<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23347
UNITED HOMES, INC.
----------------------------------
(Exact name of Registrant as specified in its charter)
Illinois 36-3978181
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2100 Golf Road, Rolling Meadows, IL 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (847) 427-2450
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------ -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
11% Mandatory Redemption Debentures
Due March 15, 2005
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X. NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 9
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . .12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . 19
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 19
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 19
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 10. Directors and Executive Officers of the Registrant. . . . . . 20
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . 23
Item 13. Certain Relationships and Related Transactions. . . . . . . . 24
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
<PAGE>
PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Report that are not historical facts constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Discussions containing such
forward-looking statements may be found in the material set forth under
"Business," "Properties" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A") as well as within this Report
generally, In addition, when used in this Report, the words "believes,"
"intends," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to a number of
risks and uncertainties described in more detail under MD&A - Factors Affecting
the Company's Business. Actual results could differ materially from those
projected in the forward-looking statements as a result of the factors set forth
in this Report. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
ITEM 1. BUSINESS
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 THE FOLLOWING PARTNERSHIPS
IN WHICH UNITED OR THE SUBSIDIARIES OWN CONTROLLING INTERESTS 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 Company is a fully-integrated land development and homebuilding company
operating in the Chicago, Phoenix and western Michigan markets. 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. During the fiscal year ended September 30, 1997, the Company closed on
the sale of 531 homes and 55 lots generating approximately $92.7 million in
revenue from housing and land sales as compared to 378 homes which generated
approximately $64.7 million in revenue from housing and land sales during the
fiscal year ended September 30, 1996. As of September 30, 1997, the Company had
contracts to sell an additional 257 homes, 122 lots and a current inventory of
1,039 lots.
Prices for the Company's homes, including the lot, range from $110,000 to
$400,000 per home. During the fiscal year ended September 30, 1997, the average
price of a home sold by the Company was approximately $174,000. The Company
markets its products to entry-level, first and second move-up, and empty-nest
buyers.
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
3
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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 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 by
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 goal by maintaining
an inventory of potential homesites (lots) by controlling undeveloped and
developed land through Acquisition Agreements for as long as possible prior to
actual purchase of the land. As of September 30, 1997, the Company had 352
homes built or under construction to be sold or held as inventory and located in
twenty-one different subdivisions and in various stages of the construction
process. A total of 257 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 (described
below) 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. 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's product mix includes both single family and
multifamily home designs which are sold through commissioned employees who work
from sales offices located at each project or, in certain cases, through outside
brokers. The Company markets its homes through a combination of newspaper, radio
and television advertisements, direct mail, directional signage, special
promotions, the Internet and referrals both from homebuyers and brokers.
MARKETS/PRODUCT. The Company builds and sells homes in three market areas:
Chicago, Phoenix and Western Michigan.
CHICAGO METROPOLITAN AREA. The Company's principal market is the Chicago
metropolitan area which essentially consists of Cook, DuPage, Lake, McHenry,
Will and Kane counties (the "Chicago Area"). 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 Illinois homebuilders for calendar years 1996 and 1997. During the
fiscal year ended September 30, 1997, the Company closed on the sale of 350
homes including lots in the Chicago Area. Prices for the Company's Chicago Area
homes range from $110,000 to $400,000.
4
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PHOENIX. The Company believes that the City of Phoenix and the surrounding
metropolitan area (the "Phoenix Area") offers significant growth opportunities.
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.
During the time period 1990-1996, approximately 300,000 new jobs were created in
the Phoenix Area. The median annual household income of the Phoenix Area is
projected to be approximately $37,583 in 1997 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. During the fiscal year ended September
30, 1997, the Company closed on the sale of 105 homes and lots 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"). 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. During the fiscal year ended September 30, 1997, the Company
closed on the sale of 131 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.
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
5
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necessary development approvals from governmental 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>
<CAPTION>
<S><C> <C>
-- topography -- archeological site status
-- geology, soils and grading -- regulatory processing and approval schedule
-- traffic, transportation and access -- financing alternatives
-- market research (including evaluation -- hazards, including noise and pollution
of competitive products and pricing) -- economic feasibility
-- environmental issues
</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 from sale of 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.
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, 1997, approximately 91% of
the homes sold by the Company were built on lots developed by the Company. This
falls within the Company's goal of at least 75% which was set at that level
since homes built on land developed by third parties result in lower profit
margins to the Company.
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. The Company competes
with these firms on the basis of a number of interrelated factors including
reputation, location, design, quality and price. Individual resales of
residential units and lots also provide additional competition.
ECONOMIC CONDITIONS. The Company's business, as well as the real estate
industry in general, is affected by a number of economic factors, including
interest rates and inflation. Interest rates affect both the cost to individuals
and builders of purchasing homes and lots from the Company, and the carrying
cost of undeveloped land. During the past fiscal year, interest rates on
residential mortgage loans declined slightly. In the past, the Company has
increased the price of lots offered for sale to offset increased inflation.
These increases reduce the number of persons who are able to afford the lots and
homes offered by the Company. If interest rates and inflation increase
substantially, the real estate and construction industries would be adversely
affected and the Company's ability to sell its real estate could be
significantly adversely affected.
6
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EMPLOYEES. As of December 31, 1997, the Company employed 111 full-time
employees. 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
ascertains the availability of 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.
ITEM 2. PROPERTIES
The following table summarizes the Company's inventory of homes sold, but
not yet closed, the current lot inventory and lots available for future
development as of September 30, 1997:
<TABLE>
<CAPTION>
LOTS AVAILABLE
HOMES SOLD BUT CURRENT LOT FOR FUTURE
NOT CLOSED (1) INVENTORY (2) DEVELOPMENT (3)
<S> <C> <C> <C>
ILLINOIS . . . . . 171 537 672
MICHIGAN . . . . . 49 284 216
ARIZONA . . . . . . 37 218 277
---- ----- -----
TOTAL . . . . . . . 257 1,039 1165
</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.
(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. There can be no assurance that the Company
will actually develop the number of lots set forth in this chart. In
addition, as noted herein there can be no assurance that the Company will
purchase the land controlled through Acquisition Agreements.
7
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As of December 31, 1997, the Company controlled, through Acquisition
Agreements, eight parcels of land for future development of homes. The
acquisition of any particular parcel is subject to numerous conditions such as
receipt by the Company of satisfactory environmental reports, engineering
studies, surveys, favorable zoning determinations and acceptable financing.
Below is a summary of the principal terms and conditions of these agreements.
There can be no assurance that the Company will complete the acquisitions on the
terms and conditions set forth below, if at all.
1. ANTIOCH: Contract to purchase 162 acres in Antioch, Illinois for
approximately $3.7 million from an unaffiliated third party in three separate
closings. The first closing occurred in 1996. The Company must complete the
second closing no later than November 1998 with the final closing scheduled to
close in 1999. The final two closings are contingent on the Company obtaining
zoning and other governmental approvals to permit the development of 280 units.
2. DARIEN: Contract to purchase 16 acres in Darien, Illinois for
approximately $2.2 million from an unaffiliated third party. The Company must
exercise its option to purchase the property by April 30, 1998. Purchase of the
parcel is contingent on the Company obtaining zoning and other governmental
approvals to permit the development of 67 units.
3. CLARENDON HILLS: Contract to purchase 6.8 acres in Clarendon Hills,
Illinois for approximately $650,000 from an unaffiliated third party. The
Company must exercise its right to purchase no later than June 30, 1998.
Purchase of the parcel is contingent on the Company obtaining zoning and other
governmental approvals to permit the development of 50 units.
4. BAYBERRY (GREENBROOKE): Contract to purchase ten acres in Wyoming,
Michigan for approximately $230,000 from an affiliated third party. The Company
must exercise its right to purchase no later than December 1998. Purchase of the
parcel is contingent on the Company obtaining zoning and other governmental
approvals to permit development of 52 units.
5. FLAGG CREEK (INDIAN HEAD PARK, ILLINOIS): Contract to purchase 48
lots in Indian Head Park, Illinois, for approximately $1.0 million. Closing is
to occur 60 days after certain conditions precedent, including final plat
approval, have been satisfied, which is estimated to occur in March or April
1998.
6. WOODSIDE GREEN, MICHIGAN: Contract to purchase 128 lots in Holland,
Michigan, for a price of $480,000. Closing is anticipated to occur at various
times through 2000.
7. GREER RANCH: The Company has entered into a contract to purchase
approximately 353 acres (for development of approximately 125 lots) in Maricopa
County, Arizona, for approximately $3.6 million. Closing is anticipated to occur
in March 1998.
8. DESERT SPRINGS: The Company has entered into a contract to purchase
40 lots in Scottsdale, Arizona, for $3.0 million. Closing is scheduled for
March 1, 1998.
ITEM 3. 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.
8
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Not Applicable
(b) On November 14, 1997, the Company's registration statement on
Form S-1, File No. 333-33965, was declared effective, and the Company
commenced the offering of 11% Mandatory Redemption Debentures due March 15,
2005 (the "Debentures").
Miller & Schroeder Financial, Inc. served as the underwriter (the
"Underwriter") of the offering which was conducted on a "best-efforts"
basis. The Company registered an aggregate of 7,106 Debentures for sale at
a maximum offering price of $1,000 per Debenture or $7,160,000 maximum
aggregate offering price. This amount included a total of 1,015 Debentures
issuable upon exercise by the Underwriter of an option to purchase such
additional Debentures (the "Underwriter Option"). The Debentures were
offered to the public at a price equal to $985 per Debenture. The Company
sold all of the Debentures, including the Debentures covered by the
Underwriter Option and completed the offering on December 22, 1997. The
gross proceeds from the offering totaled $6,999,410.
9
<PAGE>
From the effective date of the registration statement, the Company
incurred the following expenses in connection with the issuance and
distribution of the Debentures:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
($)
Underwriting Discounts and Commissions 489,958.70
Management Fee to Underwriter 139,988.20
Non-accountable expense allowance to Underwriter 69,994.10
Reimbursable expenses of Underwriter 120,000.00
Registration and filing fees 2,170.00
Legal fees and expenses 115,000.00
Blue Sky fees and expenses
(including counsel fees) 33,582.63
Printing and engraving expense 60,000.00
Accounting 70,000.00
Miscellaneous expenses 35,000.00
---------------
Total $ 1,135,693.63
---------------
---------------
</TABLE>
None of the expenses set forth above were paid, directly or indirectly, to
the Company's directors or officers or to persons owing ten percent (10%) or
more of any class of the Company's equity securities or to the affiliates of the
Company nor, except as described above, were any such payments made directly or
indirectly to others.
The net offering proceeds realized by the Company after paying all of the
expenses described above was $5,863,716.37. The net proceeds were utilized to
repay indebtedness aggregating approximately $2.6 million and incurred in
connection with land acquisitions with the remainder applied to reduce the
Heller Line (defined below).
10
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of September 30, 1997
and 1996 and for each of the three years in the period ended September 30, 1997
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 Report. The selected consolidated financial data as
of September 30, 1994 and 1993 and for each of the two years ended September 30,
1994 and 1993 has been derived from audited financial statements. The following
selected consolidated financial data should be read in conjunction with the
consolidated financial statements, including the notes thereto, included
elsewhere in this Report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
YEAR ENDED SEPTEMBER 30.
------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
INCOME DATA:
Revenues $100,335 $ 65,117 $ 44,349 $ 32,886 $ 24,896
Cost of Sales $(95,373) $(60,494) $(40,067) $(29,227) $(19,674)
-------- -------- -------- -------- --------
Gross Profit $ 4,962 $ 4,623 $ 4,282 $ 3,659 $ 5,222
Operating Expenses $ (3,091) $ (2,838) $ (2,770) $ (2,490) $ (2,607)
-------- -------- -------- -------- --------
Income before Investors'
Share of Income in
Majority Owned Land
Development and Housing $ 1,871 $ 1,785 $ 1,512 $ 1,169 $ 2,615
Partnerships
Investors' Share of Income
in Majority Owned Land
Development and Housing
Partnerships $ (698) $ (735) $ (70) -- --
-------- -------- -------- -------- --------
Income before Income
Taxes $ 1,173 $ 1,050 $ 1,442 $ 1,169 $ 2,615
Income Taxes $ (454) $ (401) $ (577) $ (468) $ (1,046)
-------- -------- -------- -------- --------
Net Income $ 719 $ 649 $ 865 $ 701 $ 1,569
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Other Data:
Number of Homes and
Lots Closed 586 378 267 174 110
Average Selling Price Per
Home $ 174 $ 171 $ 163 $ 185 $ 224
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AS OF SEPTEMBER 30,
---------------------
(DOLLARS IN THOUSANDS)
SELECTED BALANCE SHEET DATA: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Inventories $ 71,233 $ 54,588 $ 28,796 $ 21,143 $ 12,506
Total Assets $ 85,111 $ 69,931 $ 34,365 $ 26,779 $ 21,216
Total Liabilities $ 73,889 $ 58,699 $ 22,909 $ 18,825 $ 13,718
Investors' Equity in
Majority Owned
Projects (1) $ 1,435 $ 2,164 $ 3,037 $ 400 --
</TABLE>
(1) Represents the equity of investors in projects, a majority of which
interests are owned by the Company.
ITEM 7. 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, 1997 and 1996 and for the years
ended September 30, 1997, 1996, and 1995 should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto, and
other information included elsewhere in this Report.
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 September 30, 1997, the Company had 352 homes built or
under construction, 257 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.
RESULTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995. Revenue from housing and
land sales for the fiscal years ended September 30, 1997, 1996 and 1995 was
approximately $100.2 million, $64.7 million and $43.4 million, respectively.
Total revenues were approximately $100.3 million, $65.1 million and $44.3
million, respectively, when adding in revenue from the Company's share of net
income from a minority-owned land development housing partnership, as well as
management fees. The total number of homes sold and closed for the fiscal year
ended September 30, 1997, 1996 and 1995 was 531 homes, 378 homes and 267 homes,
respectively. The Company believes that the increases in the volume of homes
closed when comparing 1996 to 1995 and 1997 to 1996 was due in part by increases
in demand for new residential housing resulting from decreases in long-term
mortgage interest rates. The average selling price of a home closed in fiscal
year 1997 increased from $171,000 for fiscal year 1996 to $174,000 in 1997.
Also, the
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<PAGE>
average selling price of a home closed in fiscal year 1996 increased from
$163,000 in fiscal year 1995 to $171,000 in fiscal year 1996. The Company
believes that the increase in the average selling price for a home closed during
fiscal year 1997 compared to fiscal year 1996 and fiscal year 1996 compared to
1995 resulted from changes in the mix of homes closed during those years (higher
priced homes).
As a percentage of housing and land sales revenue, housing costs were
86.4% for fiscal year 1997, 83.0% for fiscal year 1996 and 83.6% for fiscal
year 1995. The Company believes that the increase in housing costs of 3.9% in
fiscal year 1997 compared to fiscal year 1996 was attributable to increases
in material costs which could not be passed on to home buyers and two bulk
sales of land at prices lower than typical which, therefore, resulted in
lower margins. The decrease in housing costs of .6% in fiscal year 1996
compared to fiscal year 1995 was a result of the type of homes built and
closed between those fiscal years. Net income was $718,603 in 1997 compared
to $648,627 in 1996 and $864,939 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at September 30, 1997 and
September 30, 1996 was approximately $1.1 million in each year. 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 drawing 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 September 30, 1997 and September 30, 1996,
the Company had total indebtedness of approximately $19.3 million and $22.1
million, respectively, outstanding on its A&D Lines, including $10.7 million and
$4.0 million, respectively, on the Residential Line II.
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 the home for sale to the end
purchaser. As noted herein, the Company typically does not commence construction
of a home until a buyer executes a purchase contract. As of September 30, 1997
and September 30, 1996, the Company had total indebtedness of approximately
$29.6 million and $16.5 million, respectively, outstanding on these two lines
and had incurred interest charges of approximately $2.4 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 the Company's market areas which the Company then factors into its analysis
of the number of homes that it believes may be constructed and the rate at which
these homes may be sold to end-purchasers. However, from time to time the
Company will sell improved lots without constructing a home thereon.
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
13
<PAGE>
any one time and the rate at which the Company closes on homes under contract
for sale. During the fiscal years ended September 30, 1997 and 1996, the
Company made principal reductions of approximately $68.8 million and $59.8
million, respectively, on these lines. As of February 2, 1998, the Company had
approximately $2.1 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 (9.53% as of February 2, 1998). 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 February 2, 1998). The
Residential Lines each mature 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 September
30, 1997, the Company had approximately $8.6 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 September 30, 1997.
Finally, the Company also generates additional working capital by: (i)
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 certain of the
Company's directors and shareholders; or (ii) by entering into other
transactions with affiliates of the Company. See "Certain Relationships and
Related Transactions." Under the arrangement with Model Homes, the Company sells
the model home 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 Relationships and Related Transactions." The Company received a
$565,375 note from Model Homes in respect of these sales, of which $492,379 was
outstanding at September 30, 1997. 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 are typically the last homes sold at the Company's developments.
In addition to the Model Homes transaction, during the fiscal year ended
September 30, 1997, the Company entered into three other transactions with
affiliates. On September 30, 1997, the Company sold undeveloped property
located in Lake County, Illinois to United Round Lake Land and Development,
L.L.C. ("Round Lake LLC") for approximately $7,217,000, including the assumption
of approximately $4,840,000 of indebtedness owed to a third party by the Company
and assumed by Round Lake LLC. See "Certain Relationships and Related
Transactions." The remaining portion of the purchase price is evidenced by a
demand note from Round Lake LLC of approximately $2.3 million. The demand note
bears interest at a rate of 10% per annum. On September 22, 1997, the Company
assigned its rights to acquire a property commonly known as the "Mirage
Property" to the Mirage L.L.C., for approximately $1,032,000. The full amount of
the purchase price was evidenced by a demand note from Mirage L.L.C. to the
Company. See "Certain Relationships and Related Transactions." The demand note
bears interest at a rate equal to 10% per annum. In February 1997, Greenbrooke
Associates Ltd., in which Edward Havlik and Virgil Owings each own a 16 2/3
interest, loaned the Company $240,259. The obligation is evidenced by a demand
note which bears interest at the prime rate (8.5% as of September 30, 1997).
The Company believes that the capital available under the lines of credit
described above, project specific indebtedness and cashflow from the sale of
model homes, internally generated funds and the proceeds from the offering of
Debentures described herein, will be sufficient to meet the Company's reasonably
anticipated needs for working capital and liquidity for the foreseeable future.
If these amounts prove insufficient, however, the Company would likely have to
raise additional capital (debt or equity or
14
<PAGE>
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.
CASH FLOWS FROM OPERATING ACTIVITIES. The Company's operating activities
utilized cash in the fiscal years ended September 30, 1997 and 1996 of
approximately $2.7 million and $29.6 million, respectively. The Company
utilized cash flow generated during the fiscal year ended September 30, 1997 to
increase the Company's housing inventories (approximately $16.6 million) and
offset by an increase in the Company's accounts payable (approximately $9.7
million) and a decrease of $5.9 million for land held for future development.
Similarly, for the fiscal year ended September 30, 1996, the Company utilized
approximately $29.6 million in cash from operating activities to increase the
Company's inventory of housing (approximately $26 million) and to increase land
held for future development (approximately $8.0 million) offset by an increase
in the Company's accounts payable (approximately $4.0 million). 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 the fiscal years ended
September 30, 1997 and 1996. During the fiscal year ended September 30, 1997,
net cash provided by financing activities was approximately $2.8 million
comprised almost entirely of proceeds from development loans and other notes
payable of approximately $120.0 million offset by repayments on development
loans and other notes payable of approximately $115.8 million. For the fiscal
year ended September 30, 1996, financing activities provided the Company with
net cash of approximately $29.0 million comprised almost entirely of the
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. 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 fiscal years ended
September 30, 1997 or 1996.
INFLATION AND SEASONALITY. 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 in early 1995
and then again from mid-year 1995 through 1997. If rates increase, potential
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.
YEAR 2000. In the year 2000, many existing computer programs that use
only two digits (rather than four) to identify a year in the date field could
fail or create erroneous results if not corrected. This computer program
flaw is expected to affect virtually all companies and organizations. The
Company cannot quantify the potential costs and uncertainties associated with
this computer program flaw at this time, but does not anticipate that the
effect of this computer program flaw on the operations of the Company will be
significant.
15
<PAGE>
However, the Company may be required to spend time and monetary resources
addressing any necessary computer program changes.
SUBSEQUENT EVENTS. As described above, on December 22, 1997 the Company
completed the sale of approximately $7.0 million of Debentures. The Company
realized net proceeds of approximately $5.9 million. The net proceeds were
utilized first to repay indebtedness aggregating approximately $2.6 million and
second to repay draws on the Heller Line. For additional information about the
offering, see item (b) of "Market for the Registrant's Common Equity and Related
Stockholder Matters" above.
FACTORS AFFECTING THE COMPANY'S BUSINESS PLAN
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 drawing 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 does not have an
interest reserve or is funded through an additional draw on the loan. As of
September 30, 1997, the Company had total indebtedness of approximately $19.3
million outstanding on its A&D Lines, including $10.7 million, on the
Residential Line II. 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 the
home for sale to the end purchaser. As of September 30, 1997, the Company had
total indebtedness of approximately $29.6 million outstanding on these two
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 the Company's 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. However, 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 prove correct. Differences in projected and actual demand 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 the
Company closes on homes under contract for sale. During the fiscal year ended
September 30, 1997, the Company made principal reductions of approximately $68.8
million on these lines. As of September 30, 1997, the Company had approximately
$4.7 million available for borrowing under all of its credit facilities.
As of September 30, 1997, the Company had a total of $73.9 million of
outstanding liabilities, including $52.4 million of secured indebtedness.
Although the Company believes that internally generated funds, the net proceeds
from the sale of 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
for the foreseeable future, there can be no assurance that
16
<PAGE>
these sources will be sufficient. 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 financing, either in the form of equity or debt,
will be available on terms and conditions acceptable to the Company, if at all.
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 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 entered into
between the Company and the trustee for the holders of the Debentures restricts
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,
17
<PAGE>
transferring, conveying or otherwise disposing of all of substantially all of
their respective assets. The Indenture also imposes 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 and requires 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.
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 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.
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.
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.
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.
18
<PAGE>
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 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. 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. Such transactions with affiliates may have an
unfavorable impact on the Company's results of operation and financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in trading currencies or in any hedging
activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEE THE INFORMATION SET FORTH ON PAGES F-1 THROUGH F-17.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
The current executive officers, directors and managers of United are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Virgil W. Owings 64 Chairman of the Board
Edward F. Havlik 53 President and Director
Laurie H. Bulson 30 Vice President and Director
Timothy S. Owings 37 Vice President and Director
William J. Crock, Jr. 50 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 and is
President of the Illinois Homebuilders Association. 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.
TIMOTHY 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
20
<PAGE>
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.
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
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.
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.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
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 $100,000 for the year.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------- ---------- ----------
NAME AND PRINCIPAL YEAR SALARY ($) BONUS ($) OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
POSITION COMPENSATION STOCK UNDERLYING PAYOUTS COMPENSATION(1)
($) AWARDS OPTIONS/SARS ($) ($)
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Virgil W. Owings 1997 325,000 - - - - - 9,102
Chairman 1996 325,000 - - - - - 11,450
1995 325,000 - - - - - 15,609
1997 368,750 - - - - - 9,102
Edward F. Havlik 1996 325,000 - - - - - 11,450
President 1995 325,000 - - - - - 15,609
Neville Alperstein 1997 146,616 - - - - - -
President of 1996 - - - - - - -
United 1995 - - - - - - -
Homes of Illinois,
Inc. (2)
William J. Crock, 1997 125,000 - - - - - 3,577
Jr. Executive Vice 1996 125,000 - - - - - 9,535
President 1995 117,000 - - - - - 10,432
David L. Feltman 1997 125,000 - - - - - -
Vice President, 1996 - - - - - - -
General Counsel 1995 - - - - - - -
Bruce C. Brown 1997 120,000 - - - - - 3,759
President 1996 120,000 - - - - - 9,125
United Homes of 1995 120,000 - - - - - 12,106
Michigan, Inc.
Timothy S. 1997 100,000 - - - - - 3,132
Owings 1996 100,000 - - - - - 7,643
Vice President 1995 100,000 - - - - - 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. Awards under the ESOP were based on the individual's
length of service with the Company and his or her compensation level.
(2) Mr. Alperstein resigned his position in January 1998 to pursue other
opportunities.
22
<PAGE>
United has recently established a bonus plan which enables all employees of
United to receive up to twenty-five percent (25%) 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.
ITEM 12. 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
February 2, 1998 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>
NUMBER OF SHARES PERCENT OF CLASS
NAMES AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OUTSTANDING
- ---------------------------------------- ------------------- ----------------
<S> <C> <C>
Edward F. Havlik (2)
2100 Gold Road
Suite 110
Rolling Meadows, IL 60008 37,070 37.1%
Virgil Owings (3)
3260 North Hayden
Suite 102
Scottsdale, AZ 85251 37,070 37.1%
Timothy S. Owings (4)
3260 North Hayden
Suite 102
Scottsdale, AZ 85251 692 *
Laurie Bulson (5)
2100 Golf Road
Suite 110
Rolling Meadows, IL 60008 553 *
Bruce C. Brown (7)
4525 Broadmoor
Grand Rapids, MI 49512 988 *
William J. Crock, Jr. (6)
2100 Golf Road
Suite 110
Rolling Meadows, IL 60008 777 *
David L. Feltman
2100 Golf Road
Suite 110
Rolling Meadows, IL 60008 -- --
Officers and Directors of United
as a Group (Six Persons) 77,150 77.15%
</TABLE>
- ----------------------------------
* Less than 1% of issued and outstanding shares.
(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
23
<PAGE>
to acquire within 60 days of February 2, 1998, 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 the Nancy Havlik Trust owns 17,500 shares
and 2,070 shares of common stock held by the Plan.
(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 2,070 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 692 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 553 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 777 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 988 shares held for Mr. Brown's benefit by the Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
$168,000 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 $600,000 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
24
<PAGE>
Company. The sale resulted in a deferred gain to the Company of approximately
$754,000. 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 approximately 75% of its appraisal value,
(b) cash (approximately 15% of appraised value), and (c) a demand promissory
note (approximately 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 September 30, 1997, the Company sold undeveloped property located in
Lake County, Illinois, to United Round Lake Land Development, L.L.C. ("Round
Lake LLC") for approximately $7,217,000, including the assumption of
approximately $4,840,000 of indebtedness owed to a third party by the Company
and assumed by the Round Lake LLC. The remaining portion of the purchase price
is evidenced by a demand note from the Round Lake LLC to the Company in the
aggregate principal amount of approximately $2.3 million. Round Lake LLC's sole
members are the Havlik Trust, which owns a 50% interest in Round Lake LLC, and
the Owings Trust, which owns the remaining 50% interest. The demand note bears
interest at a rate equal to 10% per annum. The Company also entered into a
development and marketing agreement with Round Lake LLC to develop and market
the property. Under this agreement, the Company is reimbursed for its costs
incurred in connection with developing and marketing the property and receives a
commission equal to 3% on the sale of any lot on the parcel to an unaffiliated
third party.
On September 22, 1997, the Company assigned its rights to acquire a
property commonly known as the "Mirage Property" located in Joliet, Illinois to
the Mirage L.L.C., the members of which are the Havlik Trust, with a 50%
interest, and the Owings Trust, which owns the remaining 50% interest for
approximately $1,032,000. The full amount of the purchase price was evidenced by
a demand note from Mirage L.L.C. to the Company. The demand note bears interest
at a rate equal to 10% per annum. The Company has also entered into a
development and marketing agreement with Mirage L.L.C. to develop and market the
property. Under this agreement, the Company is reimbursed for its costs incurred
in connection with developing and marketing the property and receives a
commission equal to 3% on the sale of any lot to an unaffiliated third party on
the parcel. As of September 30, 1997, the outstanding balance on the demand
note is approximately $1,032,000.
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 September 30, 1997, United Homes of
Michigan, Inc. was obligated to pay Greenbrooke $330,873 (inclusive of interest)
for lots to be improved with single family residences and $91,515 (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.
25
<PAGE>
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 September 30, 1997,
the balance was $76,969.
N. Havlik owns a 15.16% interest in a partnership which loaned $660,000 to
the Company secured by approximately 86 acres of land in Kalamazoo, Michigan.
As of September 30, 1997, the balance on this note was $138,809. The note bears
interest at the rate of 25% per annum.
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 September 30, 1997 approximately
$74,133 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
$323,417 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. As of September 30, 1997, the Company has reserved $245,000
against this receivable.
Greenbrooke Associates Ltd., in which Edward Havlik and Virgil Owings each
own a 162/3% interest, loaned the Company $240,259 in February, 1997. The
obligation is evidenced by a demand note which bears interest at the prime rate
(8.5% 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 September 30, 1997 was $4,159,383.
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 September 30, 1997, Messrs.
Havlik and Owings have guaranteed indebtedness outstanding for approximately
$7.2 million of debt, in the aggregate.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
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 - Indenture dated November 25, 1997 by and between United Homes, Inc., and National City Bank of Minneapolis*
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 - L o an 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(2)
10.9 - Development and Marketing Agreement by and between Mirage, L.L.C. and United Homes, Inc. dated September 22,
1997(3)
10.10 - Development and Marketing Agreement by and between United Round Lake Land Development, L.L.C. and United Homes,
Inc. dated September 30, 1997(3)
10.11 - Real Estate Purchase Agreement by and between Greenbrooke Associates, Ltd. and United Development Management
Company dated May 1, 1994(3)
10.12 - Real Estate Sale Contract by and between United Round Lake Land Development, L.L.C. and United Homes, Inc. dated
September 22, 1997(3)
10.13 - Assignment of Contract by and between Mirage, L.L.C. and United Homes, Inc. dated September 22, 1997(3)
21.1 - List of Subsidiaries of United Homes, Inc.(2)
27.1 - Financial Data Schedule*
</TABLE>
- ------------------------------
* Filed herewith
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, File No. 333-33965, filed August 19, 1997.
(2) Incorporated by reference from Amendment Number One to the Registrant's
Registration Statement on Form S-1, File No. 333-33965, filed October 21,
1997.
(3) Incorporated by reference from Amendment Number Three to the Registrant's
Registration Statement on Form S-1, File No. 333-33965, filed November 14,
1997.
27
<PAGE>
United Homes, Inc.
Index to Consolidated Financial Statements
PAGE
----
Report of Independent Auditors.. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of September 30, 1997 and 1996. . . . . . . . F-3
Consolidated Statements of Income for the years ended September 30, 1997,
1996, and 1995... . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholder's Equity for the years
ended September 30, 1997, 1996, and 1995. . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996, and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
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, 1997 and 1996, and the related consolidated statements of income,
stockholder's equity, and cash flows for each of the three years in the period
ended September 30, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Homes, Inc. at September 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 3, 1998
F-2
<PAGE>
United Homes, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30
1997 1996
-------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 937,305 $ 824,162
Closing proceeds in transit 168,063 322,281
Housing inventories 71,232,760 54,588,044
Land held for future development 2,352,502 8,258,741
Investment in real estate partnership 541,243 485,274
Due from Parent 4,159,383 3,495,297
Due from affiliates 190,836 263,306
Notes receivable from affiliates 3,902,000 -
Other receivables (net of allowance of $245,000 in
1997 and $100,000 in 1996) 381,870 596,690
Deposits 220,833 400,710
Other 1,023,827 696,374
-------------------------
Total assets $85,110,622 $69,930,879
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Construction draws in process $ - $ 1,059,437
Accounts payable 15,284,650 5,629,497
Accrued costs on closed sales 3,870,524 2,796,202
Accrued liabilities 145,540 316,989
Deferred income 1,264,371 -
Deposits from home buyers 963,233 758,401
Development loans and other notes payable 52,360,936 48,138,856
-------------------------
Total liabilities 73,889,254 58,699,382
Investors' equity in majority-owned land development
and housing partnerships 1,435,379 2,164,111
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 9,781,989 9,063,386
-------------------------
Total stockholder's equity 9,785,989 9,067,386
-------------------------
Total liabilities and stockholder's equity $85,110,622 $69,930,879
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
United Homes, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
REVENUES
Housing and land sales (564 units, 378 units, and 267 units in 1997, 1996,
and 1995, respectively) $ 88,596,301 $ 64,749,166 $ 43,448,117
Housing and land sales-affiliates:
Housing sales (22 units, net of deferred gain of $753,397) - -
Land sales (net of deferred gain of $681,972) 3,908,103
7,567,714
Recognition of deferred income 170,998 - -
Share of net income from minority-owned land development and housing
partnership 55,969 156,233 376,904
Management fees 36,084 212,021 524,470
--------------------------------------------------
100,335,169 65,117,420 44,349,491
COST OF SALES
Housing costs, including amortization of capitalized interest and real
estate taxes of $4,510,581, $2,031,442, and $868,213 in 1997, 1996, and
1995, respectively 86,669,662 53,787,863 36,345,524
Amortization of capitalized project costs 8,703,541 6,706,639 3,722,184
--------------------------------------------------
Gross profit 4,961,966 4,622,918 4,281,783
OTHER COSTS AND EXPENSES
Administrative 3,054,951 2,818,552 2,700,221
Interest, net of interest income of $38,933, $38,971, $10,184 in 1997,
1996, and 1995, respectively 35,603 19,811 69,814
--------------------------------------------------
3,090,554 2,838,363 2,770,035
--------------------------------------------------
Income before investors share of income in majority-owned land development
and housing partnerships 1,871,412 1,784,555 1,511,748
Investors' share of income in majority-owned land development and housing
partnerships 698,164 734,597 70,250
--------------------------------------------------
Income before income taxes 1,173,248 1,049,958 1,441,498
Income taxes 454,645 401,331 576,559
--------------------------------------------------
Net income $ 718,603 $ 648,627 $ 864,939
--------------------------------------------------
--------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
United Homes, Inc.
Consolidated Statements of Stockholder's Equity
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
-----------------------------------
<S> <C> <C> <C>
Balance at October 1, 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
Net income 718,603
-----------------------------------
Balance at September 30, 1997 $100 $3,900 $9,781,989
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
United Homes, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 718,603 $ 648,627 $ 864,939
Adjustments to reconcile net income to net cash used in
operating activities:
Share of net income from real estate partnership (55,969) (156,233) (376,904)
Investors' share of equity in majority-owned land
development and housing partnerships 698,164 734,597 70,250
Bad debt expense 145,000 - 100,000
Changes in operating assets and liabilities:
(Increase) decrease in closing proceeds in transit 154,218 184,143 (320,232)
Increase in housing inventories (16,644,716) (25,791,983) (7,993,243)
(Increase) decrease in land held for future development 5,906,239 (7,918,741) 265,852
(Increase) decrease in due from Parent (664,086) (1,942,804) (2,393,390)
(Increase) decrease in due from affiliates 72,470 (252,149) (158,499)
Increase in notes receivable (3,902,000)
(Increase) decrease in other receivables 69,820 (24,832) 2,570,227
(Increase) decrease in deposits 179,877 (324,705) (76,005)
(Increase) decrease in other assets (327,453) 203,884 (153,852)
Decrease in construction draws in process (1,059,437) (675,636) (1,118,825)
Increase in accounts payable 9,655,153 3,936,745 1,189,859
Increase (decrease) in accrued costs on closed sales 1,074,322 1,997,481 33,463
Increase (decrease) in accrued liabilities (171,449) (352,111) (3,775,518)
Increase in deferred income 1,264,371 - -
Increase (decrease) in deposits from home buyers 204,832 136,705 (119,028)
-----------------------------------------------------------
Net cash used in operating activities (2,682,041) (29,597,012) (11,390,906)
CASH FLOW FROM INVESTING ACTIVITIES
Distributions from real estate partnership investment - 178,000 140,500
-----------------------------------------------------------
Net cash provided by investing activities - 178,000 140,500
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from development loans and other notes payable 120,043,889 99,565,025 56,411,522
Repayments of development loans and other notes payable (115,821,809) (68,818,031) (47,532,783)
Contributions from investors in majority-owned land
development and housing partnerships - 150,000 3,056,300
Distributions to investors in majority-owned land
development and housing partnerships (1,426,896) (1,757,036) (490,000)
-----------------------------------------------------------
Net cash provided by financing activities 2,795,184 29,139,958 11,445,039
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents 113,143 (279,054) 194,633
Cash and cash equivalents at beginning of year 824,162 1,103,216 908,583
-----------------------------------------------------------
Cash and cash equivalents at end of year $ 937,305 $ 824,162 $ 1,103,216
-----------------------------------------------------------
-----------------------------------------------------------
</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 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>
1997 586 $92,504,404
1996 378 64,749,166
1995 267 43,448,117
</TABLE>
F-7
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
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
are charged to income as housing units are sold.
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,
housing inventories 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. Land held for sale is stated at the
lower of carrying amount or fair market value less cost to sell. The adoption
of SFAS No. 121 had no effect on the Company's financial position or results of
operations.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity of three
months or less, when purchased.
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.
F-8
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1996 and 1995 consolidated financial statements have
been reclassified to conform with the 1997 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>
1997 1996
---------------------------------
<S> <C> <C>
Land under development, including
site development costs $32,509,293 $27,231,981
Direct construction costs 17,573,716 14,228,576
Capitalized project costs 16,993,716 10,918,232
Land held for sale 4,156,035 2,209,255
---------------------------------
$71,232,760 $54,588,044
---------------------------------
---------------------------------
</TABLE>
F-9
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
4. INVESTMENT IN REAL ESTATE PARTNERSHIP
The following is a summary of the Company's investment in real estate
partnership at September 30, 1997 and 1996:
<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, 1997:
United Development Bristolwood
Limited Partnership (1) LIMITED 24.875% $541,243 $55,969 $2,016,257 $ 278,573 $ 225,001
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
</TABLE>
NOTE (1): DURING 1997, 1996, AND 1995, THE COMPANY ACQUIRED $1,176,000,
$2,184,700 AND $1,444,000, RESPECTIVELY, OF IMPROVED LOTS FROM UDB.
NOTE (2): DURING 1995, THE COMPANY'S SHARE OF INCOME RELATING TO ITS 24.875%
INVESTMENT IN UDB WAS $376,904.
NOTE (3): AN ADDITIONAL 25.125% OF UDB IS OWNED BY RELATED PARTIES.
F-10
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
5. NOTES RECEIVABLE FROM AFFILIATES
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 demand promissory note (which is full 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 gain on the sale of $753,397 was initially deferred. Prior to September 30,
1997, gain of $170,998 was recognized upon the sale of four of the models to
third parties and $72,996 was repaid on the note receivable.
During 1997, the Company sold undeveloped property for $7,217,000 to an
affiliate controlled by the shareholders of the Parent. The Company received a
demand note (which is full recourse to the affiliate) in the amount of
$2,376,935 bearing interest at 10% per annum. The affiliate assumed the debt
requirements on the existing loan secured by the property in the amount of
$4,840,065 (fully relieving the Company of such obligation). The gain on the
sale of $421,924 has been deferred.
In addition, during 1997, the Company assigned its rights to acquire property in
which it had incurred predevelopment costs of approximately $772,638 to an
affiliate controlled by the shareholders of the Parent for $1,032,686 evidenced
by a 10% demand note. The gain of $260,048 has been deferred.
6. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE
Development loans and other notes payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
Revolving credit facilities (1) $29,596,075 $16,519,114
Land development and construction (2) 22,722,303 31,560,190
Installment and other (3) 42,558 59,552
-----------------------------
$52,360,936 $48,138,856
-----------------------------
-----------------------------
</TABLE>
(1) In January 1997, the Company entered into a revolving credit
agreement with a financial institution which matures May 1999 and
replaced the Company's previous credit facility. At September
30, 1997, the maximum principal available under the credit
agreement is
F-11
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
$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% (9.47% at September 30,
1997), which is added monthly to the unpaid balance. Outstanding
principal and interest on the construction base is repaid from
proceeds of home sales. The credit agreement includes various
operating and financial covenants, including restrictions on the
payment of dividends. The outstanding principal balance at
September 30, 1997 is $6,372,565.
In March 1997, the Company entered into a revolving credit
agreement with another financial institution which matures March
2001. At September 30, 1997, the maximum principal available
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
September 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 includes various operating and financial
covenants, including restrictions on the payment of dividends.
The outstanding principal balance at September 30, 1997 is
$23,223,510 categorized as revolving credit facilities and
$10,662,462 categorized as land development and construction.
(2) The Company has development loans with various financial institutions
for the purpose of financing land acquisition, development, and
construction improvements that mature from 1998 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.
F-12
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
6. DEVELOPMENT LOANS AND OTHER NOTES PAYABLE (CONTINUED)
Interest is added to the outstanding principal monthly, and
unpaid principal and interest are repaid from proceeds of home
sales. These loans include $1,536,579 and $1,376,002 at
September 30, 1997 and 1996, 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 1998
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.
The aggregate amounts of all debt maturities are as follows:
YEAR ENDING SEPTEMBER 30 AMOUNT
-------------------------------------------
1998 $ 4,217,885
1999 14,137,687
2000 2,974
2001 33,885,972
2002 20,000
Thereafter 96,418
------------
$52,360,936
------------
------------
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, 1997, 1996, and 1995, the Company incurred
and paid interest on development loans and other notes payable of $6,342,270,
$3,960,336, and $1,904,939, respectively, of which $6,267,734, $3,901,554, and
$1,824,941 was capitalized, respectively.
F-13
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
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, 1997
U.S. Federal $364,010 $ 28,984 $392,994
State 57,104 4,547 61,651
-------- --------- ---------
$421,114 $ 33,531 $454,645
-------- --------- ---------
-------- --------- ---------
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
-------- --------- ---------
-------- --------- ---------
</TABLE>
Income tax expense is recorded as a reduction of amounts due from Parent.
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>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Computed expected tax expense $410,637 $367,485 $504,524
Increase (reduction) in income taxes resulting
from:
State income taxes, net of federal income 40,073 29,294 72,075
tax benefit
Other, net 3,935 4,552 (40)
--------------------------------------
Total $454,645 $401,331 $576,559
--------------------------------------
--------------------------------------
</TABLE>
F-14
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
The net deferred tax liabilities at September 30, 1997 and 1996 is comprised of
the following:
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
DEFERRED ASSETS
Deferred gains $ 484,633 $ -
Housing inventories 344,749 177,609
Receivables allowance 93,909 39,450
----------------------------
923,291 217,059
DEFERRED LIABILITIES
Capitalized costs 1,793,127 1,053,364
----------------------------
Net deferred liability $ 869,836 $ 836,305
----------------------------
----------------------------
</TABLE>
8. RELATED PARTY TRANSACTIONS
Substantially all due from affiliates at September 30, 1997 and 1996, 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 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 1996, the Company purchased 58 lots from a limited partnership in which the
principal stockholders of the Parent have a 33% limited partnership interest for
$799,000. During 1997, the Company purchased an additional 76 lots from the
affiliate for $820,000. The Company is obligated to purchase an additional 88
single-family lots at a price of $13,000 and 12 townhome lots at a price of
$7,000 per lot through 1999 (see Note 10).
F-15
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
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.
DEVELOPMENT LOANS AND OTHER NOTES PAYABLE AND NOTES RECEIVABLE FROM
AFFILIATES
The carrying amount of the Company's development loans and other notes
payable and notes receivable from affiliates approximates fair value
based on the current rates for similar types of arrangements.
10. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Letters of credit and bonds approximating $9.1 million at September 30, 1997,
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,
1997, the Company has pledged cash of approximately $119,224 as collateral for
these letters of credit.
F-16
<PAGE>
United Homes, Inc.
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (CONTINUED)
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> <C>
1998 $ 4,473,000
1999 1,083,000
2000 320,000
-------------
$ 5,876,000
-------------
-------------
</TABLE>
11. SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the Company sold 11% Mandatory Redemption
Debentures in the principal amount of $7,106,000 due March 15, 2005 and received
gross proceeds of $6,999,410.
F-17
<PAGE>
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED HOMES, INC.
By: /s/ Edward Havlik Date: February 11, 1998
--------------------------- -----------
Edward Havlik, President
PURSUANT to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the following persons and in the capacity and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------- ------- -------
<S> <C> <C>
/s/ Virgil Owings Chairman of the Board and February 11, 1998
----------------------- -----------
Virgil Owings Director
/s/ Edward Havlik President and Director (Principal February 11, 1998
----------------------- -----------
Edward Havlik Executive Officer
/s/ William J. Crock, Jr. Executive Vice President, Chief February 11, 1998
----------------------- -----------
William J. Crock, Jr. Financial Officer, Secretary
and Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Timothy Owings Vice President and Director February 11, 1998
----------------------- -----------
Timothy Owings
/s/ Laurie Bulson Vice President and Director February 11, 1998
----------------------- -----------
Laurie Bulson
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
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 - Indenture dated November 25, 1997 by and between United Homes, Inc., and National City Bank of Minneapolis*
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 - L o an 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(2)
10.9 - Development and Marketing Agreement by and between Mirage, L.L.C. and United Homes, Inc. dated September 22,
1997(3)
10.10 - Development and Marketing Agreement by and between United Round Lake Land Development, L.L.C. and United Homes,
Inc. dated September 30, 1997(3)
10.11 - Real Estate Purchase Agreement by and between Greenbrooke Associates, Ltd. and United Development Management
Company dated May 1, 1994(3)
10.12 - Real Estate Sale Contract by and between United Round Lake Land Development, L.L.C. and United Homes, Inc. dated
September 22, 1997(3)
10.13 - Assignment of Contract by and between Mirage, L.L.C. and United Homes, Inc. dated September 22, 1997(3)
21.1 - List of Subsidiaries of United Homes, Inc.(2)
27.1 - Financial Data Schedule*
</TABLE>
- ------------------------------
* Filed herewith
(1) Incorporated by reference from the Registrant's Registration Statement on
Form S-1, File No. 333-33965, filed August 19, 1997.
(2) Incorporated by reference from Amendment Number One to the Registrant's
Registration Statement on Form S-1, File No. 333-33965, filed October 21,
1997.
(3) Incorporated by reference from Amendment Number Three to the Registrant's
Registration Statement on Form S-1, File No. 333-33965, filed November 14,
1997.
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED HOMES, INC.,
As Issuer
AND
NATIONAL CITY BANK OF MINNEAPOLIS,
As Trustee
--------------------------------
INDENTURE
Dated as of November 25, 1997
--------------------------------
11% Mandatory Redemption Debentures Due March 15, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
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. . . . . . .13
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
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
i
<PAGE>
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
SECTION 601. Certain Duties and Responsibilities . . . . . . . . .40
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . .41
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . .41
SECTION 604. Not Responsible for Recitals or Issuance of
Debentures. . . . . . . . . . . . . . . . . . . . . . . . . .42
SECTION 605. Trustee May Hold Debentures . . . . . . . . . . . . .42
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . .43
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . .43
SECTION 608. Disqualification; Conflicting Interests . . . . . . .43
SECTION 609. Trustee Required; Eligibility . . . . . . . . . . . .48
SECTION 610. Resignation and Removal; Appointment of Successor . .48
SECTION 611. Acceptance of Appointment by Successor. . . . . . . .49
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business. . . . . . . . . . . . . . . . . . . . . . . . . . .50
SECTION 613. Preferential Collection of Claims Against Company . .50
SECTION 614. Appointment of Authenticating Agent . . . . . . . . .54
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
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DEBENTUREHOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY. . . . . . .57
SECTION 701. Company to Furnish Trustee Names and Addresses of
Debentureholders. . . . . . . . . . . . . . . . . . . . . . .57
SECTION 702. Preservation of Information; Communications to
Debentureholders. . . . . . . . . . . . . . . . . . . . . . .57
SECTION 703. Reports by the Company. . . . . . . . . . . . . . . .58
SECTION 704. Reports by Trustee. . . . . . . . . . . . . . . . . .59
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. . . . . . . . . .62
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . .63
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 901. Supplemental Indentures Without Consent of
Debentureholders. . . . . . . . . . . . . . . . . . . . . . .64
SECTION 902. Supplemental Indentures with Consent of
Debentureholders. . . . . . . . . . . . . . . . . . . . . . .64
SECTION 903. Execution of Supplemental Indentures. . . . . . . . .65
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . .65
SECTION 905. Reference in Debentures to Supplemental Indentures. .66
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 1001. Payment of Principal and Interest. . . . . . . . . .67
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . .67
SECTION 1003. Money for Debenture Payments to be Held in Trust . .67
SECTION 1004. Maintenance of Corporate Existence, Licensing and
Rights; Existing Business . . . . . . . . . . . . . . . . . .69
SECTION 1005. Payment of Taxes and Assessments . . . . . . . . . .69
SECTION 1006. Maintenance of Properties, Insurance; Books and
Records; Compliance with Law. . . . . . . . . . . . . . . . .69
SECTION 1007. Limitation on Additional Indebtedness. . . . . . . .70
SECTION 1008. Limitations on Restricted Payments . . . . . . . . .71
SECTION 1009. Limitation on Transactions with Affiliate Loans. . .71
SECTION 1010. Limitation on Dividends and Other Payment
Restrictions Affecting a Subsidiary . . . . . . . . . . . . .72
SECTION 1011. Net Worth. . . . . . . . . . . . . . . . . . . . . .72
SECTION 1012. Limitations on Compensation. . . . . . . . . . . . .73
SECTION 1013. Limitations on Investments . . . . . . . . . . . . .73
SECTION 1014. Additional Liens; Negative Pledges . . . . . . . . .73
SECTION 1015. Payments on Subordinated Debt. . . . . . . . . . . .74
SECTION 1016. Waiver of Certain Covenants. . . . . . . . . . . . .75
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
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MANDATORY AND OPTIONAL REDEMPTION OF DEBENTURES . . . . . . . . . . . .76
SECTION 1101. Mandatory Redemption . . . . . . . . . . . . . . . .76
SECTION 1102. Optional Redemption. . . . . . . . . . . . . . . . .76
SECTION 1103. Applicability of Article . . . . . . . . . . . . . .77
SECTION 1104. Election to Redeem; Notice to Trustee. . . . . . . .77
SECTION 1105. Selection by Trustee of Debentures to Be Redeemed. .77
SECTION 1106. Notice of Redemption . . . . . . . . . . . . . . . .78
SECTION 1107. Deposit of Redemption Price. . . . . . . . . . . . .78
SECTION 1108. Debentures Payable on Redemption Date. . . . . . . .78
iv
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INDENTURE
THIS INDENTURE, dated as of October 25, 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 11% 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 amended,
or, if at any time
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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.
"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
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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 11% 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.
"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
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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 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
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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 seventh (7th) 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.
"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.
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"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 November 25, 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
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.
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"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 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.
9
<PAGE>
"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."
"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.
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<PAGE>
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
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.
11
<PAGE>
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.
(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.
12
<PAGE>
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.
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.
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<PAGE>
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 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
14
<PAGE>
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.
15
<PAGE>
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
11% MANDATORY REDEMPTION DEBENTURE
Registered No.: Registered Principal
Amount: $1,000
- -----------------------
Original Interest Accrual CUSIP: 910608 AA 6
Date: November 25, 1997
United Homes, Inc., a corporation created under the laws of the State of
Illinois (herein called the "Company," which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to ______________________ or registered assigns, the
principal sum of ______________ Thousand Dollars ($______) 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 eleven percent (11%) per annum,
until the principal hereof is paid or made available for payment. The principal
hereof is subject to optional and mandatory redemption, in whole but not in
part, as provided in the
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this 11% 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.
Dated: UNITED HOMES, INC.
----------
By
--------------------------------------
, President
Attest:
- --------------------------------------
, Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
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<PAGE>
SECTION 203. FORM OF REVERSE SIDE OF DEBENTURE.
This Debenture is one of a duly authorized issue of 11% Mandatory
Redemption Debentures of the Company designated as its 11% 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 November 25,
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:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 and
---- ---- ---- ---- ---- thereafter
----------
<S> <C> <C> <C> <C> <C> <C>
Redemption
Price: 105% 104% 103% 102% 101% 100%
</TABLE>
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 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
20
<PAGE>
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 11% 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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<PAGE>
[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.
22
<PAGE>
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 11% 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
11% 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 November 25, 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.
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
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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.
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.
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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
included and, upon such notice as may be required by such exchange or market if,
after notice given by the Company to the Trustee
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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 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.
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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 such default or
acceleration; provided, however, that this Section 501(5) shall not apply to (a)
a default under any purchase money obligation of
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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 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.
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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,
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,
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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 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
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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 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
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture, but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(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% or more of the voting
securities of the Trustee is beneficially owned either by an underwriter for
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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.
(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
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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;
(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
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(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.
(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.
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(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.
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
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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 (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
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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 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
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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;
(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;
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(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 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
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(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.
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
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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."
NATIONAL CITY BANK OF
MINNEAPOLIS
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"), or to
mail to its shareholders pursuant to Section 14(a) thereof. The Company agrees
to make all
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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 with respect to the following, provided that no
report need be transmitted if no event requiring to be disclosed in the report
has occurred:
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(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 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.
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(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 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
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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.
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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
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.
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
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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 publication, any unclaimed balance of
such money then remaining will be repaid to the Company.
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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 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
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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
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 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.
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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 the 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 payments of
principal, interest or any other payment in any other form, on such loans, until
such Event of Default has been cured; and (ii) upon the occurrence 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 be paid in full. It
being the intent of the Company and Trustee, upon the occurrence of any
bankruptcy, reorganization or similar
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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. The agreement shall be in
a form satisfactory to the Trustee and counsel to the Trustee.
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 September 30 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.
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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 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, 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
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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.
(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
74
<PAGE>
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 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.
75
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 and
---- ---- ---- ---- ---- thereafter
----------
<S> <C> <C> <C> <C> <C> <C>
Redemption Price:
105% 104% 103% 102% 101% 100%
</TABLE>
76
<PAGE>
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.
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.
77
<PAGE>
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.
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
78
<PAGE>
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.
79
<PAGE>
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 /s/ David L. Feltman
--------------------------------------
David L. Feltman, Vice President
Attest:
/s/ William J. Crock, Jr.
- -------------------------------------
William J. Crock, Jr., Secretary
NATIONAL CITY BANK OF MINNEAPOLIS,
as Trustee
By /s/ Timothy M. Murphy
--------------------------------------
Its Vice President
-------------------------------------
Attest:
/s/ Linda M. Fifield
- -------------------------------------
Vice President
80
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME AS OF
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,105
<SECURITIES> 0
<RECEIVABLES> 8,634
<ALLOWANCES> 0
<INVENTORY> 71,233
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 85,110
<CURRENT-LIABILITIES> 15,285
<BONDS> 52,361
0
0
<COMMON> 4
<OTHER-SE> 9,782
<TOTAL-LIABILITY-AND-EQUITY> 85,110
<SALES> 100,072
<TOTAL-REVENUES> 100,335
<CGS> 95,373
<TOTAL-COSTS> 95,373
<OTHER-EXPENSES> 3,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,173
<INCOME-TAX> 455
<INCOME-CONTINUING> 719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 719
<EPS-PRIMARY> 718.60
<EPS-DILUTED> 718.60
</TABLE>
