Stockholder's Equity for the nine months ended June 30, 1997 and
1996..................................................................................................... F-15
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1996........... F-16
Notes to the Condensed Consolidated Interim Financial Statements........................................... F-17
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-19
Balance sheets as of September 30, 1996 (unaudited) and 1995............................................... F-20
Statements of Income for the years ended September 30, 1996 (unaudited), 1995, and 1994 (unaudited)........ F-21
Statements of Changes in Partners' Capital for the years ended September 30, 1996 (unaudited), 1995, and
1994 (unaudited)......................................................................................... F-22
Statements of Cash Flows for the years ended September 30, 1996 (unaudited), 1995, and 1994 (unaudited).... F-23
Notes to the Financial Statements.......................................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Development Management Company
We have audited the accompanying consolidated balance sheets of United
Homes, Inc., a wholly owned subsidiary of United Development Management Company,
as of September 30, 1996 and 1995, and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United Homes,
Inc. at September 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
December 12, 1996,
except for Note 6(1), as to which the date is
March 25, 1997
F-2
<PAGE>
UNITED HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents...................................... $ 824,162 $ 1,103,216
Closing proceeds in transit.................................... 322,281 506,424
Due from managed properties (net of allowance of $100,000 in
1996 and 1995)............................................... 516,508 386,953
Contract fees receivable....................................... 80,182 184,905
Housing inventories............................................ 54,588,044 28,796,061
Land held for future development............................... 8,258,741
Investment in real estate partnership.......................... 485,274 507,041
Due from Parent:
Construction advances........................................ 1,564,176 1,552,493
Advances in excess of income taxes payable................... 1,931,121
Due from affiliates............................................ 263,306 11,157
Note receivable................................................ 340,000
Deposits....................................................... 400,710 76,005
Other.......................................................... 696,374 900,258
------------- -------------
Total assets................................................... $ 69,930,879 $ 34,364,513
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Construction draws in process.................................. $ 1,059,437 $ 1,735,073
Accounts payable............................................... 5,629,497 1,692,752
Accrued costs on closed sales.................................. 2,796,202 798,721
Accrued liabilities............................................ 316,989 669,100
Deposits from home buyers...................................... 758,401 621,696
Development loans and other notes payable...................... 48,138,856 17,391,862
------------- -------------
Total liabilities.............................................. 58,699,382 22,909,204
Investors' equity in majority-owned land development and
housing partnerships......................................... 2,164,111 3,036,550
Stockholder's equity:
Common stock, $.01 par value; 1,000,000 shares authorized;
1,000 shares issued and outstanding........................ 100 100
Additional paid-in capital..................................... 3,900 3,900
Retained earnings.............................................. 9,063,386 8,414,759
------------- -------------
Total stockholder's equity..................................... 9,067,386 8,418,759
------------- -------------
Total liabilities and stockholder's equity..................... $ 69,930,879 $ 34,364,513
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
UNITED HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Housing and land sales (378 units, 267 units, and 174 units in 1996,
1995, and 1994, respectively)..................................... $ 64,749,166 $ 43,448,117 $ 32,230,783
Share of net income from minority-owned land development and housing
partnership....................................................... 156,233 376,904 215,887
Management fees..................................................... 212,021 524,470 438,935
------------- ------------- -------------
65,117,420 44,349,491 32,885,605
Direct construction costs, including amortization of capitalized
interest and real estate taxes of $2,031,442, $868,213, and
$605,607 in 1996, 1995, and 1994, respectively.................... 53,787,863 36,345,524 26,306,536
Amortization of capitalized project costs........................... 6,706,639 3,722,184 2,919,807
------------- ------------- -------------
4,622,918 4,281,783 3,659,262
Other costs and expenses
Administrative...................................................... 2,818,552 2,700,221 2,459,352
Interest, net of interest income of $38,971, $10,184, and $23,653 in
1996, 1995, and 1994, respectively................................ 19,811 69,814 31,059
------------- ------------- -------------
2,838,363 2,770,035 2,490,411
------------- ------------- -------------
Income before investors' share of income in majority-owned land
development and housing partnerships.............................. 1,784,555 1,511,748 1,168,851
Investors' share of income in majority-owned land development and
housing partnerships.............................................. 734,597 70,250
------------- ------------- -------------
Income before income taxes.......................................... 1,049,958 1,441,498 1,168,851
Income taxes........................................................ 401,331 576,559 467,541
------------- ------------- -------------
Net income.......................................................... $ 648,627 $ 864,939 $ 701,310
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
UNITED HOMES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
----------- ----------- ------------
<S> <C> <C> <C>
Balance at October 1, 1993................................................... $ 100 $ 3,900 $ 7,493,571
Net distributions to Parent.................................................. (645,061)
Net income................................................................... 701,310
----- ----------- ------------
Balance at September 30, 1994................................................ 100 3,900 7,549,820
Net income................................................................... 864,939
----- ----------- ------------
Balance at September 30, 1995................................................ 100 3,900 8,414,759
Net income................................................................... 648,627
----- ----------- ------------
Balance at September 30, 1996................................................ $ 100 $ 3,900 $ 9,063,386
----- ----------- ------------
----- ----------- ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
UNITED HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income....................................................... $ 648,627 $ 864,939 $ 701,310
Adjustments to reconcile net income to net cash used in operating
activities:
Share of net income from real estate partnership............. (156,233) (376,904) (215,887)
Investors' share of equity in majority-owned land development
and housing partnerships................................... 734,597 70,250
Bad debt expense............................................. 100,000
Changes in operating assets and liabilities:
(Increase) decrease in closing proceeds in transit......... 184,143 (320,232) (186,192)
Decrease in contract fees receivable....................... 104,723 257,180 8,390
Increase in housing inventories............................ (25,791,983) (7,993,243) (8,636,394)
(Increase) decrease in land held for future development.... (7,918,741) 265,852 2,251,989
(Increase) decrease in due from Parent..................... (1,942,804) (2,393,390) 467,541
Increase in due from affiliates............................ (252,149) (158,499) (497,719)
(Increase) decrease in deposits............................ (324,705) (76,005) 28,183
(Increase) decrease in other assets........................ 203,884 (153,852) (367,717)
Decrease in construction draws in process.................. (675,636) (1,118,825) (312,557)
Increase in accounts payable............................... 3,936,745 1,189,859 242,091
Increase (decrease) in accrued costs
on closed sales.......................................... 1,997,481 33,463 (964,374)
Increase (decrease) in accrued liabilities................. (352,111) (3,775,518) 4,018,816
Increase (decrease) in deposits from home buyers........... 136,705 (119,028) 173,913
-------------- -------------- --------------
Net cash used in operating activities............................ (29,467,457) (13,703,953) (3,288,607)
CASH FLOW FROM INVESTING ACTIVITIES
(Increase) decrease in due from managed properties............... (129,555) 2,313,047 (800,000)
Distributions from real estate partnership investment............ 178,000 140,500 390,250
-------------- -------------- --------------
Net cash provided by (used in) investing activities.............. 48,445 2,453,547 (409,750)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other
notes payable.................................................. 99,565,025 56,411,522 21,544,883
Repayments of development loans and other
notes payable.................................................. (68,818,031) (47,532,783) (20,227,480)
Contributions from investors in majority-owned land development
and housing partnerships....................................... 150,000 3,056,300 400,000
Distributions to investors in majority-owned land development and
housing partnerships........................................... (1,757,036) (490,000)
-------------- -------------- --------------
Net cash provided by financing activities........................ 29,139,958 11,445,039 1,717,403
-------------- -------------- --------------
Increase (decrease) in cash and cash equivalents................. (279,054) 194,633 (1,980,954)
Cash and cash equivalents at beginning of year................... 1,103,216 908,583 2,889,537
-------------- -------------- --------------
Cash and cash equivalents at end of year......................... $ 824,162 $ 1,103,216 $ 908,583
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
In 1994, United Development Management Company (the Parent), transferred
ownership of its wholly owned subsidiaries, United Homes of Illinois, Inc.,
United Homes of Arizona, Inc., and United Homes of Michigan, Inc. to a newly
formed, wholly owned subsidiary, United Homes, Inc. (UHI). UHI and its
subsidiaries own controlling general partner and limited partner interests in
the following partnerships which are included in the consolidated financial
statements: Williams Glen Limited Partnership, The Hidden Springs Real Estate
Limited Partnership, United/RBG XII L.P., and the United Lindsay East Valley
Limited Partnership (collectively, the Majority-Owned Partnerships). The
accompanying consolidated financial statements include the accounts of UHI, its
wholly owned subsidiaries, and Majority-Owned Partnerships. In addition, UHI has
a noncontroling 24.875% ownership interest in United Development Bristolwood
Limited Partnership (UDB), which is presented as an investment in real estate
partnership and is accounted for using the equity method.
UHI, its wholly owned subsidiaries, Majority-Owned Partnerships, and UDB
(collectively, the Company) are engaged in the ownership, development,
construction, and sale of residential real estate, with operations in Illinois,
Arizona, and Michigan. UHI also provides development and construction management
services to an unconsolidated affiliated partnership and to third parties.
Aggregate unit closings and revenues associated with the Company's direct sales
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 CLOSINGS REVENUES
- ----------------------- ----------- -------------
<S> <C> <C>
1996................... 378 $ 64,749,166
1995................... 267 43,448,117
1994................... 174 32,230,783
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from housing and land sales are recognized in the period in which
title passes and cash is received.
HOUSING INVENTORIES AND LAND HELD FOR FUTURE DEVELOPMENT
Housing inventories and land held for future development are stated at cost,
which is not in excess of net realizable value. Housing inventories include all
direct costs of land under development, construction, plus financing and other
carrying costs incurred during the period of development. Capitalized project
costs, including construction administration, legal fees, and various office
costs that relate to land development housing construction, are capitalized and
allocated to the parcels to which these costs relate.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity of
three months or less, when purchased.
F-7
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company and its Parent file a consolidated federal income tax return.
Income tax expense is reflected in the accompanying consolidated financial
statements as if the Company filed its income tax returns separately from its
Parent.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform with the 1996 presentation. Such reclassifications
had no effect on the Company's previously reported financial position or results
of operations.
3. HOUSING INVENTORIES
Housing inventories consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land under development, including site development
costs.............................................. $ 27,231,981 $ 14,963,625
Direct construction costs............................ 14,228,576 6,404,016
Capitalized project costs............................ 10,918,232 7,163,020
Land held for sale................................... 2,209,255 265,400
------------- -------------
$ 54,588,044 $ 28,796,061
------------- -------------
------------- -------------
</TABLE>
4. INVESTMENT IN REAL ESTATE PARTNERSHIP
The following is a summary of the Company's investment in real estate
partnership at September 30, 1996 and 1995:
<TABLE>
<CAPTION>
INVESTEE CONDENSED FINANCIAL
INFORMATION
TYPE OF INVESTMENT -------------------------------
PARTNERSHIP PERCENT CARRYING SHARE OF NET
NAME INTEREST OWNERSHIP AMOUNT INCOME ASSETS LIABILITIES INCOME
- -------------------------------------------- ----------- ----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996:
United Development Bristolwood Limited
Partnership(1)............................ Limited... 24.875% $ 485,274 $ 156,233 $3,414,208 $1,974,404 $ 463,623
Balance at September 30, 1995:
United Development Bristolwood Limited
Partnership(1)............................ Limited... 24.875% $ 507,041 $ 376,904 $4,747,525 $3,160,277 $1,515,190
</TABLE>
- ------------------------------
Note (1): During 1996, 1995, and 1994, the Company acquired $2,184,700,
$1,444,000 and $396,000, respectively, of improved lots from UDB.
Note (2): During 1994, the Company's share of income relating to its 24.875%
investment in UDB was $215,887.
F-8
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTE RECEIVABLE
During 1995, the Company sold a parcel of land for its carrying value of
$1,000,000 and received cash and a $340,000 note receivable, collateralized by
the parcel. The note bore interest at 8% with principal and interest due March
1, 1996. In 1996, the Company exercised an option to reacquire the parcel for a
purchase price of $1,456,281. The note receivable and unpaid interest was
applied toward the purchase price.
6. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
Development loans and other notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
GE Capital revolving credit agreement(1)....................... $ 16,519,114 $ 10,656,345
Land development and construction(2)........................... 31,560,190 6,679,627
Installment and other(3)....................................... 59,552 55,890
------------- -------------
$ 48,138,856 $ 17,391,862
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) On May 30, 1995, the Company entered into a revolving credit agreement with
GE Capital Corporation (GECC) which matures May 31, 1998. At September 30,
1996, the maximum principal outstanding under the credit agreement is
$25,000,000, with a lending base subject to the number of housing units
under construction. The credit agreement bears interest at the GECC
composite commercial rate, as defined, plus 3.75% (9.23% at September 30,
1996), which is added monthly to the unpaid balance. Outstanding principal
and interest are repaid from proceeds of home sales. The credit agreement
includes various operating and financial covenants with which the Company
must be in compliance as a condition for continuation of construction draw
funding.
(2) The Company has development loans with various financial institutions for
the purpose of financing land acquisition, development, and construction
improvements that mature from 1997 to 2026. The loans bear interest at fixed
rates ranging primarily from 8% to 10.5%, as well as variable rates ranging
from prime plus 1% to prime plus 2%, and include various restrictions
concerning use and timing of borrowings.
Interest is added to the outstanding principal monthly, and unpaid principal
and interest are repaid from proceeds of home sales. These loans include
$1,376,002 and $550,409 at September 30, 1996 and 1995, respectively, due to
affiliates of the principal stockholders of the Parent. The loans to
affiliates mature in 2000 and bear interest at fixed rates ranging primarily
from 8% to 10% per annum.
(3) The Company has various installment and other loans maturing from 1997 to
2000, and bearing interest at fixed rates ranging from 5.9% to 10%. The
notes are repayable in monthly installments including principal and
interest.
In addition, the Company, its Parent, and a principal stockholder of the
Parent have guaranteed the repayment of amounts due under certain loan
agreements on behalf of United Development Bristolwood Limited Partnership in
the amount of $1,000,000 at September 30, 1996 that matures on July 16, 1997.
F-9
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE (CONTINUED)
The aggregate amounts of all debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1997........................................................................... $ 10,447,013
1998........................................................................... 22,397,527
1999........................................................................... 11,027,545
2000........................................................................... 1,541,015
2001........................................................................... 67,992
Thereafter..................................................................... 2,657,764
-------------
$ 48,138,856
-------------
-------------
</TABLE>
Substantially all of the Company's housing inventories and land held for
sale are pledged as collateral to secure repayment of indebtedness.
During the years ended September 30, 1996, 1995, and 1994, the Company
incurred and paid interest on development loans and other notes payable of
$3,960,336, $1,904,939, and $771,379, respectively, of which $3,901,554,
$1,824,941, and $716,667 was capitalized, respectively.
7. INCOME TAXES
The Company's income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Year ended September 30, 1996:
U.S. Federal........................................... $ 323,082 $ 33,181 $ 356,263
State.................................................. 40,870 4,198 45,068
----------- ----------- ----------
$ 363,952 $ 37,379 $ 401,331
----------- ----------- ----------
----------- ----------- ----------
Year ended September 30, 1995:
U.S. Federal........................................... $ (212,146) $ 677,820 $ 465,674
State.................................................. (50,515) 161,400 110,885
----------- ----------- ----------
$ (262,661) $ 839,220 $ 576,559
----------- ----------- ----------
----------- ----------- ----------
Year ended September 30, 1994:
U.S. Federal........................................... $ 666,695 $ (289,066) $ 377,629
State.................................................. 158,738 (68,826) 89,912
----------- ----------- ----------
$ 825,433 $ (357,892) $ 467,541
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
F-10
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 35 percent as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense.......................... $ 367,485 $ 504,524 $ 409,098
Increase (reduction) in income taxes resulting from:
State income taxes, net of federal income tax
benefit.............................................. 29,294 72,075 58,443
Other, net............................................. 4,552 (40)
---------- ---------- ----------
Total.................................................... $ 401,331 $ 576,559 $ 467,541
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's deferred tax liabilities of $836,305 and $798,926 at September
30, 1996 and 1995, respectively, arose primarily from differences in the
carrying value of housing inventories for financial statement and income tax
purposes related to the capitalization of certain operating expenses.
8. RELATED PARTY TRANSACTIONS
Substantially all of the receivables from managed properties and due from
affiliates at September 30, 1996 and 1995, relate to costs incurred for
development of housing projects and temporary advances to entities in which
either the Parent or the two principal stockholders of the Parent are the
general partners. The amounts due from managed properties and from affiliates
are non-interest-bearing and are payable from proceeds from sales of certain
housing units.
During 1995, the Company sold four model homes for an aggregate sales price
of $650,000 to an affiliate of the principal stockholders of the Parent. In
1996, the Company repurchased the four model homes from the affiliate for an
aggregate purchase price of $600,000.
In 1995, the Company purchased 25 lots from a limited partnership in which
the principal stockholders of the Parent have a 33% limited partnership interest
for $550,000. During 1996, the Company purchased an additional 58 lots from the
affiliate for $799,000. The Company is obligated to purchase an additional 89
lots at a price of $13,000 per lot through 1999 (see Note 10).
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS No. 107) requires disclosures of the fair
value of certain financial instruments for which it is practicable to estimate.
Value is defined by SFAS No. 107 as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount of cash and cash equivalents reported in the balance
sheet approximates its fair value.
F-11
<PAGE>
UNITED HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
The carrying amount of the Company's development loans and other notes
payable approximates fair value based on the current borrowing rate for similar
types of borrowing arrangements.
10. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Letters of credit and bonds approximating $10.1 million at September 30,
1996, have been issued on behalf of the Company to guarantee the completion of
certain improvements associated with various properties under agreements with
municipalities in which the Company is constructing homes. At September 30,
1996, the Company has pledged cash of approximately $265,000 as collateral for
these letters of credit.
The Company has committed to acquire various parcels of improved and
unimproved land through 1999 as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1997............................................................................ $ 2,939,575
1998............................................................................ 1,711,000
1999............................................................................ 1,087,000
2000............................................................................ 407,625
------------
$ 6,145,200
------------
------------
</TABLE>
As collateral for mortgage loans of affiliates of the Parent, the Parent
pledged a certain parcel of the Company's land held for future development with
a carrying value approximating $1,191,000. The two principal stockholders of the
Parent have agreed to indemnify the Company in the event that the Company may
incur any loss. This indemnity is supported by the Parent's two principal
stockholders' pledge of certain personally owned assets to the Parent.
F-12
<PAGE>
UNITED HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents...................................................... $1,145,234
Housing inventories............................................................ 80,420,503
Land held for future development............................................... 6,791,185
Investment in real estate partnership.......................................... 485,274
Due from Parent................................................................ 2,926,086
Note receivable--affiliate..................................................... 1,200,982
Other.......................................................................... 1,849,692
----------
Total assets................................................................... $94,818,956
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities....................................... $11,844,062
Deposits from home buyers...................................................... 1,419,319
Development loans and other notes payable...................................... 70,293,116
----------
Total liabilities.............................................................. 83,556,497
Investors' equity in majority-owned land development and housing
partnerships................................................................. 1,467,210
Stockholder's equity........................................................... 9,795,249
----------
Total liabilities and stockholder's equity..................................... $94,818,956
----------
----------
</TABLE>
See accompanying notes.
F-13
<PAGE>
UNITED HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
REVENUES
Housing and land sales (280 units in 1997 and 205 units in 1996)................... $ 46,910,479 $ 34,566,505
Housing sales--affiliate (22 units in 1997)........................................ 4,661,500
Other.............................................................................. 36,084 424,667
------------- -------------
51,608,063 34,991,172
Direct construction costs, including amortization of capitalized interest and real
estate taxes of $2,077,453 in 1997 and $1,113,364 in 1996........................ 41,753,434 28,063,353
Amortization of capitalized project costs.......................................... 6,378,109 3,235,999
------------- -------------
3,476,520 3,691,820
Other costs and expenses........................................................... 1,901,279 2,286,324
------------- -------------
Income before investors' share of income in majority-owned land development and
housing partnerships............................................................. 1,575,241 1,405,496
Investors' share of income in majority-owned land development and housing
partnerships..................................................................... 464,946 374,691
------------- -------------
Income before income taxes......................................................... 1,110,295 1,030,805
Income taxes....................................................................... 382,432 401,181
------------- -------------
Net income......................................................................... $ 727,863 $ 629,624
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-14
<PAGE>
UNITED HOMES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
----------- ----------- ------------
<S> <C> <C> <C>
Balance at October 1, 1996................................................... $ 100 $ 3,900 $ 9,063,386
Net income................................................................... 727,863
----- ----------- ------------
Balance at June 30, 1997..................................................... $ 100 $ 3,900 $ 9,791,249
----- ----------- ------------
----- ----------- ------------
</TABLE>
See accompanying notes.
F-15
<PAGE>
UNITED HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income........................................................................ $ 727,863 $ 629,624
Adjustments to reconcile net income to net cash used in operating activities:
Share of net income from real estate partnership................................ (294,000)
Investors' share of equity in majority-owned land development and housing
partnership................................................................... 464,946 374,691
Changes in operating assets and liabilities:
Increase in housing inventories............................................... (25,832,459) (24,405,187)
(Increase) decrease in land held for future development....................... 1,467,556 (680,357)
(Increase) decrease in due from Parent........................................ 569,211 (2,157,221)
Increase in notes receivable.................................................. (1,200,982)
Decrease in other assets...................................................... 207,988 578,175
Increase in deposits from home buyers......................................... 660,918 577,916
Increase in accounts payable and accrued liabilities.......................... 2,305,243 631,011
-------------- --------------
Net cash used in operating activities............................................. (20,629,716) (24,745,348)
CASH FLOW FROM INVESTING ACTIVITIES
Increase in due from managed properties........................................... (41,625) (113,222)
Distributions from real estate partnership investment............................. 178,000
-------------- --------------
Net cash (used in) provided by investing activities............................... (41,625) 64,778
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other notes payable........................... 93,474,338 74,673,769
Repayments of development loans and other notes payable........................... (71,320,078) (50,059,771)
Distribution to investors in majority-owned land development and housing
partnerships.................................................................... (1,161,847) (334,859)
-------------- --------------
Net cash provided by financing activities......................................... 20,992,413 24,279,139
-------------- --------------
Increase (decrease) in cash and cash equivalents.................................. 321,072 (401,431)
Cash and cash equivalents at beginning of period.................................. 824,162 1,103,216
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 1,145,234 $ 701,785
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-16
<PAGE>
UNITED HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. These interim statements should be
read in conjunction with the Company's audited financial statements included
elsewhere herein as certain footnote disclosures which substantially duplicate
those contained in such audited financial statements have been omitted from
these condensed interim financial statements. In the opinion of management, the
interim financial statements contain all adjustments (which are normal and
recurring) necessary for a fair statement of financial results for the interim
periods.
2. HOUSING INVENTORIES
Housing inventories consisted of the following at June 30, 1997:
<TABLE>
<S> <C>
Land under development, including site development costs....... $39,380,899
Direct construction costs...................................... 19,704,552
Capitalized project costs...................................... 18,613,886
Land held for sale............................................. 2,721,166
----------
$80,420,503
----------
----------
</TABLE>
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, inventories to be held and used are stated at cost,
unless a subdivision is determined to be impaired, in which case the impaired
inventories are written down to fair value. Writedowns of impaired inventories
to fair value are recorded as adjustments to the cost basis of the respective
inventory. The adoption of SFAS No. 121 had no effect on the Company's financial
position or result of operations.
3. NOTE RECEIVABLE
During 1997, the Company sold 22 model homes for $4,661,500 to an affiliate
controlled by the shareholders of the Parent. The Company received cash in the
amount of $600,000 and a promissory note (which is recourse to the affiliate) in
the amount of $565,375 bearing interest at 10% per annum. In addition, the
affiliate assumed the debt requirements on the existing loans secured by the
models in the amount of $3,496,125 (fully relieving the Company of such
obligation). Concurrent with the sale, the Company entered into a lease
agreement with the affiliate to lease the model homes on a month-to-month basis.
The Company recorded a gain on the sale of the models of $766,526.
4. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
In January 1997, the Company entered into a revolving credit agreement with
Heller Financial Services which matures May 1999 and replaced the Company's
previous credit facility with GE Capital Corporation. At June 30, 1997, the
maximum principal outstanding under the credit agreement is $25,000,000 subject
to the maximum number of housing units under construction. The credit agreement
bears interest at the Commercial Paper Rate, as defined, plus 3.75% (9.4% at
June 30, 1997), which is
F-17
<PAGE>
UNITED HOMES, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE (CONTINUED)
added monthly to the unpaid balance. Outstanding principal and interest on the
construction base are repaid from proceeds of home sales. The credit agreement
provides various operating and financial covenants with which the Company must
be in compliance as a condition for continuation of construction draw funding.
The outstanding principal balance at June 30, 1997 is $16,992,959.
In March 1997, the Company entered into a revolving credit agreement with
Residential Funding Corporation which matures March 2000. At June 30, 1997, the
maximum principal outstanding under the credit agreement is $50,000,000, with a
land acquisition and development loan amount not to exceed $25,000,000 and a
construction loan not to exceed $40,000,000 subject to a minimum loan amount of
$10,000,000 on the land acquisition and development facility. Amounts borrowed
under the credit agreement bear interest at the prime rate plus 1.25% (9.75% at
June 30, 1997) which is added monthly to the unpaid balance. Outstanding
principal and interest on the land acquisition and development loan are repaid
based on agreed upon release prices. Outstanding principal and interest on the
construction base are repaid from proceeds of home sales. The credit agreement
provides various operating and financial covenants with which the Company must
be in compliance as a condition for continuation of construction draw funding.
The outstanding principal balance at June 30, 1997 is $21,083,160.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Development Management Company
We have audited the accompanying balance sheet of United Development
Bristolwood Limited Partnership (the Partnership) as of September 30, 1995 and
the related consolidated statement of income, changes in partners' capital, and
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Development
Bristolwood Limited Partnership at September 30, 1995, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
October 15, 1997
F-19
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1995
1996 ------------
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................................................. $ 274,083 $ 715,083
------------ ------------
------------ ------------
Closing proceeds in transit........................................................... 140,000 212,000
Land under development................................................................ 2,632,718 3,491,442
Due from affiliates................................................................... 362,165 325,000
Other................................................................................. 5,242 4,000
------------ ------------
Total assets........................................................................ $ 3,414,208 $ 4,747,525
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable...................................................................... $ -- $ 383,265
------------ ------------
------------ ------------
Due to partner........................................................................ -- 336,538
Due to affiliates..................................................................... -- 18,750
Development loans and other notes payable............................................. 1,974,404 2,421,724
------------ ------------
Total liabilities................................................................... 1,974,404 3,160,277
Partners' capital..................................................................... 1,439,804 1,587,248
------------ ------------
Total liabilities and partners' capital............................................. $ 3,414,208 $ 4,747,525
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1995
1996 ------------ 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues
Improved land sales..................................................... $ 65,000 $ 5,036,400 $ 4,805,535
Improved land sales to affiliates....................................... 2,184,700 1,769,000 396,000
------------ ------------ ------------
2,249,700 6,805,400 5,201,535
Cost of sales........................................................... 1,766,109 5,231,716 4,233,144
------------ ------------ ------------
483,591 1,573,684 968,391
Administrative and other expense........................................ 19,968 58,494 100,704
------------ ------------ ------------
Net income.............................................................. $ 463,623 $ 1,515,190 $ 867,687
------------ ------------ ------------
------------ ------------ ------------
Net income allocated to General Partner................................. $ 2,318 $ 7,576 $ 4,338
------------ ------------ ------------
------------ ------------ ------------
Net income allocated to Limited Partners................................ $ 461,305 $ 1,507,614 $ 863,349
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED SEPTEMBER 30, 1996 (UNAUDITED), 1995, AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ------------- -------------
<S> <C> <C> <C>
Balance at October 1, 1993............................................... $ 8,906 $ 1,772,307 $ 1,781,213
Distributions............................................................ (7,718) (1,535,982) (1,543,700)
Net income............................................................... 4,338 863,349 867,687
--------- ------------- -------------
Balance at September 30, 1994............................................ 5,526 1,099,674 1,105,200
Distributions............................................................ (5,166) (1,027,976) (1,033,142)
Net income............................................................... 7,576 1,507,614 1,515,190
--------- ------------- -------------
Balance at September 30, 1995............................................ 7,936 1,579,312 1,587,248
Distributions............................................................ (3,055) (608,012) (611,067)
Net income............................................................... 2,318 461,305 463,623
--------- ------------- -------------
Balance at September 30, 1996............................................ $ 7,199 $ 1,432,605 $ 1,439,804
--------- ------------- -------------
--------- ------------- -------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994
------------- -------------
1996 (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flow from operating activities
Net income........................................................... $ 463,623 $ 1,515,190 $ 867,687
Adjustments to reconcile net income to net cash provided by operating
activities:
Changes in operating assets and liabilities:
(Increase) decrease in closing proceeds in transit............... 72,000 (189,175) (22,825)
Decrease in land under development............................... 858,724 2,240,948 1,186,120
Increase in due from affiliates.................................. (37,165) (325,000)
(Increase) decrease in other assets.............................. (1,242) (4,000) 130,000
Increase (decrease) in accounts payable.......................... (383,265) 376,357 (37,592)
------------- ------------- -------------
Net cash provided by operating activities............................ 972,675 3,614,320 2,123,390
Cash flow from financing activities
Proceeds from development loans and other notes payable.............. 456,342 2,318,113 3,278,283
Repayments of development loans and other notes payable.............. (903,662) (4,826,044) (3,685,084)
Increase (decrease) in due to partner................................ (336,538) 336,538
Increase (decrease) in due to affiliates............................. (18,750) 18,750
Distributions to partners............................................ (611,067) (1,033,142) (1,543,700)
------------- ------------- -------------
Net cash used in financing activities................................ (1,413,675) (3,185,785) (1,950,501)
------------- ------------- -------------
Increase (decrease) in cash.......................................... (441,000) 428,535 172,889
Cash at beginning of year............................................ 715,083 286,548 113,659
------------- ------------- -------------
Cash at end of year.................................................. $ 274,083 $ 715,083 $ 286,548
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
In 1993, United Development Bristolwood Limited Partnership, an Illinois
limited partnership (the Partnership) was formed to acquire, own, develop, and
sell approximately 196 improved single-family lots and 190 improved townhome
lots in Tinley Park, Illinois. Bristolwood Development Corporation contributed
$1,000 to the Partnership for a 0.5% general partner interest in the
Partnership. Four limited partners each contributed $399,750 for 24.875% limited
partner interests in the Partnership.
The Partnership agreement provides that profits and losses will be allocated
to the partners generally in proportion to their capital contributions to the
Partnership. Available cash flow is distributable to the partners in accordance
with their capital contributions to the Partnership.
The financial statements as of September 30, 1996 and the year then ended
and for the year ended September 30, 1994 and the related footnote disclosures
are unaudited. In the opinion of management, such financial statements reflect
all adjustments necessary for a fair presentation. All such adjustments are of a
normal and recurring nature.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues from improved lot sales are recognized in the period in which title
passes and cash is received.
LAND UNDER DEVELOPMENT
Land under development is stated at cost, which is not in excess of net
realizable value. Land under development includes all direct costs of the land
and site improvements constructed, plus financing and other carrying costs
incurred during the period of development. Capitalized project costs, including
interest and construction administration costs that relate to land development,
are capitalized and are allocated to lots to which they relate.
INCOME TAXES
The Partnership pays no income taxes, and the income or loss from the
Partnership is includable on the respective income tax returns of the partners.
The bases of the assets and liabilities is the same for income tax and financial
reporting purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-24
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. LAND UNDER DEVELOPMENT
Land under development consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Direct land costs, including site development
costs................................................. $ 1,680,440 $ 2,606,375
Capitalized project costs............................... 952,278 885,067
------------ ------------
$ 2,632,718 $ 3,491,442
------------ ------------
------------ ------------
</TABLE>
4. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
Development loans and other notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Site improvement loan (1)............................... $ 1,000,000 $ 970,542
Land acquisition loans (2).............................. 974,404 1,451,182
------------ ------------
$ 1,974,404 $ 2,421,724
------------ ------------
------------ ------------
</TABLE>
(1) In 1993, the Partnership entered into a loan agreement to borrow up to
$3,000,000 for the development of the improved lots. The loan was to
mature on July 15, 1995. The loan bears interest at the prime rate plus
2% (10.25% and 10.75% at September 30, 1996 and 1995, respectively),
which is added monthly to the loan balance. Outstanding principal and
interest are repaid from proceeds of improved lot sales. In 1995, the
maturity date on the loan was extended to July 15, 1998.
(2) In connection with the purchase of the unimproved lots in 1993, the
Partnership issued two promissory notes to the seller (collectively, the
Notes) totaling $3,970,532 which are to mature on March 19, 1998. The
Notes bear interest at an effective interest rate of the prime rate plus
2%. Outstanding principal and interest are repaid from the proceeds of
improved lot sales ($21,778 per single-family lot at the closing of each
sale after the 61st lot sold and $9,100 per townhome lot at the closing
of each sale after the 48th lot sold).
Substantially all of the Partnership's land under development is pledged as
collateral to secure repayment of indebtedness.
During the years ended September 30, 1996, 1995, and 1994, the Partnership
incurred and paid interest on development loans and other notes payable of
$245,902, $508,372, and $400,043, respectively, all of which was capitalized by
the Partnership.
5. RELATED PARTY TRANSACTIONS
During the years ended September 30, 1996, 1995, and 1994, the Partnership
sold townhome lots to a limited partner of the Partnership totaling $2,184,700,
$1,444,000, and $396,000, respectively. During the year ended September 30,
1995, the limited partner advanced $336,538 to the Partnership which is included
in due to partner at September 30, 1995. The amount was subsequently repaid in
1996 through the sale of townhome lots to the limited partner.
F-25
<PAGE>
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1995, Partnership sold 5 single-family lots to an affiliate of
another limited partner of the Partnership for $325,000. The receivable from the
sale of $325,000 is non-interest bearing and unsecured and is included in due
from affiliates at September 30, 1996 and 1995.
Certain construction activity of the Partnership is performed by an
affiliate of the general partner. At September 30, 1995, accounts payable
includes $382,135 due to the affiliate for such activities.
6. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS No. 107) requires disclosures of the fair
value of certain financial instruments for which it is practicable to estimate.
Value is defined by SFAS No. 107 as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
The following methods and assumptions were used by the Partnership in
estimating its fair value disclosures for financial instruments:
CASH
The carrying amount of cash reported in the balance sheet approximates
its fair value.
DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
The carrying amount of the Partnership's variable rate development loans
and other notes payable approximates fair value based on the current
borrowing rate for similar types of borrowing arrangements.
7. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Letters of credit approximating $459,180 at September 30, 1996 and 1995,
have been issued on behalf of the Partnership to guarantee the completion of
certain improvements associated with development of the property with the
municipality in which the Partnership is developing lots.
F-26
<PAGE>
PHOTOGRAPHS
[PHOTO1] [PHOTO2]
A "Verde" plan home in the Company's A two-story single-family home built
Altezza development located in by the Company.
Phoenix, Arizona.
[PHOTO3] [PHOTO4]
A townhouse built by the Company. A two-story single-family home built
by the Company.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Estimated Use of Proceeds................................................. 14
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 18
Business.................................................................. 23
Management................................................................ 31
Security Ownership of Certain Beneficial Owners and Management............ 34
Certain Transactions...................................................... 35
Description of Securities................................................. 37
Underwriting.............................................................. 43
Legal Matters............................................................. 44
Experts................................................................... 44
Additional Information.................................................... 44
Financial Statements...................................................... F-1
</TABLE>
------------------------
UNTIL , 1997 ( DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE DEBENTURES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[UNITED LOGO]
UNITED HOMES, INC.
___% MANDATORY REDEMPTION
DEBENTURES
---------------------
PROSPECTUS
---------------------
MILLER & SCHROEDER FINANCIAL, INC.
_________ __, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 2,122
NASD filing fee................................................... 1,200
Accounting fees and expenses...................................... 20,000*
Legal fees and expenses........................................... 90,000*
Blue Sky fees and expenses (including counsel fees)............... 10,000*
Printing and engraving expenses................................... 50,000*
Miscellaneous expenses............................................ 14,678*
---------
Total......................................................... $ 188,000*
---------
---------
</TABLE>
- ------------------------
* estimated
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 8.75 of the Illinois Business Corporation Act of 1983, as amended
(the "Act"), authorizes indemnification of directors, officers, employees and
agents of United; allows the advancement of costs of defending against
litigation; and permits companies incorporated in Illinois to purchase insurance
on behalf of directors, officers, employees and agents against liabilities
whether or not in the circumstances such companies would have the power to
indemnify against such liabilities under the provisions of the statute. United's
Articles of Incorporation provides for indemnification of United's officers and
directors to the fullest extent permitted by Section 8.75 of the Act.
Section 2.10 of the Act authorizes corporations to limit or eliminate the
personal liability of directors and officers to corporations and their
shareholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
the Illinois statute, directors could be accountable to corporations and their
shareholders for monetary damages for conduct that does not satisfy their duty
of care. Although the statute does not change directors' duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. United's Articles of Incorporation limits the
liability of United's directors, officers or shareholders to the fullest extent
permitted by the Illinois statute. The inclusion of this provision in the
Articles of Incorporation may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted United and its shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of United, on September 21, 1994, United
Development Management Company purchased 1,000 shares of common stock for an
aggregate price of $1,000 and a contribution of all of the outstanding stock of
the Subsidiaries (as defined in the Prospectus). No sales commission or other
consideration was paid in connection with such sale, which was effective without
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance upon the exemption from registration under Section 4(2) of the Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
1.2 -- Engagement Letter between Miller & Schroeder Financial, Inc. and United
Homes, Inc. dated June 30, 1997
3.1 -- Articles of Incorporation of United Homes, Inc.(1)
3.2 -- Bylaws of United Homes, Inc.(1)
4.1 -- Specimen Debenture (filed as part of Exhibit 4.2)
4.2 -- Form of Indenture
5.1 -- Opinion of Shefsky & Froelich Ltd. regarding the legality of the
Debentures being registered*
10.1 -- Revolving Credit Agreement between Genel Company, Inc. and United Homes,
Inc. dated May 30, 1995(1)
10.2 -- Loan Agreement between Residential Funding Corporation and United Homes,
Inc., United Homes of Illinois, Inc., United Homes of Michigan, Inc. and
United Homes, Inc., an Arizona corporation dated March 14, 1997(1)
10.3 -- Loan Agreement between Residential Funding Corporation and United Homes,
Inc., United Homes of Illinois, Inc., United Homes of Michigan, Inc. and
United Homes, Inc., an Arizona corporation dated May 28, 1996(1)
10.4 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
October 3, 1996(1)
10.5 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
August 21, 1996(1)
10.6 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
February 3, 1997(1)
10.7 -- Loan Agreement between United-Darien Limited Partnership, United
Development Management Company, United Homes, Inc., United Homes of
Illinois, Inc., Edward Havlik and Virgil Owings and First Bank National
Association dated March 5, 1996(1)
10.8 -- Lease and Sales Listing Agreement by and between Model Homes, L.L.C and
United Homes, Inc. Dated March 30, 1997
12.1 -- Statements regarding computation of ratios
21.1 -- List of Subsidiaries of United Homes, Inc.
23.1 -- Consent of Shefsky & Froelich Ltd.*
23.2 -- Consent of Ernst & Young LLP
24.1 -- Power of Attorney(1)
27.1 -- Financial Data Schedule(1)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Filed previously on August 19, 1997.
II-2
<PAGE>
(b) Financial Statements
<TABLE>
<C> <S>
UNITED HOMES, INC.
ANNUAL FINANCIAL STATEMENTS:
Report of Independent Auditors;
Consolidated Balance Sheets as of September 30, 1996 and 1995;
Consolidated Statements of Income for the years ended September 30, 1996,
1995 and 1994;
Consolidated Statements of Changes in Stockholder's Equity for the years
ended September 30, 1996, 1995 and 1994;
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995 and 1994; and
Notes to the Consolidated Financial Statements for the years ended
September 30, 1996, 1995 and 1994.
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheet as of June 30, 1997;
Condensed Consolidated Statements of Income for the nine months ended June
30, 1997 and 1996;
Consolidated Statements of Changes in Stockholder's Equity for the nine
months ended June 30, 1997 and 1996;
Condensed Consolidated Statements of Cash Flows for the nine months ended
June 30, 1997 and 1996;
Notes to the Condensed Consolidated Interim Financial Statements.
UNITED DEVELOPMENT BRISTOLWOOD LIMITED PARTNERSHIP
FINANCIAL STATEMENTS:
Report of Independent Auditors;
Balance sheets as of September 30, 1996 (unaudited) and 1995;
Statements of Income for the years ended September 30, 1996 (unaudited),
1995, and 1994 (unaudited);
Statements of Changes in Partners' Capital for the years ended September
30, 1996 (unaudited), 1995, and 1994 (unaudited);
Statements of Cash Flows for the years ended September 30, 1996
(unaudited), 1995, and 1994 (unaudited); and
Notes to the Financial Statements;
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the applicable
instructions, are inapplicable, or the information is included in the combined
financial statements or notes thereto included in the Prospectus and therefore
have been omitted.
ITEM 17. UNDERTAKINGS
The Registrant undertakes:
A. To file, during any period in which offers of sales are being made, a
post-effective amendment to this Registration Statement:
(i) to file any prospectuses required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act").
II-3
<PAGE>
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
B. That for the purpose of determining any liability under the Act,
each such post-effective amendment may be deemed to be a new registration
statement relating to the securities offered therein and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
C. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
D. Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
E. For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
F. For purposes of determining liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Rolling Meadows, State of Illinois, on October 20, 1997.
<TABLE>
<S> <C> <C>
UNITED HOMES, INC.
By: /s/ EDWARD HAVLIK
-----------------------------------------
Edward Havlik
Title: PRESIDENT
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman of the Board and October 20, 1997
Virgil Owings Director
* President and Director
- ------------------------------ (Principal Executive October 20, 1997
Edward Havlik Officer)
Executive Vice President,
Chief Financial Officer,
/S/ WILLIAM J. CROCK, JR. Secretary and Treasurer
- ------------------------------ (Principal Financial October 20, 1997
William J. Crock, Jr. Officer and Principal
Accounting Officer)
*
- ------------------------------ Vice President and October 20, 1997
Timothy Owings Director
*
- ------------------------------ Vice President and October 20, 1997
Laurie Bulson Director
William J. Crock, Jr., the undersigned attorney-in-fact, by signing his name
below, does hereby sign this Amendment No. 1 to the Registration Statement on
behalf of the above-indicated Officers and Directors of United Homes, Inc.
(constituting all the Directors) pursuant to powers of attorney executed by such
persons and heretofore filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
/s/ WILLIAM J. CROCK, JR.
-------------------------------------------
William J. Crock, Jr.
*By: AS ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
1.2 -- Engagement Letter between Miller & Schroeder Financial, Inc. and United
Homes, Inc. dated June 30, 1997
3.1 -- Articles of Incorporation of United Homes, Inc.(1)
3.2 -- Bylaws of United Homes, Inc.(1)
4.1 -- Specimen Debenture (filed as part of Exhibit 4.2)
4.2 -- Form of Indenture
5.1 -- Opinion of Shefsky & Froelich Ltd. regarding the legality of the
Debentures being registered*
10.1 -- Revolving Credit Agreement between Genel Company, Inc. and United Homes,
Inc. dated May 30, 1995(1)
10.2 -- Loan Agreement between Residential Funding Corporation and United Homes,
Inc., United Homes of Illinois, Inc., United Homes of Michigan, Inc. and
United Homes, Inc., an Arizona corporation dated March 14, 1997(1)
10.3 -- Loan Agreement between Residential Funding Corporation and United Homes,
Inc., United Homes of Illinois, Inc., United Homes of Michigan, Inc. and
United Homes, Inc., an Arizona corporation dated May 28, 1996(1)
10.4 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
October 3, 1996(1)
10.5 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
August 21, 1996(1)
10.6 -- Supplement to Loan Agreement between Residential Funding Corporation and
United Homes, Inc., United Homes of Illinois, Inc., United Homes of
Michigan, Inc. and United Homes, Inc., an Arizona corporation dated
February 3, 1997(1)
10.7 -- Loan Agreement between United-Darien Limited Partnership, United
Development Management Company, United Homes, Inc., United Homes of
Illinois, Inc., Edward Havlik and Virgil Owings and First Bank National
Association dated March 5, 1996(1)
10.8 -- Lease and Sales Listing Agreement By and between Model Homes, L.L.C. and
United Homes, Inc. Dated March 30, 1997
12.1 -- Statements regarding computation of ratios
21.1 -- List of Subsidiaries of United Homes, Inc.
23.1 -- Consent of Shefsky & Froelich Ltd.*
23.2 -- Consent of Ernst & Young LLP
24.1 -- Power of Attorney(1)
27.1 -- Financial Data Schedule(1)
</TABLE>
- ------------------------
* To be filed by amendment.
(1) Filed previously on August 19, 1997.
<PAGE>
MANDATORY REDEMPTION DEBENTURES
MINIMUM: $3,000,000
MAXIMUM: $6,000,000
UNDERWRITING AGREEMENT
October ___, 1997
Miller & Schroeder Financial, Inc.
Pillsbury Center
220 South Sixth Street, Suite 300
Minneapolis, MN 55440-0789
Ladies and Gentlemen:
1. INTRODUCTION. United Homes, Inc., an Illinois corporation (the
"Company") proposes to issue and sell to the public a minimum of $3,000,000
aggregate principal amount (the "Minimum") and up to $6,000,000 aggregate
principal amount (the "Maximum") of its Mandatory Redemption Debentures, as
described in the Registration Statement referred to below. Such Minimum and
Maximum amounts of its Mandatory Debentures are collectively referred to in
this Agreement as the "Original Debentures." The Company also proposes to
issue and sell to the public up to an additional $1,000,000 aggregate
principal amount of its Mandatory Redemption Debentures. Such additional
$1,000,000 aggregate principal amount of its Mandatory Redemption Debentures
are referred to in this Agreement as the "Option Debentures." The Original
Debentures and Option Debentures are referred to in this Agreement as the
"Debentures."
The Debentures are to be issued under an indenture, dated as of October
___, 1997, (the "Indenture") between the Company and National City Bank of
Minneapolis as trustee (the "Trustee"). The Company hereby confirms its
agreement with Miller & Schroeder Financial, Inc., as underwriter (referred to
as "you" or as the "Underwriter"), to offer the Debentures on a "best efforts"
basis without any minimum, upon the terms and conditions herein. The Debentures
are more fully described in the Registration Statement and Prospectus
hereinafter described.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1
(Commission File No. 333-33965) with respect to the Debentures including
one or more forms of Preliminary Prospectus in conformity with the
requirements of the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively referred to as the
"Act") in the form heretofore delivered to you; one or more amendments to
such Registration Statement have been prepared and filed and the Company
may prepare and file additional amendments. If the Company has elected
not to rely on Rule 430A, the Company has prepared and will promptly file
an amendment to the Registration Statement and an amended prospectus
(provided the Underwriter has consented to such filing). If the Company
has elected to rely on Rule 430A, it will prepare and timely file a
prospectus pursuant to Rule 424(b) that discloses the information
previously omitted from the prospectus in reliance upon Rule 430A.
Copies of such Registration Statement and each pre-effective amendment
thereto, and each related preliminary
1
<PAGE>
prospectus have been delivered by the Company to the Underwriter. Such
Registration Statement, as amended, or supplemented, including all
prospectuses included as a part thereof, financial schedules, exhibits,
the information (if any) deemed to be a part thereof pursuant to Rules
430A and 434 under the Act and any Registration Statement filed pursuant
to Rule 462 under the Act, is herein referred to as the "Registration
Statement." The term "Prospectus" as used herein shall mean the final
prospectus, as amended or supplemented, included as part of the
Registration Statement filed with the Commission when it becomes
effective; provided, however, that if a prospectus is filed by the
Company pursuant to Rule 434 under the Act, the term "Prospectus" as used
herein shall mean the prospectus so filed pursuant to Rules 424(b) and
430A and the term sheet so filed pursuant to Rule 434. The term
"Preliminary Prospectus" as used herein means any prospectus, amended or
supplemented; used prior to the Effective Date (as defined herein) and
included as part of the Registration Statement, including any prospectus
filed with the Commission pursuant to Rule 424(b).
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus nor have any proceedings been
instituted for that purpose nor are any such proceedings threatened.
Each Preliminary Prospectus, at the time of filing or use, complied with
the requirements of the Act.
(c) As of the Effective Date or as of the filing date (or delivery to
the Underwriters) of any subsequent amendment or supplement, as the case
may be, and at all times subsequent thereto up to and including the Final
Closing Date (as hereinafter defined): (i) the Registration Statement and
Prospectus contain and will contain all statements which are required to
be stated therein by the Act or the Trust Indenture Act (as defined
below) and will comply in all respects with the Act and the Trust
Indenture Act; and (ii) neither the Registration Statement nor the
Prospectus includes or will, at any time up to and including the Final
Closing Date, include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, provided however, that none of the
representations and warranties contained in this subsection 1(c) shall
apply to statements in, or omissions from, the Registration Statement,
Preliminary Prospectus, Prospectus, or any amendment thereof, or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter, as identified in
Section 13 herein, specifically for use in the preparation of the
Registration Statement, Preliminary Prospectus or the Prospectus, or any
amendments or supplements thereto.
(d) On or promptly after the Effective Date, the Company will prepare
and file a final Prospectus pursuant to Rule 424(b) that discloses the
information previously omitted in reliance upon Rule 430A. The
Prospectus, as amended or supplemented from time to time, shall comply in
all material respects with the requirements of the Act and with the Trust
Indenture Act.
(e) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission.
(f) The consolidated financial statements of the Company, including the
related notes, included in the Registration Statement and in the
Prospectus fairly present, on the basis stated
2
<PAGE>
therein, the consolidated financial position, results of operations, cash
flows and changes in shareholders' equity of the Company and its
consolidated Subsidiaries at the dates and for the periods to which they
relate. Such financial statements and related notes have been prepared
in accordance with generally accepted accounting principles consistently
applied, except as otherwise stated therein, throughout the periods
involved and comply in all respects with the requirements of the Act.
The selected financial information set forth in the Prospectus is fairly
presented and prepared on a basis consistent with such audited
consolidated financial statements and the books of the Company included
in the Registration Statement. The supporting schedules included in the
Registration Statement present fairly the information required to be
stated therein. No other financial statements or schedules are required
to be included in the Registration Statement or Prospectus.
(g) Ernst & Young, LLP, who have examined the financial statements and
who have expressed their opinions with respect to the audited
consolidated financial statements and schedules included in the
Registration Statement and filed with the Commission as part of the
Registration Statement and the Prospectus, are independent public
accountants as required by the Act.
(h) The Company and its wholly-owned subsidiaries, United Homes of
Illinois, Inc., an Illinois corporation, United Homes, Inc., an Arizona
corporation, and United Homes of Michigan, Inc., a Michigan corporation
(individually a "Subsidiary" and collectively the "Subsidiaries") are,
and at each Closing Date will be, duly organized and validly existing and
in good standing under the laws of their respective states of
incorporation, with full power and authority (corporate and other) to
own, lease and operate their properties and conduct their business as
currently carried on and contemplated and described in the Registration
Statement and Prospectus. No proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit
or curtail such qualification. The Company and Subsidiaries are
conducting their respective businesses so as to comply in all respects
with applicable federal, state and local statute, ordinances, rules and
regulations except for such matters which are either individually or in
the aggregate do not have a material adverse effect on the Company's
condition (financial or otherwise), business, key personnel, properties,
assets, results of operations (present or prospective) or net worth of
the Company taken as a whole. The Company and Subsidiaries hold all
licenses, franchises, grants, authorizations, approvals, easements,
consents, orders, certificates and permits from state, federal and other
regulatory authorities necessary for the conduct of their business as
described in the Registration Statement except for such licenses,
franchises, grants, approvals, easements, consents, orders, certificates
and permits that the Company or any Subsidiary may fail to possess that
individually or in the aggregate do not have a material adverse effect on
the Company's or any Subsidiary's business and financial condition, or
has obtained waivers from any such applicable requirements from the
appropriate state, federal or other regulatory authority. No proceeding
has been instituted (or to the Company's knowledge threatened) in any
such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(i) The Company and its Subsidiaries, are, and will be on each Closing
Date, duly qualified to do business as a foreign corporation in good
standing in each jurisdiction in which the character and location of its
assets or its business (existing or as contemplated by the
3
<PAGE>
Prospectus) requires such qualification, other than in jurisdictions in
which the failure to so qualify would not have a material adverse effect
on the Company or any Subsidiary. No proceeding has been instituted in
any such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such qualification.
(j) Copies of the Company's and Subsidiaries' Articles of Incorporation
and bylaws, as amended to date, have been provided to Underwriter's
counsel, and since July 1, 1997 neither has been subsequently amended or
restated as of the date of this Agreement. There has not been and at
each Closing Date shall not have been any change in the Company's and
Subsidiaries' Articles of Incorporation or bylaws from those filed as
exhibits to the Registration Statement. Neither the Company nor any
Subsidiaries is in violation of its Articles of Incorporation, bylaws or
other governing instruments; or in default (nor with the giving of notice
or the passage of time or both would be in default) in the performance of
any obligation, agreement or condition contained in any contract or any
bond, debenture, note, indentured loan agreement or other evidence of
indebtedness or any loan agreement, contract or joint venture agreement
of the Company and Subsidiaries or other instrument to which they are
subject or by which any of their property or assets are subject.
(k) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus and, except in each case as
described in or contemplated by the Registration Statement and
Prospectus, prior to the Final Closing Date: (i) the Company and its
Subsidiaries have not incurred, and will not have incurred, any
liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business; (ii) the Company
and its Subsidiaries have not and will not have paid or declared any
dividends or other distributions on its capital stock; (iii) there has
not been and will not have been any material change in the capital stock
or outstanding short term or long term debt, including any capitalized
lease obligation, of the Company and its Subsidiaries, or any issuance of
options, warrants, convertible securities, or other rights to purchase
the capital stock of the Company and its Subsidiaries or any material
adverse change or a development involving a prospective material adverse
change in or affecting the condition (financial or otherwise), business,
key personnel, properties, assets, results of operations (present or
prospective), or net worth of the Company and its Subsidiaries; (iv) the
Company and its Subsidiaries have not sustained any loss or damage to
their properties or interference with their businesses, whether or not
insured; and (v) there has not been and will not have been any event
which constitutes a default under the provisions of the Indenture without
regard to any notice requirements with respect thereto contained in the
Indenture.
(l) Except as accurately described in the Prospectus, there is no
action, suit or proceeding to which the Company and its Subsidiaries are
a party, or of which any property of the Company and its Subsidiaries are
subject pending before or brought by any court or governmental agency or
body or any arbitrator (domestic or foreign) which might adversely affect
the consummation of the transactions contemplated by this Agreement or
repayment of the Debentures; nor is any such action, suit or proceeding
threatened which, if adversely determined, would, singly or in the
aggregate, result in any adverse change in or affecting the condition
(financial or otherwise), business, key personnel, properties, assets,
results of operations (present or prospective) of the Company or any
Subsidiary; and to the best of the Company's knowledge, after due
inquiry, no such proceedings are threatened or contemplated.
4
<PAGE>
(m) There are no contracts or other documents of the Company and its
Subsidiaries are required to be described or referred to in the
Registration Statement or Prospectus or required by the Act to be filed
as exhibits to the Registration Statement which have not been described
or referred to therein or filed or incorporated by reference as required.
All contracts described in the Registration Statement or Prospectus or
filed as exhibits thereto are in full force and effect as of the date of
the Prospectus and through the Final Closing Date. All descriptions of
such contracts and documents in the Prospectus, required to be described,
are correct in all material respects. The Company and its Subsidiaries
are not in breach of or default under any of such contracts nor is the
Company and its Subsidiaries in default with respect to any provision of
any lease, loan agreement, franchise, license, permit or other
contractual obligation to which it is a party or by which it may be bound
or to which any of the property or assets of the Company and its
Subsidiaries are subject. There does not exist any fact which
constitutes an event of default as defined in such documents or which,
with giving of notice or lapse of time or both, would constitute such an
event of default.
(n) The Company has full power and authority to execute and deliver
this Agreement, the Indenture and the Debentures and to perform its
obligations hereunder and thereunder. This Agreement has been duly and
validly authorized, executed and delivered by the Company and constitutes
a valid, legal and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws or
equitable principals affecting the enforcement of creditors' rights
generally and except as rights to indemnify hereunder may be limited by
applicable securities laws, including the Act. No consent, approval,
authorization, order, registration, filing, qualification, license, or
permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or its properties or
assets, is required (i) for the execution, delivery and performance of
this Agreement, (ii) for the execution, delivery and performance by the
Company under the Indenture and the Debentures; or (iii) the consummation
of the transactions contemplated hereby and thereby, including the
issuance, sale and delivery of the Debentures except the registration
under the Act of the Debentures, the qualification of the Indenture under
the Trust Indenture Act, and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses, and permits as
may be required under state securities or blue sky laws or pursuant to
the rules of the National Association of Securities Dealers, Inc. in
connection with the offer and sale of the Debentures by the Underwriter.
(o) The Company has the power and authority to execute and deliver the
Indenture and to carry out the terms thereof, and has the power to
authorize, issue and sell the Debentures on the terms and conditions set
forth in this Agreement and the Indenture. The Indenture has been duly
and validly authorized, executed and delivered by the Company, is in the
form filed as an exhibit to the Registration Statement and complies with
the Trust Indenture Act and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws or equitable
principals affecting the enforcement of creditors' rights generally and
except as rights to indemnify hereunder may be limited by applicable
securities laws, including the Act. The Indenture conforms to the
descriptions
5
<PAGE>
thereof contained in the Registration Statement and the Prospectus. The
Indenture is not required to be qualified under the Trust Indenture Act
of 1939, as amended.
(p) The Debentures have been duly and validly authorized and, when
authenticated by the Trustee and issued, delivered and sold in accordance
with this Agreement and the Indenture, will have been duly and validly
executed, authenticated, issued and delivered and will constitute valid
and legally binding obligations of the Company entitled to the benefits
provided by the Indenture and enforceable against the Company in
accordance with their terms. The Debentures will be issued free and
clear of all liens, encumbrances, claims, security interests,
restrictions on transfer and other defects of title. The Debentures
conform to the descriptions thereof contained in the Registration
Statement and the Prospectus. The Certificates for the Debentures are in
due and proper form as provided for in the Indenture.
(q) The execution, delivery and performance of this Agreement, the
Indenture and the Debentures, and the consummation of the transactions
contemplated herein and therein, will not conflict with, or constitute a
breach of, or default under or with the giving of notice or the passage
of time or both would so constitute a breach or default, or result in the
creation or imposition or acceleration of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary pursuant to:
(i) any bond, debenture, note, contract, lease, license, indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, joint
venture, or other agreement, evidence of indebtedness or instrument to
which the Company and Subsidiary are a party, or by which they may be
bound or to which any of the properties or assets of the Company and
Subsidiaries are subject; (ii) the Company's and any Subsidiaries'
Articles of Incorporation, bylaws, or other governing documents, as
amended; or (iii) any law, order, rule, regulation, writ, injunction or
decree of any government, governmental agency, court, or arbitrator
having jurisdiction over the Company's and its Subsidiaries' properties.
No event has occurred and condition exists which upon the passage of time
or the giving of notice, would constitute such an event of default under
any such instrument or agreement. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency, other
governmental body or any self-regulatory agency having jurisdiction over
the Company or any Subsidiary and their property or assets is required
for the execution and delivery and performance of this Agreement, the
Indenture or the Debentures or the consummation of the transactions and
performance contemplated herein or therein or in the Prospectus, except
such as will be or have been obtained under the Act and except as may be
required under applicable blue sky laws or the rules and regulations of
the National Association of Securities Dealers, Inc.
(r) All of the issued and outstanding shares of capital stock of the
Company and Subsidiaries are duly authorized and validly issued, full
paid and nonassessable; have been issued in compliance with all federal
and state securities laws; were not issued in violation of, or subject to
any preemptive rights or other rights to subscribe for or purchase
securities; and the holders thereof are not subject to personal liability
by reason of being such holders. All the issued and outstanding capital
stock of the Company is owned, free and clear of any security interests,
lien or restriction by United Development Management Company. The
capital stock of the Company and Subsidiaries to be issued pursuant to
outstanding options and warrants as described in the Prospectus or
pursuant to options or warrants issuable pursuant to the Option Plans
have been reserved for issuance and, when issued pursuant to the terms of
such options
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and warrants, will be duly authorized, validly issued, fully paid, and
nonassessable. The Company owns, free and clear of any security
interest, lien or restriction, all the issued and outstanding capital
stock of the Subsidiaries. The authorized and issued indebtedness of the
Company and Subsidiaries is correctly set forth in the Prospectus, as of
the dates indicated. Except as described in the Prospectus, there are no
outstanding loans or advances or guarantees of Indebtedness by the
Company and Subsidiaries to or for the benefit of any of the officers,
directors or affiliates of the Company required to be described in the
Prospectus pursuant to the Act.
(s) The capitalization of the Company as set in the Prospectus was as
so described on the date as of which it is set forth therein; and will be
as so described on each Closing Date (except as it may change as a result
of the issuance of shares of capital stock upon the exercise of options
and warrants (or options and warrants issuable pursuant to the Option
Plans) described in the Prospectus or as otherwise described in the
Prospectus). There are no other classes of stock, authorized or
outstanding, except as described therein.
(t) The statistical information in the Prospectus which is derived from
the Company's financial or other records has been accurately derived
therefrom and, as set forth, is not in conflict with other information
known to the Company.
(u) All descriptions in the Registration Statement or Prospectus of
statutes, regulations, legal or governmental proceedings, the Indenture,
the Debentures, or other contracts or other documents are accurate in all
material respects and fairly present the information shown.
(v) The Company is not in violation of any law, order, rule,
regulation, writ, injunction, or decree of any governmental authority or
court, domestic or foreign, or arbitrator which violation would have a
material adverse effect on the condition (financial or otherwise),
business, key personnel, properties, results of operations (present or
prospective), assets or net worth of the Company. The Company is
operating in compliance with all applicable federal, state, local and
foreign laws, regulations, orders and decrees including, without
limitation, regulations of.
(w) The Company holds all, and is operating in compliance with all,
franchises, grants, authorizations, licenses, registrations, approvals,
permits, easements, consents, certificates and orders of any government
or self-regulatory body (domestic and foreign) required for the conduct
of its business or as described in the Prospectus (collectively the
"Licenses") and all the Licenses are valid and in full force and effect
and will be valid and in full force and effect through the Final Closing
Date.
(x) The Company and Subsidiaries have good and marketable title (in fee
simple as to real property) to all real and personal properties and
assets described in the Prospectus and the financial statements as owned
by them, free and clear of all security interests, liens, charges,
encumbrances, restrictions or defects except those arising in the
ordinary course of business in the development of lots and construction
of homes as reflected in the financial statements included in the
Prospectus or described or referred to in the Prospectus and which do not
have a material adverse effect on the Company's and Subsidiaries' use of
such property or the conduct of their business.
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(y) Except as disclosed in the Prospectus, the Company holds valid and
enforceable leases for the properties (real and personal) described in
the Prospectus as leased by it; the Company is not in default (or with
the giving of notice or the passage of time or both would be in default)
in respect to any of such leases, and no claim of any sort has been
asserted by anyone adverse to the rights of the Company and Subsidiaries
as lessee under any such lease or questioning its right to continued use
and possession of any of the leased properties under any such lease.
(z) To the best of the Company's knowledge, the Company and
Subsidiaries own or possess adequate rights to use all patents, patent
applications, patent rights, licenses, inventions, technology,
proprietary rights, trademarks, trademark applications, service marks,
trade names, trademark registrations, service mark registrations,
copyrights, and other proprietary rights or information used in or
necessary for the conduct of its present or intended business to the
extent material to the Company's and Subsidiaries' business. Except as
stated in the Registration Statement and Prospectus, to the best of the
Company's knowledge, the Company and Subsidiaries are not in violation
of, nor has the Company received any notice of any claim of infringement
or violation of the rights of other with regard to any patents, patent
applications, patent rights, licenses, inventions, technology,
proprietary rights, trademarks, trademark applications, service marks,
trade names, trademark registrations, service mark registrations,
copyrights, and other proprietary rights or information.
(aa) All United States federal income tax returns required by law to be
filed by or on behalf of the Company and the Subsidiaries have been filed
and all taxes shown by such returns or otherwise assessed which are due
and payable as of or prior to the date hereof have been paid, except
assessments against which appeals have been or will be promptly taken and
as to which adequate reserves have been provided in order to comply with
GAAP. All other tax returns that are required to have been filed by or
on behalf of the Company and the Subsidiaries pursuant to applicable
foreign, state, local or other law have been filed, and the Company and
the Subsidiaries have paid all taxes due as of or prior to the date
hereof pursuant to such returns or pursuant to any assessment received by
them, except for such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Company and the Subsidiaries,
consolidated, in respect of any income and corporation tax liability (or
for any payments to be made in respect of any tax sharing agreements or
arrangements) for any years not finally determined are adequate to meet
any assessments or reassessments for additional income tax for any years
not finally determined.
(bb) The Company has not distributed and will not distribute any
prospectus or any other offering material in connection with the offering
and sale of the Debentures other than the Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by
the Company and consented to by the Underwriter.
(cc) Other than the subsidiaries of the Company listed in Exhibit 21 to
the Registration Statement, the Company owns no capital stock or other
equity or ownership or proprietary interest in any corporation,
partnership, limited liability company, association, trust or other
entity and is not affiliated (as that term is defined under the Act) with
any other company or
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business entity except as explicitly stated in the Prospectus. The
Company is not owned or controlled, directly or indirectly, by any
corporation, association or other entity.
(dd) The Company maintains a system of internal accounting controls
sufficient to provide that:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(ee) Except as disclosed in the Prospectus, neither the Company nor any
employee or agent of the Company has made any payment of funds of the
Company or received or retained any funds in violation of any law, rule,
or regulation which payment, receipt or retention of funds is of the
character required to be disclosed in the Prospectus.
(ff) The Company will supply the Underwriter with operating statements,
contracts, accounting records, and other documents as requested by the
Underwriter or its counsel and all such documents furnished shall be
true, accurate, and complete copies.
(gg) The Company and Subsidiaries maintain and will maintain through the
Final Closing Date, insurance of the types and in amounts which are
adequate for its business.
(hh) No labor disputes with the employees of the Company exist, are
imminent. To the best of Company's knowledge, no officers of the Company
presently intend to leave the Company or Subsidiaries.
(ii) The Company is not an "investment company" within the meaning of
such term as defined in the Investment Company Act of 1940, as amended,
and will conduct its business in such a manner as to not become an
investment company as so defined.
(jj) Neither the Company nor any employee or agent of the Company has
made any payment of funds of the Company or received or retained funds in
violation of any law, rule or regulation.
(kk) The Company has not engaged any "finder" with respect to the
transactions contemplated by this Agreement and there is no outstanding
claim for services in the nature of a "finder's fee" with respect to such
financing; and the Company agrees to indemnify and hold
9
<PAGE>
the Underwriters harmless from and against any claims, losses, judgments
or expenses resulting from any finder's fees payable in connection
herewith.
(ll) There are no outstanding loans or advances or guarantees of
indebtedness by the Company to or for the benefit of any of the officers
or directors of the Company or any of the members of the families of any
of them except as are described in the Prospectus.
(mm) The Company, after giving effect to the execution, delivery and
performance of this Agreement, the Indenture, and the Debentures and the
consummation of the transactions contemplated hereby and thereby will not
be:
(i) insolvent;
(ii) left with unreasonably small capital with which to engage in
its business; or
(iii) incurring debts beyond its ability to pay such debts as they
mature.
(nn) Neither the filing of the Registration Statement nor the offering
or sale of the Debentures by the Company as contemplated by this
Agreement gives rise to any rights, of or relating to the co-sale or
registration of any securities of the Company, nor do any security
holders of the Company have any right to demand that the Company register
their securities, in either case other than those which have been waived
or satisfied.
(oo) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in or which has
constituted or which constitute the stabilization or manipulation of the
price of any outstanding securities of the Company (including the
Debentures) to facilitate the sale or resale of the Debentures.
(pp) On each Closing Date all transfer or other taxes, if any (other
than income taxes), which are required to be paid in connection with the
sale or transfer of the Debentures will have been fully paid or provided
for by the Company and all laws imposing such taxes will have been fully
complied with.
(qq) Any certificate signed by any officer of the Company and delivered
to the Underwriter or to counsel for the Underwriter shall be deemed a
representation and warranty by the Company to the Underwriter as to
matters covered thereby.
(rr) Each acceptance by the Company of an offer for the purchase of
Debentures and each issuance of Debentures shall be deemed an affirmation
of the Company that the representations and warranties contained herein
are true and correct at the time of such acceptance or of such issuance,
in each case as though expressly made at that time.
(ss) The Company and the Subsidiaries own, possess or have obtained all
governmental licenses, permits, certificates, consents, orders,
approvals, permits and other authorizations from the state, federal,
court or other regulatory authorities necessary to own or lease, as the
case may be, and to operate their properties and to carry on their
respective business as presently conducted and as contemplated by the
Prospectus, except
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for licenses, permits, certificates, consents, orders, approvals, permits
or other authorizations that the Company or any Subsidiary may fail to
own or possess that individually or in the aggregate do not have a
material adverse effect on the Company or any Subsidiary, and neither the
Company nor any Subsidiary has received any notice of proceedings which
have been instituted (or to the Company's knowledge, threatened) relating
to the revocation, limitation or modification of any such licenses,
permits, certificates, consents, orders, approvals or authorizations.
The business of the Company and the Subsidiaries is being conducted in
all material respects with any applicable federal, state, local or
foreign law, ordinance, rule, regulation, judgment, decree, injunction or
order or requirement of any court or other governmental entity. Neither
the Company nor the Subsidiaries and no officer, director, shareholder or
agent of such company has been authorized to receive or make, and is not
receiving or making, any bribe, kickback, or other illegal payment with
respect to the business conducted by such company.
3. BEST EFFORTS PUBLIC OFFERING OF THE DEBENTURES.
(a) On the basis of the representations, warranties and agreements
herein contained and subject to the terms and conditions herein set
forth, the Company hereby appoints the Underwriter as its exclusive agent
to offer and effect sales of the Original Debentures on a "best
efforts" basis for the account and risk of the Company. It is
understood and agreed that there is no firm committment on the part of
the Underwriter to purchase any Debentures. The Underwriter agrees to use
its best efforts as such agent to procure purchasers for the Original
Debentures during the Offering Period (as hereinafter defined). The
purchase price of the Debentures shall be __% of par, plus accrued
interest, in accordance with the Indenture. In accordance with the
Commission's Rule 15c2-4, until the Minimum is sold, the Underwriter
shall cause all funds received from investors upon the sale of an
Original Debenture to be promptly deposited in a separate bank
account, as agent or trustee for the persons who have the beneficial
interests therein. Once the Minimum has been sold and proceeds
therefrom deposited in such separate bank account, the Underwriter
shall cause all funds in such separate bank account to be promptly
transmitted to the Company by or before noon of the next business day
following sale of the Minimum and thereafter all funds received from
investors upon the sale of an Original Debenture to be promptly
transmitted to the Company upon the receipt of funds from purchasers
of the Original Debentures by or before noon of the next business day
following such receipt. The Underwriter will use its best efforts to
sell the Debentures for a period of six months from the Effective Date
(the "Offering Period"), unless extended by mutual written agreement
of the Underwriter and Company. Unless the Agreement is extended, or
earlier terminated as provided in Section 10, in the event that the
Minimum amount of Debentures has not been sold and proceeds therefrom
deposited in the separate bank account referred to above by the six-month
anniversary of the Effective Date, the Agreement shall terminate and the
Underwriter shall refund to any persons who tendered funds for any of the
Debentures the full amount which the Underwriter may have received from
such persons, and neither party shall have any future obligations to the
other hereunder, except as provided under this Agreement.
(b) If the Minimum amount of Debentures is sold, the Underwriter
shall nevertheless continue to effect sales of the Debentures for the
account of the Company until the Termination date provided in
Section 10.
(c) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to offer the Option
Debentures on a "best efforts" basis at the same purchase price as the
Original Debentures for use in covering overallotments made by the
Underwriter. The Option granted hereunder may be exercised at any time
within the Offering Period upon notice (confirmed in writing) by the
Underwriter to the Company setting forth the aggregate amount of Option
Debentures as to which the Underwriting is exercising the option and the
date on which such Option Debentures shall be registered. In accordance
with the Commission's Rule 15c2-4, the Underwriter shall cause all funds
received from investors upon the sale of an Option Debenture to be
promptly deposited with the Company upon the receipt of funds from
purchasers of the Option Debentures by or before noon of the next
business day following such receipt. The option granted hereby may be
cancelled by the Underwriter as to the Option Shares for which the option
is unexercised at any time prior to the expiration of the Offering Period
upon notice to the Company.
(d) The Underwriter shall offer and sell the Debentures for the Company
upon the terms and conditions set forth in the Prospectus, as the same
may be amended or supplemented from
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time to time. The purchase price of the Debentures shall be par, plus
accrued interest, in accordance with Indenture. Upon the closing of the
sale of any of the Debentures, you shall receive: (i) an amount equal to
seven percent (7%) of the aggregate principal amount sold (not including
accrued interest) as commission for the sale; (ii) a management fee equal
to two percent (2%) of the aggregate principal amount sold; (iii) a non-
accountable expense allowance equal to one percent (1%) of the aggregate
principal amount sold and reimbursement for your accountable expenses as
described in paragraph 5(q).
(e) You and your "Selected Dealers" (as hereinafter defined) shall be
required to take and pay for only such Debentures as are sold to the
public or you and your Selected Dealers otherwise commit to purchase by
written confirmation, subject in each case to applicable closing
conditions as herein set forth. You may appoint dealers ("Selected
Dealers") which are members in good standing of the National Association
of Securities Dealers, Inc. to offer and sell the Debentures and, in
connection with such appointment, may allow concessions to such Selected
Dealers from the public offering price of the Debentures in such amount
as you may deem appropriate.
(f) Debentures purchased from the Company in accordance with this
Agreement shall be confirmed by you, as principal, to the Company at the
purchase price set forth in paragraph 3(c) above. Resales of such
Debentures shall be confirmed by you, as principal, to the public at the
Price to Public set forth in the Prospectus, or any amendment thereof or
supplement thereto, or to Selected Dealers at such Price to Public less
the applicable Selected Dealer's concession, all subject to the
respective Closings hereinafter referenced.
4. CLOSING PROCEDURES. On the basis of the representations,
warranties and agreements, but subject to the terms and conditions set forth in
this Agreement, payment of the purchase price for, and delivery of, the
Debentures sold as contemplated hereunder shall be made as follows:
(a) You shall promptly confirm to the Company the principal amount
of the Debentures which have been sold. The first closing shall be
held as soon as practicable after the sale of the Minimum amount of
Debentures. Thereafter, monthly closings will be held on such date on
or after the first day of each month following the month of the first
closing and no later than the 15th day of each month as agreed upon by
the Underwriter and the Company, commencing the month after the month
in which the first closing occurs and through the month after the
Termination Date. Provided the Minimum has been sold, closings may be
held more often upon the mutual agreement of the Underwriter and the
Company. The date of each closing is referred to herein as a "Closing
Date" and the last closing hereunder is referred to herein as the
"Final Closing Date." Unless otherwise agreed by the Underwriter and
the Company, each closing will take place at the offices of
Frederickson & Byron, P.A., at 10:00 a.m., on the date of such closing.
(b) The certificates for the Debentures to be delivered at each Closing
Date will be in definitive form, in such denominations and registered in
such names as the Underwriter may request and will be made available for
checking and packaging at the Underwriter's offices or at such other
place as designated by you at 10:00 a.m., Minneapolis time, on the second
full business day prior to each Closing Date.
(c) On each Closing Date, you shall remit to the Company the purchase
price for the Debentures, less amounts determined in accordance with
paragraph 3(d) hereof, which you have confirmed to the Company and which
have been sold in accordance with the terms and provisions of this
Agreement. Such purchase price may be remitted to the Company net of the
commissions referred to in paragraph 3(d) and the Underwriter's
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expenses for which the Company is responsible as described in
paragraph 5(q) of this Agreement. Appropriate instructions for the of
registration the Debentures and authentication and delivery thereof
pursuant to the Indenture, which instructions shall include the names,
addresses and social security or tax identification numbers of the
registered holders, the principal amounts of the Debentures and the
dates the Debentures are deemed "sold" within the terms of paragraph 4(e)
hereof shall be provided to the Trustee with respect to each remittance
of funds. The Company shall have instructed the Trustee to accept
instructions for the registration of the Debentures directly from you,
and copies of such instructions shall be given to the Company at the
same time they are furnished to the Trustee. The Company agrees that
copies of the confirmation for each sale will satisfy the requirement
for instructions contained in this paragraph.
(d) If any subscription for Debentures is to be rejected by the
Company, the Company shall advise the Underwriter of such rejection no
later than one full business day prior to the next Closing Date and, at
each Closing Date, the Underwriter will return the funds of the
subscriber whose subscription is rejected by the Company to the
subscribers. Any subscription not expressly rejected by such date or
whose funds are not returned by such Closing Date shall be deemed
accepted and the Company shall deliver certificates for the Debentures
issuable to such subscriber at such Closing Date.
(e) Debentures shall be deemed to have been sold on the date payment in
good funds is received by you for such Debentures. Funds received from
investors in payment for Debentures shall be transmitted by you to a
separate bank account no later than 12:00 noon on the next business day
after such funds are received and shall be held by you as agent for such
investors. Each Debenture will be dated as of October ___, 1997. As
provided in the Indenture, interest will accrue on each Debenture from
the later of October ___, 1997 or the most recent "Interest Payment Date"
(as defined in the Indenture). In the event you hold Debentures in your
name on the record date for the payment of such interest (resulting from
the purchase of Debentures for your own account or otherwise), which
Debentures have not been resold, you shall be entitled to receive such
interest, subject to your right to direct the Trustee to pay over such
interest, in whole or in part, to a subsequent purchaser.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if it has not already been declared
effective) as promptly as possible and will not at any time, whether
before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy a reasonable
time prior to the proposed filing or to which you or your counsel shall
object or which is not in compliance with the Act. If at any time prior
to the Termination Date, any event shall occur which in the professional
judgment of counsel to the Company or of counsel to the Underwriter would
cause the Registration
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Statement or the Prospectus to include an untrue statement of material or
omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading or
otherwise requires an amendment to the Registration Statement or
supplement to the Prospectus, the Company will prepare and file with the
Commission any amendments to the Registration Statement or supplements to
the Prospectus which may be necessary and will cause the same to become
effective as soon as practicable, subject to the provisions of the prior
sentence. The Company will make all filings of the Prospectus required
under the Act.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise you of any requests made by the Commission (or any
state securities or Blue Sky authority) for amending the Registration
Statement, (or any state securities or Blue Sky authority) of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus or of the institution of any proceedings for that
purpose and will use its best efforts to prevent the issuance of any such
order and, if any such order is issued, will use its best efforts to
obtain the lifting thereof as promptly as possible. The Company will
also promptly comply with any requests for additional information.
(c) The Company will furnish to you copies of the Registration
Statement, including exhibits, all amendments thereto (including pre-
effective and post-effective), each Preliminary Prospectus, the
Prospectus and any supplements thereto, in each case as soon as available
and in such reasonable quantities as you may, from time to time, request.
(d) The Company consents to the use, in accordance with the provisions
of the Securities Act and of the securities or Blue Sky laws of the
jurisdictions in which the Debentures are offered by the Underwriter or
by Selected Dealers, prior to the Effective Date, of each Preliminary
Prospectus furnished by the Company
(e) The Company will continue to use its best efforts to register or
qualify the Debentures for sale by the Underwriter and any Selected
Dealers under the securities or Blue Sky laws of such jurisdictions as
you may request and will file such consents to service of process or
other documents as may be necessary in order to effect such registration
or qualification; provided, however, that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to the
service of process in suits, other than those arising out of the offering
or sale of the Debentures or subject itself to taxation, in any
jurisdiction where it is not now so subject. In each jurisdiction where
any of the Debentures shall have been registered or qualified as provided
above, the Company will continue such registrations or qualifications in
effect for so long as may be required for purposes of the distribution of
the Debentures and shall file such statements and reports as are or may
be required by the laws of such jurisdiction to continue such
qualification in effect for so long as there are Debentures outstanding.
The Company will notify the Underwriter immediately of, and confirm in
writing, the suspension of qualification of the Debentures or threat of
such action in any jurisdiction. The Company will use its best efforts
to qualify or register the Debentures for sale in nonissuer transactions
under (or obtain exemptions from the application of) securities laws of
such states designated by the Underwriter (and thereby permit market and
making transactions and secondary trading of the Debentures in such
states); and will comply with such securities laws and will continue such
qualifications, registrations and exemptions in effect for so long as the
Debentures remain outstanding.
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(f) If at any time during the period that the delivery of a Prospectus
relating to the Debentures is required under the Act, any event occurs as
a result of which the Prospectus, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it is
necessary at any time to amend or supplement the Prospectus to comply
with the Act, the Company promptly will notify you thereof and will
prepare and file with the Commission at its own expense an amendment or
supplement which will correct such statement or omission or effect such
compliance, subject to the requirements of advice and objection contained
in the first sentence of paragraph a.
(g) As soon as practicable (but in no event later than 90 days after
the close of the period covered thereby) the Company will make generally
available to its security holders, including Noteholders, and furnish to
you, an earnings statement of the Company covering the period of 12
months beginning not later than the first day of the next fiscal quarter
following the Effective Date of the Registration Statement which will
satisfy the requirements of Section 11(a) or Rule 158 of the Act and
which need not be certified by independent public accountants.
(h) During a period of five years from the Effective Date, the Company
will, as soon as practicable, deliver to each of the Underwriter, without
need of request:
(i) Copies of each report (financial or other) or proxy
solicitation material mailed to security holders of the Company;
(ii) After the end of each of the first three fiscal quarters, a
copy of the statement of income of the Company for such quarter and
a copy of the balance sheet of the Company as of the end of such
quarter all in reasonable detail and certified by its principal
financial or accounting officer or, in the alternative, a report on
Form 10-Q or 10-QSB, as filed with the Commission;
(iii) After the end of each fiscal year, a balance sheet of the
Company as of the end of such fiscal year, together with statements
of income, changes in cash flows and stockholders' equity for such
fiscal year, in reasonable detail and accompanied by a copy of the
certificate or report thereon of the independent certified public
accountants or, in the alternative, a report on Form 10-K or
Form 10-KSB for such fiscal year; and
(iv) Copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange or
Nasdaq.
(i) The Company will file with the Commission in a timely manner all
reports on Form SR required by Rule 463 and will furnish to you copies of
any such reports as soon as practicable after the filing period.
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(j) During the period that the Company is required to furnish reports
pursuant to paragraph g above, the Company will notify you promptly of
the commencement of any litigation or proceedings against the Company or
any of its officers.
(k) The Company will apply the net proceeds from the sale of the
Debentures in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(l) The Company shall cooperate with the Underwriter and its counsel in
connection with their investigation of the Company and related matters
and shall furnish to the Underwriter or its counsel all such information
and documents as may be requested.
(m) The Company agrees that from the date of its execution of this
Agreement to the Final Closing Date, it will issue press releases, make
public statements and respond to inquiries of the press and securities
analysts only (i) in accordance with its obligations under the Securities
Exchange Act of 1934, as amended, after conferring with its counsel or
(ii) after conferring with its counsel and with the consent of the
Underwriter.
(n) The Company will not claim the benefit of any usury laws against
any holders of the Debentures.
(o) The Company will provide the Underwriter with copies of
certificates and supporting documentation furnished to the Trustee
pursuant to the Indenture or otherwise.
(p) Continue to appoint its current auditors or any replacement firm of
auditors acceptable to you to audit its financial statements.
(q) The Company will pay, in addition to the Underwriter Commission and
discount, management fee and non-accountable expense allowance (as
described in paragraph 3(b) hereof), upon the closing of the sale of any
of the Debentures, (a) all expenses related to the subject matter of this
Agreement including: (i) all expenses incident to the issuance and
delivery of the Debentures; (ii) all expenses incident to the
preparation, printing, filing and delivery of the Registration Statement,
each Preliminary Prospectus, the Prospectus, and any amendments,
supplements or submissions related thereto (including preparing exhibits
for registration), provided that the Company shall only be responsible
for the first $20,000 of the expenses charged by Merrill Corporation, as
financial printer, for services rendered in Edgarizing, editing and
filing the Registration Statement and printing and delivering the
Prospectuses; (iii) all expenses incident to the preparation, filing,
delivery and qualification of the Indenture and any amendments,
supplements or submissions related thereto; (iv) all Commission, National
Association of Securities Dealers, Inc. ("NASD") and state securities or
Blue Sky filing fees; (v) the cost of all certificates representing the
Debentures; (vi) the fees and expenses of the Trustee and paying agent
under the Indenture; (vii) the cost of printing and distributing all
documents related to the offering; (viii) the cost of preparing two
leather bound volumes of all documents (Closing Books) related to the
offering to be delivered to the Underwriter; (ix) the fees and expenses
of the Company's independent accounts, including the cost of "cold
comfort" review; (x) the fees and expenses of legal counsel for the
Company; and (xi) an accountable expense allowance to the Underwriter not
to exceed $120,000.
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Whether or not the transactions contemplated hereunder are consummated,
the Company shall reimburse the Underwriter for all its costs, fees and
expenses incurred in connection with the performance of the Underwriter's
obligations hereunder, including, without limiting the generality of the
foregoing, (i) all fees and expenses of legal counsel for the Underwriter
incurred in registering the Debentures for sale under the securities or
blue sky laws of such states as the Underwriter may designate, preparing
the Registration Statement, Indenture and this Agreement and in
connection with review of the Underwriter's compensation by the NASD;
(ii) all costs and expenses incurred in connection with the preparation,
filing and distribution of the Registration Statement, each preliminary
prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements thereto; (iii) all
advertising, marketing and sales expenses incurred in connection with the
sale of the Debentures; and (iv) any and all expenses of the Underwriter
in connection with this Agreement and the sale of the Debentures.
Notwithstanding the obligations of the Company to reimburse the
Underwriter for its expenses pursuant to the first paragraph of the
subsection 5(q) above, in the event that the Underwriter fails to perform
its obligations under this Agreement, through no fault of the Company or
any third party not affiliated with the Underwriter, the Company shall
reimburse the Underwriter for its expenses up to $75,000. The
Underwriter acknowledges that it has received $25,000 from the Company as
an advance against the Company's expense reimbursement obligations.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter and the closing and sale of the Debentures as contemplated
herein shall be subject to the accuracy of the representations and warranties of
the Company herein as of the date hereof, the Effective Date, and each Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, or otherwise, to the performance by the Company of its
covenants and agreements hereunder, and to the following additional conditions.
(a) The Registration Statement shall have become effective not later
than 4:30 p.m. Minneapolis, Minnesota time on the date of this Agreement
or such later time and date as shall have been consented to by you
(referred to herein as the "Effective Date") and all filings required by
Rule 424 and/or Rule 430A under the Act shall have been timely made; no
stop orders suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have
been instituted or threatened or shall be contemplated by the Commission
or by any blue sky or state securities authority; and all requests of the
Commission or blue sky or state securities authorities for additional
information (to be included in the Registration Statement or Prospectus
or a supplement thereto or otherwise) shall have been complied with to
your satisfaction.
(b) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or any supplement thereto
contains an untrue statement of material fact or omits to state a
material fact which is required to be stated therein or is necessary to
make the statements therein not misleading.
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<PAGE>
(c) You and your counsel shall have been furnished with such documents
and information as you or they may have requested.
(d) You shall have received the opinion of Shefsky & Froelich, Ltd.,
legal counsel for the Company, dated as of each Closing Date, in the form
attached hereto as Exhibit A.
(e) At the time of execution of this Agreement and also at each Closing
Date, you shall have received from Ernst & Young, LLP, a letter or
letters, dated the date of delivery thereof, stating that they are
independent public accountants with respect to the Company within the
meaning of the Act and that:
(i) In their opinion, the financial statements included in the
Registration Statement and Prospectus and reported on therein by
them comply as to form in all material respects with the applicable
accounting requirements of the Act;
(ii) On the basis of a limited review (but not an examination in
accordance with generally accepted auditing standards) consisting
of a reading of the unaudited financial statements included in the
Registration Statement and Prospectus (if any) and the latest
available interim financial statements of the Company subsequent
thereto; a reading of the minutes of the board of directors and
shareholders of the Company subsequent thereto; and inquiries of
officials of the Company responsible for financial and accounting
matters and such other inquiries and procedures as may be specified
in such letter and agreed upon by you, nothing has come to their
attention that causes them to believe that:
a) The unaudited financial statements included in the
Registration Statement and Prospectus, if any, do not
comply as to form in all material respects with the
applicable accounting requirements of the Act or that such
financial statements are not fairly presented in conformity
with generally accepted accounting principles applied on a
basis consistent with that of the audited financial
statements included in the Registration Statement and
Prospectus;
b) As of a specified date not more than five days prior
to the date of this Agreement or each Closing Date, as
applicable, there have been any changes in the capital
stock, increases in long term or short term debt, decreases
in total accounts receivable, or total inventories of the
Company or any increase in liabilities or decreases in net
current assets or stockholders' equity of the Company, in
each case, as compared with amounts shown in the most recent
balance sheet included in the Prospectus except, in each
case, for changes, decreases or increases, as appropriate,
which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
c) For the period from the date of the most recent
balance sheet included therein to such specified date, there
was any decrease, as compared with the corresponding period
of the previous year, in net revenues or any decrease in
income from operations or net income or in primary or fully-
diluted per share
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amounts of net income except, in each case, for such
decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter.
(iii) In addition to the examination referred to in their report
included in the Prospectus and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in
clause (ii) above, they have carried out certain specified
procedures requested by you, not constituting an audit in
accordance with generally accepted auditing standards with respect
to certain amounts, percentages and other financial information
which are derived from the accounting records and other financial
and statistical data of the Company which appear in the Prospectus
and which are specified by you and have compared certain of such
amounts, percentages and financial information with the accounting
records and other appropriate data of the Company and have found
them to be in agreement.
In the event that the letters to be delivered pursuant to
this subparagraph (e) shall set forth any changes, increases or
decreases, it shall be a further condition to the Underwriter's
obligation that you, in your sole discretion, shall have
determined, after discussion with officers of the Company
responsible for financial and accounting matters and with Ernst &
Young, LLP, that such changes, increases or decreases as set forth
in such letters do not reflect a material adverse change in the
capital stock, short-term or long-term debt, net assets, net
current assets, total accounts receivable, total inventories or
stockholders' equity of the Company as compared with the amount
shown in the most recent balance sheet of the Company included in
the Prospectus or material adverse change in revenues or the total
or per share amounts of net income (loss).
(f) On each Closing Date, you shall have received a certificate, dated
such date, of the President and the Chief Financial Officer of the
Company to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of such date
and the Company has performed all obligations and satisfied all
conditions on its part to be performed or satisfied at or prior to
such date;
(ii) The Commission has not issued any order suspending the
effectiveness of the Registration Statement and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all statements
and information required to be included therein and neither the
Registration Statement nor the Prospectus nor any amendment nor any
supplement thereto includes any untrue statement of a material fact
or misstates any material fact required to be stated therein or
necessary to make the statements therein not misleading and since
the Effective Date, there has occurred no event required to be set
forth in an amendment to the Registration Statement or supplement
to the Prospectus which has not been so set forth.
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<PAGE>
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and prior to
the date of such certificate, and except as set forth or
contemplated in the Registration Statement or the Prospectus:
(A) the Company has not incurred, except in the ordinary course of
business, any lease obligations or any direct or contingent
liabilities or commitments, (B) the Company has not entered into
any transaction other than in the ordinary course of business,
(C) the Company has not paid or declared any dividends or other
distributions on its capital stock, (D) there has not been any
change in the capital stock or any material adverse change,
increase or decrease in the short-term or long-term debt, total
accounts receivable, total inventories, net assets, net current
assets or stockholders' equity of the Company or any material
adverse change in or affecting the condition (financial or
otherwise), business, key personnel, properties, assets, results of
operations (present or prospective), or net worth of the Company
and (E) no legal or governmental proceeding affecting the Company
or the transactions contemplated hereby has been instituted or
threatened;
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the
conduct of the business and operations of the Company has not,
except as otherwise stated therein, been materially interfered with
by strike, fire, flood, hurricane, accident, or other calamity
(whether or not insured) or by any court, arbitrator or
governmental action, order or decree and, except as otherwise
expressly stated therein, the properties of the Company have not
sustained any material loss or damage (whether or not insured) as a
result of any such occurrence; and
(vi) That Attachment A to this certificate is a complete and
accurate description of all transactions between the Company and
its Subsidiaries and their affiliates, and Attachment B is a
complete and accurate description of all outstanding
indebtedness of the Company and its Subsidiaries as of the date of
this Agreement.
(g) The Company shall have filed a Form 8(a) with the Commission and
shall be registered under the Securities Exchange Act of 1934, as
amended.
(h) The Underwriters shall have been paid the Underwriters' Commissions
pursuant to Section 3 hereof and the Underwriters' expenses pursuant to
Section 5(q) hereof.
(i) The Debentures shall have been qualified for sale under the Blue
Sky laws of such states and in such amounts as shall have been specified
by the Underwriter.
(j) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred:
(i) Any change or development involving a prospective change in
or affecting particularly the business or properties of the Company
which in the judgment of the Managing Underwriters materially
impairs the investment quality of the Debentures;
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(ii) Any suspension or limitation of trading in securities
generally on the New York Stock Exchange, the American Stock
Exchange, Nasdaq, or any setting of minimum prices for trading on
either such exchange or on Nasdaq or any suspension of trading of
any securities of the Company;
(iii) Any banking moratorium;
(iv) Any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or
emergency if, in the judgment of the Underwriter, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes
it impractical or inadvisable to proceed with completion of the
sale of and payment for the Debentures;
(v) Any material adverse change in existing financial, political
or economic conditions in the United States or elsewhere which
change, in your opinion, has materially and adversely affected the
market for the Debentures or other securities of the Company or the
prospects for the Company, its business or its properties; or
(vi) Any substantial loss to the Company by strike, fire, flood,
accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the
Company regardless of whether such loss shall have been insured.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are
satisfactory in form and substance to you and to your counsel. If
any of the conditions specified in this section shall not have been
fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriters hereunder may be canceled
at, or at any time prior to, the applicable Closing Date by you.
Any such cancellation shall be without liability of the
Underwriters to the Company and shall be in writing or by telegraph
or telephone and confirmed in writing. The Managing Underwriters
may waive in writing the nonperformance by the Company of any one
or more of the foregoing conditions or extend the time for
performance of such conditions. Each such waiver shall be
applicable only to the item to which it relates and the closing to
which it relates and no waiver or series of waivers shall be deemed
to have waived any condition at any time other than the condition
at the time explicitly waived.
7. INDEMNIFICATION.
The Company will indemnify and hold harmless the Underwriter, each
officer and director of the Underwriter and each person, if any, who controls
such Underwriter within the meaning of the Act, against any loss, claim, damage
or liability, joint or several, to which the Underwriter, such officer or
director of the Underwriter, or such controlling person may become subject under
the Act or otherwise, insofar as such loss, claim, damage or liability (or
action in respect thereof) arises out of or is based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement
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thereto, or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter, each
officer and director of each Underwriter, and each such controlling person for
any legal or other expenses incurred by such Underwriter, such officer or
director of such Underwriter, or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
The Company shall reimburse the Underwriters for any legal or other reasonable
expenses incurred by the Underwriters in connection with investigating or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action notwithstanding the possibility
that the payments for such expenses might later be held to be improper in which
case the person receiving them shall promptly refund them. Notwithstanding the
foregoing covenant of indemnity, the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, the Preliminary Prospectus,
the Prospectus or such amendment or such supplement in reliance upon and in
conformity with written information furnished to the Company by you specifically
for use therein, or in any application or other statement executed by you filed
in any jurisdiction in order to qualify the Debentures under, or exempt the
Debentures or the sale thereof from qualification under, the securities or blue
sky laws of such jurisdiction. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(a) The Underwriters will indemnify and hold harmless the Company, each
of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the
meaning of the Act, against any loss, claim, damage or liability to which
the Company or any such director, officer, or controlling person may
become subject, under the Act or otherwise, insofar as such loss, claim,
damage or liability (or action in respect thereof) arises out of or is
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arises out of or is based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company
by you specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability which the
Underwriters may otherwise have.
(b) Promptly after receipt by any party under this Section 7 of notice
of the commencement of any action, such party will, if a claim for
indemnity in respect thereof is to be made against another party (the
"Indemnifying Party") under this Section 7, notify the Indemnifying Party
in writing of the commencement thereof and shall make available all
pleadings and all other documents served related thereto, upon request;
but the omission so to notify the Indemnifying Party will not relieve it
from any liability which it may have to such party other than under this
Section 7. In case any such action is brought against any party, and
such party notifies the Indemnifying Party of the commencement thereof,
the Indemnifying Party will be entitled to participate therein with the
notifying party and any other Indemnifying
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Party similarly notified, and, to the extent that it may wish, jointly
with any other Indemnifying Party similarly notified, to assume the
defense thereof, with counsel satisfactory to the notifying party;
provided, however, if the defendants in any such action include both the
indemnified party and the Indemnifying Party and the indemnified party
shall have reasonably concluded that there may be legal defense(s)
available to it and/or other indemnified parties which are different from
or additional to those available to the Indemnifying Party, the
indemnified party or parties shall have the right to select separate
counsel to assume the indemnified party's (or parties') defense and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the
Indemnifying Party to such indemnified party of its election so to assume
the defense of such action and approval by the indemnified party of
counsel, the Indemnifying Party will not be liable to such indemnified
party under this Section 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless: (i) the indemnified party shall have employed such counsel in
accordance with the provisions of the next preceding sentence (it being
understood, however, that the Indemnifying Party shall not be liable for
the expenses of more than one separate counsel representing all the
indemnified parties under this Section 7 who are parties to such action);
(ii) the Indemnifying Party shall not have employed counsel satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action; or (iii) the
Indemnifying Party has authorized the employment of counsel for the
indemnified party at the expense of the Indemnifying Party.
(c) An Indemnifying Party shall not be liable for settlement of any
such action effected without its written consent but if settled with the
written consent of the Indemnifying Party, or if there be a final
judgment for the plaintiff in any such action, the Indemnifying Party
agrees to indemnify and hold harmless each indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(d) The indemnity agreements contained in this Section 7 and the
representations, warranties, agreements, covenants, indemnities and the
statements of the Company and its officers set forth in or made pursuant
to this Agreement shall remain operative and in full force and effect,
regardless of: (i) any investigation made by or on behalf of the
Underwriters or any director or officer or person controlling the
Underwriters or by or on behalf of the Company or any director or officer
or person who controls the Company; (ii) acceptance of any Debentures and
payment therefor hereunder; and (iii) any termination of this Agreement.
A successor of an Underwriter or of the Company or any person controlling
an Underwriter or the Company, or any officer or director of the Company,
as the case may be, shall be entitled to the benefits of the indemnity
and reimbursement agreements contained in this Section 7.
8. CONTRIBUTION.
(a) If the indemnification provided for in Section 7 is unavailable to
or insufficient to hold harmless an indemnified party under subsections
(a) or (b) thereof, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the
losses, claims, damages, or liabilities referred to in subsections (a) or
(b) of Section 7 above, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
the Underwriter on the other hand from the offering of the Debentures, or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, then in such
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proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Company on the one hand and the Underwriter on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Underwriter
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (a) were to be
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the first sentence of this subsection (a). The amount paid by an
indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (a)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending against any action or claim which is the subject of this
subsection (a). Notwithstanding the provisions of this subsection (a),
an Underwriter shall not be required to contribute any amount in excess
of the amount by which the total price at which the Debentures
underwritten by such Underwriter are offered and distributed to the
public exceeds the amount of any damage that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation.
(b) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each officer or director
of an Underwriter and each person, if any, who controls an Underwriter
within the meaning of the Act; and each Underwriter's obligations under
this Section 8 shall be in addition to any liability that the Underwriter
may otherwise have and shall extend upon the same terms and conditions to
each director of the Company, to each officer of the Company who has
signed the Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
(c) The obligations of the Company pursuant to this Section 8 shall
survive any termination of this Agreement.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE. The respective
indemnities, agreements, representations, warranties, covenants or other
statements of the Company as set forth in or made pursuant to this Agreement and
the indemnity and contribution agreements of the Compay and the Underwriter
contined in Sections 7 and 8, respectively, shall survive and remain in full
force and effect regardless of any (i) investigation made by or on behalf of any
party or any of its directors, officers, or controlling persons; (ii) delivery
of and payment for the Debentures; (iii) the Final Closing Date; and (iv) any
successor of the Company and the Underwriter or any controlling person, officer
or director thereof, as the case may be, shall be entitled to the benefits
thereof.
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10. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 10:00 a.m. Minneapolis
time, on the day which you shall commence selling the Original Debentures
to the public, or at such earlier time as the Underwriter shall release
the Debentures for sale to the public. You shall notify the Company
immediately after you have taken any action which causes this Agreement
to become effective. Until this Agreement is effective, it may be
terminated by the Company or by you by giving notice as hereinafter
provided, except that the provisions of 5(q) and Sections 6 and 7 shall
at all times be effective. For purposes of this Agreement, the
commencement of the sale of the Debentures shall mean the time of the
release by the Underwriter for publication of the first newspaper
advertisement which is subsequently published related to the Debentures,
or the time of the first mailing of copies of the Prospectus related to
the stock which are subsequently delivered, whichever shall first occur.
This Agreement shall, nevertheless become effective at such time earlier
than the time specified above, after the Effective Date; as the
Underwriter may determine by notice to the Company.
(b) This Agreement shall automatically terminate at the expiration of
six months from the Effective Date, unless extended by agreement of the
Parties, or earlier by the Underwriter by notice to the Company in the
event that the Company shall have failed or been unable to comply with
any of the terms, conditions, or provisions of this Agreement on the part
of the Company to be performed, complied with or fulfilled (including but
not limited to those specified in Sections 2, 3, 4, 5 and 6 hereof)
within the respective times provided for on each Closing Date, unless
compliance therewith or performance or satisfaction thereof shall have
been expressly waived by the Underwriter in writing (the "Termination
Date"), except that Sections 5, 7, 8 and 9 shall at all times be
effective and bind all the Parties. In addition, this Agreement may be
terminated on or at any time prior to the first Closing Date by agreement
of the parties or by the Underwriter, by written or telegraphic notice to
the Company, if there shall have occurred:
(i) Any change or development involving a prospective change in
or affecting particularly the business or properties of the Company
which in the judgment of the Underwriter materially impairs the
investment quality of the Debentures;
(ii) Any suspension or limitation of trading in securities
generally on the New York Stock Exchange, the American Stock
Exchange, Nasdaq, or any setting of minimum prices for trading on
either such exchange or on Nasdaq or any suspension of trading of
any securities of the Company;
(iii) Any banking moratorium;
(iv) Any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or
emergency if, in the judgment of the Underwriter, the effect of any
such outbreak, escalation, declaration, calamity or emergency makes
it impractical or inadvisable to proceed with completion of the
sale of and payment for the Debentures;
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(v) Any material adverse change in existing financial, political
or economic conditions in the United States or elsewhere which
change, in your opinion, has materially and adversely affected the
market for the Debentures or other securities of the Company or the
prospects for the Company, its business or its properties; or
(vi) Any substantial loss to the Company by strike, fire, flood,
accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the
Company regardless of whether such loss shall have been insured.
(c) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party other than as provided
in Sections 5(t), 7 and 8 hereof.
11. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriter, will be mailed, delivered or telegraphed and confirmed
to the Underwriter at Miller & Schroeder Financial, Inc., 220 South Sixth
Street, Suite 300, Minneapolis, Minnesota 55402, Attention: Theodore G. Glasrud,
Corporate Capital Group, with a copy to Fredrikson & Byron, P.A., 1100
International Centre, 900 Second Avenue South, Minneapolis, MN 55402, Attention
Daniel Yarano; or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at United Homes, Inc., 2100 Golf Road, Suite
110, Rolling Meadows, IL 60008-4220, Attention David L. Feltman, or to such
other address of which a party hereto shall notify the other party hereto
pursuant to this paragraph.
12. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Company, and their successors and legal
representatives, and nothing in this Agreement is intended or shall be construed
to give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person, except that the representations and warranties of the Company contained
in this Agreement shall also be for the benefit of any person or persons who
control the Underwriters within the meaning of Section 15 of the Act. No
purchaser of Units will be deemed a successor because of such purchase.
13. INFORMATION FURNISHED BY THE UNDERWRITER. The statements set forth
in the last paragraph on the cover page, the stabilization ledgered on the
inside front cover and the statements under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the only written
information furnished by, or on behalf of, the Underwriter specifically for use
with reference to the Underwriter referred to in Section 1(c) and Section 7
hereof.
14. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the substantive laws of the State of Minnesota without regard
to its choice of laws provisions.
15. COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts taken together shall constitute the
single Agreement of the parties.
16. AMENDMENT. This Agreement may be amended upon written agreement
between the Managing Underwriters and the Company.
26
<PAGE>
17. MISCELLANEOUS. Your rights and obligations hereunder shall not be
assignable without the written consent of the Company.
18. TIME. The Company and the Underwriter agree that time shall be of
the essence with respect to this Agreement and the performance and completion of
the terms, conditions and provisions set forth and contemplated herein.
19. HEADINGS. The headings and captions used in this Agreement are for
convenience only and shall not affect the meaning of the provison thereof.
Very truly yours,
UNITED HOMES, INC.
By:
-------------------------
Its:
-------------------------
The foregoing is agreed to and accepted
this _____ day of ___________, 1997.
- ------------------------------------------
Miller & Schroeder Financial, Inc.
<PAGE>
[LETTERHEAD]
June 30, 1997
Mr. Edward F. Havlik
United Homes, Inc.
2100 Golf Road, Suite 110
Rolling Meadows, IL 60008-4220
Dear Mr. Havlik:
We are pleased to submit this letter of intent which sets forth certain of
the terms and conditions on which Miller & Schroeder Financial, Inc. ("M&S")
would assist United Homes, Inc. ("United" or the "Company") in obtaining
capital for its land development and home building business. Specifically,
United has expressed an interest in retaining M&S to assist with the public
placement of subordinated debentures in the approximate amount of $6,000,000.
Although the final terms of the debenture offering are subject to further
discussions between United and M&S, the parties agree that the starting point
for such discussions are the terms and conditions on the attached summary of
proposed terms.
Specifically, in connection with raising this capital as the managing
underwriter, we propose to:
1. provide the Company with advice on the structure, pricing, and timing of
the offering;
2. assist the Company and its advisors in preparing the required offering
materials including the securities registration and disclosure documents
(including a prospectus), an agreement among underwriters, and an
underwriting agreement between the Company the underwriting syndicate;
3. distribute the appropriate offering materials to prospective underwriters
and invite them to become members of the underwriting syndicate;
4. direct the distribution of the prospectus to potential investors;
5. assist the Company in preparing for presentations to underwriters and
potential investors as well as arranging for such meetings;
6. assist the Company in negotiating final terms and definitive
documentation; and
7. direct the purchase and distribution of the debentures.
<PAGE>
Assuming matters proceed smoothly, we expect these tasks to take
approximately 12 to 16 weeks to complete from the date we are engaged.
Our fee for underwriting the units will be 9% plus a 3% non-accountable
expense allowance, $25,000 of which is payable in advance upon signing this
letter.
We are most excited about the prospect of working with United Homes. In our
judgment, the Company's historical earnings and its strong growth prospects
make United a very attractive client for Miller and Schroeder Financial. We
expect to successfully complete the transaction in a timely and professional
manner and look forward to a long and mutually profitable relationship. If
you agree that this letter of intent states the essential facts of our
agreement, please execute and return one copy to us by July 2, 1997.
Sincerely,
MILLER & SCHROEDER FINANCIAL, INC.
By: /s/ Illegible
-------------------------------
Its: Vice President
-------------------------------
UNITED HOMES, INC.
Agreed and accepted this __ day of ___________, 1997
By:
-------------------------------
Its:
-------------------------------
<PAGE>
SUMMARY OF PROPOSED TERMS
$6,000,000
THE OFFERING
The Issuer........................United Homes, Inc., an Illinois
corporation, or its successor (the
"Company").
The Managing Underwriter..........Miller & Schroeder Financial, Inc. (the
"Managing Underwriter").
The Offering Securities...........Up to 6,000 Subordinated Debentures, each
with a par value of $1,000 for gross
proceeds of $6 million, with a final
maturity approximately seven and one-half
(7.5) years from the date of closing and
interest only for the first two (2) years
(the "Debentures").
The Trustee.......................The Debentures will be issued pursuant to
an indenture between the Company and
American National Bank (the "Trustee").
Type of Offering.................."Best-efforts" public offering registered
with the Securities and Exchange Commission.
Use of Proceeds...................The net proceeds of the offering will be
used to fund the Company's planned growth.
Rating............................The Debentures will not be rated.
Subordination.....................The Debentures will be junior, subordinate,
and subject in right of payment to the
prior payment of all Senior Debt, but will
be senior in right of payment to any Debt
held by an affiliate or subsidiary of the
Company, except as described in the
prospectus, whether outstanding at closing
or created thereafter. The term "Senior
Debt" will be defined to include all Debt
of the Company and its consolidated
subsidiaries other than Subordinated Debt.
"Subordinated Debt" will mean all Debt
which contains, or has applicable thereto,
subordination provisions. "Indebtedness"
will mean all obligations which in
accordance with generally accepted
accounting principle are classified as
liabilities upon a balance sheet. "Debt"
will mean the sum of Indebtedness for
borrowed money regardless of date due,
obligations for rentals under any
capitalized leases, and guaranties of the
Indebtedness of others.
Interest Payments.................Interest on the Debentures will be paid at
an annual rate currently expected to be
between 11.5% and 12.0% beginning on the
15th day of the third full month after the
final closing and quarterly thereafter
until final maturity (each an "Interest
Payment Date").
Principal Payments................Beginning with the eighth (8th) Interest
Payment Date (the "Initial Amortization
Date") and semi-annually thereafter until
final maturity (each a "Principal Payment
Date"), principal of $83.33 per Debenture,
or $500,000 in aggregate, will be due and
payable. On the final maturity of the
Debentures, all remaining outstanding
principal, expected to be $83.33 per
Debenture, or $500,000 in aggregate, will
be due and payable.
Optional Prepayments..............The Company may pre-pay principal, on a
pro-rata basis on whole or in part in
minimum aggregate amounts of $100,000, on
any Principal Payment Date as par plus
accrued interest plus a premium. If
principal is prepaid during the first year
after the closing date, a 5% premium will
be due. After such date, the premium due
will decline at the rate of 1% per year,
with no premium due after the fifth
anniversary of issuance.
Events of Default.................Without limitation, events of default under
the indenture with respect to the
Debentures will include:
<PAGE>
1. failure to pay any interest when due
continued for 15 days thereafter;
2. failure to pay any principal or premium
when due;
3. failure to perform any covenant or the
breach of any representation or warranty;
4. certain defaults on other financial
obligations of the Company or its
consolidated subsidiaries; and
5. certain events of bankruptcy.
Covenants.........................In general, expected to be consistent with
the business objectives of the Company, but
in any case may include the following,
subject to a cure period, if applicable:
1. negative covenants may include:
a. a restriction on dispositions of
assets and changes in lines of
business;
b. a restriction on permitted
investments;
c. a restriction on mergers,
acquisitions, and consolidations;
d. a restriction on transactions with
affiliates;
2. financial covenants will relate to:
a. the maintenance of an acceptable
level of net worth;
b. the incurrence of additional debt;
c. the maintenance of adequate coverage
of interest and fixed charges;
d. a restriction on dividends and stock
repurchases;
3. reporting requirements will call for the
delivery of:
a. quarterly financial statements
certified by an officer of the Company;
b. annual financial statements audited
by a nationally-recognized firm of
independent public accountants; and
c. such other reports and compliance
certificates as the Managing
Underwriter may specify.
Conditions Precedent..............Without limitation, conditions precedent
to closing will include:
1. Approval of the Managing Underwriter's
credit committee;
2. the Managing Underwriter's review of,
and satisfaction with:
a. the Company's historical and
projected financial statements and
business plan;
b. the adequacy of the insurance
policies carried by the Company;
c. the Company's level of compliance
with all applicable federal, state,
and local laws and regulations;
d. the written opinions of counsel as to
the definitive documentation relating
to the Debentures; and
3. the Managing Underwriter's satisfaction
to the effect that:
a. the offer, sale, and purchase of the
Debentures will be in full compliance
with all applicable securities laws
and regulations;
b. any and all approvals required in
connection with the sale of the
Debentures have been obtained and
remain in effect.
Estimated Closing Date............Closing is expected to occur within 12 to
16 weeks after the execution of the Letter
Agreement.
Underwriting Spread...............The Managing Underwriter will purchase
Debentures at a discount of 9% from the
public offering price, the amount of which
will provide for compensation for
underwriting and distributing the
Debentures.
Fees and Expenses.................The Company will pay to the Managing
Underwriter at closing, a non-accountable
expense allowance equal to 3% of the par
amount of the Debentures sold. The Company
will be responsible for its own
<PAGE>
customary fees and expenses including its
own legal fees, accounting fees, Trustee
fees, registration fees, and the first
$20,000 of printing fees. In the event that
the Managing Underwriter fails to complete
the Financing through no fault of the
Company nor of any third party not affiliated
with the Managing Underwriter, the Managing
Underwriter's expense reimbursement will be
limited to $75,000. Upon the execution of
the Letter Agreement, the Company will
deposit $25,000 with the Managing
Underwriter as an advance against this
expense reimbursement.
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
UNITED HOMES, INC.,
As Issuer
AND
NATIONAL CITY BANK OF MINNEAPOLIS,
As Trustee
--------------------------------
INDENTURE
Dated as of October ___, 1997
--------------------------------
___ % Mandatory Redemption Debentures Due March 15, 2005
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
INDENTURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION. . . . . . . . . . . . .2
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . 11
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . 11
SECTION 104. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 105. Notices, etc., to Trustee and Company. . . . . . . . . . . . 13
SECTION 106. Notice to Debentureholders; Waiver . . . . . . . . . . . . . 13
SECTION 107. Effect of Headings and Table of Contents . . . . . . . . . . 14
SECTION 108. Successors and Assigns . . . . . . . . . . . . . . . . . . . 14
SECTION 109. Separability Clause. . . . . . . . . . . . . . . . . . . . . 14
SECTION 110. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . 14
SECTION 111. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 112. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 113. Immunity of Incorporators, Stockholders, Officers
and Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DEBENTURE FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 201. Form Generally . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 202. Form of Face of Debentures . . . . . . . . . . . . . . . . . 16
SECTION 203. Form of Reverse Side of Debenture. . . . . . . . . . . . . . 19
SECTION 204. Form of Certificate of Authentication and Form of
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
THE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 301. Title and Terms Generally. . . . . . . . . . . . . . . . . . 23
SECTION 302. Denominations. . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . 24
SECTION 304. Temporary Debentures . . . . . . . . . . . . . . . . . . . . 24
SECTION 305. Registration, Transfer, and Exchange . . . . . . . . . . . . 25
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures . . . . . . 26
i
<PAGE>
SECTION 307. Payments of Principal and Interest; Rights Preserved . . . . 27
SECTION 308. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . 28
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 310. Computation of Interest. . . . . . . . . . . . . . . . . . . 29
SECTION 311. Authentication and Delivery of Original Issue. . . . . . . . 29
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 401. Satisfaction and Discharge of Indenture. . . . . . . . . . . 30
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . 31
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 501. Events of Default. . . . . . . . . . . . . . . . . . . . . . 32
SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . 33
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . 35
SECTION 505. Trustee May Enforce Claims Without Possession of
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . 36
SECTION 507. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . 37
SECTION 508. Unconditional Right of Debentureholders to Receive
Principal, Premium and Interest. . . . . . . . . . . . . . . . . . . 38
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . 38
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . 38
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . 38
SECTION 512. Control by Debentureholders. . . . . . . . . . . . . . . . . 38
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . 39
SECTION 514. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . 39
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . 39
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 601. Certain Duties and Responsibilities. . . . . . . . . . . . . 41
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . 42
SECTION 603. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . 42
SECTION 604. Not Responsible for Recitals or Issuance of
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 605. Trustee May Hold Debentures. . . . . . . . . . . . . . . . . 43
SECTION 606. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . 44
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . 44
ii
<PAGE>
SECTION 608. Disqualification; Conflicting Interests. . . . . . . . . . . 44
SECTION 609. Trustee Required; Eligibility. . . . . . . . . . . . . . . . 49
SECTION 610. Resignation and Removal; Appointment of Successor. . . . . . 49
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . 51
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 613. Preferential Collection of Claims Against Company. . . . . . 51
SECTION 614. Appointment of Authenticating Agent. . . . . . . . . . . . . 55
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . 58
SECTION 701. Company to Furnish Trustee Names and Addresses of
Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 702. Preservation of Information; Communications to
Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 703. Reports by the Company . . . . . . . . . . . . . . . . . . . 59
SECTION 704. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . 63
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . 63
SECTION 802. Successor Substituted. . . . . . . . . . . . . . . . . . . . 64
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 901. Supplemental Indentures Without Consent of
Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 902. Supplemental Indentures with Consent of
Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . 66
SECTION 904. Effect of Supplemental Indentures. . . . . . . . . . . . . . 66
SECTION 905. Reference in Debentures to Supplemental Indentures . . . . . 66
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 1001. Payment of Principal and Interest . . . . . . . . . . . . . 68
SECTION 1002. Maintenance of Office or Agency.. . . . . . . . . . . . . . 68
SECTION 1003. Money for Debenture Payments to be Held in Trust. . . . . . 68
SECTION 1004. Maintenance of Corporate Existence, Licensing and
Rights; Existing Business. . . . . . . . . . . . . . . . . . . . . . 70
SECTION 1005. Payment of Taxes and Assessments. . . . . . . . . . . . . . 70
iii
<PAGE>
SECTION 1006. Maintenance of Properties, Insurance; Books and
Records; Compliance with Law . . . . . . . . . . . . . . . . . . . . 70
SECTION 1007. Limitation on Additional Indebtedness . . . . . . . . . . . 71
SECTION 1008. Limitations on Restricted Payments. . . . . . . . . . . . . 72
SECTION 1009. Limitation on Transactions with Affiliate Loans . . . . . . 72
SECTION 1010. Limitation on Dividends and Other Payment
Restrictions Affecting a Subsidiary. . . . . . . . . . . . . . . . . 73
SECTION 1011. Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1012. Limitations on Compensation . . . . . . . . . . . . . . . . 73
SECTION 1013. Limitations on Investments. . . . . . . . . . . . . . . . . 74
SECTION 1014. Additional Liens; Negative Pledges. . . . . . . . . . . . . 74
SECTION 1015. Payments on Subordinated Debt . . . . . . . . . . . . . . . 75
SECTION 1016. Waiver of Certain Covenants . . . . . . . . . . . . . . . . 75
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
MANDATORY AND OPTIONAL REDEMPTION OF DEBENTURES. . . . . . . . . . . . . . . . 77
SECTION 1101. Mandatory Redemption. . . . . . . . . . . . . . . . . . . . 77
SECTION 1102. Optional Redemption . . . . . . . . . . . . . . . . . . . . 77
SECTION 1103. Applicability of Article. . . . . . . . . . . . . . . . . . 77
SECTION 1104. Election to Redeem; Notice to Trustee.. . . . . . . . . . . 78
SECTION 1105. Selection by Trustee of Debentures to Be Redeemed . . . . . 78
SECTION 1106. Notice of Redemption. . . . . . . . . . . . . . . . . . . . 78
SECTION 1107. Deposit of Redemption Price . . . . . . . . . . . . . . . . 79
SECTION 1108. Debentures Payable on Redemption Date . . . . . . . . . . . 79
iv
</TABLE>
<PAGE>
INDENTURE
THIS INDENTURE, dated as of October ___, 1997, between United Homes,
Inc., an Illinois corporation (the "Company"), having its principal office at
2100 Golf Road, Suite 110, Rolling Meadows, IL 60008-4220 and National City
Bank of Minneapolis, a national banking association with trust powers (the
"Trustee"), having its principal office at 651 Nicollet Mall, Minneapolis,
Minnesota 55402-1611.
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized an issue of its ___% Mandatory Redemption Debentures (the
"Debentures") in the aggregate principal amount of up to Seven Million
Dollars ($7,000,000), to be issued as fully registered Debentures without
coupons, to be authenticated by the Certificate of the Trustee, to be payable
and to be redeemable all as hereinafter provided; and
WHEREAS, the Trustee has power to enter into this Indenture and to
accept and execute the trusts herein created; and
WHEREAS, the Company represents that all acts and things necessary to
make the Debentures, when executed by the Company and authenticated and
delivered by the Trustee as in this Indenture provided and issued, the valid,
binding and legal obligations of the Company, and to constitute this
instrument a valid indenture and agreement according to its terms, have been
done and performed, and the execution of this Indenture and the issue
hereunder of the Debentures have in all respects been duly authorized, and
the Company, in the exercise of each and every right and power in it vested,
executes this Indenture and proposes to make, execute, issue and deliver the
Debentures.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in order to provide for
the payment of the principal of, premium, if any, and interest on the
Debentures issued under this Indenture according to their tenor and effect
and the performance and observance of each and all of the covenants and
conditions herein and therein contained, for and in consideration of the
premises and of the purchase and acceptance of the Debentures by the
respective purchasers thereof and for other good and valuable consideration,
the receipt whereof is hereby acknowledged, the Company has executed and
delivered this Indenture in trust for the equal and proportionate benefit,
security and protection of all of the Holders of Debentures issued or to be
issued under and secured by this Indenture, without preference, priority or
distinction as to lien or otherwise of any of the Debentures over any of the
others;
THIS INDENTURE FURTHER WITNESSETH, that the Company has agreed and
covenanted with the respective Debentureholders from time to time as follows:
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ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act of 1939, as amended (the "TIA"), either directly or by
reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein," "hereof " and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Adjusted Consolidated Tangible Net Worth" means, with respect to any
Person at any date of determination, such Person's Consolidated Tangible Net
Worth less any loans to Affiliates (other than Subsidiaries).
"Adjusted Total Liabilities" means, Total Liabilities less non-interest
bearing trade payables, non-interest bearing accrued cost of construction and
deposits from home buyers.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified 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. Without limiting the generality of the foregoing, at the date of
this Indenture, the "Affiliates" of the Company include any Subsidiary.
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Debentures.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the city in which
the principal office of the Trustee is located are authorized or obligated by
law or executive order to close.
"Capitalized Lease Obligation" means any lease or other agreement for
the use of property which, in accordance with GAAP, should be capitalized on
the lessee's or user's balance sheet.
"Cash Equivalents" means, with respect to any Person at any date of
determination, any of the following held by such Person on a consolidated
basis, (i) any evidence of Indebtedness with a maturity of 180 days or less
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances with a maturity of 180
days or less of, or a savings account in, any financial institution that is a
member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $25,000,000; (iii) commercial paper with a
maturity of 180 days or less issued by a corporation (except any Affiliate of
the Company) organized under the laws of any state of the United States of
America or the District of Columbia and rated at least A-1 by Standard &
Poor's Corporation or at least P-1 by Moody's Investors Service, Inc.; (iv)
repurchase agreements and reverse repurchase agreements relating to
marketable obligations issued or unconditionally guaranteed by the United
States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing
within one year from the date of acquisition; provided, however, that the
terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the Comptroller of the Currency; (v) instruments backed
by letters of credit issued by financial institutions satisfying the
conditions of (ii) above; and (vi) mutual funds or similar securities, not
less than 80% of the assets of which are invested in securities of the type
referred to in clauses (i) through (v).
"Certificate of Independent Public Accountants" means a certificate
signed by Ernst & Young, LLP, or any other independent public accountant or
firm of independent public accountants (who may be the independent public
accountants regularly retained by the Company) reasonably acceptable to the
Trustee. Such accountant or firm shall be entitled to rely upon any Opinion
of Counsel as to the interpretation of any legal matters relating to such
certificate. The acceptance by the Trustee of, or its actions on, such a
certificate shall be sufficient evidence that such accountant is reasonably
acceptable to the Trustee. Any certificate or opinion of any independent firm
of public accountants filed with the Trustee shall contain a statement that
such firm is Independent.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
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amended, or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, then the body performing such duties at such time.
"Common Stock" means the Company's Common Stock, no par value,
authorized at the date this Indenture is executed, whether voting or
non-voting, and shares of any class or classes resulting from any
reclassification or reclassifications thereof which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and also
shall include stock of the Company of any other class, whether now or
hereafter authorized, which ranks, or is entitled to a participation, as to
assets or dividends, substantially on a parity with such Common Stock or
other class of stock into which such Common Stock may have been changed;
provided however, that warrants or other rights to purchase Common Stock will
not be deemed to be Common Stock.
"Company" means United Homes, Inc., an Illinois corporation, until a
successor Person shall have become such pursuant to the provisions of this
Indenture and thereafter "Company" shall mean such successor Person.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by its President or any
Vice President, and by its Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary, and delivered to the Trustee.
"Company Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors of the Company and to be in full force and effect
on the date of such certification and delivered to the Trustee.
"Consolidated" when used in conjunction with any other defined term
means the aggregate amount of the items included within the defined term of
the Company on a consolidated basis in accordance with GAAP, eliminating
inter-company items.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the net income of such Person and its Subsidiaries,
for such period, on a Consolidated basis, determined in accordance with GAAP,
provided that extraordinary gains and losses (determined in accordance with
GAAP) shall be excluded.
"Consolidated Tangible Net Worth" means, with respect to any Person at
any date of determination, the Consolidated stockholders' equity represented
by the shares of such Person's capitalized stock (other than Disqualified
Stock) outstanding at such date, as determined on a Consolidated basis in
accordance with GAAP less any portion of such stockholders' equity
attributable to intangible assets as determined in accordance with GAAP.
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"Corporate Trust Office," when used with respect to the Trustee means
the principal office of the Trustee in Minneapolis, Minnesota, at which at
any particular time its corporate trust business shall be administered, which
office is on the date of this Indenture located at 651 Nicollet Mall,
Minneapolis, Minnesota 55402-1611, or the office of any successor Trustee.
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 305.
"Debentureholder" means a Person in whose name a Debenture is registered
on the Debenture Register, or the beneficial owner of such Debentures if
record ownership is held by a nominee.
"Debentures" means the ___% Mandatory Redemption Debentures issued
pursuant to this Indenture.
"Default" means any event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Defaulted Principal" has the meaning specified in Section 307.
"Disqualified Stock" means, with respect to any Person, any capital
stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is exchangeable for Indebtedness, or is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the Stated Maturity of the Debentures.
"Dividends" means payments in respect of the Company's Common Stock in
either cash or property, but shall not include payments solely in Common
Stock or distributions in the form of rights to acquire Common Stock.
"Eligible Person" means an employee or agent of the Company.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" means the statement of operations, balance sheet,
and/or statement of cash flows of any Person prepared in accordance with GAAP.
"GAAP" means generally accepted accounting principles, consistently
applied.
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"Guaranty" by any Person means any obligations, including letters of
credit, both standby and irrevocable in nature, other than endorsements in
the ordinary course of business of negotiable instruments for deposit or
collection, guaranteeing any Indebtedness, dividend, or other obligation of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor; (ii) to advance or supply funds for the purchase or payment of such
Indebtedness or obligation, or to maintain working capital or other balance
sheet condition, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation; (iii) to lease
property or to purchase securities or other property or services primarily
for the purpose of assuring the owner of such Indebtedness or obligation of
the ability of the primary obligor to make payment of the Indebtedness or
obligation; or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purposes of all computations made under this definition, a Guaranty in
respect of any Indebtedness for borrowed money shall be deemed to be equal to
the principal amount of such Indebtedness which has been guaranteed, and a
Guaranty in respect of any other obligation, liability, or dividend shall be
deemed to be equal to the maximum aggregate amount of such obligation,
liability or dividend.
"Holder" when used with respect to any Debenture means a Debentureholder.
"Indebtedness" means, with respect to any Person at any date, without
duplication, all items of indebtedness which, in accordance with GAAP, would
be included in determining total liabilities as shown on the liabilities side
of a balance sheet of such Person at such date, and in addition shall include
(i) Guaranties by such Person, (ii) all Capitalized Lease Obligations of such
Person, and (iii) all indebtedness secured by any mortgage, lien, pledge,
charge or encumbrance upon property owned by such Person, whether or not the
indebtedness so secured has been assumed by such Person. For the purpose of
computing the "Indebtedness" of any Person, there shall be excluded any
particular Indebtedness to the extent that, upon or prior to the maturity
thereof, there shall have been deposited with the proper depository in trust
the necessary funds, securities, or evidences of such Indebtedness, if
permitted by the instrument creating such Indebtedness, for the payment,
redemption, or satisfaction of such Indebtedness, and thereafter such funds
and evidences of Indebtedness so deposited shall not be included in any
computation of the assets of such Person.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Independent" when used with respect to any specified Person means such
a Person who (i) is in fact independent, (ii) does not have any direct
financial interest or any material indirect financial interest in the Company
or in any other obligor upon the Debentures or in any Affiliate of the
Company or of such other obligor, and (iii) is not connected with the Company
or such other obligor or any Affiliate of the Company or of such other
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obligor, as an officer, employee, promoter, organizer, underwriter, trustee,
partner, director or Person performing similar functions. Whenever it is
herein provided that any Independent Person's opinion or certificate shall be
furnished to the Trustee, such Person shall be appointed by a Company Order,
and such opinion or certificate shall state that the signer has read this
definition and that the signer is Independent within the meaning hereof.
"Initial Amortization Date" means the date of the eighth (8th) Interest
Payment Date.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
"Inventory" means, with respect to any Person, all assets of such Person
classified as inventory on a Consolidated basis in accordance with GAAP.
"Investments" means the acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real
or personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase stock or other debt or equity securities of or any interest in
another Person or any integral part of any business or the assets comprising
such business or part thereof.
"Issue Date" means the date on which the Debentures are originally
issued in accordance with the terms of this Indenture.
"Lien" means any mortgage, lien (statutory or other), pledge, security
interest, encumbrance, hypothecation, assignment for security or other
security agreement of any kind or nature whatsoever, whether arising by
agreement or operation of law. For purposes of this Indenture, a Person
shall be deemed to own subject to a Lien any property which it has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale agreement, Capital Lease Obligation or other title retention agreement
relating to Indebtedness of such Person.
"Maturity" when used with respect to any Debenture, means the date on
which the principal of such Debenture becomes due and payable as therein or
herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, call for redemption or otherwise.
"Net Income" means, with respect to any Person for any period, the net
income or loss of such Person determined in accordance with GAAP.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors, Chief Executive Officer, President, Chief Financial
Officer, or Executive Vice President of the Company, and delivered to the
Trustee.
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"Opinion of Counsel" means a written opinion of counsel, who may be
(except as otherwise expressly provided in this Indenture) counsel for the
Company, and who shall be acceptable to the Trustee.
"Original Interest Accrual Date" as to any Debenture, means the date
from which interest shall begin to accrue in connection with the original
issuance of such Debenture, which shall be October ___, 1997, or with respect
to any Debenture sold after any quarterly Interest Payment Date, the most
recent Interest Payment Date.
"Outstanding," when used with respect to Debentures, means, as of the
date of determination, all Debentures theretofore authenticated and delivered
under this Indenture, except: (i) Debentures theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation; (ii) Debentures for
whose payment or redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such
Debentures, provided that if such Debentures are to be redeemed notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; (iii) Debentures in
exchange for or in lieu of which other Debentures have been authenticated and
delivered pursuant to this Indenture; provided, however, that in determining
whether the Debentureholders of the requisite principal amount of the
Outstanding Debentures have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Debentures owned by the
Company or any other obligor upon the Debentures or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Debentures which the Trustee knows to be so
owned shall be so disregarded. Debentures so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Debentures and that the pledgee is not the Company or any other obligor
upon the Debentures or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Debentures on behalf of
the Company. Unless otherwise specified in a Company Order, the Paying Agent
shall initially be the Trustee.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Debenture" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by
such particular Debenture. For purposes of this definition, any Debenture
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authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence
the same debt as the mutilated, destroyed, lost or stolen Debenture.
"Principal Payment Date" means the Maturity of the principal on the
Debentures.
"Redemption Date," when used with respect to any Debenture to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Debenture to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the fifteenth day (whether or not a Business Day) of the calendar
month next preceding such Interest Payment Date, and "Regular Record Date"
for the principal payable on any Principal Payment Date means the fifteenth
day (whether or not a Business Day) of the calendar month next preceding such
Principal Payment Date.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any executive vice president,
any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, or any other
employee of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of such person's knowledge of and familiarity
with the particular subject.
"Restricted Payment" means: (i) the declaration or payment of any
dividend or any other distribution on the capital stock of the Company or any
Subsidiary of the Company or any payment made to the direct or indirect
holders (in their capacities as such) of the capital stock of the Company or
any Subsidiary of the Company (other than (x) dividends or distributions
payable solely in capital stock or in options, warrants or other rights to
purchase capital stock, and (y) in the case of any Subsidiary of the Company,
dividends or distributions payable to the Company or to a Subsidiary of the
Company), or (ii) the purchase, redemption or other acquisition or retirement
for value of any capital stock of the Company or any Subsidiary. If a
Restricted Payment is made in other than cash, the value of any such payment
shall be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Company Resolution to be
filed with the Trustee. For purposes of this definition, "Restricted
Payment" shall not include (a) payments made in the form of the Company's
common stock, or (b) purchases of common stock of a Wholly-Owned Subsidiary
of the Company.
"S Corp Tax Dividends" means, for any taxable year during which the
Company is an S corporation (within the meaning of the Code), those dividends
declared by the Company's Board of Directors in an amount necessary to enable
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the Company's shareholders to pay their S corporation tax burden, provided
such amount shall not exceed 100% of the amount the Company would be required
to pay in taxes if the Company were a C corporation (within the meaning of
the Code) for tax purposes.
"Special Record Date" for the payment of any Defaulted Interest or
Defaulted Principal means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Debenture or any
installment of interest thereon, means the date specified in such Debenture
as the fixed date on which such Debenture is due and payable or such
installment of interest on such Debenture is due and payable.
"Subordinated Debt" means any and all Indebtedness of the Company
created, incurred, assumed or guaranteed by the Company before, at or after
the date of execution of this Indenture which, by the terms of the instrument
(or any supplemental instrument) creating or evidencing such Indebtedness or
pursuant to which such Indebtedness is outstanding it is provided that such
Indebtedness, or any renewal, extension, or refunding thereof, is expressly
subordinate and junior in right of payment to the Debentures (whether or not
subordinated to any other Indebtedness of the Company). "Subordinated Debt"
shall include any Indebtedness of the Company to Affiliates of the Company
and any Indebtedness incurred by the Company under any agreement to redeem or
repurchase any securities of the Company.
"Subsidiary" means any corporation, more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by
one or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors or trustees,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"Total Liabilities" means, at the time of any determination, the amount,
on a consolidated basis, of all items of the Company and its Subsidiaries
that would constitute "liabilities" for balance sheet purposes in accordance
with GAAP.
"Trust Estate" means all rights, interest and property which has been
collaterally assigned to the Trustee.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant
to the applicable provisions of the Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"Vice President" when used with respect to the Trustee or the Company,
means any vice president, whether or not designated by a word or words added
before or after the title "vice president."
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"Wholly-Owned" when used in connection with any Subsidiary, means a
Subsidiary of which all of the issued and outstanding shares of voting stock,
except shares required as directors' qualifying shares, are owned by the
Company and/or one or more of its Wholly-Owned Subsidiaries. For purposes of
this definition, "voting stock" shall have the same meaning as in the
definition of Subsidiary.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish
to the Trustee upon request an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any,
have been complied with, except that in the case of any such application or
request as to which the furnishing of such documents is specifically required
by any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished. Every
certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(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 each such individual, such
individual has made such examination or investigation as is necessary to
enable such individual 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, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows or in the exercise of
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reasonable prudence should know that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate or
Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel
knows or in the exercise of reasonable prudence should know that the
certificate or opinion or representations with respect to such matters are
erroneous.
Any certificate or opinion of an officer of the Company or any Opinion
of Counsel may be based, insofar as it relates to accounting matters, upon a
certificate, statement or opinion of an accountant or firm of accountants,
unless such officer or counsel, as the case may be, knows or in the exercise
of reasonable prudence should know that the certificate, statement or opinion
with respect to the accounting matters upon which such certificate or opinion
is based is erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may be consolidated and form one
instrument.
SECTION 104. ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Debentureholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Debentureholders in person or
by an agent duly appointed in writing. Except as therein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as
the "Act" of the Debentureholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and (subject to
Section 601) conclusive in favor of the Trustee and the Company, if made in
the manner provided in this Section.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to such witness, notary
public or other officer the execution thereof. Where such execution is by a
signer acting in a capacity other than such person's individual capacity,
such certificate or affidavit shall also constitute sufficient proof of such
person's authority. The fact and date of the execution of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient.
(3) The ownership of Debentures shall be proved by the Debenture
Register.
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(4) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon
the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Debenture.
SECTION 105. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Debentureholders or other document provided or permitted by this
Indenture to be made upon, given or furnished to or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, specified in the first
paragraph of this instrument, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing to
the Trustee by the Company.
SECTION 106. NOTICE TO DEBENTUREHOLDERS; WAIVER.
Where this Indenture or any Debenture provides for notice to
Debentureholders of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder, or if the terms herein provide
for notice to less than all Debentureholders, then to such Debentureholders
as to whom notice may be required to be sent, at each such Holder's address
as it appears on the Debenture Register, not later than the latest date and
not earlier than the earliest date prescribed for the giving of such notice.
In any case where notice to Debentureholders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Debentureholders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall
be the equivalent of such notice. Waivers of notice by Debentureholders shall
be filed with the Trustee, but such filing shall not be a condition precedent
to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee
shall constitute notification for every purpose hereunder.
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SECTION 107. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 109. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 110. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Debentures, expressed or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders of Debentures, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 111. GOVERNING LAW.
This Indenture and the Debentures shall be governed by and construed in
accordance with the laws of the State of Minnesota, without giving effect to
the conflict of laws principles thereof.
SECTION 112. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Principal Payment Date,
Redemption Date or Stated Maturity of any Debenture shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or of the
Debentures) payment of interest or principal (and premium, if any) need not
be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date,
Principal Payment Date, Redemption Date, or at the Stated Maturity; provided
that no interest shall accrue for the period from and after any such Interest
Payment Date, Principal Payment Date, Redemption Date or Stated Maturity, as
the case may be.
SECTION 113. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.
No recourse shall be had for the payment of the principal of, or the
premium, if any, or interest on, any Debenture, or for any claim based
thereon or otherwise in respect thereof or of the indebtedness represented
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thereby, or upon any obligation, covenant or agreement of this Indenture,
against any incorporator, stockholder, employee, officer or director, as
such, past, present or future, of the Company, either directly or through the
Company, whether by virtue of any constitutional provision, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise. It
is expressly agreed and understood that this Indenture and the Debentures are
solely corporate obligations, and that no personal liability whatsoever shall
attach to, or be incurred by, any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company, either directly
or through the Company, because of the incurring of the indebtedness hereby
authorized or under or by reason of any of the obligations, covenants,
promises or agreements contained in this Indenture or in any of the
Debentures or to be implied herefrom or therefrom. All liability, if any, of
that character against every such incorporator, stockholder, officer and
director, by the acceptance of the Debentures and as a condition of, and as
part of the consideration for the execution of this Indenture and the issue
of the Debentures, is expressly waived and released.
END OF ARTICLE ONE.
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ARTICLE TWO
DEBENTURE FORM
SECTION 201. FORM GENERALLY.
The Debentures and the Trustee's Certificate of Authentication shall be
in substantially the form set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such
Debentures, as evidenced by their execution of the Debentures. Any portion
of the text of any Debenture may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange or other market on which the Debentures may be listed or included,
all as determined by the officers executing such Debentures, as evidenced by
their execution of such Debentures.
SECTION 202. FORM OF FACE OF DEBENTURES.
UNITED HOMES, INC.
Incorporated Under the Laws of Illinois
___% MANDATORY REDEMPTION DEBENTURE
Registered No.: Registered Principal
_______________ Amount: $_____
Original Interest Accrual CUSIP:________
Date: ___________________
United Homes, Inc., a corporation created under the laws of the State of
Illinois (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to ______________________ or registered assigns, the
principal sum of ______________ Thousand Dollars ($______) on March 15, 2005
(the "Final Maturity Date") and to pay interest hereon from the Original
Interest Accrual Date set forth above, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, beginning
on March 15, 1998 ("Initial Interest Payment Date") and on the 15th day of
each March, June, September, and December thereafter until fully paid (each
such date being an "Interest Payment Date"), at the rate of ____ percent
(___%) per annum, until the principal hereof is paid or made available for
payment. The principal hereof is subject to optional and mandatory
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redemption, in whole but not in part, as provided in the Indenture, and if
not so redeemed, shall be due and payable in full on the Final Maturity Date
(any date set for principal payment is the "Principal Payment Date"). The
principal and interest so payable and punctually paid or duly provided for on
any Principal Payment Date or Interest Payment Date, as provided in the
Indenture, will be paid to the Person in whose name this Debenture (or one or
more Predecessor Debentures) is registered (the "Holder") at the close of
business on the Regular Record Date for such principal or interest, which
shall be the fifteenth day (whether or not a Business Day) of the calendar
month next preceding such Principal Payment Date or Interest Payment Date.
Any such principal or interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Debenture (or one or
more Predecessor Debentures) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Principal or Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to
Debentureholders not less than 10 days prior to such Special Record Date, or
be paid at any time in any other lawful manner not inconsistent with the
applicable requirements of any securities exchange or market on which the
Debentures may be listed or included, and upon such notice as may be required
by such exchange or market, all as more fully provided in the Indenture.
Payment of the principal of and interest (and premium, if any) on this
Debenture will be made at the office or agency maintained by the Company for
such purpose in Minneapolis, Minnesota, or in such other office or agency as
may be selected by the Company in accordance with the Indenture, in such coin
or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, provided, however, that
at the option of the Company payment of interest may be made in United States
dollars by check mailed to the address of the Person entitled thereto as such
address shall appear in the Debenture Register. THE HOLDER MUST PRESENT THIS
DEBENTURE TO COLLECT PRINCIPAL; AND WHEN FULLY PAID, THE DEBENTURE SHALL BE
SURRENDERED AND CANCELLED.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee referred to on the reverse hereof by manual
signature, this Debenture shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
No recourse shall be had for the payment of the principal or interest of
this Debenture against any Company stockholder, officer, director, employee
or agent by virtue of any statute or by enforcement of any assessment or
otherwise; and any and all liability of stockholders, directors, officers,
employees and agents of the Company being released hereby.
IN WITNESS WHEREOF, the Company has caused this ___% Mandatory
Redemption Debenture to be signed in its name by the manual or facsimile
signature of its President and attested to by the manual or facsimile
signature of its Secretary.
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Dated: _____________ UNITED HOMES, INC.
By ____________________________
, President
Attest:
_____________________________________
, Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
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SECTION 203. FORM OF REVERSE SIDE OF DEBENTURE.
This Debenture is one of a duly authorized issue of % Mandatory
Redemption Debentures of the Company designated as its % Mandatory
Redemption Debentures (the "Debentures") in the maximum aggregate principal
amount of up to $7,000,000, issued and to be issued under an Indenture, dated
as of October ___, 1997 (the "Indenture"), between the Company and National
City Bank of Minneapolis, as Trustee (the "Trustee", which term includes any
successor Trustee under the Indenture). Reference is hereby made to the
Indenture and all indentures supplemental thereto for a statement of the
respective rights, limitation of rights, duties and immunities thereunder of
the Company, the Trustee and the Debentureholders, and for a statement of the
terms upon which the Debentures are, and are to be, authenticated and
delivered. Capitalized and certain other terms used herein and not otherwise
defined have the meanings set forth in the Indenture.
The Debentures are general unsecured obligations of the Company.
The Debentures are subject to redemption (either at the option of the
Company or upon call by the Trustee) in whole at any time or in part from
time to time. Beginning on the Initial Amortization Date and semiannually
thereafter until final maturity, the Trustee shall redeem a portion of the
Outstanding Debentures, chosen by lot, at a Redemption Price equal to par,
plus interest accrued to the date of redemption. The Company may, at its
option, at any time on or after December 15, 1997, redeem the Debentures
either as a whole or from time to time in part in a minimum aggregate
principal amount of $100,000, chosen by lot, at the following Redemption
Prices (expressed in percentages of the principal amount thereof), together
with interest accrued and unpaid thereon to the Redemption Date (which shall
be an Interest Payment Date), if redeemed during the twelve month period
beginning December 15, in each of the following years:
2002 and
1997 1998 1999 2000 2001 thereafter
---- ---- ---- ---- ---- ----------
Redemption Price:......... 105% 104% 103% 102% 101% 100%
Notice of redemption will be mailed at least 30 days, but not more than
60 days, before the Redemption Date to the Holder at the registered address
thereof.
If this Debenture shall be redeemed by call for redemption, and payment
be duly provided therefor as specified in the Indenture, interest shall cease
to accrue on this Debenture.
Interest installments whose Stated Maturity is on or before the
Redemption Date will be payable to the Holders of such Debentures, or one or
more of the Predecessor Debentures, of record at the close of business on the
relevant Record Date referred to on the face hereof, all as provided in the
Indenture.
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If an Event of Default as defined in the Indenture shall occur and be
continuing, the outstanding principal of all the Debentures may be declared
due and payable in the manner and with the effect provided in the Indenture.
The Company shall pay all costs of collection, whether or not judicial
proceedings are instituted, in the manner provided in the Indenture. The
Indenture provides that such declaration and its consequences may, in certain
events, be annulled by the Holders of a majority in principal amount of the
Debentures Outstanding.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Debentureholders under the Indenture at any
time by the Company and the Trustee with the consent of the Debentureholders
of two-thirds in aggregate principal amount of the Debentures at the time
Outstanding. The Indenture also contains provisions permitting the
Debentureholders of specified percentages in aggregate principal amount of
the Debentures at the time Outstanding, on behalf of the Holders of all of
the Debentures, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Debenture
shall be conclusive and binding upon such Holder and upon all future Holders
of this Debenture and of any Debenture issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture or amendment or modification hereof or thereof shall
alter or impair the obligation of the Company to pay the principal of and
interest (and premium, if any) on this Debenture at the times, place and rate
and in the coin or currency herein prescribed.
In the event of a consolidation or merger of the Company into, or of the
transfer of its assets substantially as an entirety to, a successor
corporation in accordance with the Indenture, such successor corporation
shall assume payment of the Debentures and the performance of every covenant
of the Indenture on the part of the Company, and in the event of any such
transfer, the predecessor corporation shall be discharged from all
obligations and covenants in respect of the Debentures and the Indenture and
may be dissolved and liquidated, all as more fully set forth in the Indenture.
The Debentures are issuable only in registered form without coupons in
denominations of $1,000 or any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the
Debentures are exchangeable for a like aggregate principal amount of
Debentures of a different authorized denomination, as requested by the Holder
surrendering the same; and, the transfer of this Debenture is registerable in
the Debenture Register, upon surrender of this Debenture for registration of
transfer at the office or agency of the Company in any place where the
principal of and interest on this Debenture are payable, duly endorsed by or
accompanied by a written instrument of transfer in the form printed on this
Debenture or in another form satisfactory to the Company and the Debenture
Registrar duly executed by the Holder hereof or such Holder's attorney duly
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authorized in writing, and thereupon one or more new Debentures, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees. No service charge shall
be made for any such registration of 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.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Debenture is registered as the owner
hereof for all purposes, whether or not this Debenture be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
This Debenture shall be governed by and construed in accordance with the
laws of the State of Minnesota.
All terms used in this Debenture which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
SECTION 204. FORM OF CERTIFICATE OF AUTHENTICATION AND FORM OF ASSIGNMENT.
[Form of Certificate of Authentication]
National City Bank of Minneapolis, as Trustee, certifies that this
Debenture is one of the % Mandatory Redemption Debentures issued by
United Homes, Inc., an Illinois corporation, referred to in the
within-mentioned Indenture.
Dated: _________________ NATIONAL CITY BANK OF
MINNEAPOLIS, as Trustee
By _________________________
Authorized Signature
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[Form of Assignment]
(To be executed by the registered holder if such holder desires to
transfer this Debenture)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print name and address of transferee)
this Debenture, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint __________________, as Attorney, to
transfer the within Debenture on the books kept for registration thereof,
with full power of substitution.
Dated: _________________________
Signature: _______________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Debenture)
Social Security
or Other Identifying
Number of Transferee: ______________________________
Signature Guaranteed:
END OF ARTICLE TWO.
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ARTICLE THREE
THE DEBENTURES
SECTION 301. TITLE AND TERMS GENERALLY.
The aggregate principal amount of Debentures which may be authenticated
and delivered under this Indenture is limited to $7,000,000, except for
Debentures authenticated and delivered upon transfer of, or in exchange for,
or in lieu of other Debentures pursuant to Section 304, 305, 306, or 905.
Forthwith upon the execution and delivery of this Indenture, or from time to
time thereafter, Debentures up to a maximum aggregate principal amount of
$7,000,000 may be executed by the Company and delivered to the Trustee for
authentication, and shall thereupon be authenticated and delivered by the
Trustee upon Company Order, without any further action by the Company.
The Debentures shall be known and designated as the % Mandatory
Redemption Debentures of the Company. The Stated Maturity of the Debentures
shall be March 15, 2005, and each Debenture shall bear interest at the rate
of % per annum on the outstanding balance, until the principal thereof
is paid or made available for payment.
The Debentures shall be dated as provided in Section 303 hereof, shall
bear interest from the Original Interest Accrual Date of such Debenture, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable on each December 15, March 15,
June 15 and December 15, commencing on March 15, 1998, until the principal
thereof is paid or made available for payment.
The Debentures shall be subject to mandatory redemption as provided in
Article Eleven.
The Debentures shall be redeemable at the option of the Company as
provided in Article Eleven.
The principal of (and premium, if any) and interest on the Debentures
shall be payable at the office or agency maintained by the Company in
Minneapolis, Minnesota (initially the principal corporate trust office of the
Trustee), or in any other city or cities as the Company may maintain
additional such offices or agencies pursuant to Section 1002, maintained for
such purpose, provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Debenture Register.
The Debentures are unsecured obligations of the Company.
The Debentures shall be senior in right of payment to all Subordinated
Debt.
The Debentures are an obligation of the Company but not of any Affiliate.
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SECTION 302. DENOMINATIONS.
The Debentures shall be issuable only in registered form without coupons
and in denominations of $1,000 or any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Debentures shall be executed on behalf of the Company by its
President or any Vice President and attested by its Secretary or Assistant
Secretary. The signature of any of these officers on the Debentures may be
manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did
not hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Debentures. The Trustee in accordance
with such Company Order shall authenticate and deliver such Debentures as in
this Indenture provided and not otherwise.
Upon the initial issuance, each Debenture shall be dated October ___,
1997, and thereafter, Debentures issued hereunder shall be dated the date of
their authentication.
No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and delivered hereunder and is entitled
to the benefits of the Indenture.
SECTION 304. TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Debentures which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Debentures, in lieu of which
they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Debentures
may determine, as evidenced by their execution of such Debentures.
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If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation
of definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at any
office or agency of the Company designated pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Debentures, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Debentures of authorized denominations. Until so exchanged the
temporary Debentures shall in all respects be entitled to the same benefits
under this Indenture as definitive Debentures.
SECTION 305. REGISTRATION, TRANSFER, AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office or any other
office or agency pursuant to Section 1002 being herein sometimes referred to
as the "Debenture Register") in which, subject to such reasonable regulations
as it may prescribe, the Company shall provide for the registration of
Debentures and of transfers of Debentures. The Trustee is hereby appointed
"Debenture Registrar" for the purpose of registering Debentures and transfers
of Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Debentures of any authorized denomination, of a like aggregate principal
amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Holder making the exchange is entitle to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be valid obligations of the Company, evidencing the same
debt and entitled to the same benefits under this Indenture as the Debentures
surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer or
for exchange shall be duly endorsed for transfer (if so required by the
Company or the Trustee), or shall be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Debenture Registrar duly
executed by the Holder thereof or such Holder's attorney duly authorized in
writing.
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No service charge shall be made for any registration of transfer or
exchange of Debentures, 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 registration of transfer or exchange of Debentures,
other than exchanges pursuant to Section 304 or 905 not involving any
transfer.
The Company shall not be required to issue or register the transfer of
any Debenture during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Debentures
selected for redemption pursuant to Section 1106 and ending at the close of
business on the day of such mailing.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN DEBENTURES.
If any mutilated Debenture is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Debenture of like series, tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Debenture and
(ii) such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Company or the Trustee
that such Debenture has been acquired by a bona fide purchaser, the Company
shall execute and upon its request the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Debenture, a new
Debenture of like series, tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, the Company in its discretion,
may instead of issuing a new Debenture, may pay such Debenture.
Upon the issuance of any new Debenture under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debenture shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Debentures.
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SECTION 307. PAYMENTS OF PRINCIPAL AND INTEREST; RIGHTS PRESERVED.
Any installment of interest or interest and principal under any
Debenture which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date or Principal Payment Date, as the case may be,
shall be paid to the Person in whose name that Debenture (or one or more
Predecessor Debentures) is registered at the close of business on the Regular
Record Date for such installment.
Any installment of interest or principal and interest on any Debenture
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") or on any
Principal Payment Date (herein called "Defaulted Principal"), as the case may
be, shall forthwith cease to be payable to the Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such Defaulted Interest
or Defaulted Principal, as the case may be, shall be paid by the Company, at
its election in each case, as provided in paragraph (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest or
Defaulted Principal to the Persons in whose names the Debentures (or their
respective Predecessor Debentures) are registered at the close of business on
a Special Record Date for the payment of such Defaulted Interest or Defaulted
Principal, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest or
Defaulted Principal proposed to be paid on each Debenture and the date of the
proposed payment and, at the same time, the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid
in respect of such Defaulted Interest or Defaulted Principal or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest or Defaulted
Principal as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest or Defaulted
Principal which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest or Defaulted Principal and the Special
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder of an affected Debenture at such Holder's address as it appears in the
Debenture Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest or Defaulted
Principal and the Special Record Date therefor having been so mailed, such
Defaulted Interest or Defaulted Principal shall be paid to the Persons in
whose names the Debentures (or their respective Predecessor Debentures) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Paragraph (2).
(2) The Company may make payment of any Defaulted Interest or Defaulted
Principal in any other lawful manner not inconsistent with the requirements
of any securities exchange or market on which the Debentures may be listed or
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included and, upon such notice as may be required by such exchange or market
if, after notice given by the Company to the Trustee of the proposed payment
pursuant to this Clause, such manner of payment shall be deemed practicable
by the Trustee and the Trustee shall have sent written notification to the
Company to such effect.
If any installment of interest whose Stated Maturity is on or prior to
the Redemption Date for any Debentures called for redemption pursuant to
Article Eleven is not paid or duly provided for on or prior to the Redemption
Date in accordance with the foregoing provisions of this Section, such
interest shall be payable as part of the Redemption Price of such Debentures.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Debenture shall carry the rights to
interest accrued and unpaid and to accrue which were carried by such other
Debenture.
All payments of interest on the Debentures to the person entitled
thereto, whether made by the Company, the Trustee or any Paying Agent, as
authorized pursuant to this Indenture, shall be made (subject to collection)
by check mailed to the address of the person entitled thereto as such address
shall appear on the Debenture Register, unless the Trustee determines such
methods to be inappropriate in the circumstances.
Holders must present and surrender the Debentures to collect the
principal of such Debentures.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Debenture for registration of transfer,
the Company, the Trustee, the Debenture Registrar and any agent of the
Company or the Trustee may treat the Person in whose name such Debenture is
registered as the owner of such Debenture for the purpose of receiving
payment (subject to Section 307) of principal of (and premium, if any) and
interest on such Debenture and for all other purposes whatsoever, whether or
not such Debenture be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. CANCELLATION.
All Debentures surrendered for payment, redemption, registration of
transfer or exchange if surrendered to any Person other than the Trustee,
shall be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any
Debentures previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Debentures so delivered
shall be promptly cancelled by the Trustee. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures cancelled as
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provided in this Section, except as expressly permitted by this Indenture.
All cancelled Debentures held by the Trustee shall be disposed of and a
destruction certificate shall be delivered to the Company.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Debentures shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
SECTION 311. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE.
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Debentures up to the aggregate principal amount of
$7,000,000 may be executed by the Company and delivered to the Trustee for
authentication and delivered by the Trustee upon Company Order, without any
further action by the Company.
END OF ARTICLE THREE.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Debentures herein
expressly provided for), and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(a) all Debentures theretofore authenticated and delivered (other
than (i) Debentures which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Debentures for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter paid to the Company or discharged
from such trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(b) all such Debentures not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, or (ii) will become due and
payable at their Stated Maturity within one year, or (iii) are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company; and the Company, in the case of this subsection (b)
(i), (ii) or (iii) above, has deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount sufficient to pay
and discharge the entire indebtedness on such Debentures not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if
any) and interest to the date of such deposit (in the case of Debentures
which have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 shall survive,
and, if the money shall have been deposited with the Trustee pursuant to
subclause (b) of clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
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SECTION 402. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Section 401 shall be
held in trust and applied by it, in accordance with the provisions of the
Debentures and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.
END OF ARTICLE FOUR.
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ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest upon any Debenture when it
becomes due and payable and continuance of such default for a period of 15
days; or
(2) default in the payment of the principal of or premium, if any, on
any Debenture at its Maturity; or
(3) breach of a covenant of the Company contained in Sections 1007,
1008, 1011 or 1012 hereof and the continuance of such breach for a period of
15 days after the due date for filing of the report pursuant to section
703(5) which reports such breach, provided, however, that no Event of Default
shall exist if, prior to the expiration of the 15 day period referred to
above, the Company shall have filed with the Trustee a certification of Ernst
& Young, LLP, or such other certified independent public auditor, certifying
that such breach has been cured; or
(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty default
in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a
period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Debentures, a
written notice (and the Trustee shall give such written notice to the Company
upon the request of the Holders of at least 25% in principal amount of the
Outstanding Debentures) specifying such default or breach and requiring it to
be remedied and stating that such notice is a "Notice of Default" hereunder;
or
(5) a default under any bond, debenture, note or other evidence of
Indebtedness of the Company or any Subsidiary (including obligations under
leases required to be capitalized on the balance sheet of the lessee under
GAAP), or a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or Subsidiary, (including such leases), whether
such indebtedness now exists or shall hereafter be created, which default
shall have resulted in such indebtedness in excess of $100,000 being declared
due and payable prior to the date on which it would otherwise have become due
and payable or such obligations in excess of $100,000 being accelerated,
without such acceleration having been rescinded or annulled or such
Indebtedness shall not have been discharged within a period of 30 days after
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such default or acceleration; provided, however, that this Section 501(5)
shall not apply to (a) a default under any purchase money obligation of the
Company if, and so long as, the Company is in good faith and in the exercise
of its reasonably prudent business judgment, contesting its obligations
thereunder in accordance with a reasonable interpretation of the
documentation of such obligation; or (b) a default in a contractual
obligation not otherwise constituting Indebtedness if and so long as, the
Company is in good faith contesting such obligation and has posted a bond
sufficient to pay such obligation in the event it is determined to be due and
payable; or
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Subsidiary a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Subsidiary, under Federal bankruptcy law, as now or hereafter constituted, or
any other applicable Federal or State bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of sixty (60) consecutive days; or
(7) the commencement by the Company or any Subsidiary of a voluntary
case under Federal bankruptcy law, as now or hereafter constituted, or any
other applicable Federal or State bankruptcy, insolvency, or other similar
law, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under Federal bankruptcy law or any
other applicable Federal or State law, or the consent by it to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or any Subsidiary or
of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company or any Subsidiary in furtherance of any such
action; or
(8) the rendering of a final judgment or judgments (not subject to
appeal) for the payment of money against the Company or any Subsidiary not
fully insured against in an aggregate amount in excess of $250,000 by a court
or courts of competent jurisdiction, which judgment or judgments remain
unsatisfied for a period of 30 days after the right to appeal all such
judgments has expired or otherwise terminated.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debentures may, and the Trustee upon request of the Holders
of not less than 25% in principal amount of the Outstanding Debentures shall,
declare the principal of all the Debentures to be due and payable
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immediately, by notice in writing to the Company (and to the Trustee if given
by Holders), and upon any such declaration such entire principal amount and
all interest shall become immediately due and payable. Collection actions or
judicial proceedings may be commenced as set forth in Section 503.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Debentures, by written notice
to the Company and the Trustee, may rescind and annul such declaration and
its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(a) all overdue installments of interest on all Debentures,
(b) the principal of (and premium, if any, on) any Debentures
which have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Debentures,
(c) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by the
Debentures, and
(d) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and the Holders and their agents and counsel if such
Holders have initiated action in accordance with this Section 502; and
(2) all Events of Default, other than the non-payment of the principal
of Debentures which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
The Company covenants that if
(1) default is made in the payment of any installment of interest on
any Debenture when such interest becomes due and payable and such default
continues for a period of 15 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Debenture at its Maturity,
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the Company will upon demand of the Trustee or Holders of not less than [25%] in
aggregate principal amount of the Outstanding Debentures, pay to the Trustee,
for the benefit of all the Holders of such Debentures, the whole amount then due
and payable on such Debentures for principal, premium, if any, and interest,
with interest upon the overdue principal (and premium, if any) and, to the
extent that payment of such interest shall be legally enforceable, upon overdue
installments of interest, at the rate borne by the Debentures and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel or the Holders
as set forth herein, their agents and counsel, as the case may be, whether or
not judicial proceedings are commenced.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, or the Holders of
not less than 25% in principal amount of the Debentures Outstanding, on
behalf of all Holders, may institute a judicial proceeding for the collection
of the sums so due and unpaid, may prosecute such proceeding to judgment or
final decree and may enforce the same against the Company or any other
obligor upon the Debentures and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company or
any other obligor upon the Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Debentureholders by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
the exercise of any power granted herein, or to enforce any other proper
remedy. Holders of not less than 25% in principal amount of Debentures
Outstanding, on behalf of all Holders, may initiate such appropriate judicial
proceedings in the same manner as the Trustee. The Trustee or the Holders
initiating action hereunder, as the case may be, shall be reimbursed for the
costs of collection incurred as provided for above in this Section 503.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor, the
Trustee (irrespective of whether the principal of the Debentures shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Debentures
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
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reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel) and of the Debentureholders allowed in such judicial
proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar
official in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Debentureholders, to
pay to the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 607 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES.
All rights of action and claims under this Indenture or the Debentures
may be prosecuted and enforced by the Trustee without the possession of any
of the Debentures or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought
in its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
be for the ratable benefit of the Holders of the Debentures in respect of
which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee or the Holders directly pursuant to
this Article shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on
account of principal or interest, upon presentation of the Debentures and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid.
FIRST: to the payment of all amounts due the Trustee under Section 607
hereof;
SECOND: to the payment of the amounts then due and unpaid for costs of
collection, principal, premium, if any, and interest on the Debentures in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Debentures for principal, premium, if any, and
interest, respectively; and
THIRD: to the payment of the remainder, if any, to the Company or any
other person lawfully entitled thereto.
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SECTION 507. LIMITATION ON SUITS.
(a) Prior to the declaration of acceleration provided for in
Section 502 hereof, no Holder of any Debenture shall have any right to
institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Debentures shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 30-day period by the Holders of a majority in
principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Debentureholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Debentureholders, or to obtain or to seek to obtain priority or
preference over any other Debentureholders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all the Debentureholders.
(b) After the declaration of acceleration provided for in Section 502
hereof, Holders of 5% or more in principal amount of Outstanding Debentures
may institute judicial proceedings in respect to such Event of Default which
triggers the declaration of acceleration in their own name in the manner
provided in Section 503 if the Trustee has not instituted such proceedings
within 60 days after such declaration, it being understood that such Holders
shall not have any right in any manner whatever by virtue of, or by availing
of, any provision of the Indenture to affect, disturb or prejudice the rights
of any other Holders of Debentures, or to obtain or to seek to obtain
priority or preference over any other Holders or to enforce any rights under
this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all the Holders of Debentures.
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SECTION 508. UNCONDITIONAL RIGHT OF DEBENTUREHOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of any
Debenture shall have the right to receive payment (subject to Section 307) of
the principal of (and premium, if any) and interest on such Debenture on the
Stated Maturity thereof (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case,
subject to any determination in such proceeding, the Company, the Trustee and
the Debentureholders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the
Trustee and the Debentureholders shall continue as though no such proceeding
had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Debentureholders is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Debenture to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Debentureholders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Debentureholders, as the case may be.
SECTION 512. CONTROL BY DEBENTUREHOLDERS.
The Holders of a majority in principal amount of the Outstanding
Debentures shall have the right to 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 the Trustee, provided that
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(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Debentures may on behalf of the Holders of all the Debentures
waive any past default hereunder and its consequences, provided that a
default in the payment of the principal of, premium, if any, or interest on
any Debenture, or in respect of certain other covenants or provisions hereof
cannot be modified or amended except as set forth in Section 902 hereof.
Upon any such waiver, such default shall cease to exist and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Debenture by
such Holder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require 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, suffered or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by
such party litigant. The provisions of this Section shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than 10% in principal amount
of the Outstanding Debentures, or to any suit instituted by any Holder for
the enforcement of the payment of the principal of, premium, if any, or
interest on any Debenture on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date).
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension 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
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advantage of any such law and covenants that it will not 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.
END OF ARTICLE FIVE.
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ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(1) Except during the continuance of an Event of Default,
(a) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) In case 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 such person's own affairs.
(3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(a) this Subsection shall not be construed to limit the effect of
Subsection (1) (a) of this Section;
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Debentures relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture; and
(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for
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believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(4) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 602. NOTICE OF DEFAULTS.
Within [60] days after the occurrence of any default hereunder, the
Trustee shall transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, notice of such default hereunder
known to a Responsible Officer of Trustee, unless such default shall have
been cured or waived, provided that (i) except in the case of a default in
the payment of the principal of (or premium, if any) or interest on any
Debenture, the Trustee shall be protected in withholding such notice if and
so long as the board of directors, the executive committee or a trust
committee of directors or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interests of the
Debentureholders, and (ii) in the case of any default of the character
specified in Section 501(4), no such notice to Debentureholders shall be
given until at least 30 days after the occurrence thereof. For the purpose
of this Section, the term "default" means any event which is, or after notice
or lapse of time or both would become, an Event of Default.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 601:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note or
other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the board of directors of the Company may be sufficiently
evidenced by a Company Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel (who may be counsel to the
Company) and the advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon;
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(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Debentureholders pursuant to this indenture, unless such
Debentureholders shall have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) prior to the occurrence of an Event of Default hereunder and after
the curing of all Events of Default, the Trustee shall not be bound to make
any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note or other paper or document
unless requested to do so by the Holders of not less than a majority in
aggregate principal amount of the Debentures then outstanding, but the
Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, provided that if the
payment within a reasonable time to the Trustee of the costs, expenses and
liabilities likely to be incurred in the making of such investigation is not,
in the opinion of the Trustee, reasonably assured to the Trustee by the terms
of this Indenture, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding; and
(7) the Trustee shall have no duty to inquire as to the performance of
the Company's covenants in Article Ten. In addition, the Trustee shall not
be deemed to have knowledge of any Default or Event of Default, except (i)
any Default or Event of Default occurring pursuant to Section 501(1), 501(2)
or 1001, or (ii) any Default or Event of Default of which the Trustee shall
have received written notification or obtained actual knowledge.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES.
The recitals contained herein and in the Debentures, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of
this Indenture or of the Debentures. The Trustee shall not be accountable
for the use or application by the Company of Debentures or the proceeds
thereof.
SECTION 605. TRUSTEE MAY HOLD DEBENTURES.
The Trustee, any Authenticating Agent, any Paying Agent, any Debenture
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Debentures and, subject to
Section 612, may otherwise deal with the Company with the same rights it
would have it if were not Trustee, Authenticating Agent, Paying Agent,
Debenture Registrar or such other agent.
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SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided for herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any
of its powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of, premium, if any or interest on
Debentures.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
(1) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section 608, then, within 90 days after ascertaining that it
has such conflicting interest, and if the default (as defined in Section
608(3)) to which such conflicting interest relates has not been cured or duly
waived or otherwise eliminated before the end of such 90-day period, the
Trustee shall either eliminate such conflicting interest or resign in the
manner and with the effect hereinafter specified in this Article.
(2) In the event that the Trustee shall fail to comply with the
provisions of Subsection (1) of this Section, within ten (10) days after the
expiration of such 90-day period, the Trustee shall transmit by mail to all
Debentureholders, as their names and addresses appear in the Debenture
Register, notice of such failure.
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(3) For the purposes of this Section, the Trustee shall be deemed to
have a conflicting interest if:
(a) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the Company are outstanding, unless such other indenture is a
collateral trust indenture under which the only collateral consists of
Debentures issued under this Indenture, provided that there shall be excluded
from the operation of this paragraph any indenture or indentures under which
other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if
(i) this Indenture and such other indenture or indentures are
wholly unsecured and such other indenture or indentures are hereafter
qualified under the Trust Indenture Act, unless the Commission shall have
found and declared by order pursuant to Section 306(b) or Section 307(1) of
the Trust Indenture Act that differences exist between the provisions of this
Indenture and the provisions of such other indenture or indentures which are
so likely to involve a material conflict of interest as to make it necessary
in the public interest or for the protection of investors to disqualify the
Trustee from acting as such under this Indenture and such other indenture or
indentures, or
(ii) the Company shall have sustained the burden of proving,
on application to the Commission and after opportunity for hearing thereon,
that trusteeship under this Indenture and such other indenture or indentures
is not so likely to involve a material conflict of interest as to make it
necessary in the public interest or for the protection of investors to
disqualify the Trustee from acting as such under one of such indentures;
(b) the Trustee or any of its directors or executive officers is
an underwriter for the Company;
(c) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with
an underwriter for the Company;
(d) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of the
Company, or of an underwriter (other than the Trustee itself) for the Company
who is currently engaged in the business of underwriting, except that the
Trustee may be designated by the Company or by any underwriter for the
Company to act in the capacity of transfer agent, registrar, custodian,
paying agent, fiscal agent, escrow agent or depositary, or in any other
similar capacity or, subject to the provisions of paragraph (a) of this
Subsection, to act as trustee, whether under an indenture or otherwise;
(e) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director or executive
officer thereof, or 20% or more of such voting securities is beneficially
owned, collectively, by any two or more of such persons; or 10%
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or more of the voting securities of the Trustee is beneficially owned either
by an underwriter for the Company or by any director, partner or executive
officer of any such underwriter, or is beneficially owned, collectively, by
any two or more such persons;
(f) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), (i) 5% or more of the voting securities, or 10% or more
of any other class of security of the Company not including the Debentures
issued under this Indenture and securities issued under any other indenture
under which the Trustee is also trustee, or (ii) 10% or more of any class of
security of an underwriter for the Company;
(g) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 5% or more of the voting securities of any person who,
to the knowledge of the Trustee, owns 10% or more of the voting securities
of, or controls directly or indirectly or is under direct or indirect common
control with, the Company;
(h) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 10% or more of a class of security of any person who, to
the knowledge of the Trustee, owns 50% or more of the voting securities of
the Company;
(i) the Trustee owns, on the date of default upon the Debentures
or on any anniversary of such default while the default upon the Debentures
remains outstanding, in the capacity of executor, administrator, testamentary
or inter vivos trustee, guardian, committee or conservator, or in any other
similar capacity, an aggregate of 25% or more of the voting securities, or of
any class of security, of any person, the beneficial ownership of a specified
percentage of which would have constituted a conflicting interest under
paragraph (f), (g) or (h) of this Subsection. As to any such securities of
which the Trustee acquired ownership through becoming executor, administrator
or testamentary trustee of an estate which included them, the provisions of
the preceding sentence shall not apply, for a period of two years from the
date of such acquisition, to the extent that such securities included in such
estate do not exceed 25% of such voting securities or 25% of any such class
of security. Promptly after the date of any such default and annually each
succeeding year that the Debentures remain in default, the Trustee shall make
a check of its holdings of such securities in any of the above-mentioned
capacities as of such dates. If the Company fails to make payment in full of
the principal of (or premium, if any) or interest on any of the Debentures
when and as the same becomes due and payable, and such failure continues for
30 days thereafter, the Trustee shall make a prompt check of its holdings of
such securities in any of the above-mentioned capacities as of the date of
the expiration of such 30-day period, and after such date, notwithstanding
the foregoing provisions of this paragraph, all such securities so held by
the Trustee, with sole or joint control over such securities vested in it,
shall, but only so long as such failure shall continue, be considered as
though beneficially owned by the Trustee for the purposes of paragraphs (f),
(g) and (h) of this Subsection; or
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(j) except under the circumstances described in paragraphs (1),
(3), (4), (5) or (6) of Section 311(b) of the Trust Indenture Act, the
Trustee shall be or become a creditor of the Company.
The specification of percentages in paragraphs (e) to (i), inclusive, of
this Subsection shall not be construed as indicating that the ownership of
such percentage of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraph (c) or (g) of this Subsection.
For the purposes of paragraphs (f), (g), (h) and (i) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not
include any note or other evidence of indebtedness issued to evidence an
obligation to repay moneys lent to a person by one or more banks, trust
companies or banking firms, or any certificate of interest or participation
in any such note or evidence of indebtedness; (ii) an obligation shall be
deemed to be "in default" when a default in payment of principal shall have
continued for 30 days or more and shall not have been cured; and (iii) the
Trustee shall not be deemed to be the owner or holder of (A) any security
which it holds as collateral security, as trustee or otherwise, for an
obligation which is not in default as defined in clause (ii) above, or (B)
any security which it holds as collateral security under this Indenture,
irrespective of any default hereunder, or (C) any security which it holds as
agent for collection, or as custodian, escrow agent or depositary, or in any
similar representative capacity.
(4) For the purposes of this Section:
(a) The term "underwriter," when used with reference to the
Company means every person who, within one year prior to the time as of which
the determination is made, has purchased from the Company with a view to, or
has offered or sold for the Company in connection with, the distribution of
any security of the Company outstanding at such time, or has participated or
has had a direct or indirect participation in any such undertaking, or has
participated or has had a participation in the direct or indirect
underwriting of any such undertaking, but such term shall not include a
person whose interest was limited to a commission from an underwriter or
dealer not in excess of the usual and customary distributors' or sellers'
commission.
(b) The term "director" means any director of a corporation or any
individual performing similar functions with respect to any organization,
whether incorporated or unincorporated.
(c) The term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization or a government or political subdivision thereof.
As used in this paragraph, the term "trust" shall include only a trust where
the interest or interests of the beneficiary or beneficiaries are evidenced
by a security.
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(d) The term "voting security" means any security presently
entitling the owner or holder thereof to vote in the direction or management
of the affairs of a person, or any security issued under or pursuant to any
trust, agreement or arrangement whereby a trustee or trustees or agent or
agents for the owner or holder of such security are presently entitled to
vote in the direction or management of the affairs of a person.
(e) The term "Company" means any obligor upon the Debentures.
(f) The term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary and the treasurer
of a corporation, and any individual customarily performing similar functions
with respect to any organization whether incorporated or unincorporated, but
shall not include the chairman of the board of directors.
(g) The term "default" shall mean an Event of Default or an event
which with notice or passage of time, or both, would constitute an Event of
Default.
(5) The percentages of voting securities and other securities specified
in this Section shall be calculated in accordance with the following
provisions:
(a) A specified percentage of the voting securities of the
Trustee, the Company or any other person referred to in this Section (each of
whom is referred to as a "person" in this paragraph) means such amount of the
outstanding voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the aggregate votes
which the holders of all the outstanding voting securities of such person are
entitled to cast in the direction or management of the affairs of such person.
(b) A specified percentage of a class of securities of a person
means such percentage of the aggregate amount of securities of the class
outstanding.
(c) The term "amount," when used in regard to securities, means
the principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares and the number of units if relating to
any other kind of security.
(d) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating
to securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating
to another class of securities of the issuer, if the obligation evidenced by
such other class of securities is not in default as to principal or interest
or otherwise;
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(iii) securities pledged by the issuer thereof as security
for an obligation of the issuer not in default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by the
issuer thereof, provided, that any voting securities of an issuer shall be
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof.
(e) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges, provided, that, in the case of
secured evidences of indebtedness, all of which are issued under a single
indenture, differences in the interest rates or maturity dates of various
series thereof shall not be deemed sufficient to constitute such series
different classes and provided, further, that, in the case of unsecured
evidences of indebtedness, differences in the interest rates or maturity
dates thereof shall not be deemed sufficient to constitute them securities of
different classes, whether or not they are issued under a single indenture.
SECTION 609. TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall (a) be a
corporation or trust company organized and doing business under the laws of
the United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, and (b) have a
combined capital and surplus of at least $25,000,000, subject to supervision
or examination by Federal or State authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of such supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(2) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall
not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such
court may thereupon after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
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(3) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of removal, the Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(4) If at any time:
(a) the Trustee shall fail to comply with Section 608(1) after
written request therefor by the Company or by any Holder who has been a bona
fide Holder of a Debenture for at least six months, or
(b) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Debenture for at least six
months, or
(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, THEN, in any such case, (i) the
Company by a Company Resolution may remove the Trustee, or (ii) subject to
Section 514, any Holder who has been a bona fide Holder of a Debenture for at
least six months, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Company Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Debentures delivered to the Company and the retiring Trustee, the
successor Trustee so appointed, forthwith upon its acceptance of such
appointment, shall become the successor Trustee and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Debentureholders and accepted appointment in
the manner hereinafter provided, any Holder who has been a bona fide holder
of a Debenture for at least six months, on behalf of himself and all others
similarly situated, may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(6) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to all
Debentureholders as their names and addresses appear in the Debenture
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
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SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee, upon payment of its
charges, shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee
and shall duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder, subject
nevertheless to its lien, if any, provided for in Section 607. Upon request
of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such Successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In case any Debentures
shall have been authenticated but not delivered by the Trustee then in
office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
(1) Subject to Subsection (2) of this Section, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of
the Company within three months prior to a default, as defined in Subsection
(3) of this Section, or subsequent to such a default, then, unless and until
such default shall be cured, the Trustee shall set apart and hold in a
special account for the benefit of the Trustee individually, the Holders of
the Debentures and the holders of other indenture securities, as defined in
Subsection (3) of this Section:
(a) an amount equal to any and all reductions in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such three-month period and valid
as against the Company and its other creditors, except any such reduction
resulting from the receipt or disposition of any property described in
paragraph
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(2) of this Subsection, or from the exercise of any right of set off which
the Trustee could have exercised if a petition in bankruptcy had been filed
by or against the Company upon the date of such default; and
(b) all property received by the Trustee in respect of any claims
as such creditor, either as security therefor, or in satisfaction or
composition thereof or otherwise, after the beginning of such three-month
period, or an amount equal to the proceeds of any such property if disposed
of, subject, however, to the rights, if any, of the Company and its other
creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(i) to retain for its own account (A) payments made on
account of any such claim by any Person (other than the Company) who is
liable thereon, (B) the proceeds of the bona fide sale of any such claim by
the Trustee to a third Person, and (C) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Act or applicable State law;
(ii) to realize for its own account upon any property held by
it as security for any such claim, if such property was so held prior to the
beginning of such three-month period;
(iii) to realize for its own account but only to the
extent of the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the beginning of
such three-month period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default, as defined in
Subsection (3) of this Section, would occur within three months; or
(iv) to receive payment on any claim referred to in paragraph
(ii) or (iii), against the release of any property held as security for such
claim as provided in paragraph (ii) or (iii), as the case may be, to the
extent of the fair value of such property.
For the purposes of paragraphs (ii), (iii) and (iv), property
substituted after the beginning of such three-month period for property held
as security at the time of such substitution, to the extent of the fair value
of the property released, shall have the same status as the property released
and, to the extent that any claim referred to in any of such paragraphs is
created in renewal of or in substitution for or for the purpose of repaying
or refunding any preexisting claim of the Trustee as such creditor, such
claim shall have the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held
in such special account and the proceeds thereof shall be apportioned among
the Trustee, the Debentureholders
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and the holders of other indenture securities in such manner that the
Trustee, the Debentureholders and the holders of other indenture securities
realize, as a result of payments from such special account and payments of
dividends on claims filed against the Company in bankruptcy or receivership
or in proceedings for reorganization pursuant to the Federal Bankruptcy Act
or applicable State law, the same percentage of their respective claims,
figured before crediting to the claim of the Trustee anything on account of
the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Debentureholders and the holders of other indenture securities dividends on
claims filed against the Company in bankruptcy or receivership or in
proceedings for reorganization pursuant to the Federal Bankruptcy Act or
applicable State law, but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all sources other
than from such dividends and from the funds and property so held in such
special account. As used in this paragraph, with respect to any claim, the
term "dividends" shall include any distribution with respect to such claim,
in bankruptcy or receivership or proceedings for reorganization pursuant to
the Federal Bankruptcy Act or applicable State law, whether such distribution
is made in cash, securities or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceedings for
reorganization is pending shall have jurisdiction (i) to apportion among the
Trustee, the Debentureholders and the holders of other indenture securities,
in accordance with the provisions of this paragraph, the funds and property
held in such special account and proceeds thereof, or (ii) in lieu of such
apportionment, in whole or in part, to give to the provisions of this
paragraph due consideration in determining the fairness of the distributions
to be made to the Trustee and the Debentureholders and the holders of other
indenture securities with respect to their respective claims, in which event
it shall not be necessary to liquidate or to appraise the value of any
securities or other property held in such special account or as security for
any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to
apply the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of
such three-month period shall be subject to the provisions of this Subsection
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three-month period,
it shall be subject to the provisions of this Subsection if and only if the
following conditions exist: (i) the receipt of property or reduction of
claim, which would have given rise to the obligation to account, if such
Trustee had continued as Trustee, occurred after the beginning of such
three-month period; and (ii) such receipt of property or reduction of claim
occurred within three months after such resignation or removal.
(2) There shall be excluded from the operation of subsection (a) of
this Section a creditor relationship arising from:
(a) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
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(b) advances authorized by a receivership or bankruptcy court of
competent jurisdiction or by this Indenture for the purpose of preserving any
property which shall at any time be subject to the lien of this Indenture or
of discharging tax liens or other prior liens or encumbrances thereon, if
notice of such advances and of the circumstances surrounding the making
thereof is given to the Debentureholders at the time and in the manner
provided in this Indenture;
(c) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar, custodian,
paying agent, fiscal agent or depositary, or other similar capacity;
(d) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction, as defined in Subsection (3) of this
Section;
(e) the ownership of stock or other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve Act,
as amended, which is directly or indirectly a creditor of the Company; and
(f) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper, as defined in Subsection (3) of
this Section.
(3) For the purposes of this Section only:
(a) the term "default" means any failure to make payment in full
of the principal of or interest on any of the Debentures or upon the other
indenture securities when and as such principal or interest become due and
payable;
(b) the term "other indenture securities" means securities upon
which the Company is an obligor outstanding under any other indenture (i)
under which the Trustee is also trustee, (ii) which contains provisions
substantially similar to the provisions of this Section, and (iii) under
which a default exists at the time of the apportionment of the funds and
property held in such special account;
(c) the term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other orders
drawn upon banks or bankers and payable upon demand;
(d) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to, possession
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of, or a lien upon, the goods, wares or merchandise or the receivables or
proceeds arising from the sale of the goods, wares or merchandise previously
constituting the security, provided the security is received by the Trustee
simultaneously with the creation of the creditor relationship with the
Company arising from the making, drawing, negotiating or incurring of the
draft, bill of exchange, acceptance or obligation;
(e) the term "Company" means any obligor upon the Debentures; and
(f) the term "Federal Bankruptcy Act" means the Bankruptcy Act or
Title II of the United States Code.
SECTION 614. APPOINTMENT OF AUTHENTICATING AGENT.
At any time when any of the Debentures remain Outstanding, the Trustee
may appoint an Authenticating Agent or Agents which shall be authorized to
act on behalf of the Trustee to authenticate Debentures issued upon original
issuance, exchange, registration of transfer or partial redemption thereof or
pursuant to Section 307, and Debentures so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Debentures by
the Trustee or the Trustee's certificate of authentication, such reference
shall be deemed to include authentication and delivery on behalf of the
Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $10,000,000 and subject to supervision
or examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of such supervising or examining authority, for the purposes of
this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of an Authenticating Agent, shall continue to be
an Authenticating Agent, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or
any further act on the part of the Trustee or the Authenticating Agent.
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An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to
all Debentureholders as their names and addresses appear in the Debenture
Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent herein. No successor Authenticating Agent shall
be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section, the Debentures may
have endorsed thereon, in lieu of the form of certificate of authentication
set forth in Section 204, a certificate of authentication in the following
form:
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"This is one of the Debentures described in the within mentioned
Indenture."
______________________________________
As Trustee
By ___________________________________
As Authenticating Agent
By ___________________________________
Authorized Signature
END OF ARTICLE SIX.
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ARTICLE SEVEN
DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Company will furnish or cause to be furnished to the Trustee, if not
already provided to the Trustee:
(1) quarterly, not later than first day of the month in which an
Interest Payment Date occurs, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Debentureholders as of
such Regular Record Date, and
(2) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than fifteen (15) days prior
to the time such list is furnished;
provided, however, that such list need not be furnished so long as the Trustee
is the Debenture Registrar.
The Trustee shall furnish, and the Company shall cause the Trustee to
furnish, to Miller & Schroeder Financial, Inc. or its successor ("Miller &
Schroeder") at such times as Miller & Schroeder may reasonably request in
writing, within 30 days of the receipt by the Trustee of such request, a list
of the names and addresses of the Debentureholders as of a date not more than
15 days prior to the time such list is furnished.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO DEBENTUREHOLDERS.
(1) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Debentureholders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Debentureholders received by the Trustee in its
capacity as Debenture Registrar. The Trustee may destroy any list furnished
to it as provided in Section 701 upon receipt of a new list so furnished.
(2) If three or more Debentureholders (herein referred to as
"applicants") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Debenture for a period
of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other
Debentureholders with respect to their rights under this Indenture or under
the Debentures and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall, within five business days after the receipt of such application, at
its election, either
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(a) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 702(1), or
(b) inform such applicants as to the approximate number of
Debentureholders whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section 702(1) and as
to the approximate cost of mailing to such Debentureholders the form of proxy
or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appears in the information
preserved at the time by the Trustee in accordance with Section 702(1) a copy
of the form of proxy or other communication which is specified in such
request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within five days after such tender the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the
best interest of the Debentureholders or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections specified in
the written statement so filed and, on notice to the Trustee, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the Trustee
shall mail copies of such material to all such Debentureholders with
reasonable promptness after the entry of such order and the renewal by such
applicants of their applications.
(3) Every Holder of Debentures, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason
of the disclosure of any such information as to the names and addresses of
the Debentureholders in accordance with Section 702(2), regardless of the
source from which such information was derived, and that the Trustee shall
not be held accountable by reason of mailing any material pursuant to a
request made under Section 702(2).
SECTION 703. REPORTS BY THE COMPANY.
The Company shall:
(1) File with the Trustee, within 15 days after the Company is required
to file the same with the Commission or to mail the same to its shareholders,
copies of the quarterly reports, annual reports and the information,
documents and other reports (or copies of such portions of the foregoing as
the Commission may from time to time by rules and regulations prescribe)
which the Company may be required to file with the Commission pursuant to
Section 12 or 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"),
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or to mail to its shareholders pursuant to Section 14(a) thereof. The
Company agrees to make all filings with the Commission required by Section
15(d) of the 1934 Act without regard to the number of holders of record of
the Debentures.
(2) File with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations.
(3) Within 15 days after the date on which the Company is required to
file reports with the Commission under the 1934 Act, or within 15 days after
such date would have occurred had the Company been required to file reports
under the 1934 Act, the Company shall transmit copies of such reports by mail
to all Debentureholders, as their names and addresses appear on the Debenture
Register, without cost to such Debentureholders.
(4) Transmit by mail to all Debentureholders, as their names and
addresses appear in the Debenture Register, within 30 days after the filing
thereof with the Trustee (unless some other time shall be fixed by the
Commission) (a) any annual report filed with the Trustee pursuant to
paragraph (1) of this Section; (b) summaries, including a balance sheet and
income statement, of the quarterly reports filed with the Trustee pursuant to
paragraph (1) of this Section, provided, however, that, if requested by a
Debentureholder, the Company shall transmit to such Debentureholder, within
15 days after such request, a copy of the Company's quarterly report as filed
with the Commission; and (c) any other information, documents or reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from time
to time by the Commission.
(5) File with the Trustee within 45 days after the end of each of the
Company's fiscal quarters a certificate of the Chief Executive Officer and
the Controller of the Company stating that the Company is in compliance with
Article Ten, setting forth the calculations supporting such certification,
where applicable, and attaching the unaudited financial statements of the
Company, and file a supplemental certificate to the same effect attaching the
audited financial statements of the Company promptly after such statements
become available.
(6) File with the Trustee, within 90 days after the end of each fiscal
year of the Company ending after the date hereof, a certificate of the Chief
Executive Officer and Controller of the Company as to such person's knowledge
of the Company's compliance with all conditions and covenants under this
Indenture, such compliance to be determined without regard to any period of
grace or requirement of notice provided under this Indenture.
SECTION 704. REPORTS BY TRUSTEE.
(1) Within sixty (60) days of May 15 each year commencing with the year
1998, the Trustee shall transmit by mail to all Debentureholders, as
hereafter provided for, a brief report
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with respect to the following, provided that no report need be transmitted if
no event requiring to be disclosed in the report has occurred:
(a) any change to its eligibility under Section 609 and its
qualifications under Section 608, or in lieu thereof, if to the best of its
knowledge it has continued to be eligible and qualified under such Section, a
written statement to such effect;
(b) the creation of or any material change to a relationship
specified in paragraphs (e) through (f) of subsection (3) of Section 608;
(c) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made by
the Trustee (as such) which remain unpaid on the date of such report, and for
the reimbursement of which it claims or may claim a lien or charge, prior to
that of the Debentures, on the trust estate or any property or funds held or
collected by it as Trustee, except that the Trustee shall not be required
(but may elect) to report such advances if the unpaid aggregate of such
advances does not exceed 1/2 of 1% of the principal amount of the Debentures
Outstanding on the date of such report;
(d) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the Debentures)
to the Trustee in its corporate capacity, on the date of such report, with a
brief description of any property held as collateral security therefor,
except an indebtedness based upon a creditor relationship arising in any
manner described in Section 612(2) (b), (c), (d) or (f);
(e) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the date of such report;
(f) any additional issue of Debentures which the Trustee has not
previously reported; and
(g) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Debentures, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with Section 602.
(2) The Trustee shall transmit by mail to all Debentureholders, as
their names and addresses appear in the Debenture Register, a brief report
with respect to the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made by
the Trustee (as such) since the date of the last report transmitted pursuant
to Subsection (1) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that
of the Debentures, on property or funds held or collected by it as Trustee
and which it has not previously reported pursuant to this subsection, except
that the Trustee shall not be required (but may elect) to report such
advances if such advances remaining
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unpaid at any time aggregate 10% or less of the principal amount of the
Debentures Outstanding at such time, such report to be transmitted within 90
days after such time.
(3) Reports pursuant to this Section 704 shall be transmitted by mail
to all Debentureholders, as the names and addresses of such Debentureholders
appear upon the Debenture Register.
(4) A copy of each such report, at the time of such transmission to
Debentureholders, shall be filed by the Trustee with each stock exchange or
market upon which the Debentures are listed, with the Commission, if
required, and with the Company. The Company will notify the Trustee when the
Debentures are listed on any stock exchange.
END OF ARTICLE SEVEN.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or any Subsidiary or convey,
transfer or lease its properties and assets substantially as an entirety to
the Company or any Subsidiary, unless:
(1) in case the Company shall consolidate with or merge into another
corporation, trust or entity, the Person formed by such consolidation or into
which the Company is merged shall be a trust, corporation or other entity
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee and counsel to the Trustee, the due and punctual
payment of the principal of (and premium, if any) and interest on all the
Debentures and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary
as a result of such transaction as having been incurred by the Company or
such Subsidiary at the time of such transaction, no Event of Default, and no
event which, with the passage of time or the giving of notice, would become
an Event of Default, shall have occurred and be continuing;
(3) the Company, or the surviving entity, as the case may be,
immediately before and immediately after giving effect to such transaction or
series of transactions (including, without limitation, any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction or series of transactions) shall have an Adjusted
Consolidated Tangible Net Worth equal to or greater than the amount required
by Section 1011 hereof;
(4) the Company, or the surviving entity, as the case may be,
immediately after giving effect to such transaction or series of transactions
(including, without limitation, any Indebtedness incurred or anticipated to
be incurred in connection with or in respect of such transaction or series of
transactions) shall have an Adjusted Consolidated Tangible Net Worth equal to
or greater than the Company's Adjusted Consolidated Tangible Net Worth
immediately before giving effect to such transaction or series of
transactions;
(5) in case the Company shall consolidate with or merge into United
Development Management Company, an Illinois corporation (together with any
successor or assign, the "Corporate Parent") or the Corporate Parent shall
merge into the Company, all Indebtedness of the Corporate Parent
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incurred in connection with or in respect of the transaction, shall be
subordinated to payment in full of the Debentures and all Corporate Parent
Indebtedness from any Affiliate or any Indebtedness incurred by Corporate
Parent for the benefit of any Affiliate shall be unsecured and pari passu to
the Debentures; provided however (i) if an Event of Default occurs and notice
is provided to the Company pursuant to Section 502, or (ii) the Company fails
to make any payment of principal or interest in a timely manner, without
giving effect to any cure periods or notice requirements, or (iii) if the
Company breaches the covenants contained in Section 1011, the Company shall
not make any payment of principal, interest or any other payment in any other
form, on such Indebtedness, until such Event of Default has been cured, or
payment of Principal and interest has been made; and (iv) upon the occurrence
of any bankruptcy, reorganization or similar proceedings, the Company shall
not make any payment of principal, interest or any other payment in any form
on such Indebtedness, nor shall any affiliate have the right to receive such
payment until the Debentures have been paid in full. It being the intent of
the Company and Trustee, upon the occurrence of any bankruptcy,
reorganization, or similar proceeding, the Debentures will be paid in full
before any further payments are made on such Indebtedness. The Corporate
Parent covenants and agrees that it will notify every Affiliate of the
Company's agreement under this Section 801(5), and the Corporate Parent shall
obtain an agreement from every Affiliate or other person loaning money to
Corporate Parent for the Benefit of Affiliates, to the effect that such
Affiliate or person agrees, upon the occurrence of a bankruptcy,
reorganization or similar event, that the Affiliate or person shall be
prohibited from receiving any payment with respect to any Indebtedness,
whether principal or interest, until the Debentures shall have been
indefensibly paid in full, in the form and substance satisfactory to the
Trustee and counsel to the Trustee.
(6) immediately after giving effect to such transaction or series of
transactions, the Company or the surviving entity, as the case may be, could
incur $1.00 of Indebtedness pursuant to paragraph (3) of Section 1007 hereof;
and
(7) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 802. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger of the Company with or into any other
corporation, trust or other entity in accordance with Section 801, the
successor Person formed by such consolidation or into which the Company is
merged shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein, and thereafter
the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Debentures.
END OF ARTICLE EIGHT.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF DEBENTUREHOLDERS.
Without the consent of any Debentureholders, the Company, when
authorized by a Company Resolution, and the Trustee, at any time and from
time to time may enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee for any of the following purposes:
(1) to evidence the succession of another trust, corporation or other
entity to the Company and the assumption by any such successor of the
covenants of the Company herein and in the Debentures; or
(2) to add to the covenants of the Company for the benefit of the
Debentureholders, or to surrender any right or power herein conferred upon
the Company; or
(3) to evidence and provide for acceptance of appointment of a
successor trustee; or
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this
Indenture, provided that such action pursuant to this paragraph (5) shall not
adversely affect the interests of the Debentureholders.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent of the Holders of not less than two-thirds aggregate
principal amount of the Outstanding Debentures, by Act of such
Debentureholders delivered to the Company and the Trustee, the Company, when
authorized by a Company Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of modifying in any manner the rights of the
Debentureholders under this Indenture, provided that without the consent of
the Holder of each Outstanding Debenture affected thereby, no such
supplemental indenture shall,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Debenture, or any premium payable on the redemption
thereof, or reduce the principal amount thereof or the rate of interest
thereon, or change the place of payment where, or the coin or currency in
which, any Debenture or the interest thereon is payable, or impair the right
to
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institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or
(2) reduce the percentages in principal amount of the Outstanding
Debentures, the consent of whose Debentureholders is required for any such
supplemental indenture, or the consent of whose Debentureholders is required
for any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 513, or
Section 1012, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Debenture affected
thereby.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not (except to the extent required in the case of a supplemental
indenture entered into under Section 901(4)) be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, such supplemental
indenture shall form a part of this Indenture for all purposes and every
Holder of Debentures theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES.
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Debentures so modified as to conform, in the opinion of the
Trustee and the Board of Directors of the Company, to any such supplemental
indenture may be
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prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Debentures.
END OF ARTICLE NINE.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of, premium, if
any, and interest on the Debentures in accordance with the terms of the
Debentures and this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in Minneapolis, Minnesota, an office or agency
where Debentures may be presented or surrendered for payment, where
Debentures may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Company in respect of the Debentures
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. Until otherwise designated by the Company in a written
notice to the Trustee, and 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, and the
Company hereby appoints the Trustee its agent to receive such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations,
provided that no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency in Minneapolis,
Minnesota, 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 initially designates the Corporate Trust Office of
the Trustee set forth in the first paragraph of this instrument as an agency
of the Company.
SECTION 1003. MONEY FOR DEBENTURE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or
interest on any of the Debentures, segregate and hold in trust for the
benefit of the persons entitled thereto a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action.
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Whenever the Company shall have one or more Paying Agents, on or prior
to each due date of the principal of (and premium, if any) or interest on any
Debentures, it will deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal (and
premium, if any) or interest, and (unless such Paying Agent is the Trustee)
the Company will promptly notify the Trustee of its action or failure so to
act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Debentures in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Debentures) in the making of any payment of principal (and
premium, if any) or interest on the Debentures; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by
the Company or such Paying Agent. Upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Unless otherwise required by applicable law, any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for
the payment of the principal of (and premium, if any) or interest on any
Debenture and remaining unclaimed for two years after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be
discharged from such trust. The Holder of such Debenture shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Company as trustee thereof, shall
thereupon cease, provided that the Trustee or such Paying Agent, before being
required to make any such repayment, at the expense of the Company, may cause
to be published once, in a newspaper published in the English language,
customarily published on each Business Day and of general circulation in
Minneapolis, Minnesota, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than thirty (30) days
from the date of such
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publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
SECTION 1004. MAINTENANCE OF CORPORATE EXISTENCE, LICENSING AND RIGHTS;
EXISTING BUSINESS.
Subject to Article Eight hereof, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate existence of the Company and each Subsidiary, and all material
rights, certificates, authorities, licenses, permits and approvals of any of
them, and shall conduct its business in conformity with the requirements of
such rights, certificates, authorities, licenses, permits and approvals,
provided that the Company shall not be required to preserve any such right,
certificate, authority, license or permit if the Board of Directors of the
Company shall reasonably and in good faith determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
or of its Subsidiaries and that the loss thereof is not disadvantageous in
any material respect to the Debentureholders. The Company shall not change
(and the Company shall not allow any Subsidiary to change) its fundamental
line of business from land development and the design, construction and sale
of homes to any other line of business.
SECTION 1005. PAYMENT OF TAXES AND ASSESSMENTS.
The Company and each of its Subsidiaries will cause to be paid and
discharged all lawful taxes, assessments and governmental charges or levies
imposed upon the Company or any Subsidiary or upon the income or profits of
the Company or any Subsidiary or upon property or any part thereof belonging
to the Company or any Subsidiary before the same shall be in default, as well
as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such property or any part thereof,
provided that the Company or any Subsidiary shall not be required to cause to
be paid or discharged any such tax, assessment, charge, levy or claim so long
as the validity or amount thereof shall be contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves (in
the good faith judgment of the Board of Directors of the Company or any
Subsidiary, as the case may be) have been established.
SECTION 1006. MAINTENANCE OF PROPERTIES, INSURANCE; BOOKS AND RECORDS;
COMPLIANCE WITH LAW.
(1) The Company and each of its Subsidiaries shall maintain insurance
in such amounts and covering such risks as are usually and customarily
carried with respect to similar facilities according to their respective
locations.
(2) The Company and each of its Subsidiaries shall cause all its
properties (including leased properties) used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all
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as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this subsection
(2) shall prevent the Company or any Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is,
in the good faith judgment of the Board of Directors of the Company,
desirable in the conduct of its business and not disadvantageous in any
material respect to the Debentureholders.
(3) The Company and each of its Subsidiaries shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and each
Subsidiary, in accordance with GAAP consistently applied to the Company and
its Subsidiary taken as a whole.
(4) The Company and each of its Subsidiaries shall comply with all
statutes, laws, ordinances, or government rules and regulations, including
rules, regulations and orders of governmental agencies, decrees, orders,
injunctions, writs to which it is subject, noncompliance with which would
adversely affect the business, prospects, earnings, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiary taken as
a whole.
SECTION 1007. LIMITATION ON ADDITIONAL INDEBTEDNESS.
The Company shall not, and shall not permit any Subsidiary to, create,
incur, assume or issue, directly or indirectly, or guarantee or in any manner
become, directly or indirectly, liable for or with respect to the payment of
any Indebtedness, except for:
(1) Indebtedness under the Debentures and this Indenture;
(2) Indebtedness of the Company and any Subsidiary not otherwise
referred to in this Section 1007 outstanding on the Issue Date and disclosed
in writing to the Trustee;
(3) Indebtedness (plus interest, premium, fees and other obligations
associated therewith) that, immediately after giving PRO FORMA effect to the
incurrence thereof, does not cause the ratio of Adjusted Total Liabilities to
Adjusted Consolidated Tangible Net Worth to exceed 7:1; or
(4) any deferrals, renewals, extensions, replacements, refinancings or
refundings of, or amendments, modifications or supplements to, Indebtedness
incurred under clause (2) or clause (3) above, whether involving the same or
any other lender or creditor or group of lenders or creditors, provided that
any such deferrals, renewals, extensions, replacements, refinancings,
refundings, amendments, modifications or supplements (i) shall not provide
for any mandatory redemption, amortization or sinking fund requirement in an
amount greater than or at a time prior to the amounts and times specified in
the Indebtedness being deferred, renewed, extended, replaced, refinanced,
refunded, amended, modified or supplemented, (ii) shall not exceed the
principal amount (plus accrued interest and prepayment premium, if any) of
the Indebtedness being renewed, extended, replaced, refinanced or refunded
and (iii) shall be subordinated to the
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Debentures at least to the extent and in the manner, if at all, that the
Indebtedness being renewed, extended, replaced, refinanced or refunded is
subordinated to the Debentures.
SECTION 1008. LIMITATIONS ON RESTRICTED PAYMENTS.
The Company shall not make and shall not permit any Subsidiary to make,
directly or indirectly, any Restricted Payment; provided, however, that the
Company may make S Corp Tax Dividends if at the time of such action no
Default or Event of Default exists or would result therefrom; and provided
further that the Company may make such additional Restricted Payments:
(1) if at the time of such action no Default or Event of Default exists
or would result therefrom; and
(2) if at the time, upon giving effect to such Restricted Payment, the
Company could incur at least $1.00 of Indebtedness pursuant to paragraph (3)
of Section 1007 hereof; and
(3) if, immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made from the date of this
Indenture, through and including the date of such Restricted Payment (the
"Base Period") does not exceed the sum of 50% of the Consolidated Net Income
(or in the event Consolidated Net Income is a deficit, minus 100% of such
deficit) during the Base Period and 100% of the aggregate net proceeds
received by the Company from the issue or sale during the Base Period of
capital stock of the Company.
SECTION 1009. LIMITATION ON TRANSACTIONS WITH AFFILIATES; SUBORDINATION OF
AFFILIATE LOANS.
The Company shall not, and shall not permit, cause or suffer any
Subsidiary of the Company to, conduct any business or enter into any
transaction or series of transactions with or for the benefit of any
Affiliate or any Subsidiary of the Company, or any holder of 5% or more of
any class of capital stock of the Company (each an "Affiliate Transaction"),
except in good faith and on terms that are, in the aggregate, no less
favorable to the Company or such Subsidiary, as the case may be, than those
that could have been obtained in a comparable transaction on an arm's-length
basis from a Person not an Affiliate of the Company or such Subsidiary. Any
loans to the Company or any Subsidiary from any Affiliate, incurred after
Issue Date whether by deferrals, renewals, extensions, replacements,
refinancings, refunding, amendments, modifications, supplements, or the like,
shall be unsecured and pari-passu to the Debentures; provided however, (i) if
an Event of Default occurs and notice is provided to the Company pursuant to
Section 502, or (ii) the Company fails to make any payment of principal or
interest in a timely manner, without giving effect to any cure periods or
notice requirements, or (iii) if the Company breaches the covenants contained
in Section 1011, the Company shall not make any payment of principal,
interest or any other payment in any other form, on such loans, until such
Event of Default has been cured; and (iv) upon the occurence of any
bankruptcy, reorganization or similar proceeding, including if an Event of
Default occurs under Section 501 subdivision (6) or subdivision (7), the
Company shall not make any payment of principal, interest or any other
payment in any form on such loans, nor shall any Affiliate making any such
loans have the right to receive any such payment, until the Debentures have
been paid in full. It being the intent of the Company and Trustee, upon the
occurrence of any bankruptcy, reorganization or similar proceeding, the
Debentures will be paid in full before any further payments are made on such
loans to Affiliates. The Company covenants and agrees that it will notify
every Affiliate who makes a loan to the Company after the Issue Date of the
Company's agreement under this Section 1009, and the Company shall obtain an
agreement from every Affiliate making a loan to the Company to the effect
that such Affiliate agrees, upon the occurrence of a bankruptcy,
reorganization or similar event, that the Affiliate shall be prohibited from
receiving any payments with respect to any loan, whether principal or
interest, until the Debentures shall have been indefensibly paid in full, in
form and substance satisfactory to the Trustee and counsel to the Trustee.
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SECTION 1010. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING A SUBSIDIARY.
The Company shall not, and shall not permit, cause or suffer any
Subsidiary of the Company to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective or enter into any agreement with
any Person that would cause or create any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of the Company to
(a) pay dividends, in cash or otherwise, or make any other distributions on
its capital stock or any other interest or participation in, or measured by,
its profits owned by the Company or a Subsidiary of the Company, (b) make any
loans or advances to, or pay any Indebtedness owed to, the Company or any
Subsidiary of the Company or (c) transfer any of its properties or assets to
the Company or to any Subsidiary of the Company, except, in each case, for
such encumbrances or restrictions existing under or contemplated by or by
reason of (i) the Debentures or this Indenture, (ii) any restrictions
existing under agreements in effect on the Issue Date, and (iii) any
restrictions existing under any agreement that refinances or replaces an
agreement containing a restriction permitted by clause (i) or (ii) above,
provided that the terms and conditions of such restrictions are not
materially less favorable in the aggregate to the Debentureholders than those
under or pursuant to the agreement being replaced or the agreement evidencing
the Indebtedness being refinanced or replaced.
SECTION 1011. NET WORTH.
The Company will at all times during the term of the Debentures keep and
maintain Adjusted Consolidated Tangible Net Worth, determined as of the last
day of each quarter, at an amount not less than Six Million Dollars ($6,000,000)
plus 50% of positive Consolidated Net Income earned after September 30,
1997. Compliance with this covenant shall be measured on the last day of
March, June, September and December of each year, and the Company shall
provide the Trustee with a detailed calculation of the Adjusted Consolidated
Tangible Net Worth as of each quarter within 45 days of each calendar quarter
except December 31 for which the Company shall have 90 days to provide the
calculation. In the event of any non-compliance with this covenant, the
Company shall deliver to the Trustee a certificate from the Company's
independent public accountants as to subsequent compliance to cure any such
default.
SECTION 1012. LIMITATIONS ON COMPENSATION.
The Company will not pay salary compensation (excluding bonuses or other
performance based or incentive compensation) to Edward F. Havlik in excess of
$500,000 in any calendar year. The Company will not pay salary compensation
excluding bonuses or other performance based or incentive compensation to
Virgil W. Owings in excess of $325,000 in any calendar year. The Company
will not pay, and will not permit any Subsidiary to pay, salary compensation
bonuses or other performance based or incentive compensation to
any other employee in excess of amounts paid to similar employees by other
reputable Persons engaged in the same or similar business and similarly
situated, and all bonuses or other performance based or incentive
compensation paid shall be in conformance with existing bonus plans on the
Issue Date. The Company or any Subsidiary shall not pay bonuses or other
performance-based or incentive compensation
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to Edward F. Havlik in excess of $125,000 in any calendar year and to Virgil
W. Owings in excess of $81,250 in any calendar year.
SECTION 1013. LIMITATIONS ON INVESTMENTS.
The Company will not, and will not permit any Subsidiary to, acquire for
value, make, have or hold any Investments, except:
(1) Investments existing on the Issue Date and disclosed in the
Company's audited financial statements.
(2) Property to be used in the ordinary course of business consistent
with past practice.
(3) Current assets arising from the sale of goods and services in the
ordinary course of business.
(4) Investments in readily marketable direct obligations issued or
guaranteed by the United States or any agency thereof and supported by the
full faith and credit of the United States.
(5) Certificates of deposit or bankers' acceptances issued by any
commercial bank organized under the laws of the United States or any State
thereof which has combined capital and surplus of at least $100,000,000.
(6) Commercial paper given the highest rating by a nationally
recognized rating service and maturing not more than one year from the date
of acquisition thereof.
SECTION 1014. ADDITIONAL LIENS; NEGATIVE PLEDGES.
The Company will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien, or enter into, or make any
commitment to enter into, any arrangement for the acquisition of any property
through conditional sale, lease-purchase or other title retention agreements,
with respect to any property now owned or hereafter acquired by the Company
or a Subsidiary, except:
(1) Liens existing on the Issue Date and disclosed in the Company's
audited financial statements.
(2) Deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security
obligations, in the ordinary course of business of the Company or a
Subsidiary.
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(3) Liens for taxes, fees, assessments and governmental charges not
delinquent or to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 1005.
(4) Liens of carriers, warehousemen, mechanics and materialmen, and
other like Liens arising in the ordinary course of business, for sums not due
or to the extent that payment therefor shall not at the time be required to
be made in accordance with the provisions of Section 1005.
(5) Liens incurred or deposits or pledges made or given in connection
with, or to secure payment of, indemnity, performance or other similar bonds.
(6) Encumbrances in the nature of zoning restrictions, easements and
rights or restrictions of record on the use of real property and landlord's
Liens under leases on the premises rented, which do not materially detract
from the value of such property or impair the use thereof in the business of
the Company or a Subsidiary.
(7) The interest of any lessor under any Capitalized Lease entered into
after the Issue Date or purchase money Liens on property acquired after the
Issue Date; provided, that, (i) the Indebtedness secured thereby is otherwise
permitted by this Indenture and (ii) such Liens are limited to the property
acquired and do not secure Indebtedness other than the related Capitalized
Lease Obligations or the purchase price of such property.
Further, the Company will not, and will not permit any Subsidiary to,
enter into any agreement, bond, note or other instrument with or for the
benefit of any Person other than the Debentureholders which would (i)
prohibit the Company or such Subsidiary from granting, or otherwise limit the
ability of the Company or such Subsidiary to grant, to the Debentureholders
any Lien on any assets or properties of the Company or such Subsidiary, or
(ii) require the Company or such Subsidiary to grant a Lien to any other
Person if the Company or such Subsidiary grants any Lien to the
Debentureholders.
SECTION 1015. PAYMENTS ON SUBORDINATED DEBT.
The Company shall not (and the Company shall not permit any Subsidiary
to) make any payment or repurchase of any part or all of any Subordinated
Debt or take any other action or omit to take any other action in respect of
any Subordinated Debt, except in accordance with any subordination agreement
relative thereto.
SECTION 1016. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with the
covenants set forth in Section 1004 through 1015, inclusive, if before the
time for such compliance the Holders of at least two-thirds in aggregate
principal amount of the Outstanding Debentures shall, by Act of such
Debentureholders, either waive such compliance in such instance or generally
waive
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compliance with such covenants, but no such waiver shall extend to or affect
such covenant except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties
of the Trustee in respect of such covenant shall remain in full force and
effect.
END OF ARTICLE TEN.
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ARTICLE ELEVEN
MANDATORY AND OPTIONAL
REDEMPTION OF DEBENTURES
SECTION 1101. MANDATORY REDEMPTION.
The Debentures shall be subject to mandatory redemption beginning
September 15, 1999. On or before September 15, 1999 and on each September 15
and March 15 thereafter through September 15, 2004, the Company will pay the
Trustee cash sufficient to redeem on each redemption date a principal amount
equal to 8.33% of the original principal amount of the Debentures issued,
rounded up to a number divisible by the par value of a Debenture. On or
before March 15, 2005, the Company shall pay to the Trustee cash sufficient
to redeem all remaining outstanding Debentures.
The particular Debentures to be redeemed on a Redemption Date shall be selected
as provided in Section 1105.
SECTION 1102. OPTIONAL REDEMPTION.
The Company may, at its option, at any time on or after December 15,
1997, redeem the Debentures either as a whole or from time to time or in part
in a minimum aggregate principal amount of $100,000, at the following
Redemption Prices (expressed in percentages of the principal amount thereof),
together with interest accrued and unpaid thereon to the Redemption Date
(which shall be an Interest Payment Date), if redeemed during the twelve
month period beginning December 15, in each of the following years:
1997 1998 1999 2000 2001 2002 and
thereafter
---------------------------------------------
Redemption
Price: 105% 104% 103% 102% 101% 100%
SECTION 1103. APPLICABILITY OF ARTICLE.
Redemption of Debentures at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, or any supplement
hereto shall be made in accordance with such provisions and this Article,
provided that no Redemption shall be made under this Article during any
period in which an Event of Default, or an event which, with notice or lapse
of time or both, would constitute an Event of Default, has occurred and is
continuing.
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SECTION 1104. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Debentures pursuant to Section
1102 shall be evidenced by a Company Resolution. In case of any Redemption
at the election of the Company of less than all the Debentures, at least 60
days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), the Company shall notify the
Trustee of such Redemption Date and of the aggregate principal amount of
Debentures to be redeemed and shall deliver to the Trustee such documentation
and records as shall enable the Trustee to select the Debentures to be
redeemed pursuant to Section 1105.
SECTION 1105. SELECTION BY TRUSTEE OF DEBENTURES TO BE REDEEMED.
If less than all the Debentures are to be redeemed, the particular
Debentures to be redeemed shall be selected not more than 60 days prior the
Redemption Date by the Trustee, from the Outstanding Debentures not
previously called for redemption, by lot or in any manner deemed by the
Trustee to be proper. The Trustee shall promptly notify the Company in
writing of the distinctive numbers of the Debentures which have been selected
for redemption.
SECTION 1106. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Debentures to be redeemed, at the address
appearing in the Debenture Register.
All notices of redemption shall state:
(1) the Redemption Date (which shall be an Interest Payment Date),
(2) the Redemption Price,
(3) if less than all the Outstanding Debentures are to be redeemed, the
identification of the particular Debentures to be redeemed,
(4) that on the Redemption Date, the Redemption Price will become due
and payable upon each such Debenture to be redeemed and that interest thereon
will cease to accrue on and after said date, and
(5) the place or places where such Debentures are to be surrendered for
payment of the Redemption Price.
Notice of redemption of Debentures to be redeemed shall be given by the
Company or, upon Company Request, by the Trustee in the name and at the
expense of the Company.
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SECTION 1107. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, the Company will segregate and hold in trust as provided in
Section 1003) in immediately available funds an amount of money sufficient to
pay the Redemption Price of all the Debentures which are to be redeemed on
that date.
SECTION 1108. DEBENTURES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Debentures so
to be redeemed shall become, on the Redemption Date, due and payable at the
Redemption Price therein specified, and on and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Debentures shall cease to bear interest. Upon surrender of
any such Debenture for redemption in accordance with such notice, such
Debenture shall be paid by the Company at the Redemption Price, together with
accrued interest to the Redemption Date, exclusive of installments of
interest whose Stated Maturity is on or prior to the Redemption Date, which
shall be payable to the Holders of such Debentures, or one or more
Predecessor Debentures, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Debenture.
END OF ARTICLE ELEVEN.
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This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective seals to be hereunto affixed and
attested, all as of the day and year first above written.
UNITED HOMES, INC.,
as Issuer
By __________________________________
, President
Attest:
____________________________________
, Secretary
NATIONAL CITY BANK OF MINNEAPOLIS,
as Trustee
By __________________________________
Its __________________________________
Attest:
_________________________________
Trust Officer
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LEASE AND SALES LISTING AGREEMENT
THIS LEASE made as of March 30, 1997, by and between Model Homes,
L.L.C., an Illinois limited liability company ("Lessor"), and United Homes,
Inc. ("Lessee").
WITNESSETH
WHEREAS, pursuant to that certain Real Estate Sale Contract dated March 30,
1997 (the "Agreement") Lessee as Seller, sold to Lessor, as Purchaser, the
Premises, as that term is hereinafter defined; and
WHEREAS, Lessee acknowledges that, prior to the date hereof, it has been in
full and complete possession of the Premises and is fully aware of the condition
of the Premises and all portions thereof, and that this demise is on a strictly
"AS IS" basis with no representations, warranties, covenants or agreements as to
the condition or state of said Premises or any portion thereof being made by the
Lessor.
NOW, THEREFORE, Lessor and Lessee hereby agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings for all purposes of this
Lease:
"Base Monthly Rent" means as to any parties of the Premises, the amount
specified on EXHIBIT A.
"Default Rate" means an amount of interest equal to the lesser of the highest
permitted annual interest rate Lessor may charge Lessee or 18% annum.
"Lease Term" means the period described in Article III.
"Lease Year" shall be defined as a period of twelve (12) consecutive calendar
months. The first Lease Year shall begin on the commencement date (as defined in
Article III); however, rent payments shall begin being due on the day after the
date hereof.
"Lessee" shall mean Lessee and its permitted successors and assigns.
1
<PAGE>
"Premises" means collectively the real property, together with all buildings,
structures and site improvements located thereon, at the property listed on
EXHIBIT A attached hereto, and all rights, easements and interests appurtenant
thereto, including, but not limited to, any street or public ways adjacent to
the Premises and any water and mineral rights, to the extent that the same have
been conveyed to Lessor by Lessee pursuant to the terms of this Agreement.
"Rent" means the aggregate of all sums becoming due and payable under this Lease
from the Lessee whether as Base Monthly Rent, or otherwise.
"Units" means the model units built on the Premises. "Unit" shall mean any one
of the Units.
ARTICLE II
DEMISE OF PREMISES
In consideration of the rentals and other sums to be paid by Lessee and of the
other terms, covenants and conditions on Lessee's part to be kept and performed,
Lessor hereby leases to Lessee, and Lessee hereby takes and hires, from Lessor
the Premises.
ARTICLE III
LEASE TERM
The Lease Term shall (i) be for five (5) Lease Years (unless sooner terminated
as specified herein); (ii) commences as of the first day of the month following
the date hereof (unless the date hereof is the first day of a calendar month in
which case this Lease will commence as of the date hereof) ("Commencement
Date"); and (iii) expire on the earlier of (a) expiration of five (5) Lease
Years, or (b) as to any Unit, sale of the Unit by Lessee on behalf of Lessor
pursuant to the terms hereof. Notwithstanding said Lease Term, if Lessee, as
agent for Lessor has not sold all Units on expiration of the Lease Term, Lessor
or Lessee may extend the term of the Lease of two (2) successive one (1) year
periods.
ARTICLE IV
RENTAL
Lessee agrees to pay to Lessor, or to such other person or entity as Lessor may
from time-to-time direct, without demand, deduction, set-off or abatement at
such place as Lessor, by notice in writing to Lessee from time to time may
direct, Base Monthly Rent in advance in monthly installments on the first day of
each calendar month of the Lease Term. One thirtieth (1/30th) of each monthly
payment shall be due and payable for each day of any portion of a month less
than a full month, and shall be payable on the first day of such partial month.
If Base Monthly Rent is not paid prior to the tenth (10th) day of any calendar
month during the Lease Term, a late fee equal to 5% of the then due amount may
be charged by Lessor to Lessee, such sum to be due and payable immediately upon
receipt by Lessee of an invoice for the same from Lessor.
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<PAGE>
ARTICLE V
RENTAL TO BE NET TO LESSOR
Lessee recognized and acknowledges, without limiting the generality of any other
term or provision of this Lease, that it is the intent of the parties hereto
that the Base Monthly Rent to be paid by Lessee to Lessor shall be absolutely
net to Lessor; and any and all charges, assessments, impositions and expenses
pertaining to or levied against the Premises and any and all portions thereof,
including, without limiting the generality of the foregoing, and any all taxes,
assessments, general or special, water rates, license fees, fuel costs, steam
costs, insurance premiums, utility bills, costs of repair, maintenance
(structural or otherwise), operation and restoration of the Premises (including
all improvements now or hereafter made thereon and any and every part thereof),
shall be the sole and absolute obligations of and paid by Lessee as Lessee's
sole and exclusive cost and expense, all as herein and elsewhere more
particularly set forth.
ARTICLE VI
TAXES AND ASSESSMENTS
(a) Lessee shall pay, as the same become due and prior to delinquency, all
taxes and assessments which may be levied, assessed, imposed, or become liens on
the Premises or which arose out of the use or occupancy of the Premises (the
"Taxes").
(b) Lessee shall have the right to contest, in good faith and with due
diligence, the validity or amount of any Taxes levied or assessed against the
Premises by appropriate legal proceedings which shall have the effect of
preventing the collection of the Taxes so contested.
ARTICLE VII
UTILITIES
Lessee shall contract, in its own name, for and pay when due, all charges in
connection or use of water, gas, electricity, telephone, garbage collection,
sewer use and other utility services supplied to the Premises during the Lease
Term. Under no circumstances shall Lessor be responsible or liable for any
interruption, termination or the lack or quality of any utility service.
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<PAGE>
ARTICLE VIII
INSURANCE
Lessee shall maintain, at its sole cost and expense, the following types and
amounts of insurance insuring Lessee, and naming as additional insureds Lessor,
and the holder(s) of any mortgage or deed of trust encumbering the Premises
(which insurance may be included under a blanket insurance policy if all the
other terms hereof are satisfied), in addition to such other insurance as Lessor
may from time-to-time reasonably require:
(a) Insurance against loss, damage or destruction by fire and other casualty,
including theft, vandalism and malicious mischief, flood (if the Premises are in
a flood hazard area), all matters covered by a standard extended coverage
endorsement insuring the Premises, and all improvements thereon for 100% of
their full replacement cost. Any insurance policy or policies shall designate
Lessor and Lessee as the named insureds as their interest may appear and shall
be payable as set forth herein.
(b) Comprehensive public liability and property damage insurance, against
bodily injury liability, property damage liability, including, without
limitation, any liability arising out of the ownership, maintenance, repair,
condition or operation of the Premises or adjoining ways, streets or sidewalks.
Such insurance policy shall be in amounts of not less than $1,000,000 per injury
and occurrence with respect to any insured liability, whether for personal
injury or property damage.
ARTICLE IX
COMPLIANCE WITH LAWS
(a) Lessee's use and occupation of the Premises shall not be in violation of
any governmental requirement, law, ordinance, statute, ruling or the like
applicable to the Lessee, the Premises or the use thereof, including without
limitation, any local state, or federal environmental requirement, law,
ordinance, statute or ruling related to Hazardous Substances (as hereinafter
defined). Lessee shall, at Lessee's sale cost and expense, also comply with all
applicable directions, rules and regulations of the fire marshal, health
officers, building inspector or other proper officers of any governmental agency
having jurisdiction.
(b) Lessee shall not create, store or release or allow the creation, storage or
release of any Hazardous Substances on the Premises. "Hazardous Substances"
shall mean: Any substance or material on the Premises defined or designated as
hazardous or toxic waste, hazardous or toxic materials, a hazardous or toxic
substance, or other similar term by any federal, state or local environmental
statute, regulation or ordinance presently in effect.
4
<PAGE>
ARTICLE X
MAINTENANCE
(a) Lessee hereby accepts the Premises "AS IS," with no representation or
warranty of Lessor as to the condition thereof.
(b) Lessee shall at all times, at its sole cost and expense, maintain and
repair, as necessary, the Premises.
ARTICLE XI
ALTERATIONS
Lessee shall not commit actual or constructive waste upon the Premises, but may
alter the exterior and interior elements of the Premises in any manner without
the prior written consent of Lessor. Any work at any time commenced by Lessee on
the Premises shall be prosecuted diligently to completion, shall be of good
workmanship and materials and shall comply fully with all the terms of this
Lease.
ARTICLE XII
INDEMNIFICATION
Lessee shall indemnify and hold harmless Lessor from and against any and all
claims, demands, causes of action, suits, proceedings, liabilities, damages,
losses, costs and expenses, including attorneys' fees, caused by, incurred or
resulting from its operation or sale of or relating in any manner to the
Premises, whether relating to their original design or construction, latent
defects, alteration, maintenance, use by Lessee or any person thereon,
supervision or otherwise, or from any breach of, default under or failure to
perform any term or provision of this agreement by Lessee, its officers,
employees, agents or other persons. It is expressly understood that Lessee's
obligations under this Article shall survive the expiration or earlier
termination of this Lease.
ARTICLE XIII
QUIET ENJOYMENT
So long as Lessee shall pay rental and other sums herein provided and shall keep
and perform all of the terms, covenants and conditions on its part therein
contained, Lessor covenants that Lessee, subject to Lessor's rights herein,
shall have the right to the peaceful and quiet use and occupancy of the
Premises.
5
<PAGE>
ARTICLE XIV
CONDEMNATION OR DESTRUCTION
(a) In case of a taking of all or any part of the Premises or commencement of
any proceedings or negotiations which might result in a taking, for any
public or quasi-public purpose by any lawful power or authority by exercise
of the right of condemnation or eminent domain or by agreement between
Lessor, Lessee and those authorized to exercise such right ("Taking"), Lessee
will promptly give written notice thereof to Lessor, generally describing the
nature and extent of such Taking.
(b) In the event of (i) a Taking; or (ii) of damage or destruction to all or
any part of the Premises, all awards, compensation or damages up to the amount
designated on EXHIBIT A as to each Unit shall be paid to Lessor, and the
remaining sum shall be paid to Lessee. Upon payment to Lessor of the indicated
amount this Lease shall terminate as to that Unit, and the Base Annual Rental
shall be reduced by 10% of the amount paid to Lessor.
ARTICLE XV
DEFAULT AND REMEDIES
(a) Each of the following shall be deemed a breach of this Lease and a default
("Default") by Lessee:
(i) If any Rent due remains unpaid for ten (10) days after notice of
non-payment from the Lessor;
(ii) If Lessee becomes insolvent, performs any act of bankruptcy or is not
generally paying its debts as the same become due.
(iii) If Lessee breaches any covenant or obligation set forth herein,
which breach is not cured within 30 days after receipt of written notice from
Lessor specifying the breach.
(b) In the event of any breach or default and failure by Lessee to cure said
default as provided herein, Lessor shall be entitled to exercise, at its option,
concurrently, successively or in any combination, all remedies available at law
or in equity.
(c) In addition, in the event of any Default by Lessee, Lessor may, but shall
not be obligated to, immediately or at any time thereafter, and without notice,
except as required herein, correct such Default for the account and at the
expense of Lessee. Any sum or sums so paid by Lessor, together with interest at
the Default Rate and all costs and damages, shall be deemed to be additional
Rent hereunder and shall be immediately due from Lessee to Lessor.
6
<PAGE>
ARTICLE XVI
MORTGAGE AND SUBORDINATION
(a) Lessee shall keep the Premises, and Lessor's interest therein, free from
any liens for work performed, materials furnished or obligations incurred by
Lessee. If any such lien shall at any time be filed, Lessee shall cause the
same to be vacated and canceled of record within forty-five (45) days after the
date of filing thereof. If Lessee shall fail to vacate, contest or release such
lien in the manner and within the time period aforesaid, such failure shall be a
Default, and in addition to all other rights and remedies available to Lessor
resulting therefrom, Lessor may, but shall not be under any obligation to,
vacate or release said lien either by paying the amount claimed to be due, or by
procuring the release of such lien by giving security or in such other manner as
may be prescribed by law. Lessee shall reimburse Lessor, upon demand, all sums
disbursed or deposited by Lessor pursuant to the foregoing provisions of this
paragraph, including Lessor's costs and expenses and reasonable attorneys' fees
incurred in connection therewith, with interest thereon at the Default Rate.
(b) NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT AUTHORIZED TO PLACE ANY LIEN,
MORTGAGE, DEED OR TRUST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF THE
PREMISES OR LESSEE'S LEASEHOLD INTEREST THEREIN, (SAVE AND EXCEPT FOR PURCHASE
MONEY LIENS ON PERSONAL PROPERTY AND/OR FIXTURES) AND ANY SUCH PURPORTED
TRANSACTIONS HALL BE VOID UNLESS LESSOR SHALL FIRST CONSENT IN WRITING TO EACH
SAID ENCUMBRANCE, WHICH CONSENT SHALL BE IN LESSOR'S SOLE DISCRETION.
ARTICLE XVII
ASSIGNMENT AND SUBLETTING
(a) Lessor shall not have the right to sell or convey the Premises subject to
this Lease or to assign the right, title and interest as Lessor under this
lease, in whole or in part.
(b) Lessee acknowledges that ad an inducement to enter into this lease, Lessor
has relied both on the business experience and creditworthiness of Lessee and
the particular purpose for which lessee intends to use the Premises, therefore,
Lessee shall not assign this Lease or any interest therein, or sublet all or
part of the Premises, other than to an entity affiliated with Lease.
ARTICLE XVIII
SALES LISTING AGREEMENT
(a) Lessor agrees that Lessee shall be the exclusive listing agent for the
Units during the Lease Term at all times and that Lessee may list for sale and
sell any of the Units at any time during the Lease Term. Such sale shall be on
any terms and conditions and at a sales price acceptable to and determined by
Lessee. Lessee
7
<PAGE>
shall receive a sales commission on each sale equal to the greater of 1 1/2% of
the sales price of said Unit or the amount required to pay out as commissions on
the sale.
(b) On any sale Lessor shall pay, at closing, standard title, transfer tax,
closing and sale charged and fees paid by Sellers of residential property.
(c) Notwithstanding (a) and (b) above, Lessee hereby guarantees that upon the
sale of any Unit, Lessor will receive, after payment of all items described in
(a) and (b) above no less than the Appraised Value specified for that Unit on
EXHIBIT A attached hereto. Any sales proceeds (after payment of commissions,
fees, and costs) in excess of the Appraised Value shall be paid to Lessor.
(d) At the closing of any Unit, Lessor will execute any and all documents,
including, but not limited to, a deed, bill of sale, affidavit of title, ALTA
statement, and any other documents necessary to complete the sale of the Unit.
ARTICLE XIX
NOTICES
All notices, demands, requests, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this lease shall
be in writing and shall be deemed to have properly given if sent by either (i)
registered or certified mail, postage prepaid; or (ii) by a recognized national
overnight courier service (e.g. Federal Express) with instructions and payment
for next business day delivery, to the parties at the addresses set forth on the
signature page, hereof and/or to such other address as either party may give
notice pursuant to this section from time-to-time. All notices shall be deemed
received and effective on the first to occur of the following: (i) delivery;
(ii) refusal of delivery; or (iii) the third business day after posting or
delivery to the courier service.
ARTICLE XX
WAIVER OF AMENDMENT
No provision of this Lease shall be deemed waived or amended excepted by a
written instrument signed by the party against which enforcement of such waiver
or amendment is sought. Waiver of any matter shall not be deemed a waiver of the
same or any other matter on any future occasion. The parties hereto acknowledge
that Units will be deleted from coverage of this Lease as such Units are sold,
and that certain new Units may be added to the coverage of this Lease, by
amending EXHIBIT A to include such new Units.
8
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ARTICLE XXI
JOINT VENTURE
None of the agreements contained herein, is intended, nor shall the same be
deemed or construed to create a partnership between Lessor and Lessee, to make
them joint venturers, nor to make Lessor in anyway responsible for the debts or
losses of Lessee.
ARTICLE XXII
HEADINGS
Captions are used throughout this Lease for convenience of reference only and
shall not be considered in any manner in the construction or interpretation
hereof.
ARTICLE XXIII
SEVERABILITY
The provisions of this Lease shall be deemed severable. If any part of this
Lease shall be held unenforceable by any court of competent jurisdiction, the
remainder shall remain in full force and effect, and such unenforceable
provision shall be reformed by such court so as to give maximum legal effect to
the intention of the parties as expressed herein.
ARTICLE XXIV
ATTORNEYS' FEES
In the event of any judicial or other adversarial proceeding between the parties
concerning this lease, to the extent permitted by law, the prevailing party
shall be entitled to recover all of its reasonable attorney's fees and other
costs in addition to any other relief to which it may be entitled.
ARTICLE XXV
ENTIRE AGREEMENT AND INCORPORATION
This Lease, and any other instruments or agreements referred to herein,
constitute the entire agreement between the parties with respect to the subject
latter hereof, and there are no other representations, warranties or agreements
except as herein provided. Each and every of the recitals set forth on page 1
are hereby incorporated as if fully re-written.
9
<PAGE>
XXVII
COUNTERPARTS
This Lease may be executed in one or more counterparts, each of which shall be
deemed an original.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the
year and day first above written.
LESSEE: LESSOR:
UNITED HOMES, INC. MODEL HOMES, L.L.C.
By: __________________________ By: __________________________
2100 Golf Road 2100 Golf Road
Suite 110 Suite 110
Rolling Meadows, IL 60008 Rolling Meadows, IL 60008
Attn: David Feltman Attn: William J. Crock, Jr.
10
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
SUBDIVISION MODEL LOT MODEL APPRAISAL LOAN
NAME TYPE NUMBER ADDRESS VALUE VALUE
- ----------- ----- ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
ILLINOIS
Bristol Park, Tinley Park Ash 198 7817 Bristol Park Drive $ 170,000 $ 127,500
Bristol Park, Tinley Park Birch 198 7815 Bristol Park Drive $ 166,000 $ 124,500
Bristol Park, Tinley Park Cypress 198 7813 Bristol Park Drive $ 173,000 $ 129,750
Bristol Park, Tinley Park Dogwood - Alt. 198 7811 Bristol Park Drive $ 198,000 $ 148,500
Harvest Run, Crystal Lake Brittany 9013B 102 1232 Barlina Drive $ 240,000 $ 180,000
Harvest Run, Crystal Lake Dover 9904C 101 1224 Barlina Drive $ 340,000 $ 255,000
Royal Hill, Algonquin Devonshire 9810C 499 Flora Drive $ 238,000 $ 178,500
Royal Hill, Algonquin Normandy 9813C 509 Flora Drive $ 236,000 $ 177,000
Royal Hill, Algonquin Barrister 9823C 519 Flora Drive $ 265,000 $ 198,750
Royal Hill, Algonquin Cambridge 9802B 410 Flora Drive $ 202,000 $ 151,500
ARIZONA
Red Dog Ranch, Cave Creek 2700 Expanded Lot 30 41515 Canyon Spring Dr. $ 337,500 $ 253,125
Red Dog Ranch, Cave Creek 3500 Expanded Lot 31 5722 Ironwood Bluff $ 323,500 $ 242,625
Lindsay Meadows 2402 A Lot 28 765 E. Orchid $ 190,000 $ 142,500
Lindsay Meadows 2592C Lot 29 755 E. Orchid $ 190,000 $ 142,500
Lindsay Meadows 3320B Lot 30 745 E. Orchid $ 225,000 $ 168,750
Lindsay Meadows Lot 31 735 E. Orchid $ 233,000 $ 174,750
Sub-Total Page 1 $3,727,000 $2,795,250
MICHIGAN
Bayberry Farms, Wyoming Monarch 2 5613 Bayberry Farms Dr. $ 145,500 $ 109,125
Bayberry Farms, Wyoming Fawn 3 5621 Bayberry Farms Dr. $ 147,000 $ 110,250
Quail Meadows, Kalamazoo 1 2134 Quail Run Drive $ 155,000 $ 116,250
Quail Meadows, Kalamazoo 1A 2074 Quail Cove Dr. $ 164,000 $ 123,000
Quail Meadows, Kalamazoo 2 2124 Quail Run Drive $ 175,000 $ 131,250
Quail Meadows, Kalamazoo 2A 2070 Quail Cove Dr. $ 148,000 $ 111,000
Sub-Total Page 2 $ 934,500 $ 700,875
CURRENTLY FINANCED $4,661,500.00 $3,496,125.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
15% ANNUAL
RETURN ON
CASH
INVESTMENT TOTAL
SUBDIVISION MODEL LOT MODEL MONTHLY DEBT CASH (REFLECTED MONTHLY
NAME TYPE NUMBER ADDRESS P&I PAYMENT INVESTMENT MONTHLY) BASE RENT
- ----------- ----- ------ ------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ILLINOIS
Bristol Park, Tinley Park Ash 198 7817 Bristol Park Drive $ 991.69 $ 25,500 $ 318.75 $ 1,310.44
Bristol Park, Tinley Park Birch 198 7815 Bristol Park Drive $ 968.35 $ 24,900 $ 311.25 $ 1,279.60
Bristol Park, Tinley Park Cypress 198 7813 Bristol Park Drive $ 1,009.19 $ 25,950 $ 324.38 $ 1,333.57
Bristol Park, Tinley Park Dogwood - Alt. 198 7811 Bristol Park Drive $ 1,155.02 $ 29,700 $ 371.25 $ 1,526.27
Harvest Run, Crystal Lake Brittany 9013B 102 1232 Barlina Drive $ 1,400.03 $ 36,000 $ 450.00 $ 1,850.03
Harvest Run, Crystal Lake Dover 9904C 101 1224 Barlina Drive $ 1,983.37 $ 51,000 $ 637.50 $ 2,620.87
Royal Hill, Algonquin Devonshire 9810C 499 Flora Drive $ 1,388.36 $ 35,700 $ 446.25 $ 1,834.61
Royal Hill, Algonquin Normandy 9813C 509 Flora Drive $ 1,376.69 $ 35,400 $ 442.50 $ 1,819.19
Royal Hill, Algonquin Barrister 9823C 519 Flora Drive $ 1,545.86 $ 39,750 $ 496.88 $ 2,042.74
Royal Hill, Algonquin Cambridge 9802B 410 Flora Drive $ 1,178.36 $ 30,300 $ 378.75 $ 1,557.11
ARIZONA
Red Dog Ranch, Cave Creek 2700 Expanded Lot 30 41515 Canyon Spring Dr. $ 1,991.34 $ 50,625 $ 632.81 $ 2,624.15
Red Dog Ranch, Cave Creek 3500 Expanded Lot 31 5722 Ironwood Bluff $ 1,908.74 $ 48,525 $ 606.56 $ 2,515.30
Lindsay Meadows 2402 A Lot 28 765 E. Orchid $ 1,033.23 $ 28,500 $ 356.25 $ 1,389.48
Lindsay Meadows 2592C Lot 29 755 E. Orchid $ 1,033.23 $ 28,500 $ 356.25 $ 1,389.48
Lindsay Meadows 3320B Lot 30 745 E. Orchid $ 1,223.56 $ 33,750 $ 421.88 $ 1,645.44
Lindsay Meadows Lot 31 735 E. Orchid $ 1,267.06 $ 34,950 $ 436.88 $ 1,703.94
Sub-Total Page 1 $ 8,457.16 $559,050 $6,988.14 $28,442.22
MICHIGAN
Bayberry Farms, Wyoming Monarch 2 5613 Bayberry Farms Dr. $ 848.77 $ 21,825 $ 272.81 $ 1,121.58
Bayberry Farms, Wyoming Fawn 3 5621 Bayberry Farms Dr. $ 857.52 $ 22,050 $ 275.63 $ 1,133.15
Quail Meadows, Kalamazoo 1 2134 Quail Run Drive $ 873.35 $ 23,250 $ 290.63 $ 1,163.98
Quail Meadows, Kalamazoo 1A 2074 Quail Cove Dr. $ 924.06 $ 24,600 $ 307.50 $ 1,231.56
Quail Meadows, Kalamazoo 2 2124 Quail Run Drive $ 986.04 $ 26,250 $ 328.13 $ 1,314.17
Quail Meadows, Kalamazoo 2A 2070 Quail Cove Dr. $ 833.91 $ 22,200 $ 277.50 $ 1,111.41
Sub-Total Page 2 $ 5,323.65 $140,175 $1,752.20 $ 7,075.85
CURRENTLY FINANCED $13,780.81 $699,225.00 $8,740.34 $35,518.07
</TABLE>
<PAGE>
REAL ESTATE SALE CONTRACT
(CONDOMINIUM TOWNHOME AND SINGLE FAMILY MODEL UNITS)
1. Model Homes, L.L.C. ("Purchaser") agrees to purchase at a price of
$4,661,500 on the terms set forth herein, the following described real estate
(certain model condominium, townhome and single family units) in the locations
set forth on EXHIBIT B (collectively the "Property").
See Exhibit A for legal descriptions
commonly known as, see EXHIBIT B for common address, each being either a
condominium unit which may be subject to a condominium association, along with
an interest in the Common Elements, appurtenant to such units, a townhome unit,
which may be subject to a townhome association, or a single family home which
may be subject to a homeowners association together with the following property
presently located thereon: (a) doors and windows; (b) wall-to-wall, hallway and
stair carpeting; (c) electric, plumbing and other attached fixtures as
installed. No personal property, furniture, office equipment, artwork, or
fixtures not permanently attached are included in this sale.
2. United Homes, Inc. (Seller) agrees to sell the real estate and the
property, if any, described above at the price and terms set forth herein, and
to convey or cause to be conveyed to Purchaser by a recordable warranty deed (or
if applicable, trustee's deed), with release of homestead rights, and a proper
bill of sale, subject only to: (a) covenants, conditions and restrictions of
record; (b) public and utility easements and visible roads and highways, if any;
(c) party wall rights and agreements, if any; (d) the lease to be entered into
between Seller and Purchaser; (e) special taxes or assessments for improvements
not yet completed; (f) any unconfirmed special tax or assessment; (g)
installments not due at the date hereof of any special tax or assessment for
improvements heretofore completed; (h) mortgage or trust deed specified below,
if any; (i) general taxes for the year 1996 and subsequent years including taxes
which may accrue by reason of new or additional improvements during the
year(s)1996; (j) Association Documents (as defined below); (k) a mortgage lien
securing a debt in the amount specified; and (l) exceptions shown on title
commitment approved by Purchaser.
3. Purchaser has paid $100.00 as earnest money to be applied on the purchase
price, and agrees to pay or satisfy the balance of the purchase price, plus or
minus prorations, at the time of closing as follows:
(a) The payment of $699,225.00 in cash, earnest money being returned to
Purchaser at closing (see Exhibit B for allocation to individual lots).
(b) Execution of a promissory note in the original principal amount of
$466,150.00, which rate shall bear interest at 10%, and shall be in the form of
EXHIBIT C attached hereto; and
(c) Acceptance of the Property subject to a mortgage, or deed of trust lien,
securing a loan in the original amount specified on EXHIBIT B, as to each unit
listed thereon.
4. The time of closing shall be on March 30, 1997.
5. Seller shall retain possession of the Property pursuant to a lease
agreement executed by and between Seller and Purchaser.
6. Seller agrees to pay a broker's commission to: N/A
7. The earnest money shall be held by Seller for the mutual benefit of
the parties.
8. Seller agrees to maintain possession of the real estate in the same
condition as it is at the date of this contract, ordinary wear and tear
excepted.
9. Purchaser hereby acknowledges receipt from Seller of the following
documents and information relating to units of the Property: (a)
Condominium/Townhome/Homeowners Declaration, (b) By-Laws of
Condominium/Townhome/Homeowners Association, (c) the proposed or current budget
of the Condominium/Townhome/Homeowners Association, and (d) floor plan of the
units (collectively the "Association Documents"). Seller reserves the right to
change or amend any of the Association Documents.
This contract is subject to the Conditions and Stipulations set forth on the two
following pages, which Conditions and Stipulations are made a part of this
contract.
DATED March 30, 1997
PURCHASER Model Homes, L.L.C. (ADDRESS) 2100 Golf Road, Suite 110
Rolling Meadows IL 60008
By: ____________________________
SELLER United Homes, Inc. (ADDRESS) 2100 Golf Road, Suite 110
Rolling Meadows IL 60008
By: ____________________________
<PAGE>
CONDITIONS AND STIPULATIONS
1. Seller shall deliver or cause to be delivered to Purchase or Purchaser's's
agent, not less than 5 days prior to the time of closing, a title commitment for
an owner's title insurance policy issued by the Chicago Title Insurance Company
in the amount of the purchase price, covering title to the real estate on or
after the date hereof, showing title in the intended grantor subject only to (a)
the general exceptions contained in the policy unless the real estate is
improved with a single family dwelling or an apartment building of four or fewer
residential units. (b) the title exceptions set forth above, and (c) title
exceptions pertaining to liens or encumbrances of a definite or ascertainable
amount which may be removed by the payment of money at the time of closing and
which the seller may so remove at that time by using the funds to be paid upon
the delivery of the deed (all of which are herein referred to as the permitted
exceptions). The title commitment shall be conclusive evidence of good title as
therein shown as to all matters insured by the policy, subject only to the
exceptions as therein stated. Seller also shall furnish Purchaser an affidavit
of title in customary form covering the date of closing and showing title in
Seller subject only to the permitted exceptions in foregoing items (b) and (c)
unpermitted exceptions, if any, as to which the title insurer commits to extend
insurance in the manner specified in paragraph 2 below.
2. lf the title commitment discloses unpermitted exceptions. Seller shall have
30 days from the date of delivery thereof to have the exceptions removed from
the commitment or to have the title insurer commit to insure against loss or
damage that may be occasioned by such exceptions, and, in such event, the time
of closing shall be 35 days after delivery of the commitment or the time
specified in paragraph 5 on the front page hereof, whichever is later. If Seller
fails to have the exceptions removed, or in the alternative, to obtain the
commitment for title insurance specified above as to such exceptions within the
specified time. Purchaser may terminate this contract or may elect. Upon notice
to Seller within 10 days after the expiration of the 30-day period. to take
title as it then is with the right to deduct from the purchase price liens or
encumbrances of a definite or ascertainable amount. If Purchaser does not so
elect, this contract shall become null and void without further actions of the
parties.
3. There shall be no prorations as Seller will execute a "net" lease at or
prior to closing. Seller shall pay the amount of any stamp tax imposed by State
law on the transfer of the title, and shall furnish a completed real estate
Transfer Declaration signed by the Seller or the Seller's agent in the form
required pursuant to the Real Estate transfer Tax Act of the State of Illinois
and shall furnish any declaration signed by the Seller or the Seller's agent or
meet other requirements as established by any local ordinance with regard to a
transfer or transaction tax; such tax required by local ordinance shall be paid
by the party upon whom such ordinance places responsibility therefor.
4. The provisions of the Uniform Vendor and Purchaser Risk Act (If the State
of Illinois shall be applicable to this contract).
5. This Contract may be terminated by either party prior to closing by payment
to the other party of actual costs incurred by the non-terminating party.
6. At the election of Seller or Purchaser upon notice to the other party not
less than 5 days prior to the time of closing this sale shall be closed through
an escrow with Chicago Title and Trust Company. in accordance with the general
provisions of the usual form of Deed and Money Escrow Agreement then in use by
Chicago Title and Trust Company with such special provisions inserted in the
escrow agreement as may be required to conform with this contract. Upon the
creation of such an escrow, anything herein to the contrary notwithstanding,
payment of purchase price and delivery of deed shall be made through the escrow
and this contract and the earnest money shall be deposited in the escrow. The
cost of the escrow shall be divided equally between Seller and Purchaser.
7. Time is of the essence of this contract.
8. All notices herein required shall be in writing and shall be served on the
parties at the addresses following their signatures. The mailing of a notice by
registered or certified mail, return receipt requested, shall be sufficient
service.
9. Purchaser and Seller hereby agree to make all disclosures and do all things
necessary to comply with the applicable provisions of the Real Estate Settlement
Procedures Act of 1974. In the event that either party shall fail to make
appropriate disclosure when asked, such failure shall be considered a breach on
the part of said party.
10. Seller represents that he is not a "foreign person" as defined in Section
1445 of the Internal Revenue Code and is therefore exempt from the withholding
requirements of said Section. Seller will furnish Purchaser at closing the
Exemption Certification set forth in said Section.
11. A condition to this Contract is the execution by Seller and Purchaser of a
"Lease and Sale Listing Agreement" acceptable to Seller and Purchaser.
12. Seller hereby grants to Purchaser a first right to acquire model homes
constructed by Seller in Arizona, Michigan and Illinois, to the extent Seller
discusses to sell such Units. Seller shall notify Purchaser of its intent to
sell new model units, along with all information provided on EXHIBIT B attached
hereto, and Purchaser shall, within ten (10) days thereafter elect to purchase
said units or waive its right as provided herein.
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
SUBDIVISION MODEL LOT MODEL APPRAISAL LOAN
NAME TYPE NUMBER ADDRESS VALUE VALUE
- ----------- ----- ------ ------- --------- ---------
<S> <C> <C> <C> <C> <C>
ILLINOIS
Bristol Park, Tinley Park Ash 198 7817 Bristol Park Drive $ 170,000 $ 127,500
Bristol Park, Tinley Park Birch 198 7815 Bristol Park Drive $ 166,000 $ 124,500
Bristol Park, Tinley Park Cypress 198 7813 Bristol Park Drive $ 173,000 $ 129,750
Bristol Park, Tinley Park Dogwood - Alt. 198 7811 Bristol Park Drive $ 198,000 $ 148,500
Harvest Run, Crystal Lake Brittany 9013B 102 1232 Barlina Drive $ 240,000 $ 180,000
Harvest Run, Crystal Lake Dover 9904C 101 1224 Barlina Drive $ 340,000 $ 255,000
Royal Hill, Algonquin Devonshire 9810C 499 Flora Drive $ 238,000 $ 178,500
Royal Hill, Algonquin Normandy 9813C 509 Flora Drive $ 236,000 $ 177,000
Royal Hill, Algonquin Barrister 9823C 519 Flora Drive $ 265,000 $ 198,750
Royal Hill, Algonquin Cambridge 9802B 410 Flora Drive $ 202,000 $ 151,500
ARIZONA
Red Dog Ranch, Cave Creek 2700 Expanded Lot 30 41515 Canyon Spring Dr. $ 337,500 $ 253,125
Red Dog Ranch, Cave Creek 3500 Expanded Lot 31 5722 Ironwood Bluff $ 323,500 $ 242,625
Lindsay Meadows 2402 A Lot 28 765 E. Orchid $ 190,000 $ 142,500
Lindsay Meadows 2592C Lot 29 755 E. Orchid $ 190,000 $ 142,500
Lindsay Meadows 3320B Lot 30 745 E. Orchid $ 225,000 $ 168,750
Lindsay Meadows Lot 31 735 E. Orchid $ 233,000 $ 174,750
Sub-Total Page 1 $3,727,000 $2,795,250
MICHIGAN
Bayberry Farms, Wyoming Monarch 2 5613 Bayberry Farms Dr. $ 145,500 $ 109,125
Bayberry Farms, Wyoming Fawn 3 5621 Bayberry Farms Dr. $ 147,000 $ 110,250
Quail Meadows, Kalamazoo 1 2134 Quail Run Drive $ 155,000 $ 116,250
Quail Meadows, Kalamazoo 1A 2074 Quail Cove Dr. $ 164,000 $ 123,000
Quail Meadows, Kalamazoo 2 2124 Quail Run Drive $ 175,000 $ 131,250
Quail Meadows, Kalamazoo 2A 2070 Quail Cove Dr. $ 148,000 $ 111,000
Sub-Total Page 2 $ 934,500 $ 700,875
CURRENTLY FINANCED $4,661,500.00 $3,496,125.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
15% ANNUAL
RETURN ON
CASH
INVESTMENT TOTAL
SUBDIVISION MODEL LOT MODEL MONTHLY DEBT CASH (REFLECTED MONTHLY
NAME TYPE NUMBER ADDRESS P&I PAYMENT INVESTMENT MONTHLY) BASE RENT
- ----------- ----- ------ ------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ILLINOIS
Bristol Park, Tinley Park Ash 198 7817 Bristol Park Drive $ 991.69 $ 25,500 $ 318.75 $ 1,310.44
Bristol Park, Tinley Park Birch 198 7815 Bristol Park Drive $ 968.35 $ 24,900 $ 311.25 $ 1,279.60
Bristol Park, Tinley Park Cypress 198 7813 Bristol Park Drive $ 1,009.19 $ 25,950 $ 324.38 $ 1,333.57
Bristol Park, Tinley Park Dogwood - Alt. 198 7811 Bristol Park Drive $ 1,155.02 $ 29,700 $ 371.25 $ 1,526.27
Harvest Run, Crystal Lake Brittany 9013B 102 1232 Barlina Drive $ 1,400.03 $ 36,000 $ 450.00 $ 1,850.03
Harvest Run, Crystal Lake Dover 9904C 101 1224 Barlina Drive $ 1,983.37 $ 51,000 $ 637.50 $ 2,620.87
Royal Hill, Algonquin Devonshire 9810C 499 Flora Drive $ 1,388.36 $ 35,700 $ 446.25 $ 1,834.61
Royal Hill, Algonquin Normandy 9813C 509 Flora Drive $ 1,376.69 $ 35,400 $ 442.50 $ 1,819.19
Royal Hill, Algonquin Barrister 9823C 519 Flora Drive $ 1,545.86 $ 39,750 $ 496.88 $ 2,042.74
Royal Hill, Algonquin Cambridge 9802B 410 Flora Drive $ 1,178.36 $ 30,300 $ 378.75 $ 1,557.11
ARIZONA
Red Dog Ranch, Cave Creek 2700 Expanded Lot 30 41515 Canyon Spring Dr. $ 1,991.34 $ 50,625 $ 632.81 $ 2,624.15
Red Dog Ranch, Cave Creek 3500 Expanded Lot 31 5722 Ironwood Bluff $ 1,908.74 $ 48,525 $ 606.56 $ 2,515.30
Lindsay Meadows 2402 A Lot 28 765 E. Orchid $ 1,033.23 $ 28,500 $ 356.25 $ 1,389.48
Lindsay Meadows 2592C Lot 29 755 E. Orchid $ 1,033.23 $ 28,500 $ 356.25 $ 1,389.48
Lindsay Meadows 3320B Lot 30 745 E. Orchid $ 1,223.56 $ 33,750 $ 421.88 $ 1,645.44
Lindsay Meadows Lot 31 735 E. Orchid $ 1,267.06 $ 34,950 $ 436.88 $ 1,703.94
Sub-Total Page 1 $ 8,457.16 $559,050 $ 6,988.14 $28,442.22
MICHIGAN
Bayberry Farms, Wyoming Monarch 2 5613 Bayberry Farms Dr. $ 848.77 $ 21,825 $ 272.81 $ 1,121.58
Bayberry Farms, Wyoming Fawn 3 5621 Bayberry Farms Dr. $ 857.52 $ 22,050 $ 275.63 $ 1,133.15
Quail Meadows, Kalamazoo 1 2134 Quail Run Drive $ 873.35 $ 23,250 $ 290.63 $ 1,163.98
Quail Meadows, Kalamazoo 1A 2074 Quail Cove Dr. $ 924.06 $ 24,600 $ 307.50 $ 1,231.56
Quail Meadows, Kalamazoo 2 2124 Quail Run Drive $ 986.04 $ 26,250 $ 328.13 $ 1,314.17
Quail Meadows, Kalamazoo 2A 2070 Quail Cove Dr. $ 833.91 $ 22,200 $ 277.50 $ 1,111.41
Sub-Total Page 2 $ 5,323.65 $140,175 $ 1,752.20 $ 7,075.85
CURRENTLY FINANCED $13,780.81 $699,225.00 $ 8,740.34 $35,518.07
</TABLE>
<PAGE>
EXHIBIT 12.1
STATEMENT REGARDING RATIO OF EARNINGS TO FIXED CHARGES:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, FISCAL YEAR ENDED SEPTEMBER 30,
----------------------- --------------------------------------------------------------
EARNINGS: 1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Minority Interests
and Income Taxes $1,575,241 $1,405,496 $1,784,555 $1,511,748 $1,168,851 $2,615,278 $2,730,062
Adjustment for Share of Net Income
from Minority-Owned Land
Development and Housing Partnership --- $ (116,000) $ 21,767 $ (236,404) $ 174,363 $ (35,000) ----
Amortization of Interest Expense $1,903,277 $1,066,141 $1,886,662 $ 815,947 $ 491,612 $ 210,479 $ 482,611
Interest Expense $ 21,924 $ 25,171 $ 58,782 $ 79,998 $ 54,712 $ 90,247 $ 238,692
----------------------- --------------------------------------------------------------
Total Earnings $3,500,442 $2,380,808 $3,751,766 $2,171,289 $1,889,538 $2,881,004 $3,451,365
----------------------- --------------------------------------------------------------
----------------------- --------------------------------------------------------------
FIXED CHARGES:
Interest Expense $ 21,924 $ 25,171 $ 58,782 $ 79,998 $ 54,712 $ 90,247 $ 238,692
Interest Capitalized $5,371,941 $2,215,935 $3,901,554 $1,824,941 $ 716,667 $ 305,285 $ 420,357
----------------------- --------------------------------------------------------------
Total Fixed Charges $5,393,865 $2,241,106 $3,960,336 $1,904,939 $ 771,379 $ 395,532 $ 659,049
----------------------- --------------------------------------------------------------
----------------------- --------------------------------------------------------------
Ratio of Earnings to Fixed Charges (1) 1.06 (1) 1.14 2.45 7.28 5.24
----------------------- --------------------------------------------------------------
----------------------- --------------------------------------------------------------
</TABLE>
(1) Earnings were inadequate to cover fixed charges by approximately
$209,000 for the year ended September 30, 1996 and by approximately
$1,893,000 for the nine months ended June 30, 1997.
<PAGE>
MODIFIED RATIO OF EARNINGS TO FIXED CHARGES ADJUSTED TO REDUCE FIXED CHARGES
BY THE AMOUNT OF INTEREST CHARGES FUNDED FROM DRAWS ON COMPANY'S LINES OF CREDIT
OR BY CAPITALIZING AND ADDING TO PRINCIPAL
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, FISCAL YEAR ENDED SEPTEMBER 30,
------------------------ --------------------------------------------------------------
EARNINGS: 1997 1996 1996 1995 1994 1993 1992
- --------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Before Minority Interests
and Income Taxes $ 1,575,241 $ 1,405,496 $ 1,784,555 $ 1,511,748 $ 1,168,851 $2,615,278 $2,730,062
Adjustment for Share of Net
Income from Minority-Owned
Land Development and Housing
Partnership -- $ (116,000) $ 21,767 $ (236,404) $ 174,363 $ (35,000) --
Amortization of Interest Expense $ 1,903,277 $ 1,066,141 $ 1,886,662 $ 815,947 $ 491,612 $ 210,479 $ 482,611
Interest Expense $ 21,924 $ 25,171 $ 58,782 $ 79,998 $ 54,712 $ 90,247 $ 238,692
----------- ---------- ----------- ----------- ----------- ---------- ----------
Total Earnings $ 3,500,442 $ 2,380,808 $ 3,751,766 $ 2,171,289 $ 1,889,538 $2,881,004 $3,451,365
----------- ---------- ----------- ----------- ----------- ---------- ----------
----------- ---------- ----------- ----------- ----------- ---------- ----------
FIXED CHARGES:
Interest Charges $ 5,393,865 $ 2,241,106 $ 3,960,336 $ 1,904,939 $ 771,379 $ 395,532 $ 659,049
LESS:
Interest Funded from
Draws on Various
Lines of Credit $(4,774,242) $(2,201,655) $(3,674,343) $(1,824,941) $( 716,667) $( 305,285) $ (420,357)
----------- ---------- ---------- ----------- ---------- ---------- ----------
Total Adjusted Fixed
Charges to be Funded
from Earnings $ 619,623 $ 39,451 $ 285,993 $ 79,998 $ 54,712 $ 90,247 $ 238,692
----------- ---------- ---------- ----------- ---------- ---------- ----------
----------- ---------- ---------- ----------- ---------- ---------- ----------
Ratio of Earnings to Adjusted
Fixed Charges 5.65 60.35 13.12 27.14 34.54 31.92 14.46
----------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
United Homes, Inc., an Arizona corporation
United Homes of Illinois, Inc., an Illinois corporation
United Homes of Michigan, Inc., a Michigan corporation
Williams Glen Limited Partnership
The Hidden Springs Real Estate Limited Partnership
United/RBG XII L.P.
United Lindsay East Valley Limited Partnership
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports
dated December 12, 1996, except for Note 6(1), as to which the date is
March 25, 1997, with respect to the consolidated financial statements of
United Homes, Inc. as of September 30, 1996 and 1995 and for each of the
three years in the period ended September 30, 1996, and dated October 15,
1997 with respect to the financial statements of United Development
Bristolwood Limited Partnership as of September 30, 1995 and for the year
then ended, in the Registration Statement (Form S-1) and related Prospectus
of United Homes, Inc. for the registration of $7,000,000 of Debentures due
March 15, 2005.
Ernst & Young LLP
Chicago, Illinois
October 20, 1997
